Good day, everyone, and welcome to the Entegris Q4 2022 Earnings Release Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Bill Seymour, Entegris’ VP of Investor Relations. Please go ahead, sir.

Good morning, everyone. Earlier today, we announced the financial results for our fourth quarter of 2022. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and actual results could differ materially from those projected in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC. Please refer to the information on the disclaimer slide in the presentation. On this call, we will also refer to non-GAAP financial measures as defined by the SEC and Regulation G. You can find a reconciliation table in today’s news release as well as on our IR page of our website at entegris.com. To help in your modeling, we had provided in our earnings slide the pro forma P&L for all the quarters and full year of 2022. On the call today are Bertrand Loy, our CEO; and Greg Graves, our CFO. With that, I’ll hand the call over to Bertrand.

Thank you, Bill. Good morning to all. I’d start that our results in the fourth quarter were solid, especially in light of the recent decline in the semiconductor market. For the quarter, on a pro forma basis, sales were within our guidance, up 1% year-on-year and down 5% sequentially. On a reported basis, sales were up 49% year-on-year. EBITDA margins were 28% in the quarter and non-GAAP EPS was $0.83. Looking at the full year 2022, pro forma sales of $3.9 billion were up 13%, and EBITDA exceeded 29% of sales. We estimate our sales growth was approximately 800 basis points above the market growth for the year on a pro forma basis; this above-market growth was driven in large part by a strong position at the leading edge technology nodes, led by solutions like liquid filtration, selective edge, gas purification systems, and advanced deposition materials, which are of growing importance to our customers and technology roadmap. Other highlights of 2022 included the announcement of a strategic collaboration with Lam Research to develop dry photoresist for EUV lithography to be used in the production of next-generation logic and DRAM semiconductors. Another highlight was the very good progress made in the construction of our new manufacturing facility in Taiwan, which is expected to start initial production by the end of the third quarter of this year. In December, we announced plans to build a new manufacturing center in Colorado Springs, which is targeted to begin initial commercial operations in the second half of 2024. Moving on to an update on the CMC integration, we've been making excellent progress on many critical fronts. We are on track to deliver the $75 million run rate cost synergy target by the second half of this year. A major milestone for this will be the migration to a common ERP platform, which is to be completed this summer. I am also pleased to report that the first of our ERP conversions was successfully completed earlier this month. For the revenue synergies, we have a dedicated team in place focused on driving plans for realization. Customers see the value in our unique capabilities in and around this EMP module, which we believe will translate into improved process performance and faster time to solutions for our customers and ultimately higher share for Entegris. Next on the plans for divestitures related to the CMC materials portfolio, we terminated the PIM transaction effective February 10. Given the current regulatory environment, we were concerned about the protracted regulatory process and uncertainty around closing the deal. You also saw a few weeks ago the announcement of the sale of QED Technologies. QED's annual revenue is about $35 million, with EBITDA of $13 million, and the purchase price is approximately $135 million. This transaction is expected to close this quarter. Looking ahead to 2023, frankly, forecasting the industry this year is challenging. There still is a lot of uncertainty about how this year will play out, particularly regarding the shape and magnitude of the downturn in the semiconductor industry. For the full year 2023, relying largely on discussions with our customers and using third-party estimates, we expect the market, based on a combination of our units and CapEx mix, to be down approximately 13%. While visibility is limited, we currently expect that the industry will bottom in the second quarter of the year. Considering 2023, there are three factors that we believe will play in our favor. First, as it relates to the industry, we are much more exposed to logic than memory. Second, of the 20% of our sales linked to CapEx, a substantial portion is for Fab Construction, which is currently looking more resilient compared to WFD. Third, the new logic and memory node transitions appear to be largely on track for this year. Given our strong position and wins in these areas, we expect to outperform the market on a pro forma basis by approximately five points, which is at the high end of the three to six points outperformances target we discussed in our recent Analyst Day. Finally, as you recall, our fourth-quarter guidance included a $40 million to $50 million impact from the U.S. government's new export controls in China. The actual impact in the fourth quarter was closer to $40 million, and we expect our sales will continue to be impacted in 2023 by these restrictions but to a significantly lesser degree, at approximately $20 million per quarter. The impact of these restrictions is already factored into our expectations for 2023. Putting it all together, we expect our sales in 2023 to be down percentage-wise in the high single digits on a pro forma basis. Wrapping our outlook for 2023, we expect EBITDA to be approximately 27% to 28% of revenue. Given the challenging industry backdrop, you can expect us to manage our business dynamically this year, keeping a close eye on costs. As an organization, we will be focusing on cash flow and debt repayment in 2023. In fact, we have made improving inventory levels a compensable target for the entire company this year. While this will be a challenging year for the industry, the positive secular growth drivers of our business remain intact. The semiconductor industry is poised for long-term growth on its way to doubling in size to $1 trillion by 2030. Additionally, the pace of node transitions for both logic and memory continues to be strong, and device architectures are becoming much more complex. With the acquisition of CMC, Entegris’ breadth of capability in material science and contamination control will enable us to offer unique solutions to help our customers improve device performance and shorten their time to market. These trends and our increasingly mission-critical solutions are translating into rapidly expanding content per wafer and market share growth for Entegris. With approximately 80% of our revenue now unit-driven, we expect our platform will prove to be resilient relative to other industry participants. As we close what was a challenging yet gratifying year, I want to take a moment to thank our customers for the trust and confidence they place in Entegris. I would also like to thank the Entegris teams around the world for their incredible commitment and ability to deliver solid performance while navigating a dynamic industry environment, complex supply chain challenges, and the fast-paced integration of CMC. Before I hand over to Greg, I want to congratulate him on his upcoming retirement and thank him for his immense contributions to Entegris over the last two decades. In his 17 years as CFO, Greg has been a staunch advocate for shareholders and a great partner to me as we have grown this company into what it is today. So now let me turn the call to Greg. Greg?

Good morning, everyone, and thank you, Bertrand, for the kind comments. It has been an absolute privilege to lead the finance and IT organizations all these years, and it has been gratifying to partner with you. We are a good team. I look forward to working with our team to achieve a smooth transition after my successor is selected. Onto our results for Q4, our sales in the fourth quarter were $946 million, up 1% year-over-year on a pro forma basis and down 5% sequentially. FX negatively impacted revenue by $38 million year-over-year on a pro forma basis and 6% sequentially. GAAP and non-GAAP gross margin was 42.8% in Q4, slightly above our guidance. We expect gross margin to be approximately 43% both on a GAAP and non-GAAP basis in Q1. GAAP operating expenses were $261 million in Q4, this included $76 million of non-GAAP items, $53 million of amortization of intangible assets, and $22 million of integration and other costs. Non-GAAP operating expenses in Q4 were $185 million. The higher than expected OpEx was driven by higher ER&D spending. We expect GAAP operating expenses to be approximately $285 million to $290 million in Q1 and non-GAAP operating expenses to be approximately $200 million to $205 million. The sequential increase in non-GAAP OpEx from Q4 to Q1 is driven by a $15 million increase in noncash equity compensation expense resulting from the alignment of CMC’s and Entegris’ equity benefit plans. We expect Q1 OpEx to be the high watermark for the year and expect OpEx to be down $15 million to $18 million sequentially in Q2 as noncash equity compensation returns to more normalized quarterly levels. Q4 GAAP operating income was $144 million. Non-GAAP operating income was $219 million or 23% of revenue. Adjusted EBITDA was $261 million or 28% of revenue. Looking below the line, the GAAP and non-GAAP tax rate was approximately 12% in Q4. The low rate reflected several favorable discrete items. Q4 GAAP diluted EPS was $0.38 per share. Non-GAAP EPS was $0.83 per share. Turning to our performance by division. For ease of analysis, the year-on-year comparisons I am referencing here are on a pro forma basis for the SCEM and APS divisions. Q4 sales of $285 million for MC were a record, up 10% from last year and up 1% sequentially. Growth year-over-year was strong in gas purification and liquid filtration. Adjusted operating margin for MC was approximately 38% for the quarter, up year-over-year and slight sequentially. The margin increase was driven primarily by higher volumes and solid execution, offset in part by higher ER&D investment. Q4 sales of $214 million for AMH were up 8% versus last year and up 2% sequentially. Year-on-year sales growth was strongest in wafer and fluid handling and liquids packaging solutions. Adjusted operating margin for AMH was 22%, down year-over-year and up sequentially. The modest margin decline year-on-year was driven by additional ER&D investment. The sequential margin increase was primarily the result of certain inventory charges in Q3 not recurring and favorable product mix. Q4 sales of $204 million for SCEM were down 1% year-over-year and down 9% sequentially. The sales decline was seen across most product lines and was primarily driven by the softening in the semiconductor market and the impact from the export restrictions in China. Adjusted operating margin for SCEM was 7% for the quarter, down significantly both year-on-year and sequentially. The margin decline was driven by greater investment in ER&D, lower volumes, and unfavorable mix. We expect better execution and improved operating margins for SCEM going forward. Q4 sales of $254 million for APS were down 11% year-over-year and down 14% sequentially. The sales decline in APS was also driven by the impact of the softening semiconductor market. Adjusted operating margin for APS was approximately 22% for the quarter, down year-over-year and sequentially. The margin decline was primarily driven by lower volumes and unfavorable product mix. Moving on to cash flow and the balance sheet, fourth-quarter cash flow from operations was $32 million and was $352 million for the full year on an as-reported basis. CapEx for the quarter was $147 million and $466 million on an as-reported basis for the full year. We expect to spend approximately $500 million in total CapEx in 2023, a significant portion of which will be for our new facility in Taiwan and Colorado Springs. We also continue to expect CapEx will decline to a longer-term run rate of approximately 10% of sales starting in 2024. As Bertrand said, we are highly focused on improving our cash flow and especially inventory turns. We expect inventory turns to improve to approximately three turns by the end of this year. With this improvement in turns, we anticipate freeing up over $100 million in cash this year. A bit on our capital structure. At the end of the year, our gross debt was $5.9 billion and our net debt was $5.4 billion. This equates to a gross leverage ratio of 4.9x and a net leverage ratio of 4.4x pro forma for the announced cost synergies. As a reminder, going forward, after taking into account the hedge we put in place, our variable rate debt is anticipated to be approximately 10% of total debt outstanding. The blended interest rate on the debt portfolio is approximately 5.5%. As Bertrand said, we are very focused on deleveraging. On that note, we expect to steadily lower our leverage toward our target of 3.5x gross leverage by the end of 2023, consistent with what we presented at our Analyst Day. Our liquidity position continues to be solid. As of the end of the year, we had over $500 million in cash on hand and over $1.1 billion of total liquidity, including our $575 million undrawn revolving credit facility. Before I discuss our Q1 guidance, I would like to reiterate that our business model is very flexible. We will be watching our business trends closely and are prepared to adjust our cost structure as needed. Now, for our Q1 outlook, we expect sales to range from $880 million to $910 million. We anticipate the EBITDA margin to be approximately 25% to 26%. We expect GAAP EPS to be $0.05 to $0.10 per share and non-GAAP EPS to be $0.50 to $0.55 per share. A few additional notes on our Q1 and 2023 guidance. As I referenced before, Q1 non-GAAP guidance includes a noncash compensation expense totaling approximately $20 million, or $0.11 EPS, resulting from the alignment of CMC and Entegris equity benefit plans. Again, Q1 OpEx is expected to be the high watermark for the year. We expect interest expense of approximately $85 million in Q1. We anticipate our tax rate to be around 17% on a GAAP basis and 20% on a non-GAAP basis for the full year of 2023. On a sequential quarterly basis, the higher tax rate has approximately $0.05 per share impact on non-GAAP EPS. Amortization is expected to be $65 million per quarter, and depreciation is expected to be $40 million to $45 million in Q1, increasing to over $55 million in Q4. In closing, we are pleased with our execution and our team's relentless focus on our customers, especially given a challenging industry environment. The team is doing an excellent job driving a fast-paced integration of CMC, and we are well on track to deliver on our key milestones. We have a strong conviction in the long-term secular growth of our industry and our highly differentiated, unit-driven business model. We are focused on dynamically managing our cost structure while making the investments that are crucial to supporting our customers' node transitions in 2023 and preparing for our long-term growth. Operator, we will now open up for questions.

We'll hear first from Toshiya Hari at Goldman Sachs.

Good morning. Thank you for taking the question, and big congrats to Greg on an amazing run. I had two questions. First one for Bertrand. I was hoping you could talk a little bit about the overall industry dynamics, how you're thinking about the year. You did give quite a bit of color in your prepared remarks, but you called Q2 as sort of the potential bottom for the industry. I guess as we model your business, should we be thinking your business bottoms in Q2 as well, and more importantly, the recovery into the second half? Can you speak to some of the drivers that you're focused on both on the CapEx side as well as the wafer start side of your business? Thanks.

Yes. Good morning, Toshiya. Thank you for the question. As I said in my prepared remarks, it's a bit difficult to forecast 2023 at this point. The current visibility is limited, but as of today, based on direct discussions with customers, we expect the blended industry index for us to be down 13%. Behind that number, we are assuming MSI down approximately 10 points with Q2 likely to bottom. Remember that about 80% of our business is unit-driven. For CapEx, we expect the contraction close to 20% for the year, and we currently expect the second half to be lower than the first half, as our OEM customers will be working through their current backlog in the first part of the year. But remember that the CapEx business only represents approximately 20% of our total revenue. Finally, a quick comment on the node transitions that we expect in 2023 can help you understand how we're thinking about the shape of the year for us. As you know, our customers' node transitions are key factors to our ability to achieve top-line outperformance. This year, in particular, that five-point outperformance target that we have. As of right now, these node transitions appear to be mostly on schedule, with several very important transitions expected in the second half in LAN and logic in particular. So the net of all this is we expect the full year to be down approximately 8%, and we expect the back half of the year for us to be a little bit better than the first half of the year.

That's great color. Thank you for that. And then one for Greg. You talked about gross leverage coming down from 4.9, I think you said, to 3.5 by the end of ‘23. It would be really helpful if you can kind of provide a bridge. How you guys get there. Again, from 4.9 to 3.5? The PIM deal not closing was obviously a disappointment, but what are your thoughts on DRA and QED and anything else that you guys have planned as you look to de-lever the balance sheet? Thank you.

Yes. Hi, Toshiya. I'm not going to provide a specific bridge. I mean, that continues to be our target. We do continue to look at various asset sales. We continue to look at the cost structure. We'll have some benefit as we move through the year on synergies; we expect that we'll bring working capital down. So while 2023 from a performance perspective is not what we've seen in the prior years, as we move forward, we expect the company to come back to be the strong cash generator that it's always been. Regarding asset sales, we’re quite confident that the QED transaction will close, and we will continue to review our options with the rest of the portfolio.

Our next question will come from Kieran de Brun at Mizuho.

Good morning, and congratulations again, Greg. I think maybe if you can just help us parse out how to think about the first half or second half following up on those questions, but specifically when we think about SCEM and Micro Contamination Control, it seems like MC still remains pretty resilient and should be that bright spot as we move through the year. But SCEM, I think, was a little bit weaker than maybe we were expecting on the margin. So if you can just help us bridge how you're thinking about that improving throughout the year and trending, that would be helpful.

Yes. If you think about SCEM, certainly, we've seen some significant sequential decline. Remember two things, right. One is that this is the division with the most exposure to memory, and this is also the division with the most exposure to advanced nodes in China. So there was a double negative impact on this business for the last couple of quarters. I think things will stabilize, and we expect a number of new products linked to some of the node transitions in the back half of the year to help both in terms of growth and margin potential for the business. If you think about SCEM for 2022, the division actually performed on a full-year basis, very much in line with our expectations, and outpaced the industry by about six points. We expect a similar level of outperformance in 2023 due to the opportunities in some of the new nodes in the back half of the year. On MC, you're right; we are seeing a very resilient business. We know that purity is increasingly important to our customers. Purity in manufacturing processes translates into yield optimization, faster time to yield, and long-term device reliability. We have an incredible franchise when it comes to advanced purification. We believe this business will prove very resilient in 2023, and it is likely going to be the best performing division for Entegris this year.

Great. And then maybe just a quick follow-up on the revenue synergy side. You mentioned having a dedicated team in place. It seems like there's more visibility and traction into the potential for those revenue synergies going forward. I'm just curious, are there any preliminary thoughts and things that you've seen based on what that team has already achieved that are giving you optimism towards some of those synergies in the back half of this year maybe into 2024? Thank you.

Yes. Obviously, the team is very focused on short-term cross-selling opportunities. This is something that we started to aggressively pursue in 2022. This will remain a big area of focus in 2023 as well. The development teams have been hard at work in 2022, optimizing the complementary solution sets around the CMC module. I would not expect any new products coming out of those efforts to hit the marketplace until probably late 2023, early 2024. We have been actively engaged with our customers, informing them about the value we can create. That end-to-end solution selling, from film development to polishing solutions, all the way to post-CMC cleaning capabilities, is being well received. They see the value of our offering and are eager to engage more fully with us. A downturn environment provides a lot of opportunities for us to accelerate these engagements. We are very focused on these in 2023, and it is a good time to unlock those revenue synergies, as we said during the Analyst Day.

Our next question will come from Sidney Ho at Deutsche Bank.

Thanks for taking my questions. Greg, congrats on your retirement. It was very nice working with you. My question is just a follow-up to an earlier question on the market outlook, but trying to talk about MSI down about 10%. I'm hoping you can double-click on that a little bit. Can you talk about the trends you see between memory versus logic and foundry? Are you expecting both segments to bottom in the second quarter this year, or do they have different cadences? Can you remind us your revenue exposure to those two sectors? And then I have a follow-up question.

Yes. When it comes to our fab revenues, they represent about 50% of our total revenue. We have about a 70:30 ratio between logic and memory. In terms of when we will see the bottom in memory versus logic, I'm not going to answer that question quite yet, Sidney, since there's a lack of visibility right now in the industry. I think that we are engaged with our customers, and we are mostly focused on their ramps for the new nodes, keeping an eye on the pulse of the industry. However, I will refrain from making any precise predictions at this moment.

Okay, maybe a follow-up question on the gross margin side. You guys printed Q4 42.8%, guiding up a little bit in Q1. Going forward, is the biggest leverage coming from volume, and what kind of incremental growth and margin should we be thinking about? I'm just trying to figure out your path to go back to the 46%, 47% range that you used to be. Maybe that's not realistic, given the inclusion of the CMP products. Thank you.

Yes. So I'll take that, Sidney. When it relates to gross margin, if you look at gross margin over the last eight quarters on a pro forma basis, it's been right between 42% and 44%. The outlook for Q1, as we said, is slightly higher. Regarding headwinds and tailwinds, the headwinds are obviously lower volumes, and we'll be bringing additional assets, such as the KSP facility, online sometime in the middle of this year. The tailwinds continue to be driven by our fastest-growing business, MC, which also happens to be our most profitable business. When considering margins, generically, to reach the 46% range again will require a significant increase in volumes. There are several factors involving the CMC portfolio that have relatively low gross margins, including the PIM business, which we believed we would dispose of. I'd say it's higher volumes, improved mix, and potential adjustments to the portfolio that could drive margins higher over the long term.

We will hear next from John Roberts at Credit Suisse.

Thanks, Greg, for all your help. Can you comment on whether you are seeing any additional pricing pressure in light of the severe volume weakness that you have?

I can take that, Greg, if you want –

Yes, go ahead.

As you would expect, we're watching the evolution of our input costs very carefully, and we will continue to take appropriate steps as needed, as we have in the past couple of years. We will continue to raise prices as necessary, but we're not going to go into a lot of detailed descriptions of our pricing strategy.

Okay. How deep was the pool of potential buyers for PIM, and how would you characterize the potential buyers: strategic versus financial, outside of the existing offers?

We decided to terminate the transaction due to concerns about the certainty of the deal. At this point, we are in the process of regrouping and assessing our options. A few months back, we believed that we are not the best owners for this business. This product platform is non-core to the rest of Entegris. That’s probably all I can say on this matter right now, and we will update you when appropriate.

Mike Harrison with Seaport Research Partners.

Hi, good morning. I was wondering if you can talk a little bit about the China export restriction and how you see the impact there going forward. It sounds like for Q4, it was toward the lower end of your expectations, and you're expecting it to be about $20 million a quarter going forward. Is that going to be the number for the full year, or is it declining during the year? From a segment perspective, it seems like SCEM saw the biggest impact. Can you provide some more detail on how those restrictions impacted other segments?

Yes. Let me start maybe with the last part of your question. Every division did experience a negative impact from the restrictions. SCEM was hit the hardest because of many new opportunities at the leading edge in China, which these new restrictions are preventing us from serving. Regarding the actual impact, similar to many companies in the industry, we spent most of the fourth quarter engaging closely with our Chinese domestic customers. We performed extensive due diligence to determine whether these customers would operate within the new permissible guidelines. We completed the assessment, and based on that, we anticipate a more permanent impact, as I mentioned, about $20 million per quarter. For modeling purposes, assume this $20 million negative impact continues throughout the year. This has already been reflected in the overall annual guidance we provided.

Understood. All right, thank you. We discussed this a little bit on the last call, but it seems like you're still talking about good growth in advanced nodes or more advanced applications, yet in a couple of your segments, including advanced planarization solutions, you're also talking about a negative mix impact. I want to understand why the mix is getting worse if your highest value applications are still strong.

Greg, do you want to take that? Or should I?

Yes, why don’t you go ahead, Bertrand.

Well, if you look at margins on new products, typically those margins are higher than all the technologies; the reason we've been seeing some pressure on gross margin is really due to the lack of leverage stemming from reduced volumes, but I'm not sure I want to go beyond that.

Okay, it sounds like you just don't want to comment on mix, or is mix depressed right now?

I think mix is depressed right now. If you examine some of our higher-margin products, they tend to be, as Bertrand said, in the more advanced nodes. We have a lot of activity in the memory sector. The memory sector has been weaker; I'm not saying that our margins are higher in the memory sector than in other sectors, but the weakness in the memory market has affected some of our most advanced products. I could go division by division, but we do not disclose margins by product line or division. Broadly speaking, though, we've seen weakness in some of our high-margin products. It’s not a secular thing, it’s simply the nature of what's happening in the market right now. We're confident in terms of our position in the marketplace and where we're headed, but we can't swim against the current.

We will hear next from Charles Shi at Needham and Company.

Hi, good morning. Thank you for taking my questions. Can you guys give us a sense of how the business will trend into first quarter ‘23? A little bit of segment detail. And as a second part of the same question, looking into the full year ‘23, I think Bertrand mentioned that Q2 could potentially be the bottom for MSI. If I look at your historical performance, let’s say 2019, different segments peaked at slightly different quarters. SCEM in 2019 topped first, while MC and AMH kind of followed a quarter later. Obviously, ‘23 downturn seems to be a lot more strategic than 2019. Could you kind of give us some sense by segment? Will the same pattern in terms of timing of the top repeat? That's my first question. Thank you.

On the Q1 guidance, we expect that, if you look at the midpoint of the guidance, it's a sequential decline of about five points. It's driven by further deterioration in wafer starts in both memory and advanced logic, as well as a further decline in our OEM business. However, on the positive side, we expect mainstream fab to remain relatively steady, and the same applies for new fab construction projects, which have been stable in Q4 and are expected to continue to be steady in Q1. Regarding your question about the timing of the peaks for each division, it's likely that SCEM and APS will bottom a little earlier than MC and AMH, but I won't detail specific quarters since we don't possess that degree of precision right now.

Thank you, Bertrand. So maybe my second question. I'd like to ask about potential further divestitures following your CMC acquisition. I don't know if you have any further plans, but my question pertains to the CMC portfolio, which does not seem to align with your strategic model. You want to focus on sticky product categories, yet some of the more industrial gas chemical businesses inherited from CMC do not seem to fit. Is there a chance for divestiture in that area? I also see that the reshoring, fab reshoring, and localization of semiconductor manufacturing may provide you tactical opportunities for revenue growth or market share gains in those less sticky product categories. Can you provide some comments there? Thank you.

We spent a lot of time asking ourselves whether we are the right owners of various parts of the CMC materials portfolio. We have reached conclusions and are now left with the question of timing for us to act on those decisions. But I won’t go into more specifics right now. We have a clear view of what we believe belongs in Entegris' long-term portfolio, and we will keep you updated when the time is right.

Next, we'll hear from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Thanks, and good morning, everyone. Bertrand, are your comments regarding node transitions largely related to 2023, or were you also looking ahead to 2024? Are things still on track for 2024?

My comment was primarily regarding 2023.

Would you care to comment beyond that? Do you have any visibility into node transitions for 2024?

Node transitions are unpredictable, and we do not control their timing when customers change their plans. It would not be prudent for me to comment on 2024 node transitions right now. If our NAND and logic customers adhere to their 2023 node transition plans, it would be a great start. I would be happy to answer questions about 2024 later in 2023, but at this point, it's just too early for me to comment on 2024.

Our next question comes from Timothy Arcuri at UBS.

Hi, thanks a lot. Greg, regarding the assets being held on the balance sheet, I believe it's $247 million. The sale price of the PIM business was $240 million, and I think QED was $135 million. Can you clarify, does the guidance for March still include PIM? I assume it does, and I believe that was running at $25 million per quarter.

Yes, the guidance for the full year includes the entirety of the portfolio with the exception of QED. The $247 million you're seeing; QED is not there because we had not executed the transaction prior to year-end. At year-end, which is the date of the balance sheet, the expectation is that the QED business will be sold. That $240 million relates to the PIM business.

That's PIM. Okay, got it. Okay. And then, Bertrand, just a question for you, and I ask you this a lot, but my question revolves around your visibility into the amount of inventory that customers have of your products. You have service people on-site at all these different customers, but we've gone through the challenges of a major inventory buildup over the past year and a half when people couldn't get products and were stockpiling what they could. How much visibility do you have into your customers' inventory levels, and how would you characterize it in comparison to normal inventory?

We have some level of visibility, but it’s not perfect. At this time, we have no reason to believe there is significant inventory of Entegris products in the channel. Our belief stems from not seeing any unusual amount of order cancellations or delays. We are watching this closely.

Christian Schwab at Craig-Hallum Capital Group.

Hey, thanks for taking the question. Congratulations, Greg. It's been great working with you. Could you clarify your China exposure between domestic and multinational mix?

We believe that about 60% is domestic and about 40% is international with regard to revenue in our financial reports about China prior to the export restrictions.

Is there a Chinese alternative to the products you've been selling to domestic manufacturers? My reason for asking is that checks suggest many are opting to stop buying from U.S. Vendors and are turning to local suppliers if they can.

Regarding competitive alternatives to our products, they are limited. There are a few older generation materials that are available from Chinese suppliers, but this is a minority for the most part. There are no current alternatives to what we offer in China. Our assessment, based on the new restrictions, leads us to believe that the negative impact will be about $80 million per year, specifically $20 million per quarter.

Great. Finally, I know we've discussed the long-term growth drivers and the potential for $1 trillion in revenue by 2030. However, we did around $600 million last year, and this year looks like it may include another significant downturn. If you have confidence in reaching that $1 trillion goal, when do you anticipate a material improvement in the business to reassure us that number is still realizable?

The semiconductor industry can change rapidly. We're currently working on understanding the timing of the downturn. Once we know when it will stabilize, we can address the recovery rate. However, previous cycles suggest that the industry conditions we're experiencing today don't challenge the possibility of reaching $1 trillion in semiconductor revenue by 2030. The industry has repeatedly demonstrated potential for quick acceleration driven by several emerging drivers for semiconductors affecting numerous areas of our lives. Therefore, my conviction in the industry’s secular growth potential remains intact, but the questions we'll address involve the extent of the downturn and the timing of recovery.

And ladies and gentlemen, our final question today comes from the line of Chris Kapsch at Loop Capital Markets.

Yes, thank you. Good morning. One question is regarding your comments about prospective outperformance relative to the market. I believe you mentioned a 500 basis point outperformance target. Given the node transitions anticipated in the second half of this year, is it reasonable to expect that outperformance relative to the market may expand? The initial mention was an average, so should we anticipate outperformance to increase exiting 2023 into ‘24, particularly in light of those node transitions?

If your question is regarding whether we should expect more outperformance in the back half of the year as compared to the first half of the year, the answer is yes.

Okay. The other question I had pertains to the CMC portfolio. Back in late 2021, that company won a significant patent infringement case, and the DOJ allowed the customer involved a long transition period due to the complexities of requalification and process records. Are you now seeing benefits from that, and could it bolster demand for your advanced oxide slurries? Additionally, are there any similar litigations in other jurisdictions?

While I cannot comment on ongoing litigation, I will say that we were very pleased with the ITC ruling. We've been collaborating closely with customers to help them transition away from the infringing products. We are already seeing positive revenue from this work. However, I won't quantify it for you, but things are looking positive and unfolding as we had hoped.

Thank you very much for joining the call today. Please follow up with me if you have any additional questions. Have a good day.

This does conclude today's teleconference. And we thank you all for your participation. You may now disconnect your lines, and we hope that you enjoy the rest of your day.