Entegris (ENTG) Q2 2026 earnings call transcript

I would now like to turn the call over to Jeffrey Snell, Vice President and investor relations. Please go ahead, sir.

Good morning, everyone. Earlier today, we announced the financial results for the second quarter of 2026. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve 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-GAP financial measures as defined by the SEC in Regulation G. You can find reconciliation tables in today's news release, as well as on the IR page of our website at integris. com. Joining me on the call today are Dave Reader, our CEO, and Suki Nagesh, our CFO.

With that, I'll hand the call over to Dave.

Thanks, Jeff, and good morning. The second quarter was another strong quarter for integris, as we continued to capitalize on accelerating AI-driven demand and a significant and growing investment across the semiconductor ecosystem.

We exceeded our guidance ranges on all metrics. Revenue growth of 11% year-over-year was above our guidance range, driven by double-digit growth in both our unit and CAPEX-driven businesses. Gross margin improved sequentially as our operational initiatives gained momentum and strong free cash flow generation further enhanced our balance sheet and financial flexibility.

Our performance reflects both improving market conditions and our focused efforts to strengthen and invest in our core semiconductor businesses. With these investments and our continued execution, integris is well positioned to accelerate growth, expand profitability, and drive long-term shareholder value.

Unit-driven revenues grew 10% in the second quarter. Technology transitions continued to increase the material content required to manufacture at the leading edge. This increased intensity is visible in the strong growth in liquid filtration, CMP, in particular pads, advanced deposition materials, and selective etch chemistries. Notably, liquid filtration delivered its fourth consecutive record quarter.

CAPEX-related revenue increased 15% year-over-year in the second quarter, driven by significant growth in foods and broad-based strength in gas filtration and purification solutions. We continue to see customers accelerate investments to support AI infrastructure with increasing activity across advanced logic, HBM memory, and advanced packaging ecosystems.

Bookings across our CAPEX-oriented businesses strengthened throughout the quarter, driving backlog levels higher and providing greater visibility into customer spending plans. We believe these trends reflect the early stages of a broader semiconductor investment cycle, one that should benefit integris through both the construction phase and the subsequent ramp to high volume manufacturing.

With increasing visibility into accelerating customer demand, we are proactively scaling ahead of the market, unlocking capacity, expanding capabilities, and strengthening supply chain readiness. As demand continues to build across areas such as filtration, specialty coatings, hoops, and CMP, the visibility we have enabled us to identify emerging constraints early and take targeted actions to increase throughput and unlock additional capacity before they become limited.

Leveraging our existing global footprint and prior capacity investments, we are well positioned to meet customer needs, support technology roadmaps, and capitalize on the opportunities ahead.

Turning to profitability, adjusted gross margin with another highlight of the quarter, exceeding our guidance range and reaching its highest level since early 2022. The improvement reflects stronger operational execution and the benefits of actions we have taken over the past several quarters to simplify and optimize the business.

We also continue to sharpen our strategic focus and footprint during the quarter. Given the significant and increasing semiconductor demand, we decided to exit our life sciences fluid management business in the US, concentrating resources on our core semiconductor businesses. Additionally, we announced plans to close our Logan Utah facility, our third diluted facility rationalization since late 2025, further streamlining our manufacturing footprint without impacting the availability for our core semiconductor market.

These combined actions underscore our disciplined approach to portfolio management and our commitment to concentrating resources in an area where we have the greatest opportunities for long term growth, differentiation, and value creation.

Free cash flow was another highlight of the quarter, reaching 120 million or 14% of sales. This performance was driven by higher earnings and discipline working capital management, resulting in a greater than 10% year over year improvement in our cash conversion cycle.

The strength of our cash generation and able us to repay an additional 200 million of debt and reduce net leverage to 3.4 times. Given our improved earnings trajectory and cash flow outlook, we now expect to end the year with net leverage in the high two times range while continuing to invest for growth.

Turning to the outlook for our end markets. Based on current demand trends, we now expect 7 to 8% MSI growth in 2026 versus the mid single digit assumption we started out with at the beginning of the year. While our expectations for advanced logic and memory remain largely unchanged, we expect a mixed but modestly improving environment for mainstream logic contributing to a more constructive outlook for the industry. The most notable change since last quarter has been the continued acceleration and semiconductor capital spending.

Momentum and both wafer fab equipment and fab construction is strengthening as evidenced by increasing project awards and backlog growth. To put this in perspective, we are currently tracking over 20 major leading edge capacity expansions globally, including approximately 8 to 10 advanced logic facilities, 7 to 8 advanced memory facilities, and 6 to 8 advanced packaging projects. We expect these investments to become a more meaningful contributor to our growth in the second half of 2026 and into 2027.

The breadth of these investments is also a leading indicator of future MSI growth and reinforces our confidence and the durability of the industry's growth and the expanding opportunities for integrals. Breaking down the specific components of our end market mix.

Advanced logic which represents approximately 40% of our revenue remains a significant growth opportunity as demand for leading edge compute accelerates technology migrations and increases semiconductor complexity playing directly into integrals' strengths. We are already seeing this translate into strong results, including double digit growth in Taiwan, driven by both advanced node capacity expansions and higher production volumes. We also increased photofiltration winds tied to EUV lithography and continued to see strong demand for foods, reflecting our expanding content opportunity at the industry's most advanced nodes.

With positions of record at the industry's most advanced nodes and a strong innovation pipeline, we are well positioned to accelerate growth as customers continue to scale next generation AI infrastructure.

Memory, which represents approximately 30% of our revenue, remains a compelling growth opportunity driven by AI related demand and favorable technology roadmaps. Similar to advanced logic, increasing memory complexity, higher process tolerances and growing performance requirements are driving greater need for the high purity materials and solutions where integrals is differentiated. In DRAM, increasing investment activity is providing greater visibility into future capacity expansions and production roadmaps.

In NAND, technology transitions and layer scaling continue to support higher output and improving demand trends, which we expect to lead to additional capacity investments.

These dynamics reinforce our confidence in the long term growth outlook for memory and the expanding role in Tigris plays as a critical enabler of advanced semiconductor manufacturing. Recent HBM4 and TSV CMP winds, along with approximately two times year over year growth in molybdenum precursor demand, are further evidence that increasing memory complexity is translating to greater content opportunities for integrals across next generation AI memory architectures.

And lastly, mainstream logic remains mixed, and while modestly improved compared to last quarter, it continues to lag leading edge markets.

To summarize, the next phase of semiconductor investment cycle is underway, supported by healthy unit demand and accelerating capital investment activity, creating multiple growth factors for integrals to the second half of 2026 and into 2027.

Second, our technology leadership positions across key product lines, including CMP and selective edge processes, filtration and purity solutions and hoops, combined with our growing presence at the industry's most advanced technology nodes. Continue to strengthen our competitive advantage, increase our strategic importance to customers and provide additional content opportunity.

Finally, execution remains a key differentiator. We are expanding capacity and margins, strengthening cash generation, simplifying the portfolio and enhancing financial flexibility.

While proactively investing in next generation products can meet increasingly stringent customer demands and capture future growth opportunities. These trends reinforce our confidence and integrals long term growth algorithm of above market growth and margin expansion. Our technology leadership, expanding advanced node exposure and discipline execution are positioning integrals to become the foundational materials platform underpinning the build out of global AI computer infrastructure.

Our strong results this quarter are direct reflection of the dedication and execution of our employees around the world. Their commitment to serving customers, advancing innovation and operating with discipline continues to differentiate integrals.

With that, let me turn the call over to Sooty to discuss the financials.

Thanks, Dave and good morning, everyone. I'm thrilled to be joining integrals at such an exciting time for the company and the industry. The combination of market leadership in technology, strong customer partnerships and significant growth opportunities ahead reinforces my confidence in the long term potential of the business. And I look forward to working with the team to help unlock that potential.

Q2 sales were $883 million, an increase of 11% year over year and above our guidance range. Our gap net income was 94 million and our adjusted net income was 143 million and increase of 42% from a year ago. Both top and bottom line metrics were about the high end of guidance.

Gross margin on a gap and non gap basis was 47.6%. The sequential improvement reflected continued progress in operations even as we continue to invest for growth. We have increased our factory direct labor, a double digit percentage from Q4 that will help unlock additional capacity.

We expect to build on this momentum as the year progresses. Operating expenses on a gap basis were 255 million in Q2 and 204 million on a non gap basis or approximately 23% of sales.

The majority of the year of year increases driven by higher variable compensation associated with the stronger business performance. Just at EBITDA in Q2 was 251 million or 28.4% also about our guidance range as the benefit of higher gross profits flow through.

The gap tax rate in Q2 was 15% and the non gap tax rate was 16%. Gap diluted EPS was 61 cents per share in the second quarter and non gap EPS was 93 cents per share. Now switching to our segments. Material solutions delivered second quarter sales of 371 million up 5% year over year driven by advanced deposition materials, selective edge chemistry and CMP.

Growth in material solutions accelerated from the first quarter. And we expect the MS segment to deliver double digit year over year growth in the second half of 2026, benefiting from increased demand across deposition, CMP, edge and implant materials product lines.

MS adjusted operating margin was 20.9% in line with the prior year. Higher raw material and logistics costs together with planned investments in direct labor associated with customer demand were largely offset by improved manufacturing performance and productivity initiatives across the segment.

APS delivered Q2 sales of 515 million up 17% year over year driven by strength across both unit driven and capex related demand.

Liquid filtration had its fourth consecutive record quarter. Our micro environments business led by FUBS delivered its strongest performance in more than three years.

Demand was strong in Taiwan due to expansions and leading edge logic and advanced packaging capacity. We also saw a return to year over year growth in North America.

APS is benefiting from multiple growth drivers. We are seeing increasing demand tied to higher wafer starts, advanced node transitions and accelerating semiconductor capital spending. These trends are creating opportunities across the portfolio that should persist throughout this year and beyond.

Adjusted operating margin for our APS segment was 30.3% for the quarter, expanding both year over year and sequentially. This performance reflects volume growth, favorable mix, continued improvements in operational execution, more than offsetting costs and investments we are making for the customer demand.

Now switching to cash flow and the balance sheet. We delivered free cash flow of 120 million in the second quarter or 14% of sales, reflecting higher earnings, lower capital spending and continued working capital improvements. We reduced our cash conversion cycle by approximately 20 days a year and repaid an additional 200 million of debt in the quarter. As a result, net leverage improved to 3.4 times and we now expect to end the year below three times.

Moving on to the details of a third quarter outlook. We expect Q3 sales to range between 935 and 935 million a year over year increase of approximately 14% at the midpoint, reflecting continued momentum in industry.

Growth margin is expected to be between 47.5 and 48.5%. Both on a gap and a non-gap basis, marking another improvement from Q2 and more than 400 basis points of expansion year over year. At the midpoint, we expect gap operating expenses of approximately 260 million and non-gap operating expenses of approximately 215 million, reflecting higher variable compensation and investments to support the growth we are seeing across our portfolio.

At the midpoint, we expect Q3 EBITDA margin to be 28.5%, net interest expense of approximately 43 million and a non-gap tax rate of approximately 15%. We expect gap EPS between 75 and 83 cents per share and non-gap EPS between 96 cents and a dollar 4 cents per share.

And we expect depreciation to remain largely stable for the balance of this year at approximately 34 million per quarter.

Looking ahead to our fourth quarter revenue expectations with our current visibility, we expect revenue to grow approximately 4% from the midpoint of third quarter's guidance range, which represents mid-teens percentage growth year over year.

Finally, I'd like to update a few modeling items for the full year 2026. We expect net interest expense to be approximately 180 million. The non-gap tax rate to be approximately 14% and diluted share count of approximately 154 million for the full year and capex of 250 million.

We enter the second half with strong momentum. Since joining Integris, I have spent considerable time with our global teams and have seen the strength of our technology market position and people. My near and mid-term priorities are to deliver profitable growth, help drive operational excellence, and allocate capital with discipline.

Before turning the call over to questions, I'd like to mention that we will be hosting our Investor Day on November 9th in New York City. We look forward to sharing a more detailed view of our AI materials platform strategy, technology roadmap, and long-term financial framework. Seating will be limited and by invitation only. Registration information will follow in the coming days.

The event will also be webcast live for those unable to attend in person. With that, popular, let's open the line for questions.

Good morning, Melissa. Thanks for the question. As a reminder, 75% of our revenue is driven by wafer starts and 25% by CAPX. Within CAPX, 10% is driven by WFE and 15% by FAB construction.

So, tactically, for 2026, as you'd expect, we're seeing the greatest up left in our CAPX business from WFE. With our WFE order rates up at a growth rate that's very similar to the growth rate that's being reported by the WFE market, so call it 20 to 30%. We are seeing some benefit from increased FAB construction in 2026, but the majority of that benefit will actually accrue to 2027, not into the second half of 26. So, thematically, second half of 26, CAPX revenue, driven by strong WFE growth, call it low double digit, very low double digit FAB growth in 7 to 8% unit growth.

2027 will benefit from much stronger FAB construction growth followed again by WFE as those fabs are populated with tools, which will then be followed again by increased wafer unit growth as those tools process.

Also, I'd point out that I mentioned in my prepared commentary, we're currently tracking 20 leading edge capacity expansions in the market. That's about 8 to 10 in advanced logic, 7 to 8 in advanced memory, and 6 to 8 in advanced packaging. So, our teams are encouraged by the industry backdrop, and we're working very diligently to ensure that we've got supply position to deliver to our customers.

Maybe we'll first welcome Suki to the call. I guess, Suki, from the couple of months that you've now been in the seat, anything that stood out to you, any strategic priorities that you've been working on. And it was really helpful to hear about some of the rationalizations and the business exit that you talked about. So, any strategic priorities that we should be looking forward to ahead of the analyst day?

Yes, thanks Melissa. Good morning again. Look, I mean, it's less than a quarter that I've been here, and my first impressions really is like, you know, the technology that we have here is critical, first and foremost. I mean, incredibly incredibly impressed with the technology at the company. Very few companies can deliver the innovation and the materials science that integrals can provide, be it on the purity solution side or on the advanced material solution side.

Second, you know, what comes to mind here is that we have pretty strong positions in the fastest growing areas of the technology space in semis, especially. And third, we have ample room to optimize and get the full entitlement out of the portfolio of assets that we have here. So those are my first impressions here being being in the seat for less than a quarter.

So with that backdrop, at least, you know, what, what comes to me mind is like, my near term priorities are pretty, pretty clear. We need to help drive profitable growth, further enhance the operational excellence and efficiencies of our assets, and deploy a capital in a manner where we get the best return for every dollar spent.

I just do on top of your target model of performing the market by like three to six point, and it will be the driver to the upside, to the upside to the full year outlook.

Sure. Let me, let me take that one. Elizabeth and Suki, if you have any follow up, please build on the commentary. For third quarter, you know, at the midpoint of our guidance, we're essentially guiding up mid teens. That implies more than 10% growth, both in MS and in APS. And so what you're seeing is you're seeing the business accelerate 5% year over year growth and first quarter going to 11% year over year growth for the second quarter, moving up to mid teens year over year growth for the third quarter. So that's the guidance through the third quarter. Given our increased order visibility in our backlog, we did want to give you at least some improved visibility for fourth quarter, very similar to what we did in last quarter.

We got it fourth quarter up sequentially about four percent. We'll tighten up that guidance when we get to our third quarter call. But based upon what we currently see, even that would be up mid teens on a year over year basis again with MS and APS, both growing more than 10%. So what we're seeing is we're seeing the business accelerate. We're seeing both businesses accelerate from the first half of the year into the second half of the year. And given all the activity, both in FAB construction, as well as more than 50 engineering engagements in new projects, we think that bodes well for 2027 as well.

I'm not asking for like a new target model, but like from this point, you're talking about your operational efficiency improvement, saturation, that is curious what is the kind of baseline growth margin we should think of at this point.

Yeah, let me let me maybe take, you know, the big picture in Suki, maybe you can color in some of the some of the details. Look, we're very excited about the potential of our product portfolio. You know, I saw here in third quarter last year, and I spoke about how we had a tremendous amount of untapped capacity in the network. I talked about how we were driving kind of four things operationally, the network optimization, the centralization of procurement, improve focused on yield and then a maniacal focus on productivity. And so when you when you think about all of those activities that you've seen us kind of consistently drive now, four, three quarters, we're actually making very good progress across all of those initiatives, initiatives, including closing another deluded facility or announcing the closure.

I said, should say have another deluded facility. So, so we're very, very pleased with the progression and we think we have significant room to continue to grow from here.

Yeah, look, I mean, our gross margin improves 70 biggest points sequentially. And I think it's also important to note that we delivered pretty strong incrementals, despite intentionally investing ahead for demand. So the that should show that should show some proof points that we're on the right track here. The underlying business continues to benefit from productivity and operational improvements and our ability to drive structurally high margins and flow through as we continue to scale.

You know, look, I think underlying business continues to benefit from all of this. And I think we'll be in a position to drive structurally higher margins through the cycle.

Those are good points, Suki. And if I could just maybe build on one comment that you had, we are investing ahead so that we can unlock that capacity that I mentioned across the network. You know, for example, we've increased direct labor by more than 20% since the end of 2025. Again, investing ahead of the capacity and the products that will be delivered in the future quarters. So we're making good progress to unlock really the capacity that exist in our in our manufacturing network.

Yeah. Thank you for that question. Look, I think on a year of your basis, there was about 150 basis points of uplift because of the useful life adjustment that we had. And so if you, if you take that off, you know, we did also increase margins by more than 300 basis points, excluding that. So as you look forward into next year, I think what you would, you know, we'll give you an update on more of our target model at capital markets.

But, you know, typically, I think what you should be seeing is like incremental incremental flow through should be in the 60% range. David, when I added that, Jim and look, we think we think the, the right comps would be from Q1 to Q2. We had, we had nice flow through gross profit over revenue of around 60%. It's a similar number at midpoint from second quarter to third quarter sequentially.

That takes out, you know, any kind of year over year dynamics related to useful life. So we think that's probably the best comp as you, as you model out into the future.

So it still seems a little conservative. I mean, you know, you guys are doing great. Don't get me wrong, but, you know, up four still seems a little light. Are there anything, any, like, dynamics that you call out in Q4?

No, that's a good question. Look, I mean, it's important to put the guidance in context, Tim. Look, a four percent sequential increase in Q4 was still translate to a mid teens year. We are growth.

Reference is pretty healthy growth rate and reflects our continued momentum across the businesses. When you consider the composition of revenue, right? 75% of our revenue tied to 70 unit growth, we expect to grow, but that's expected to grow by 78%. The remainder is tied to capital spending. So our outlook implies a meaningful performance relative to the underlying semi market.

You know, this is again supported by content, content gains, we're seeing technology transitions and our exposure to some of the leading edge pure play AI enablers.

Dave, you wanted to add something to that? Well, well said. Thanks, Tim. Thank you, Tim. Thanks. Thank you.

Sure. You know, when you look at liquid filtration as when you think about how important micro contamination is to the most advanced nodes, once you get down to, you know, sub five nanometer and down to two nanometer, I mean, two nanometer is 20 angstroms and, you know, depending on the size of the molecule, you can have molecules that are five angstroms. And so purity is becoming increasingly critical at the most advanced nodes of manufacturing. And so you've seen liquid filtration kind of grow disproportionately as more production capacity is added to the most advanced nodes. And that's true, the most in advanced logic, but it's also becoming increasingly true across memory and in limited examples across advanced packaging as well.

So as the market expands capacity at the most advanced nodes, it drives tighter requirements. That drives a greater need for filtration. With respect to operating, operating sites like KSP, you know, we produce the majority of our filters kind of across three sites, one in North America, one in Japan, and obviously KSP in Taiwan. KSP, I would, I would categorize as on track. We are on track, perhaps to break even this quarter, you know, probably a little bit ahead of schedule, but KSP, I would, I would color green and I would count that as on track for 2026.

We're through a lot of the qualifications. There's still more to come, but we're basically now into the ramping stage of KSP. And when you think about ramping KSP, you're going from essentially a facility that, you know, was losing money on a standalone unit of one basis to essentially what would be kind of break even touch wood here in the third quarter, certainly in the second half of this year. And then as we move and migrate into 2027, it'll move into the deluded category and then ultimately into the enterprise average gross margin category. So, so making good progress and I would color KSP as being on track. And it is participating in some of the liquid filtration ramp that we've spoken about.

You know, I'd actually don't have the breakdown off the cuff between units and capex. You know, what I did mention last year was that we had significantly greater than a billion dollars. So I wouldn't, I wouldn't just limit it to a billion dollars of incremental capacity in the network.

It's more than that. It is broad based. It is across units and capex. I don't know that split off the off the cuff, but I can tell you, as I sit here today, we have increasing confidence that we can satisfy the vast majority of the demand that we see in front of us or so. We have to do some things. We have to spend some money ahead to unlock that capacity, but by and large, we believe that we can satisfy the current demand that we have visibility to through the current manufacturing network.

Thank you. Thanks.

That portion of the business would or would not exceed WFE growth for 2027. It's really just the timing, Jim. You know, if you think about the 25% of our business that is capex, 10% of it is WFE driven, 15% of it is FAB construction driven. We don't get revenue on times zero of a FAB construction, so we don't get revenue when you kind of move dirt, poor concrete place steel.

We get revenue kind of 12 months post that. Once you start facilitating the FAB, then we get another slug of revenue as you're taking that process piping to tools. Then we get another slug of revenue with the tools, with the placement of those tools. And then finally, we get the unit volume at the end. So kind of a slug of revenue, let's call it round and call it 12 months, another slug of revenue around 18 months WFE around 24 months and units thereafter. And so really the FAB construction piece, giving all the FABs that we're currently tracking, assuming that they move into the construction build out and tooling stage. We think timing wise that you kind of migrate from second half of 26 being more WFE driven to perhaps 27 being a bit more FAB construction driven towards the end, maybe a bit more WFE.

WFE continues to be strong, obviously, but then you start to get units out probably in 28. So we think we kind of have these three waves of demand, if you will.

Sure. Yeah, we have an enterprise sales team now that sits at the corporate level, which tracks all of our opportunities across kind of our top 35 customers, which represent the largest portion of our business. We've looked at all of those customers. We've tracked our product line placements within each one of those customers and have developed very detailed plans, specific customer by customer, to then go forth and kind of penetrate those accounts in greater volume with also more product line coverage. So that's the high level kind of sales strategy that's somewhat different than what we had done historically.

In terms of portions of the markets that we're interested in, we're going to color in the lines a little bit more at Capital Markets Day, so we hope to see you in November at Capital Markets Day. We've always been more front end of line focused in the fab. As you know, advanced packaging is growing incredibly quickly. There are some portions of that market that are not as attractive to us, but there are also some portions of that market that are attractive to us. We have about $100 million runway plus or minus in that portion of the market today.

That's an area that we would like to see our business grow more quickly, as well as have more product placement across categories in that portion of the market. So we'll color in more of the lines at Capital Markets Day, but an enterprise sales strategy, customer by customer plan, across all product lines, not just a few product lines. Deep customer engagements from an R&D perspective, more than 50 projects in flight.

And then, of course, some attractive Sam's that are growing quickly, example of being advanced packaging that we're looking to to penetrate a little bit more deeply in the future. And with that, maybe I'll end it there and we can, we can color in more of those lines at Capital Markets Day. Thanks, Jim. Thank you.

Thanks, Charles. We do have some supply agreements with our customers. I would say we've been approached more recently to engage in more supply agreements, giving the current demand environment. And that's an area that we're certainly looking at very closely, not only from a pricing perspective, but just from a supply perspective. Our number one business priority at this stage is to make sure that we can support our customers through this period of accelerating demand.

We will ensure that we are appropriately compensated for the value capacity and technology that we provide, but our number one priority right now is making sure that we can unlock the manufacturing network that I've spoken so much about. And then be able to get that fixed cost absorption, get that volume, and provide the products that our customers desperately need as they engage in their ramps.

As I mentioned, we're currently tracking more than 50 engineering projects with customers. These are long-term engagements. There's more than 20 advanced fabs that are being built. And so while our guidance today doesn't contemplate material pricing, we are confident that we will be compensated for the value that we bring.

Yeah, thanks, Charles. But Molly, we haven't, we have not seen in the wild, the third entrance in a meaningful way as of yet.

It's largely a two horse race. As we see it right now, obviously we're staying close to this market. Molly is up significantly on a year over year basis. I don't have the exact number in front of me for a second quarter, but I think the number was more than 20% on a year over year basis up in the second quarter.

Memory volumes are starting and I'm referring to NAND are starting to grow to kind of the high two hundreds or the 300 plus layer account, which is what's driving that need for Molly. We believe we are very well positioned there. We have, you know, Molly is a, it's a unique in a novel chemistry and it's a new chemistry for the memory market. It's a chemistry where you not only have to deliver a delivery cabinet that has very stable pressure with a molecule that is incredibly aggressive from a process piping perspective, but you have to sublimate a solid into a gas and deliver it at pressure and at temperature to get the right performance out of out of the memory process.

So we're very with our position. We think overall it probably doubles for us on a year over year basis 26 versus 25. And we're happy with with the performance and the hard work that teams doing. Thanks, Charles. Thank you.

Sure. Let me, let me maybe broaden it out and talk a little bit about, you know, what are we trying to drive overall for manufacturing and operations? You know, we have network optimization. Which is the rationalization that you reference. We have centralizing procurements, which is driving, you know, more leverage throughout our total procurement supply chain. We have, you know, maniacal focus on driving yield, reducing scrap, improving throughput through those activities. And then of course productivity and productivity is measured across both people as well as, as well as machines and tooling. And so those are kind of the four very high level work streams that we have been working on now for for almost a year coming up on a year.

We're making good progress across all of those, all of those have meaningful potential to expand gross margin or expand profitability.

While, while driving like reduced, you know, future capital investment, so increasing units, driving increased profitability by using the same kind of fixed footprint. And so those are the big efforts in terms of, you know, additional rationalization, you know, demand remains strong. And we were taking a little bit of a pause on rationalization. And so we determined exactly where that demand signal settled, a demand increased again in the second quarter.

And so I'll kind of, I'll kind of play back the commentary from the first quarter that, that, you know, we're going to kind of carefully evaluate right now where this demand signal settles. Because right now the demand profile is continuing to increase from a level that we thought was already elevated into one. So, so no additional plans at this time for incremental network optimization. We still have roughly 35 manufacturing facilities.

We will utilize them all to the fullest extent and then to the extent that we see opportunities in the future. We'll come back and update you at that time.

There's still a fair amount of white space across your customers needs. Yeah, Suki, feel free to chime in on this if you'd like. Sure. I mean, our immediate near term focus really is on reducing our leverage. We have a clear path. Right. I mean, as we mentioned in our prepared remarks here, we will get to under three times net leverage. But at the end of this year, in fact, we're actually in the month of July, we repaid another $25 million a debt.

So, that still remains our top priority. But overall, I mean, the way we look at investments here is relative to our cost of capital. We'll look at internal investments and the return we get from that those type of investments. And then we look at capex rated investments and then finally external M&A. Each one of them has different risk profiles to it. But we'll be looking at each one of these areas with the view of actually getting the right type of return for each of the investments.

And if I could just build on something that I'm incredibly excited about, the rate and pace that the leveraging is happening significantly faster than I expected. I never anticipated that I could sit here on this call today here in August and be able to tell you that we expect to end the year with a net leverage ratio that starts with a two.

That was an expectation that I did not have starting this year. And so, you know, the team has done a great job driving expansion and gross margin. They've taken that gross margin all the way down to net income and even better. They've taken it all the way down through free cash flow through a lot of the work that's been done on the working capital side. And so I expect that that great work to continue the reward for good work is even more work. And we're going to work very, very hard in the second half of this year to continue to drive free cash flow to reduce, continue to reduce our leverage. And then as we do that, it opens up a lot of opportunities, as Suki mentioned.

Thank you.

We feel good about our CMP business. We've got nice growth rates in CMP. We actually think that we have some very market leading growth rates in pads. We think we're successfully growing, expanding and defending plans of records and slurries. And so when you look at our CMP business overall, we're quite pleased with that trajectory, including some of the inroads into advanced packaging that weren't in place a year ago. So, you know, overall, we feel good about our CMP business.

And as we mentioned, you know, MS is a business that's accelerating as we go through the course of this year, expecting more than 10% growth in the third quarter, implying more than 10% of growth again in the fourth quarter.

You've talked in the past about the need to optimize the CMP solution as well as selective etch and maybe some of this operation components around that. Are you seeing that customers are adopting that that full optimized suite from Integris, or are they picking and choosing different suppliers for the different aspects of molybdenum deposition at CMP?

Look, specifically for molybdenum, and the majority of the envelope tends to sit around the distribution cabinet that I mentioned and the actual molecule itself. The other portions of that process, as you mentioned, both the etch as well as some of the follow on processes. Those are, those are by and large, those are by and large separate buying centers today. Thank you.

Yeah, you know, mainstream demand remains mixed. There's memory related pressure on some of the consumer markets. But that's offset by its strength in some of the AI related applications like power management and silicon photonics. So we see mainstream as improving, but still somewhat mixed because obviously there's a lot of consumer related markets mobile being a great example that sit within mainstream and the memory pressure on those markets, not to be discounted. We think found reutilization in the mainstream has improved to probably 80 to 85% depending on exactly on, you know, which, which mainstream provider you're looking at. But I do, I do agree. I think the direction of travel seems to be modestly higher. So I think our view on it is just that it's slightly improved compared to last quarter, but we still expect it to be tempered and below the trend growth for for 2020.

And potentially longer pending the outcome of memory pricing and availability.

Yeah, so life science is the business we exited. Think of it as less than 20 million of annual revenue. Think of it as as being more like fluid management type products. So we're we still have some some filtration products for life sciences. That business is still ongoing. Think of this as more fluid management and life sciences. It did have a dilutive margin, both gross margin as well as a significantly dilutive, but the margin. And so given, you know, the tremendous growth in semiconductors and management time effort and focus, it made sense for us at this time to announce the closing of that business and the wind down of that standalone facility.

Thanks, Chris. Thank you so much. Thank you.

And the segment margin there was also down year over year. Do you expect margins in MS to expand in the second half as well?

Yeah, I'll talk about the growth and Suki. Maybe you can comment comment on the margins, but for for MS, yeah, grew a grew 5% year over year in the second quarter. You know, MSI probably grew around 7 to 8% in the second quarter, depending on, you know, what numbers you're looking at in the market and making sure that you account for the way for shippers versus actual way for starts.

We think we think we were in line given some of the year over year comps related to liberation day last year and some of the pull forward that we saw in that business. So I would say that we grew in line with market for the MS business for second quarter. And we think based on current current visibility that we will most likely grow above market in the third quarter and the fourth quarter as well.

Suki, do you want to comment on the margins? Yeah, on the margin side, you know, as manufacturing here with really complex and customers continue to migrate to advanced nodes. The number of opportunity number of opportunities that the company has is continuing to expand. And we're seeing that in the reflected in the growing set of Sam opportunities across the portfolio.

So as you would expect, you know, we are investing accordingly in areas where we see significant long term growth in the MS division. And that includes capabilities such as Molly Percursors and other high value opportunities. So, you know, operating leverage for generating right now is being intentionally, you know, we are seeing intentional reinvestment to support future growth.

And that you should see that earnings power start to increase over time.

So Dave, coming back to your comments around advanced packaging and understand you'll provide more detail and animals day. But it didn't sound like you're interested in acquiring a bigger footprint there. So I was just wondering how quickly you could scale that business organically from that, you know, $100 million revenue run rate.

Well, we never said that we won't comment on acquisitions either way, but we never said we weren't interested in looking at some businesses in that space. I think when we look at the advanced packaging market, though, it's still being defined. So even today you still have changes in materials.

You have changes in packaging sizes. You have changes in, you know, like real, real substantive technical changes with respect to, you know, creativity, attach.

So, so there's, there's a lot that still to be defined in the space. And it's a very rapidly growing space. You know, five years ago, it was very low single digits as a percentage of CAPEX in the industry. And this year it may be approaching double digits or approaching 10% in terms of percentage of total industry CAPEX. So, so we think there are a lot of growing SAMs.

We think there are a lot of SAMs that can support the type of differentiated products that we can provide. And those are the spaces that we want to target. And we think there's more than enough opportunity to target those spaces and still have the right to win without necessarily facing the incumbent advantage. So, so stay tuned for more during capital markets day and appreciate the question, Edward.

Thank you. This concludes today's Integra's second quarter, 2026 earnings conference call. Please disconnect your line at this time and have a wonderful day.