With a historic fab build-out cycle coming, how should we think about the CapEx portion of your business, including subfab systems?

Approximately 25% of Entegris' revenue is CapEx-related, with 1/3 from WFE and 2/3 from fab construction. The company benefits in three waves: fab construction products (9-12 months post-groundbreaking), WFE-related products (12-18 months), and unit-driven business (~24 months). Memory (DRAM) is in wave 1, while advanced logic is in waves 2 and 3. “about 25% of our revenue is CapEx related. And of that 25%, about 1/3 is WFE and about 2/3 is fab construction.”

How should we think about the gross margin path going forward, especially with factory rationalization and efficiency improvements?

Management expects sustained structural gross margin expansion. Q1 non-GAAP gross margin of 46.9% included 50 bps of one-time items. The sequential improvement was driven by 100 bps from a useful life change and 140 bps from productivity and efficiency. Q2 guidance includes incremental production staffing costs but still expects improvement, with KSP breaking even by year-end and Colorado ramping in 2027. “Our 46.9% that we posted on a non-GAAP and GAAP basis, we did benefit from about 50 bps of onetime items in the first quarter. So if you normalize for that, that would put first quarter at about 46.4%. That's about 240 bps improvement sequentially.”

Does the appointment of Sukhi Nagesh as CFO, given his M&A background, signal a readiness for more M&A once net leverage is below 3x?

Management is very pleased with Sukhi's appointment, highlighting his extensive semiconductor and financial background. The current focus is on achieving the deleveraging target of approximately 3x net leverage by the end of 2026. Once this is achieved, the company will be well-positioned in 2027 to consider other capital allocation alternatives, including shareholder returns or market opportunities. “Right now, we're focused on delivering our leverage reduction, our deleveraging plan. And initially, this year, we told you that we thought we would be under 3.5x of net leverage. We're already at 3.6x of net leverage, and we updated you that we thought we would be closer to 3x of net leverage by the end of the year.”

ENTG

Entegris (ENTG) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· Apr 30, 2026

Source: earnings call transcript

Executive summary

Entegris Q1 FY26 — Strong Start to Year with Improving Industry Environment and Deleveraging Progress

Entegris delivered a solid Q1 FY26, exceeding guidance on key profitability metrics and demonstrating strong free cash flow generation, which enabled accelerated deleveraging. The company is benefiting from an improving semiconductor industry environment, particularly in advanced logic and DRAM driven by AI, and is focused on structural gross margin expansion and operational efficiency. While CapEx-driven revenue saw a modest Q1 decline due to prior-year tariff pull-ins and mainstream logic remains mixed, management anticipates CapEx revenue to increase throughout the year and expects to reduce net leverage to approximately 3x by year-end.

Highlights

Revenue increased 5% year-over-year, slightly above the midpoint of guidance.
Adjusted gross margin, EBITDA margin, and non-GAAP EPS all exceeded the guidance range.
Free cash flow was strong at $144 million, representing 18% of sales.
Reduced term loan by $50 million, accelerating deleveraging and targeting ~3x net leverage by year-end.
Liquid filtration posted its third consecutive record quarter, contributing to 7% YoY growth in the APS segment.

Concerns

CapEx-driven revenue decreased modestly year-over-year in Q1 due to accelerating order patterns in the prior year quarter in response to tariff actions.
Mainstream logic recovery remains mixed with tempered MSI growth expected through 2026.
KSP (Taiwan) and Colorado facilities are expected to be dilutive in 2026, with KSP breaking even by year-end and Colorado ramping revenue in 2027.
China revenue was modestly down in Q1, largely driven by CapEx-related businesses.
Early cost pressure on raw materials, specifically noble gases and resins, due to the Iran Middle East conflict.

Guidance & targets

Category	Target	Timeline	Confidence
Q2 Sales	$815 million to $845 million high materiality	Q2 · FY26	High
Q2 Gross Margin (GAAP & Non-GAAP)	46.25% and 47.25% medium materiality	Q2 · FY26	High
Q2 GAAP Operating Expenses	approximately $241 million medium materiality	Q2 · FY26	High
Q2 Non-GAAP Operating Expenses	approximately $194 million medium materiality	Q2 · FY26	High
Q2 EBITDA Margin	27.5% medium materiality	Q2 · FY26	High
Q2 Net Interest Expense	approximately $46 million medium materiality	Q2 · FY26	High
Q2 Non-GAAP Tax Rate	approximately 15% medium materiality	Q2 · FY26	High
Q2 GAAP EPS	$0.53 and $0.61 per share high materiality	Q2 · FY26	High
Q2 Non-GAAP EPS	$0.76 and $0.84 per share high materiality	Q2 · FY26	High
Q2 Diluted Share Count	approximately 154 million low materiality	Q2 · FY26	High
Q3 Revenue Growth	approximately 5% sequential improvement high materiality	Q3 · FY26	Medium
FY26 Net Interest Expense	slightly below $190 million medium materiality	FY26	High
FY26 Non-GAAP Tax Rate	approximately 15% medium materiality	FY26	High
FY26 Diluted Share Count	approximately 154 million low materiality	FY26	High
FY26 Capital Expenditure	$250 million medium materiality	FY26	High
FY26 Depreciation	approximately $140 million low materiality	FY26	High
Net Leverage Ratio	approximately 3x high materiality	FY26	High
Industry MSI Growth	mid- to high single-digit high materiality	Remainder of 2026 · FY26	High
Industry Fab Construction Growth	high single digits high materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Material Solutions (MS) Year-over-year growth was led by double-digit increases in advanced deposition materials and selective etch chemistries, along with continued strength in CMP consumables. Adjusted operating margin was in line with the prior year period and increased approximately 100 basis points sequentially. Advanced deposition materials: double-digit increaseSelective etch chemistries: double-digit increaseCMP consumables: continued strength	$351 million	3%	—	22%
Advanced Purity Solutions (APS) Results were driven by continued strong demand across the portfolio, including the third consecutive record quarter in liquid filtration, a 3-year revenue high in FOUPs, and growth in gas filtration. Adjusted operating margin expanded both year-over-year and sequentially, reflecting strong operational execution, productivity, favorable product mix, and the majority of the favorability from the useful life change. Liquid filtration: third consecutive record quarterFOUPs: 3-year revenue highGas filtration: growth	$464 million	7%	—	29.1%

Risks & headwinds

Mainstream Logic Market Mixed through 2026

Tempered MSI growth through 2026

Mitigation:Offset by power management, data center, and other AI-related strength; improving channel inventory and some manufacturers breaching 80% utilization.

Dilutive Facilities (KSP, Colorado) 2026

KSP is dilutive, Colorado is fully dilutive

Mitigation:KSP expected to break even on P&L by end of 2026 and be less dilutive in 2027; Colorado focused on qualification in 2026, ramping revenue in early 2027.

China CapEx Revenue Decline Q1 FY26, first half of 2026

Modestly down in Q1

Mitigation:Largely driven by prior-year tariff-related order patterns; expecting a solid second half of 2026; increasing in-region product qualification to >90% by year-end.

Raw Material Cost Pressure temporary

Some early cost pressure on noble gases and resins

Mitigation:Absorbed in P&L for now; will evaluate increasing pricing in the future if pressure persists.

What to watch in Q2 FY26

Net Leverage Ratio

By end of 2026

Current 3.6x

Target Closer to 3x

Why it matters

Demonstrates progress on deleveraging commitment, which impacts future capital allocation decisions (M&A, shareholder returns).

At quarter end, our net debt was $3.3 billion and net leverage was 3.6x. As Dave articulated, we expect to improve our net leverage ratio to approximately 3x by the end of 2026, underscoring our commitment to deleveraging.

Find out whether ENTG delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you provide more color on non-AI markets, specifically consumer electronics and fab utilization, given the mixed demand signals?

Management views the mainstream market as mixed, with capacity utilization between 75% and 80%. While memory availability and pricing impact price-sensitive consumer products, this is offset by strength in power management, data center, and other AI-related areas. Some foundries have broken the 80% utilization barrier for the first time since 2022.

“We view capacity utilization right now in mainstream as being somewhere between 75% and 80%. There have been some foundries that have reported that have broken that 80% barrier for the first time in several years since 2022 peak.”

asked by Melissa Weathers · answered by David Reeder

2 min read 6 chapters

Detailed narrative

Operational Efficiency & Margin Expansion

Entegris is actively optimizing its manufacturing network, having closed a subscale facility in Chandler, Arizona, during Q1. These efforts, combined with productivity actions and favorable product mix, contributed to a 240 bps sequential improvement in Q1 non-GAAP gross margin (46.9%), with 100 bps from a useful life accounting change and 140 bps from operational improvements.

The company expects continued structural gross margin expansion, balancing optimization with demand fulfillment, though incremental production staffing costs are embedded in the Q2 guide.

Deleveraging & Capital Structure

The company generated strong free cash flow of $144 million (18% of sales) in Q1, enabling a $50 million reduction in its term loan. This follows a $300 million reduction in 2025. Net debt stands at $3.3 billion with a net leverage of 3.6x at quarter-end.

Management is committed to further deleveraging, targeting approximately 3x net leverage by the end of 2026, positioning the company to consider shareholder returns or other market opportunities in 2027.

Semiconductor Market Outlook

Entegris observes an improving demand landscape, with industry MSI growth now expected in the mid-to-high single digits for the remainder of 2026, an increase from previous low-to-mid single-digit expectations. Fab construction growth forecasts have also improved significantly from low to high single digits. This positive shift is primarily driven by advanced logic and DRAM, fueled by AI-enabled applications, while mainstream logic remains mixed.

End-Market Dynamics

Advanced logic (40% of revenue) remains well-positioned for strong growth in 2026 due to accelerating demand for leading-edge compute and the 2nm technology ramp. The memory market (30% of revenue) sees accelerating DRAM demand from AI workloads, with capital investments expected to continue.

NAND demand is also increasing, driven by layer scaling and AI-driven storage, which is expected to result in double-digit increases in Entegris content per wafer. Mainstream logic (approximately one-third of the business) remains mixed, with utilization rates improving but still impacted by memory availability.

CapEx-Driven Business

Approximately 25% of Entegris' revenue is CapEx-related, split between one-third WFE and two-thirds fab construction. The company benefits in three waves: fab construction products (gas purification, fluid management) 9-12 months post-groundbreaking, WFE-related products (gas filtration, AMC, LMC bulk filtration) 12-18 months post-groundbreaking, and unit-driven business ~24 months post-groundbreaking.

Memory (DRAM) is currently in wave 1, while advanced logic is in waves 2 and 3 of this cycle.

China Market Performance & Strategy

China revenue was modestly down in Q1, primarily due to CapEx-related businesses reflecting dislocated order patterns from prior-year tariff pull-ins. Entegris expects to increase its in-region product qualification for China from approximately 85% to over 90% by year-end, aiming to derisk the market.

The company anticipates a solid second half of 2026 in China, maintaining a strong competitive position in franchise product lines like filtration and slurries.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.