Bertrand Loy: Yes. So this is a great area of focus for the company. We mentioned that today, it is still a fairly small part of our business. Think about revenue levels in the $40 million to $50 million range on an annual basis. But that business did double from 2022 to 2023, and we expect that business to continue to do extremely well. And here I’m talking really about slurries. But remember that there are a lot of other opportunities for us around power electronics. So beyond slurries, we have great opportunity for the bad solutions that really work hand-in-glove with the slurries that we are providing our customers in Power Electronics. There are also great opportunities in terms of gas purification systems and in terms of post-CMP clean. So, I think this is a market segment that is emerging, that is growing very fast, and an area where we are very focused.
Bill Seymour: Okay, next question, Linda, Tim Arcuri from UBS. How would you compare the three year target from September 2022 to the one we provided today, EPS target. How do you compare those on a like-for-like basis?
Linda LaGorga: Absolutely. Good question. So our current three year target, if you look out to 2026, we do have less revenue. It’s driven by two key factors. Number one, divestitures. So as we said, we had the 2023 divestitures which we all know about. Also, we exclude PIM as we look at this three year target model. Secondly, the 2023 downturn has been longer than expected. So that does impact the long-term revenue number. Now, on the good news front, our divestiture program has been ahead of schedule. That’s really important here. So, got the divestitures done faster, paid down debt faster, and have a lower interest rate as a result of that. So that’s really critical as we think about where we are when we look at 2026. There’s a couple other key positives.
The tax rate is a bit lower and the divestitures give us a bit of EBITDA accretion. So you factor that all-in and you look at 2026 and the three year target, and the punch line is, at the same revenue levels, we are delivering more EPS. So it’s a very good outcome when we look at this three year target model.
Bill Seymour: Okay. Bertrand, so David Silver has a question about, you know, with these — we addressed this in the presentation a little bit. But with these more complicated technology road maps, how is our interactions with our customers changing in the leading edge and what do we need to do more with them?
Bertrand Loy: So, first of all, with the technology road maps becoming more challenging with our customers in fact trying to accelerate the transition to new process technology, opportunity is really abound for Entegris. So, the level of engagement has increased as they see Entegris as a very unique partner, and frankly, in many cases an indispensable partner for them to achieve new levels of device performance, acceptable yields, and again compress time to solution. So as I’ve mentioned, we are investing more in R&D. We are more specifically investing a lot in locked in regional tech centers. We already have a very significant investment in Taiwan. We announced late 2023 a similar investment in Korea in order to again engage more effectively locally with all of the technology leaders in this space.
Those local investments in tech centers are in fact a great differentiator. Very few, if any of our competitors really provide those capabilities and those options for our customers. And I think it really reinforces the quality of the customer interaction. It also speeds up the cycles of learning both for our customers as well as us for Entegris. So, we are very focused on continuing to improve the quality of this very symbiotic relation that we have developed with our customers for many years now.
Bill Seymour: Okay, so this is probably for Linda. So Bhavesh from BMO. And I’m going to combine something to this as well. So he’s talking about Material Solutions down sequentially in the margins post divestiture. And how do you see Material Solutions margins going forward, obviously, we presented a pretty significant improvement in the model. So, provide some color around that.
Linda LaGorga: Yes, of course. So, first of all. I think, Bhavesh, what you’re referring to is from Q3 to Q4, we have somewhat flat margins. This first piece comes back to the divestitures. If you remember, Bertrand mentioned that the divestitures that took place in 2023 were all in the MS division. These divestitures had low OpEx. So while we have gross margin accretion, particularly when you look at MS on its own with these low OpEx businesses, you don’t see the accretion on the division profit line. But as we go-forward MS as we spoke about earlier and as Bertrand mentioned has tremendous opportunity. First, it’s a unit driven business. We are going to see volumes ramp up. We’re going to see the benefits of that across the MS Portfolio.
In addition, we will continue to invest, R&D is critical, but we will get SG&A leverage. This applies to the company as well as MS. If you think about the ramp as sales go up, something like sales and marketing is not going to increase at the same rate as our sales are increasing. So with all the opportunities around the solutions set, really the core of why we brought the divisions together, we really see this opportunity and are comfortable with how we’re thinking about the longer-term margin potential for MS.
Bill Seymour: Okay. And then a little bit on this, on this on a divisional basis the progression of MC margins going forward. What are the improvement drivers for MC margins going forward?
Linda LaGorga: So MC, there is lot of similarities across the various divisions. As we said 2024, a gradual recovery. But our long-term view on the market we’ve talked about it and it’s very positive. So there’s MC will again, we have the benefit of the portfolio. And as our customers do need more filtration products, this is a very attractive portfolio, attractive from a mix perspective. And so, therefore, we will get that benefit. We’ll get the volume leverage. And as KSP ramps, some of that’s happening in the second half of 2024 more into 2025, that’s really going to help us from a margin perspective on MC also.
Bill Seymour: So, in terms of — maybe there’s couple of questions around the CHIPS Act, Bertrand. So maybe you can provide a couple of updates on the progress there and what people should expect.
Bertrand Loy: Yes. So, as you remember, we made a big announcement last year around an investment in a new facility in Colorado. Multiple phases to this investment. Phase 1 is the one that we initiated last year. Phase 1 is about $280 million. And we believe that this project is very much in-line with the overall objectives of the U.S. CHIPS Act, which as you know, is trying to promote the development of a domestic supply chain or resilient domestic supply chain and derisk supply chain risks for the many new fabs that are expected to be built here in the U.S. So we’ve been in dialogue, active dialogue with the CHIPS program office. We believe that those discussions have been very constructive and very positive. And we would update you when we have more specifics to share.
Bill Seymour: Okay, going a little bit on some of the end-markets and some of the products here, Bhavesh from BMO. We talked a lot about molybdenum, anything, any color you could add around why is that important and what does it look like going forward?
Bertrand Loy: Yes. We have been talking a lot about molybdenum as an example of the new class of precursor materials that we expect the industry to turn to as they look for thinner film materials ways similar or better electrical performance. We expect those materials to be first introduced in the 3D NAND architectures and then at some point in advanced logic as well. So we have been spending a lot of time positioning our solution offering with the leading 3D NAND players. Remember that we believe that we have very unique capabilities around those solid precursors, not just the ability to provide the material but also to provide an industry-leading delivery system that can very effectively delivered the material onto the wafer at very attractive total cost of ownership.
So, we believe that the 3D NAND players will likely adopt molybdenum whether they adopt this new molecule at 200 layers or we have to wait until 300 layers remains a question mark. But I think we are very, very close. And I think our confidence level has increased significantly in the last several years. So, again, this is exciting. This is one of the reasons why you see the increase in SAM in terms of Entegris content per wafer opportunity in 3D NAND essentially doubled from what it is today at 176 layers and when we think about what it could be tomorrow at 500 layers.
Bill Seymour: Yes, a little follow-up in a few questions that came through. In last Analyst Day, we talked about the filtration benefits or in content per wafer similar to what you were just talking about. Is that the same story where the content per wafer and filtration is still very positive going forward? And what are the drivers?
Bertrand Loy: Yes. I mean the story remains the same, and you can actually see evidence of that in the level of outperformance we expect to see in our Microcontamination division. The only reason we have not normalized that opportunity on a per-wafer basis is simply that it’s just getting harder to do because the opportunity for us in terms of advanced filtration usage, it’s not just in the fab environment, which is something that we can track fairly precisely. But that opportunity is really expanding upstream in the supply lines. And that gets actually a lot harder to track and to link precisely to a particular device architectures. As you know in order to achieve atomic levels of purity, fab customers are increasingly asking their bulk chemical manufacturers to achieve significantly higher levels of purity.
And as a result of that, we are seeing greater introduction of new points of filtration upstream in the supply lines, those new points of filtrations are using more advanced filters. And the frequency of change-out are also increasing. So all of these are the fundamental drivers for our Microcontamination business. So nothing has changed. It’s just hard for us to pin that to a particular technology node and to normalize that wafer number.
Bill Seymour: Okay, this will be the final question from Toshiya from Goldman. Obviously, debt paydown is the priority in the near term. M&A historically has been a big driver of growth for the company. So the question, Bertrand, is what are we looking for when we start to do M&A again? What are the characteristics that we’re looking for in a potential target?
Bertrand Loy: Look, I think we are blessed at Entegris with a very exciting platform, a platform that provides a lot of optionality. I mean, obviously, the organic growth story is very compelling. But on top of that, I think that we can certainly create additional, long term shareholder value by very selectively go after M&A targets. This is what we’ve done in the past 10 years. This is what you should expect us to continue to do. And we have demonstrated that you know we are really good integrator of businesses. And I think what I was mentioning earlier around how well the integration of CMC has gone, it’s probably the latest proof point to that statement. Having said all of that, I will go back to what Linda said our first order of priority right now is to bring the debt down.
So expect us to do that and to be focused on that. But keep in mind that there are a lot of options available to us to deploy our capital and to create additional value for our shareholders going forward.
Bill Seymour: Great. Well, thank you very much for joining us on the webcast today. We will provide a recording that will go up on our website by the end of the day. If you have any further questions, please reach out to me. We really look forward to seeing many of you in the coming weeks. Thank you again and have a great day.
