Semiconductor materials supplier Entegris (NASDAQ:ENTG) beat analyst expectations in Q1 FY2023 quarter, with revenue up 42% year on year to $922.4 million. Guidance for next quarter's revenue was $885 million at the midpoint, which is 1.54% above the analyst consensus. Entegris made a GAAP loss of $88.2 million, down on its profit of $125.7 million, in the same quarter last year.
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Entegris (ENTG) Q1 FY2023 Highlights:
- Revenue: $922.4 million vs analyst estimates of $892.7 million (3.33% beat)
- EPS (non-GAAP): $0.65 vs analyst estimates of $0.52 (25.2% beat)
- Revenue guidance for Q2 2023 is $885 million at the midpoint, above analyst estimates of $871.6 million
- Free cash flow of $17.9 million, up from negative free cash flow of $115.3 million in previous quarter
- Inventory Days Outstanding: 145, up from 137 previous quarter
- Gross Margin (GAAP): 43.5%, down from 47.7% same quarter last year
Bertrand Loy, Entegris’ president and chief executive officer, said: “I am pleased with the quality of our execution and results in the first quarter, especially in light of the dynamic market environment. Sales were down sequentially in the quarter, but we believe we outperformed the market, driven in large part by our strong position at the leading-edge technology nodes.”
With fabs representing the company’s largest customer type, Entegris (NASDAQ:ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.
Entegris's revenue growth over the last three years has been very strong, averaging 30.6% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $649.6 million to $922.4 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was a great quarter for Entegris with 42% revenue growth, beating analyst estimates by 3.33%. This marks 14 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.
However, Entegris believes the growth is set to continue, and is guiding for revenue to grow 27.8% YoY next quarter, and Wall St analysts are estimating growth 2.69% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.
This quarter, Entegris’s inventory days came in at 145, 23 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.
Key Takeaways from Entegris's Q1 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Entegris’s balance sheet, but we note that with a market capitalization of $11.7 billion and more than $709 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We were impressed by how strongly Entegris outperformed analysts’ earnings expectations this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was less good to see the pretty significant deterioration in operating margin and gross margin deteriorated. Overall, this quarter's results were not the best we've seen from Entegris. The company is flat on the results and currently trades at $79.74 per share.
Should you invest in Entegris right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.