ENTEGRIS INC (ENTG)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the “Cautionary Statements” section of this Item 7 below. You should review Item 1A “Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The Company has elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented except for the segment analysis. Information pertaining to fiscal year 2022 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2023 and 2022 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed on February 15, 2024.

Cautionary Statements

This Annual Report on Form 10-K and the portions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form 10-K contain “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report on Form 10-K. They are not guarantees of future performance and they involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements.

These risks and uncertainties include, but are not limited to, fluctuations in the demand for semiconductors and the overall volume of semiconductor manufacturing; the impact of global economic uncertainty, including volatile financial markets, inflationary pressures and interest rate fluctuations, economic recessions, national debt and bank failures, raw material shortages, supply and labor constraints, and price increases; fluctuations in the Company’s revenues and operating results and their impact on the Company’s stock price; supply chain interruptions and the Company’s dependence on sole, single and limited source suppliers; operational, political and legal risks of the Company’s international operations; the impact of regional and global instabilities, hostilities and geopolitical uncertainty, including, but not limited to, the ongoing conflicts between Ukraine and Russia, and between Israel and Hamas, as well as the global responses thereto; tariffs, additional taxes, and other protectionist measures resulting from international trade disputes, strained international relations, and changes in foreign and national security policy; export controls, economic sanctions, and similar restrictions; the concentration and consolidation of the Company’s customer base; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and to introduce new products to meet customers’ rapidly changing requirements; manufacturing and other operational disruptions or delays; the risks associated with the use and manufacture of hazardous materials; goodwill impairment; challenges in attracting and retaining qualified personnel; the Company’s ability to protect and enforce intellectual property rights; IT system failures, network disruptions, and cybersecurity risks; the Company’s environmental, social, and governance commitments; legal and regulatory risks, including changes in laws and regulations related to the environment, health and safety, accounting standards, and corporate governance, across the jurisdictions in which the Company operates; changes in taxation or adverse tax rulings; the Company’s ability to effectively implement any organizational changes; the ability to obtain government incentives and the possibility that competitors will benefit from government incentives; the amount and consequences of the Company’s indebtedness, its ability to repay its debt and to obtain future financing, and the Company’s obligations under its current outstanding credit facilities; volatility in the Company’s stock price; the payment of cash dividends and the adoption of future share repurchase programs; challenges associated with a potential change of control; substantial competition; the Company’s ability to identify, complete and integrate acquisitions, joint ventures, divestitures or other similar transactions; the impacts of climate change; and other matters. These risks and uncertainties also include, but are not limited to, the risk factors and additional information described in this Annual Report on Form 10-K under the caption “Risk Factors,” elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings. Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.

Overview

This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.

The Company is a leading supplier of critical advanced materials and process solutions for the semiconductor and other high-technology industries. We leverage our unique breadth of capabilities to help our customers improve their productivity, product performance and technology in the most advanced manufacturing environments.

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In the fourth quarter of 2024, the Company announced an internal reorganization, combining two complementary divisions into one and realigning its customer facing organization. Our business is now organized and operated in two operating segments as discussed below. The current annual and succeeding annual periods will disclose the reportable segments with prior periods recast to reflect the change. These segments share common business systems and processes, technology centers and technology roadmaps.

▪The Materials Solutions segment, or MS, provides materials-based solutions, such as chemical vapor and atomic layer deposition materials, chemical mechanical planarization (“CMP”) slurries and pads, ion implantation specialty gases, formulated etch and clean materials, and other specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership.

▪The Advanced Purity Solutions segment, or APS, offers filtration, purification and contamination-control solutions that improve customers’ yield, device reliability and cost by ensuring the purity of critical liquid chemistries and gases and the cleanliness of wafers and other substrates used throughout semiconductor manufacturing processes, the semiconductor ecosystem and other high-technology industries.

With our complementary capabilities, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers, which should translate into improved device performance, lower cost of ownership and faster time to market. For example, we have the capabilities and core competencies to develop and co-optimize offerings solving customers’ complex manufacturing challenges across the deposition, CMP process and post-CMP modules, with solutions including advanced deposition materials, CMP slurries, pads and post-CMP cleaning chemistries (each from our MS segment), and CMP slurry filters, high-purity packaging and fluid monitoring systems (each from our APS segment).

Regulatory Volatility

In light of the current geopolitical environment, in the near term, we anticipate greater uncertainty and inconsistency among the jurisdictions in which we operate with respect to policies and regulations that affect our business, including, without limitation, trade regulations, environmental regulations, labor and immigration regulations, tax policies, tariffs, sanctions and export controls. This may add additional uncertainty and volatility to business planning and forecasting for us and for our customers. While we continually monitor and explore options to mitigate this volatility through appropriate adjustments to our business planning and processes, the ultimate impact this rapidly evolving regulatory environment may have on the global economy, supply chains, logistics, raw material pricing and our business is likely to remain uncertain for some time.

Recent Events

On March 1, 2024, the Company completed the sale of its PIM business. The Company received net cash proceeds of $256.2 million. See Note 5 to our consolidated financial statements for additional information.

On March 28, 2024, the Company and certain of its subsidiaries entered into Amendment No. 3 (the “Third Amendment”), with the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, which amended the Credit and Guaranty Agreement, dated as of November 6, 2018 (as amended and restated as of July 6, 2022 and as subsequently amended on each of March 10, 2023 and September 11, 2023, the “Existing Credit Agreement”), by and among the Company, as borrower, certain subsidiaries of the Company party thereto, as guarantors, the lenders party thereto, and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent. See Note 10 to our consolidated financial statements for additional information.

On December 3, 2024, the Company and the U.S. Department of Commerce entered into a definitive agreement providing for up to $77.0 million in direct funding to the Company under the CHIPS and Science Act of 2022. This funding will support the development of a facility in Colorado Springs, Colorado, which will produce products for the Company’s APS segment. See Note 21 to our consolidated financial statements for additional information.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including, but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangible assets), goodwill and income taxes. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Management’s utilization of different judgments or estimates could result in material differences in the amount and timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings.

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Our critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below. See Note 1 to the Company’s consolidated financial statements for additional information about the Company’s other significant accounting policies.

Goodwill

Goodwill is tested for impairment annually as of August 31. If circumstances change during interim periods between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company will test goodwill for impairment. Factors that would necessitate an interim goodwill impairment assessment include a sustained decline in the Company's stock price, effects on a reporting unit such as a change in the composition or carrying amounts of its net assets, prolonged negative industry or economic trends, or significant under-performance relative to expected, historical or projected future operating results. Management uses judgment to determine whether to use a qualitative analysis or a quantitative fair value measurement for its goodwill impairment testing. The Company's fair value measurement approach combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparable, projected future cash flows (including timing and profitability), the discount rate reflecting the risk inherent in future cash flows, the perpetual growth rate, and projected future economic and market conditions.

If a reporting unit fails the quantitative impairment test, impairment expense is immediately recorded as the difference between the reporting unit’s fair value and carrying value not to exceed the amount of goodwill recorded.

Results of Operations

Year ended December 31, 2024 compared to year ended December 31, 2023

The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for 2024 and 2023.

Net sales For 2024, net sales were $3,241.2 million, decreased by $282.7 million, or 8%, from 2023. An analysis of the factors underlying the decrease in net sales is presented in the following table:

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As described in the table above, the decrease in net sales was primarily attributable to (i) the absence of sales totaling $434.2 million associated with divested businesses and (ii) a reduction of $23.4 million attributable to unfavorable foreign currency translation effects, primarily related to the weakening of the Japanese yen relative to the U.S. dollar compared to the year ago period ended December 31, 2023. These declines were partially offset by an increase of $174.9 million of sales due to increased semiconductor market demand compared to the year ago period ended December 31, 2023.

Sales percentage on a geographic basis for 2024 and 2023 and the percentage increase (decrease) in sales for 2024 compared to sales for 2023 were as follows:

The decrease in sales to customers in North America primarily relate to the absence of sales from divested businesses. The increase in sales to customers in Taiwan primarily relates to increased demand for our APS products. The increase in sales to customers in China primarily relates to increased demand for our MS and APS products. The decrease in sales to customers in South Korea primarily relates to decreased demand for our MS and APS products. The decrease in sales to customers in Japan primarily relates to decreased demand for our APS products, partially offset by increased demand for our MS products. The decrease in sales to customers in Europe primarily relate to the absence of sales from divested businesses. The decrease in sales to customers in Southeast Asia primarily relates to the absence of sales from divested businesses, partially offset by increased demand for our MS products.

Gross margin

The following table sets forth gross margin as a percentage of net sales:

Gross margin increased by 3.4% for 2024 compared to 2023. Gross margin increased primarily due to the positive impact of the divested businesses and improved plant performance.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2024 decreased $129.6 million, or 22%, to $446.6 million from $576.2 million in 2023.

An analysis of the factors underlying the decrease in SG&A expenses is presented in the following table:

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Engineering, research and development expenses

Engineering, research and development (“ER&D”) expenses consist of expenses for the support of current product lines and the development of new products and manufacturing technologies. These expenses were $316.1 million in 2024 and $277.3 million in 2023.

An analysis of the factors underlying the increase in ER&D expenses is presented in the following table:

The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms to support the semiconductor ecosystem and identifying and developing products for new applications. The Company often works directly with its customers to address their needs.

Amortization of intangible assets Amortization of intangible assets was $190.1 million in 2024 compared to $214.5 million for 2023. The decrease primarily reflects the absence of amortization for certain identifiable intangible assets acquired in previous acquisitions that became fully amortized and the intangible assets disposed of as part of the EC disposition.

Goodwill impairment The Company recorded no goodwill impairment charges in 2024 and $115.2 million in 2023. See Note 3 to the Company’s consolidated financial statements for further discussion.

Gain on termination of alliance agreement In connection with the termination of the alliance agreement, the Company recognized a pre-tax gain, net of $184.8 million in 2023. See Note 5 to the Company’s consolidated financial statements for further discussion.

Interest expense Interest expense was $215.2 million in 2024 and $312.4 million in 2023. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. The decrease reflects lower interest expense related to lower average debt balances for the period due to repayments on the Company’s outstanding debt.

Interest income Interest income was $7.4 million in 2024 and $11.3 million in 2023. The decrease primarily reflects lower average cash balances.

Other expense, net Other expense, net, was $4.0 million in 2024 compared to $25.4 million in 2023.

In 2024, other expense, net consisted mainly of loss of extinguishment and modification of debt of $14.3 million associated with the repayments and the Third Amendment on the Company’s senior secured term loan facility (see Note 10 to the Company’s consolidated financial statements) and foreign currency transaction losses of $7.7 million, partially offset by a gain of $20.0 million related to the settlement of patent infringement litigation.

In 2023, other expense, net consisted mainly of loss of extinguishment and modification of debt of $29.9 million associated with the repayments on the Company’s bridge credit facility and senior secured term loan facility and the amendments of the

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Company’s Existing Credit Agreement and foreign currency transaction losses of $5.7 million, partially offset by net proceeds received of $10.9 million resulting from the termination of the definitive agreement with Infineum related to the PIM business.

Income tax expense The Company recorded income tax expense of $28.3 million in 2024 compared to an income tax benefit of $8.4 million in 2023. The Company’s effective tax rate was 8.8% in 2024 compared to an effective tax rate of (4.9)% in 2023.

The change in the effective tax rate from 2023 to 2024 primarily relates to the integration of the CMC acquisition and, discrete divestiture activity that occurred in 2023. Additionally, the tax rate was lower in 2023 due to changes in U.S. tax regulations pertaining to foreign tax credits.

Net income Net income was $292.8 million, or $1.93 per diluted share, in 2024 compared to net income of $180.7 million, or $1.20 per diluted share, in 2023. The increase reflects the Company’s aforementioned operating results described in greater detail above.

Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measures.

The Company’s non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related percentage changes, and Non-GAAP Earnings Per Share, or EPS.

The decreases in Adjusted Operating Income and Adjusted EBITDA in 2024 compared to 2023 are generally attributable to decreased net sales and gross profit due to divested businesses and higher operating expenses. The increase in Non-GAAP EPS in 2024 compared to 2023 is primarily attributable to lower interest expense, partially offset by the decreases noted above for Adjusted Operating Income and Adjusted EBITDA.

Segment Analysis

In the fourth quarter of 2024, in order to align its segment financial reporting with a change in its business structure, the Company realigned its segments. Following the segment realignment, the Company’s two reportable segments are Materials Solutions and Advanced Purity Solutions. Accordingly, our segment information was restated retroactively in the fourth quarter of fiscal year 2024. The segment realignment had no impact on the Materials Solutions segment financial reporting. See Note 20 to the consolidated financial statements for additional information on the Company’s two segments.

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The following table and discussion reflects the results of operations of the Company’s two reportable segments for the years ended December 31, 2024, 2023 and 2022.

Materials Solutions (MS)

For 2024, MS net sales decreased to $1,400.1 million, down 17% from $1,689.5 million in 2023. The sales decrease was driven primarily by the absence of $434.2 million in sales associated with divested businesses included in the prior year sales, partially offset by increased sales from CMP consumables, advanced deposition materials and selective etching products.

MS reported a segment profit of $286.2 million for 2024, down 3% compared to $296.4 million in 2023. The decrease was primarily associated with (1) the absence of a $184.8 million gain resulting from the termination of the alliance agreement with MacDermid Enthone in 2023, (2) the absence of segment profit associated with divested businesses, partially offset with (3) the absence of a goodwill impairment charge of $115.2 million, (4) the absence of $23.8 million loss on sale of business and held-for-sale in 2023, (5) a decrease of a $17.5 million of impairment charges related to the long-lived assets of a small, industrial specialty chemicals business in 2023, (6) a $4.3 million gain associated with sale of the PIM business, and (7) improved plant performance.

For 2023, MS net sales increased to $1,689.5 million, up 22% from $1,380.2 million in 2022. The sales increase primarily reflects the inclusion of sales of $537.8 million attributed to acquisitions, primarily of CMC Materials, and also reflects modestly improved sales of advanced deposition materials, formulated cleans, selective etch and specialty coating products.

MS reported a segment profit of $296.4 million for 2023, up 35% compared to $219.2 million in 2022. The increase in MS’s profit in 2023 was primarily due to the segment profit attributed to the CMC Materials acquisition, partially offset by unfavorable product mix and a $61.9 million charge for a fair value write-up resulting from the sale of acquired CMC Materials inventory.

Advanced Purity Solutions (APS)

For 2024, APS net sales are approximately flat at $1,850.2 million, compared to $1,846.6 million in 2023.

APS reported a segment profit of $496.1 million for 2024, down 7% compared to $531.4 million in 2023. The decrease in APS’s profit in 2024 was primarily due to increased costs associated with the ramp up of our new manufacturing facility in Taiwan and higher operating expenses.

For 2023, APS net sales decreased to $1,846.6 million, down 4% from $1,914.0 million in 2022. The sales decrease was primarily due to lower sales from our microenvironment solutions products, partially offset by improved sales from our liquid filtration products.

APS reported a segment profit of $531.4 million for 2023, down 11% compared to $595.2 million in 2022. The decrease in APS’s profit in 2023 was primarily due to lower sales, lower factory performance, increased costs associated with our new manufacturing facility in Taiwan and increased investment in research and development.

Unallocated general and administrative expenses

Unallocated general and administrative expenses for 2024 totaled $58.3 million compared to $114.2 million for 2023. The $55.9 million decrease is primarily due to a $53.2 million decrease in deal, transaction and integration costs related to the acquisition of CMC Materials.

Unallocated general and administrative expenses for 2023 totaled $114.2 million compared to $190.5 million for 2022. The $76.3 million decrease is primarily due to a $95.7 million decrease in deal, transaction and integration costs related to the acquisition of CMC Materials, partially offset by an increase in employee costs of $14.1 million.

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Liquidity and Capital Resources

We consider the following when assessing our liquidity and capital resources:

The Company has historically financed its operations and capital requirements through cash flow from its operating activities, long-term loans, lease financing and borrowings under domestic and international short-term lines of credit.

Based on our analysis, we believe our existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months and for the longer term.

We may seek to take advantage of opportunities to raise additional capital through additional debt financing or through public or private sales of securities. If in the future our available liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. During 2024, we did not experience difficulty accessing capital and credit markets, but future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions.

In summary, our cash flows for each period were as follows:

Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

Compared to 2023, the $12.8 million decrease in cash provided by operating activities in 2024 was primarily driven by $174.5 million of changes in operating assets and liabilities, offset by a $161.7 million increase of net income adjusted for non-cash reconciling items.

Changes in operating assets and liabilities were driven by changes in trade accounts and notes receivable, inventories and accounts payable and accrued liabilities. The change for trade receivables was mainly due to increased sales at the end of the period. The change for inventory was driven by increased business activity. The change for accounts payable and accrued liabilities was driven by timing of payments.

Investing activities

Investing cash flows consist primarily of capital expenditures, cash used for acquisitions, proceeds from sales of businesses and proceeds from sales of property and equipment.

In 2024, there was $67.1 million of cash used in investing activities compared to $553.1 million cash provided by investing activities in 2023. The decrease in 2024 resulted primarily from less proceeds from divestitures of $564.2 million and the absence of net proceeds from the termination of the alliance agreement of $191.2 million, partially offset by a $141.2 million decrease in capital expenditures compared to the prior year.

Acquisition of property and equipment totaled $315.6 million in 2024, which primarily reflected investments in facilities, equipment and tooling, compared to $456.8 million in 2023, which also primarily reflected investments in facilities, equipment and tooling. Capital expenditures in 2024 included spending related to our previously announced investment in our KSP site and new manufacturing facility in Colorado Springs, Colorado.

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Financing activities

Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.

In 2024, there was $689.0 million of cash used in financing activities compared to $1,297.5 million cash used in financing activities in 2023. The change in 2024 was primarily due to decreased net debt activity of $635.9 million compared to the prior year. See Note 10 to the Company’s consolidated financial statements for further discussion of the debt financing that occurred during the year.

The Company’s total dividend payments were $60.6 million in 2024 compared to $60.2 million in 2023. The Company has paid a cash dividend in each quarter since the fourth quarter of 2017. On January 15, 2025, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on February 19, 2025 to shareholders of record as of January 29, 2025.

Other Liquidity and Capital Resources Considerations

Debt at par value outstanding

(1) The Company entered into a floating-to-fixed swap contract on its variable rate debt under our senior secured term loan facility due 2029. The effective interest rate after consideration of this floating-to-fixed swap contract was 4.71%. Refer to Note 12 for a description of our interest rate swap contract.

(2) Our senior secured revolving credit facility due 2027 (the “Revolving Facility”) bears interest at a rate per annum equal to SOFR, plus an applicable margin of 1.75%. The Revolving Facility has commitments of $575.0 million.

On March 28, 2024, the Company amended its Existing Credit Agreement. The Third Amendment provides for, among other things, the refinancing of the Company’s outstanding term loans B under the Term Loan Facility in an aggregate principal amount of $955.0 million with a new tranche of term loans B in an aggregate principal amount of $955.0 million. The amended loans bear interest at a rate per annum equal to, at the Company’s option, either (i) the SOFR plus an applicable margin of 1.75%, which is a reduction from the applicable margin of 2.50% prior to the amendment, or (ii) a base rate plus an applicable margin of 0.75%, which is a reduction from the applicable margin of 1.50% prior to the amendment. In connection with the Third Amendment, the Company made a payment of $354.5 million on the term loans B. See Note 10 to our consolidated financial statements for further discussion.

During the fiscal year 2024, the Company repaid $623.8 million net of borrowings under the term loans B under the Term Loan Facility.

Through December 31, 2024, the Company was in compliance with all applicable financial covenants included in the terms of its debt arrangements.

The Company has commitments under the Revolving Facility of $575.0 million. The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the twelve months ended December 31, 2024, the Company borrowed and repaid $140.0 million under this Revolving Facility and no balance was outstanding at December 31, 2024.

The Company also has a line of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $6.4 million. There were no outstanding borrowings under this line of credit and no balance was outstanding at December 31, 2024.

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Cash and cash requirements

Our cash and cash equivalents include cash on hand and highly-liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

Cash requirements

We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements, but, in the event that additional liquidity is required, we may also borrow under our Revolving Facility.

The following table summarizes our short and long-term cash requirements as of December 31, 2024:

Long-term debt and interest payments on long-term debt. We have contractual obligations for principal and interest payments on our long-term debt. See Note 10 of the consolidated financials for additional information. Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets. Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2024 and do not include $63.9 million for net unamortized discounts and debt issuance costs. On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount of the swap is $750.0 million at December 31, 2024 and is scheduled to decrease quarterly and will expire on December 30, 2025. The impact of the interest rate swap is not considered in the interest payments above.

Capital purchase obligations. We have capital purchase obligations that represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2024, as the Company had not yet received the related goods or taken title to the property.

We expect capital expenditure spending to be approximately $325.0 million in 2025 and includes spending for construction of, and tools and equipment in our new manufacturing facility in Colorado Springs, Colorado.

Supply purchase obligations. We have non-cancelable commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2024, as the Company had not yet received the related goods or taken title to the property.

Operating and financing lease commitments. Commitments under operating and financing leases primarily relate to leasehold properties. See Note 14 of the consolidated financials for additional information.

Income tax liabilities. Of the tax liabilities included in the table above, $44.3 million relates to uncertain tax positions. We are unable to accurately predict when these amounts will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to an unforeseeable event (such as a tax audit settlement). See Note 16 of the consolidated financials for additional information.

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New Accounting Pronouncements

Recently adopted accounting pronouncements Refer to Note 1 to the Company’s consolidated financial statements for a discussion of accounting pronouncements implemented in 2024.

Recently issued accounting pronouncements Refer to Note 1 of the Company’s consolidated financial statements for a discussion of accounting pronouncements recently issued but not yet adopted.

Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with GAAP.

The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. These non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and Non-GAAP EPS, as well as certain other supplemental non-GAAP financial measures included in the discussion of the Company’s financial results.

Adjusted EBITDA is defined by the Company as net income before, as applicable, (1) equity in net loss of affiliates, (2) income tax expense (benefit), (3) interest expense, (4) interest income, (5) other expense, net, (6) goodwill impairment, (7) deal and transaction costs, (8) integration costs, (9) restructuring costs, (10) acquired tax equalization asset reduction, (11) (gain) loss on sale of businesses and held-for-sale assets, net, (12) gain on termination of the alliance agreement, (13) impairment of long-lived assets, (14) amortization of intangible assets, and (15) depreciation. Adjusted Operating Income is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes ratios of non-GAAP financial measures such as Adjusted EBITDA to Company net sales and Adjusted Operating Income to Company net sales (referred to as Adjusted EBITDA Margin and Adjusted Operating Margin, respectively).

Non-GAAP Net Income is defined by the Company as net income before, as applicable, (1) goodwill impairment, (2) deal and transaction costs, (3) integration costs, (4) restructuring costs, (5) patent infringement settlement gain, net (6) acquired tax equalization asset reduction, (7) loss on extinguishment of debt and modification, (8) (gain) loss on sale of businesses and held-for-sale assets, net, (9) gain on termination of the alliance agreement, (10) Infineum termination fee, net, (11) impairment of long-lived assets, (12) amortization of intangible assets, (13) the tax effect of the foregoing adjustments to net income, stated on a per share basis, divided by diluted weighted average shares outstanding. Non-GAAP EPS is defined as Non-GAAP Net Income divided by our diluted weighted-average shares outstanding.

The Company provides supplemental non-GAAP financial measures to help management and investors to better understand its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.

Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides greater consistency in its financial reporting from period-to-period and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.

Management uses Adjusted EBITDA and Adjusted Operating Income to assist it in evaluations of the Company’s operating performance by excluding items that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its business.

In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s Board of Directors uses non-GAAP financial measures in the evaluation process to determine management compensation.

The Company believes that certain analysts and investors use Adjusted EBITDA, Adjusted Operating Income and Non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use Adjusted EBITDA measures to evaluate the Company’s creditworthiness.

The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.

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Management notes that the use of non-GAAP measures has limitations, including but not limited to:

First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies. For example, the Company’s non-GAAP measure of Adjusted EBITDA may not be directly comparable to EBITDA or an Adjusted EBITDA measure reported by other companies.

Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, significant recurring expenses with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.

Third, there is no assurance that the Company will not have future charges for fair value write-up of acquired inventory, restructuring activities, deal and transaction costs, integration costs, asset or goodwill impairments, loss on extinguishment of debt or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon. The exclusion of these items in the Company’s non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring.

Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of Adjusted EBITDA, Adjusted Operating Income, and Non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents, are presented below in the accompanying tables.

The reconciliation of GAAP measures to Adjusted Operating Income and Adjusted EBITDA for the years ended December 31, 2024 and 2023 are presented below:

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1 Non-cash impairment charges associated with goodwill of our former Electronic Chemicals business and a small, industrial specialty chemicals business.

2 Deal and transaction costs associated with the CMC Materials acquisition and completed divestitures.

3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations.

4 Represents severance charges related to the integration of the CMC Materials acquisition.

5 Represents retention charges related directly to the CMC Materials acquisition and completed divestitures, and are not part of our normal, recurring cash operating expenses.

6 Represents other employee-related costs and other costs incurred relating to the CMC Materials acquisition and the completed divestitures. These costs arise outside of the ordinary course of our continuing operations.

7 Restructuring charges resulting from cost saving initiatives.

8 Represents an asset reduction of an acquired tax equalization asset from the CMC Materials acquisition.

9 (Gain) loss from the sale of certain businesses and held-for-sale assets, net.

10 Gain on termination of the alliance agreement with MacDermid Enthone.

11 Impairment of long-lived assets.

12 Non-cash amortization expense associated with intangibles acquired in acquisitions.

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The reconciliation of GAAP measures to Non-GAAP EPS for the years ended December 31, 2024 and 2023 are presented below:

1 Non-cash impairment charges associated with goodwill of our Electronic Chemicals and a small, industrial specialty chemicals businesses.

2 Deal and transaction costs associated with the CMC Materials acquisition and completed divestitures.

3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations.

4 Represents severance charges related to the integration of the CMC Materials acquisition.

5 Represents retention charges related directly to the CMC Materials acquisition and completed divestitures, and are not part of our normal, recurring cash operating expenses.

6 Represents other employee-related costs and other costs incurred relating to the CMC Materials acquisition and the completed divestitures. These costs arise outside of the ordinary course of our continuing operations.

7 Restructuring charges resulting from cost saving initiatives.

8 During the fourth quarter of 2024, the Company settled patent infringement litigation and received net proceeds of $20.0 million.

9 Represents an asset reduction of an acquired tax equalization asset from the CMC Materials acquisition.

10 Loss on extinguishment of debt and modification of our Existing Credit Agreement.

11 (Gain) loss from the sale of certain businesses and held-for-sale assets, net.

12 Gain on termination of the alliance agreement with MacDermid Enthone.

13 Non-recurring gain from the termination fee with Infineum.

14 Impairment of long-lived assets.

15 Non-cash amortization expense associated with intangibles acquired in acquisitions.

16 The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the “Cautionary Statements” section of this Item 7 below. You should review Item 1A “Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The Company has elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented except for the segment analysis. Information pertaining to fiscal year 2021 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2022 and 2021 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 23, 2023.

Cautionary Statements

This Annual Report on Form 10-K and the portions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form 10-K contain “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements may include statements about supply chain matters; inflationary pressures; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of the Company’s ER&D projects; the Company’s ability to execute on our business strategies, including with respect to the Company’s expansion of its manufacturing presence in Taiwan and in Colorado Springs; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions and divestitures the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials (now known as CMC Materials LLC) (“CMC Materials”); trends relating to the fluctuation of currency exchange rates; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; raw material shortages, supply and labor constraints, price increases, inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations; the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements; substantial competition; the Company’s concentrated customer base; the Company’s ability to identify, complete and integrate acquisitions, joint ventures, divestitures or other similar transactions; the Company’s ability to effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the impact of regional and global instabilities, hostilities and geopolitical uncertainty, including, but not limited to, the ongoing conflicts between Ukraine and Russia, between Israel and Hamas and the current conflict in the Red Sea, as well as the global responses thereto; the increasing complexity of certain manufacturing processes; changes in government regulations of the countries in which the Company operates, including the imposition of tariffs, export controls and other trade laws and restrictions and changes to national security and international trade policy, especially as they relate to China; fluctuation of currency exchange rates; fluctuations in the market price of the Company’s stock; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report on Form 10-K. They are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors and additional information described in this Annual Report on Form 10-K under the caption “Risk Factors,” elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings. Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes

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no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.

Overview

This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.

The Company is a leading supplier of mission-critical advanced materials and process solutions for the semiconductor and other high-technology industries. We leverage our unique breadth of capabilities to help our customers improve their productivity, performance and technology in the most advanced manufacturing environments.

In the third quarter of 2023, the Company realigned its segments into three reportable segments discussed below, which align with the key elements of the advanced semiconductor manufacturing ecosystem. The current annual and succeeding annual periods will disclose the reportable segments with prior periods recast to reflect the change.

•The Materials Solutions segment, or MS, provides materials-based solutions, such as chemical mechanical planarization (“CMP”) slurries and pads, deposition materials, process chemistries and gases, formulated cleans, etchants and other specialty materials that enable our customers to achieve better device performance and faster time to yield, while providing for lower total cost of ownership.

▪The Microcontamination Control segment, or MC, offers advanced solutions that improve customers’ yield, device reliability and cost by filtering and purifying critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.

▪The Advanced Materials Handling segment, or AMH, develops solutions that improve customers’ yields by protecting critical materials during manufacturing, transportation, and storage, including products that monitor, protect, transport and deliver critical liquid chemistries, wafers, and other substrates for a broad set of applications in the semiconductor, life sciences and other high-technology industries.

These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers, which should translate into improved device performance, lower cost of ownership and faster time to market. This capability has been further enhanced with the acquisition of CMC Materials. For example, we can now develop and provide complementary offerings solving customers’ complex manufacturing challenges across the deposition, CMP process and post-CMP modules with co-optimized products from each of our divisions, such as advanced deposition materials, CMP slurries, pads and post-CMP cleaning chemistries from our MS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.

Impact of New Export Control Regulations

On October 17, 2023, the U.S Department of Commerce, Bureau of Industry and Security (“BIS”) announced updates to export control regulations, originally issued on October 7, 2022, regarding the sale of certain products and services related to advanced computing items, semiconductor manufacturing equipment, and items that can support end uses related to the development and production of advanced-node integrated circuits and semiconductor manufacturing equipment, among others. The updated rules modify and expand restrictions on the sale of products and the provision of certain services by U.S. persons to some companies and domestic fabs located in certain countries, including China, without prior U.S. governmental authorization. See Item 1A, “Risk Factors,” in this Annual Report on Form 10-K for additional information regarding risk associated with the impact of new export control regulations, including under the caption “Tariffs, export controls and other trade laws and restrictions resulting from international trade disputes, strained international relations and changes to foreign and national security policy, especially as they relate to China, could have an adverse impact on our operations and reduce the competitiveness or availability of our products relative to local and global competitors.”

Impact of Conflicts in the Middle East

The military conflict between Israel and militant groups led by Hamas and the current conflict in the Red Sea have caused uncertainty in the global markets, including, but not limited to, disruptions to shipping routes. Revenue relating to products manufactured from raw materials or components sourced from or through this region does not constitute a material portion of our business and historically we have not had significant revenue in this region. There continues to be uncertainty regarding the ultimate impact these conflicts will have on the global economy, supply chains, logistics, fuel prices, raw material pricing and our business.

Recent Events

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On February 10, 2023, the Company terminated the definitive agreement with Infineum to sell its PIM business. At the time of the termination, the transaction had not received clearance under the HSR Act. In accordance with the terms of the definitive agreement, the Company received a $12.0 million termination fee from Infineum in the first quarter of 2023. Also in the first quarter of 2023, the Company incurred a fee of $1.1 million to the third-party financial adviser it had engaged to assist with the transaction. The assets and liabilities of the PIM business are classified as held for sale as of December 31, 2023. See Note 5 to our consolidated financial statements for further discussion.

On March 1, 2023, the Company completed its divestiture of the QED business. The Company received proceeds of $134.3 million. See Note 5 to our consolidated financial statements for further discussion.

On March 10, 2023 and September 11, 2023, the Company amended its Existing Credit Agreement. The First Amendment, dated March 10, 2023, provided for, among other things, the refinancing of the Company’s then-outstanding term loans B under the senior secured term loan facility due 2029 in an aggregate principal amount of $2.495 billion with a new tranche of term loans B in an aggregate principal amount of $2.495 billion. The amended loans under the First Amendment bore interest at a rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.75% which was a reduction from the applicable margin of 3.00% prior to the First Amendment. The Second Amendment, dated September 11, 2023, provides for, among other things, the refinancing of the Company’s outstanding term loans B under the senior secured term loan facility due 2029 in an aggregate principal amount of $2.318 billion with a new tranche of term loans B in an aggregate principal amount of $2.318 billion. The outstanding term loans B under the amended senior secured term loan facility due 2029 bear interest, at a rate per annum equal to the SOFR plus an applicable margin of 2.50% which is a reduction from the applicable margin of 2.75% provided for in the First Amendment. See Note 11 to our consolidated financial statements for further discussion.

On June 5, 2023, the Company announced the termination of an Alliance Agreement (the “Alliance Agreement”) between the Company and MacDermid Enthone Inc., a global business unit of Element Solutions Inc. (“MacDermid Enthone”). In connection with the termination of the Alliance Agreement, Entegris received net proceeds of $191.2 million in 2023. See Note 5 to our consolidated financial statements for further discussion.

On October 2, 2023, the Company completed its divestiture of the Electronic Chemicals (“EC”) business. The Company received cash proceeds of $737.1 million, or net proceeds of $675.2 million. See Note 5 to our consolidated financial statements for further discussion.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including, but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangible assets), goodwill and income taxes. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Management’s utilization of different judgments or estimates could result in material differences in the amount and timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings.

Our critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below. See Note 1 to the Company’s consolidated financial statements for additional information about the Company’s other significant accounting policies.

Impairment of Goodwill

Goodwill is tested for impairment annually as of August 31. If circumstances change during interim periods between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company will test goodwill for impairment. Factors that would necessitate an interim goodwill impairment assessment include a sustained decline in the Company's stock price, effects on a reporting unit such as a change in the composition or carrying amounts of its net assets, prolonged negative industry or economic trends, or significant under-performance relative to expected, historical or projected future operating results. Management uses judgment to determine whether to use a qualitative analysis or a quantitative fair value measurement for its goodwill impairment testing. The Company's fair value measurement approach combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market

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comparable, projected future cash flows (including timing and profitability), the discount rate reflecting the risk inherent in future cash flows, the perpetual growth rate, and projected future economic and market conditions.

If a reporting unit fails the quantitative impairment test, impairment expense is immediately recorded as the difference between the reporting unit’s fair value and carrying value not to exceed the amount of goodwill recorded.

Business Acquisitions

The Company accounts for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Accordingly, for significant items, the Company typically obtains assistance from a third-party valuation firm.

There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For intangible assets, the Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates.

Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives, influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net income.

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Results of Operations

Year ended December 31, 2023 compared to year ended December 31, 2022

The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for 2023 and 2022.

Net sales For 2023, net sales were $3,523.9 million, increased by $241.9 million, or 7%, from 2022. An analysis of the factors underlying the increase in net sales is presented in the following table:

The sales increase was attributable, in part, to a total of $537.8 million of sales of new products resulting from the acquisition of CMC Materials. This increase was partially offset by an absence of sales totaling $116.2 million resulting from the divestitures of QED and the Electronic Chemicals business as well as the termination of the Alliance Agreement. Total net sales also reflected unfavorable foreign currency translation effects of $33.2 million, mainly due to the significant weakening of the Japanese yen relative to the U.S. dollar, and decreased demand from customers in the semiconductor market, resulting in a decrease of $146.5 million compared to the year ago period ended December 31, 2022.

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Sales percentage on a geographic basis for 2023 and 2022 and the percentage increase (decrease) in sales for 2023 compared to sales for 2022 were as follows:

The increase in sales to customers for all countries and regions, except Taiwan, in the table above was principally driven by the inclusion of sales from the acquisition of CMC Materials. The decrease in sales in Taiwan primarily relates to lower sales demand of AMH and MC products partially offset by an increase in sales resulting from the inclusion of sales from the CMC Materials acquisition.

Gross margin

The following table sets forth gross margin as a percentage of net sales:

Gross margin was unchanged for 2023 compared to 2022, which was primarily due to the absence of a $61.9 million charge for fair value write-up of acquired CMC Materials inventory sold during the year ended December 31, 2022, partially offsetting the effect of lower plant utilization in 2023.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2023 increased $32.7 million, or 6%, to $576.2 million from $543.5 million in 2022.

An analysis of the factors underlying the increase in SG&A expenses is presented in the following table:

Engineering, research and development expenses

ER&D expenses consist of expenses for the support of current product lines and the development of new products and manufacturing technologies. These expenses were $277.3 million in 2023 and $229.0 million in 2022.

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An analysis of the factors underlying the increase in ER&D expenses is presented in the following table:

The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications. The Company often works directly with its customers to address their particular needs.

Amortization of intangible assets Amortization of intangible assets was $214.5 million in 2023 compared to $144.0 million for 2022. The increase primarily reflects the full-year of amortization expense associated with the intangible assets acquired in the CMC Materials acquisition.

Goodwill impairment The Company recorded a goodwill impairment charges of $115.2 million in 2023. See Note 3 to the Company’s consolidated financial statements for further discussion.

Gain on termination of Alliance Agreement In connection with the termination of the Alliance Agreement, the Company recognized a pre-tax gain, net of $184.8 million in 2023. See Note 5 to the Company’s consolidated financial statements for further discussion.

Interest expense Interest expense was $312.4 million in 2023 and $212.7 million in 2022. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. The increase was primarily driven by a full year of interest expense based on timing on CMC Materials close in 2022.

Interest income Interest income was $11.3 million in 2023 and $3.7 million in 2022. The increase reflects rising average interest rates and cash balances.

Other expense, net Other expense, net, was $25.4 million in 2023 compared to $23.9 million in 2022.

In 2023, other expense, net consisted mainly of loss of extinguishment and modification of debt of $29.9 million associated with the repayments on the Company’s bridge credit facility and senior secured term loan facility and the amendments of the Company’s Existing Credit Agreement (see Note 11 to the Company’s consolidated financial statements) and foreign currency transaction losses of $5.7 million, partially offset by net proceeds received of $10.9 million resulting from the termination of the definitive agreement with Infineum related to the PIM business.

In 2022, other expense, net consisted mainly of consisted mainly of foreign currency transaction losses of $23.0 million.

Income tax expense The Company recorded income tax benefit of $8.4 million in 2023 compared to income tax expense of $38.2 million in 2022. The Company’s effective tax rate was (4.9)% in 2023 compared to an effective tax rate of 15.4% in 2022.

The decrease in the effective tax rate from 2022 to 2023 relates to a tax benefit of $17.4 million recorded in 2023 related to divestiture and impairment activity. Additionally, the tax rate was lower in 2023 due to changes to the jurisdictional income mix resulting from the acquisition of CMC Materials and the temporary changes in the U.S. tax regulations pertaining to foreign tax credits. The tax rate in 2022 was higher due to non-deductible acquisition related costs and a decrease in discrete benefits related to share-based compensation.

Net income Net income was $180.7 million, or $1.20 per diluted share, in 2023 compared to net income of $208.9 million, or $1.46 per diluted share, in 2022. The decrease reflects the Company’s aforementioned operating results described in greater detail above.

Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measures.

The Company’s non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related percentage changes, and Non-GAAP Earnings Per Share, or EPS.

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Adjusted EBITDA decreased to $942.4 million in 2023, compared to $973.2 million in 2022. Adjusted EBITDA as a percent of net sales was 26.7% in 2023 compared to 29.7% in 2022. Adjusted Operating Income decreased by 8.1% to $769.7 million in 2023, compared to $837.9 million in 2022. Adjusted Operating Income as a percent of net sales was 21.8% in 2023 compared to 25.5% in 2022. Non-GAAP EPS decreased 29.2% to $2.64 in 2023, compared to $3.73 in 2022. The decreases in Adjusted EBITDA and Adjusted Operating Income are primarily due to lower plant utilization and higher operating expenses. The decrease in Non-GAAP EPS is primarily attributable to higher interest expense associated with debt financing in connection with the CMC Materials acquisition.

Segment Analysis

In the third quarter of 2023, in order to align its segment financial reporting with a change in its business structure, the Company realigned its segments. Following the segment realignment, the Company’s three reportable segments are as follows (1) Materials Solutions, (2) Microcontamination Control, and (3) Advanced Materials Handling. Accordingly, our segment information was restated retroactively in the third quarter of fiscal year 2023. The segment realignment had no impact on the Microcontamination Control or Advanced Materials Handling segment financial reporting. See Note 21 to the consolidated financial statements for additional information on the Company’s three segments.

The following table and discussion reflects the results of operations of the Company’s three reportable segments for the years ended December 31, 2023, 2022 and 2021.

Materials Solutions (MS)

For 2023, MS net sales increased to $1,689.5 million, up 22% from $1,380.2 million in 2022. The sales increase primarily reflects the inclusion of sales of product lines resulting from the acquisition of CMC Materials totaling $537.8 million, partially offset by an absence of sales totaling $116.2 million resulting from the divestitures of QED and the EC business, the termination of the Alliance Agreement and decline in demand across the semiconductor market.

MS reported a segment profit of $296.4 million for 2023, up 35% compared to $219.2 million in 2022. The increase in MS’s profit in 2023 was primarily associated with a gain of $184.8 million resulting from the termination of the Alliance Agreement (see Note 5 to our consolidated financial statements for further discussion), the absence of a $61.9 million charge for a fair value write-up resulting from the sale of acquired CMC Materials inventory that was recorded in the year-ago period and segment profit attributed to the CMC Materials acquisition, partially offset by a goodwill impairment charge of $104.8 million related to the EC reporting unit (see Note 3 to our consolidated financials statements for further discussion), a $8.9 million loss on asset held for sale related to the EC reporting unit, a goodwill impairment charge of $10.4 million, long-lived asset impairment charge of $30.5 million (see Note 3 to our consolidated financials statements for further discussion) and a $14.9 million loss on the sale of QED.

For 2022, MS net sales increased to $1,380.2 million, up 94% from $711.3 million in 2021. The sales increase primarily reflects the inclusion of sales of $594.4 million attributed to acquisitions, primarily of CMC Materials, and also reflects modestly improved sales of advanced deposition materials, formulated cleans, selective etch and specialty coating products.

MS reported a segment profit of $219.2 million for 2022, up 31% compared to $167.8 million in 2021. The increase in MS’s profit in 2022 was primarily due to the segment profit attributed to the CMC Materials acquisition, partially offset by unfavorable product mix and a $61.9 million charge for a fair value write-up resulting from the sale of acquired CMC Materials inventory.

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Microcontamination Control (MC)

For 2023, MC net sales increased to $1,127.6 million, up 2% from $1,106.0 million in 2022. The sales increase was primarily due to improved sales from liquid filtration products.

MC reported a segment profit of $395.3 million for 2023, down 4% compared to $411.5 million in 2022. The decrease in MC’s profit in 2023 was primarily due to increased costs associated with the ramp up of our new manufacturing facility in Taiwan and increased investment in research and development.

For 2022, MC net sales increased to $1,106.0 million, up 20% from $919.4 million in 2021. The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products.

MC reported a segment profit of $411.5 million for 2022, up 28% compared to $321.3 million in 2021. The increase in MC’s

profit in 2022 was primarily due to higher gross profit related to the increased sales volume, partially offset by higher operating

expenses of 17%, primarily due to higher compensation costs.

Advanced Materials Handling (AMH)

For 2023, AMH net sales decreased 10% to $758.6 million from $846.5 million in 2022. The sales decrease was mainly due to lower sales from our microenvironment solutions products.

AMH reported a segment profit of $136.1 million for 2023, down 26% compared to $183.7 million in 2022. The decrease in AMH’s profit in 2023 was primarily due to lower sales and lower factory utilization.

For 2022, AMH net sales increased 20% to $846.5 million from $704.9 million in 2021. The sales increase was mainly due to improved sales from wafer handling and fluid handling.

AMH reported a segment profit of $183.7 million for 2022, up 15% compared to $160.0 million in 2021. The increase in AMH’s profit in 2022 was primarily due to higher sales volume, partially offset by a 16% increase in operating expenses, primarily due to higher compensation costs.

Unallocated general and administrative expenses

Unallocated general and administrative expenses for 2023 totaled $114.2 million compared to $190.5 million for 2022. The $76.3 million decrease is primarily due to a $95.7 million decrease in deal, transaction and integration costs related to the acquisition of CMC Materials, partially offset by an increase in employee costs of $14.1 million.

Liquidity and Capital Resources

We consider the following when assessing our liquidity and capital resources:

The Company has historically financed its operations and capital requirements through cash flow from its operating activities, long-term loans, lease financing and borrowings under domestic and international short-term lines of credit.

Based on our analysis, we believe our existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months and for the longer term.

We may seek to take advantage of opportunities to raise additional capital through additional debt financing or through public or private sales of securities. If in the future our available liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. During 2023, we did not experience difficulty accessing capital and credit markets, but future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions.

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In summary, our cash flows for each period were as follows:

Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

Compared to 2022, the $277.3 million increase in cash provided by operating activities in 2023 was primarily driven by $288.9 million of changes in operating assets and liabilities, offset by a $11.7 million decrease of net income adjusted for non-cash reconciling items.

Changes in operating assets and liabilities were driven by changes in trade accounts and notes receivable, inventories, accounts payable and accrued liabilities, income taxes payable and refundable income taxes. The change for trade receivables was mainly due to lower sales. The change for inventory was driven by the Company’s initiative to reduce inventory. The change for accounts payable and accrued liabilities was driven by lower vendor purchases and timing of payments. The change for income taxes payable and refundable income taxes was due to larger tax payments compared to the previous year.

Investing activities

Investing cash flows consist primarily of capital expenditures, cash used for acquisitions, proceeds from sales of businesses and proceeds from sales of property and equipment.

In 2023, there was $553.1 million of cash provided by investing activities compared to $4,945.7 million cash used in investing activities in 2022. The decrease resulted primarily from the absence of the prior-year acquisition of CMC Materials, partially offset by proceeds from the sale of QED and the EC businesses totaling $815.0 million, net proceeds from the termination of the Alliance Agreement totaling $199.3 million in the current year, and a $9.4 million decrease in capital expenditures in the current year compared to the prior year.

Acquisition of property and equipment totaled $456.8 million in 2023, which primarily reflected investments in facilities, equipment and tooling, compared to $466.2 million in 2022, which also primarily reflected investments in equipment and tooling. Capital expenditures in 2023 generally reflected more spending related to growth capacity, including our previously announced investment in our KSP site and new facility in Colorado Springs, Colorado.

In 2022, the Company acquired CMC Materials. The cash used to acquire these assets was $4,474.9 million, net of cash acquired. The transaction is described in further detail in Note 4 to the Company’s consolidated financial statements.

Financing activities

Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.

In 2023, there was $1,282.6 million of cash used in financing activities compared to $4,766.2 million cash provided by in financing activities in 2022. The change was primarily due to the net debt activity, which was a use of cash of $1,259.7 million in 2023 compared to a source of cash of $4,831.3 million. See Note 11 to the Company’s consolidated financial statements for further discussion of the debt financing that occurred during the year.

The Company’s total dividend payments were $60.2 million in 2023 compared to $57.3 million in 2022. The Company has paid a cash dividend in each quarter since the fourth quarter of 2017. On January 17, 2024, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on February 21, 2024 to shareholders of record as of January 31, 2024.

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Other Liquidity and Capital Resources Considerations

Debt at par value outstanding

On March 10, 2023, and September 11, 2023, the Company amended its Existing Credit Agreement. The First Amendment, dated March 10, 2023, provided for, among other things, the refinancing of the Company’s outstanding term loans B under the senior secured term loan facility due 2029 in an aggregate principal amount of $2.495 billion with a new tranche of term loans B in an aggregate principal amount of $2.495 billion. The amended loans under the First Amendment bore interest at a rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.75% which was a reduction from the applicable margin of 3.00% prior to the First Amendment. The Second Amendment, dated September 11, 2023, provides for, among other things, the refinancing of the Company’s outstanding term loans B under the senior secured term loan facility due 2029 in an aggregate principal amount of $2.318 billion with a new tranche of term loans B in an aggregate principal amount of $2.318 billion. Under the Second Amendment, the outstanding term loans B under the amended senior secured term loan facility due 2029 will bear interest, at a rate per annum equal to the SOFR plus an applicable margin of 2.50% which is a reduction from the applicable margin of 2.75% provided for in the First Amendment. See Note 11 to our consolidated financial statements for further discussion.

During the fiscal year 2023, the Company repaid $1.1 billion of the outstanding borrowings under the New Tranche B Term Loan and $135.0 million in full repayment of all outstanding borrowings under the bridge credit facility.

Through December 31, 2023, the Company was in compliance with all applicable financial covenants included in the terms of its debt arrangements.

The Company has commitments under the Revolving Facility of $575.0 million. The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the twelve months ended December 31, 2023, there were no borrowings under this Revolving Facility and no balance was outstanding at December 31, 2023.

The Company also has a line of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $7.1 million. There were no outstanding borrowings under this line of credit and no balance was outstanding at December 31, 2023.

Cash and cash requirements

Our cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

Our restricted cash represented cash held in a “Rabbi” trust and is not available for general corporate purposes. See Note 6 to the consolidated financial statements for additional information. The Company had no restricted cash as of December 31, 2023.

Cash requirements

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We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements, but in the event that additional liquidity is required we may also borrow under our Revolving Facility.

The following table summarizes our short and long-term cash requirements as of December 31, 2023:

Long-term debt and interest payments on long-term debt. We have contractual obligations for principal and interest payments on our long-term debt. See Note 11 of the consolidated financials for additional information. Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets. Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2023 and do not include $91.6 million for net unamortized discounts and debt issuance costs. On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount of the swap is $1.4 billion at December 31, 2023 and is scheduled to decrease quarterly and will expire on December 30, 2025. The impact of the interest rate swap is not considered in the interest payments above.

Capital purchase obligations. We have capital purchase obligations that represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2023, as the Company had not yet received the related goods or taken title to the property.

We expect capital expenditure spending to be approximately $350.0 million in 2024 for growth capacity investments and the construction of our new manufacturing facility in Colorado.

Supply purchase obligations. We have non-cancelable commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2023, as the Company had not yet received the related goods or taken title to the property.

Operating and financing lease commitments. Commitments under operating and financing leases primarily relate to leasehold properties. See Note 15 of the consolidated financials for additional information.

Income tax liabilities. Of the tax liabilities included in the table above, $67.7 million relates to uncertain tax positions. We are unable to accurately predict when these amounts will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to an unforeseeable event (such as a tax audit settlement). See Note 17 of the consolidated financials for additional information.

New Accounting Pronouncements

Recently adopted accounting pronouncements Refer to Note 1 to the Company’s consolidated financial statements for a discussion of accounting pronouncements implemented in 2023.

Recently issued accounting pronouncements Refer to Note 1 of the Company’s consolidated financial statements for a discussion of accounting pronouncements recently issued but not yet adopted.

Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with GAAP.

The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. These non-GAAP financial measures include Adjusted EBITDA and Adjusted Operating Income, together with related measures thereof, and Non-GAAP EPS, as well as certain other supplemental non-GAAP financial measures included in the discussion of the Company’s financial results.

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Adjusted EBITDA is defined by the Company as net income before, as applicable, (1) income tax (benefit) expense, (2) interest expense, (3) interest income, (4) other expense, net, (5) goodwill impairment, (6) deal and transaction costs, (7) integration costs, (8) contractual costs and non-cash integration costs, (9) restructuring costs, (10) loss (gain) on sale of businesses, (11) charge for fair value write-up of acquired inventory sold, (12) gain on termination of the Alliance Agreement, (13) impairment of long-lived assets, (14) amortization of intangible assets and (15) depreciation. Adjusted Operating Income is defined by the Company as Adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes ratios of non-GAAP financial measures such as Adjusted EBITDA to Company net sales and Adjusted Operating Income (referred to as Adjusted EBITDA Margin and Adjusted Operating Margin, respectively).

Non-GAAP Net Income is defined by the Company as net income before, as applicable, (1) goodwill impairment, (2) deal and transaction costs, (3) integration costs, (4) contractual costs and non-cash integration costs, (5) restructuring costs, (6) loss on extinguishment of debt and modification, (7) loss (gain) on sale of businesses, (8) gain on termination of the Alliance Agreement, (9) Infineum termination fee, net, (10) charge for fair value write-up of sale of acquired inventory, (11) interest expense, net, (12) impairment of long-lived assets, (13) amortization of intangible assets, (14) the tax effect of the foregoing adjustments to net income, stated on a per share basis, divided by diluted weighted average shares outstanding. Non-GAAP EPS is defined as our Non-GAAP Net Income divided by our diluted weighted-average shares outstanding.

The Company provides supplemental non-GAAP financial measures to help management and investors to better understand its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.

Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides greater consistency in its financial reporting from period-to-period and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.

Management uses Adjusted EBITDA and Adjusted Operating Income to assist it in evaluations of the Company’s operating performance by excluding items that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its business.

In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s Board of Directors uses non-GAAP financial measures in the evaluation process to determine management compensation.

The Company believes that certain analysts and investors use Adjusted EBITDA, Adjusted Operating Income and Non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use Adjusted EBITDA measures to evaluate the Company’s creditworthiness.

The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.

Management notes that the use of non-GAAP measures has limitations, including but not limited to:

First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies. For example, the Company’s non-GAAP measure of Adjusted EBITDA may not be directly comparable to EBITDA or an Adjusted EBITDA measure reported by other companies.

Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, significant recurring expenses with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.

Third, there is no assurance that the Company will not have future charges for fair value write-up of acquired inventory, restructuring activities, deal and transaction costs, integration costs, asset or goodwill impairments, loss on extinguishment of debt or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the

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tax effects thereon. The exclusion of these items in the Company’s non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring.

Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of Adjusted EBITDA, Adjusted Operating Income, and Non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents, are presented below in the accompanying tables.

The reconciliation of GAAP measures to adjusted operating income and Adjusted EBITDA for the years ended December 31, 2023 and 2022 are presented below:

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1 Non-cash impairment charges associated with goodwill.

2 Deal and transaction costs associated with CMC Materials acquisition and completed and announced divestitures.

3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations. These fees arise outside of the ordinary course of our continuing operations.

4 Represents severance charges related to the integration of the CMC Materials acquisition.

5 Represents retention charges related directly to the CMC Materials acquisition and completed and announced divestitures, and are not part of our normal, recurring cash operating expenses.

6 Represents other employee related costs and other costs incurred relating to the CMC Materials acquisition and the completed and announced divestitures. These costs arise outside of the ordinary course of our continuing operations.

7 Represents non-recurring costs associated with the CMC Materials retention program that was agreed upon and set forth in the definitive acquisition agreement.

8 Represents the non-cash incremental expense associated with adopting retirement vesting obligations on Entegris equity awards, similar to those of CMC Materials equity awards.

9 Relates to the change in control agreements that were in place with management of CMC Materials prior to the acquisition and the associated expense post-acquisition.

10 Restructuring charges resulting from cost saving initiatives.

11 Loss (gain) from the sale of our businesses.

12 Represents the additional cost of goods sold recognized in connection with the step-up of inventory valuation related to CMC Materials acquisition.

13 Gain on termination of the Alliance Agreement with MacDermid Enthone.

14 Impairment of long-lived assets.

15 Non-cash amortization expense associated with intangibles acquired in acquisitions.

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The reconciliation of GAAP measures to Non-GAAP EPS for the years ended December 31, 2023 and 2022 are presented below:

1 Non-cash impairment charges associated with goodwill.

2 Deal and transaction costs associated with the CMC Materials acquisition and completed and announced divestitures.

3 Represents professional and vendor fees recorded in connection with services provided by consultants, accountants, lawyers and other third-party service providers to assist us in integrating CMC Materials into our operations. These fees arise outside of the ordinary course of our continuing operations.

4 Represents severance charges related to the integration of CMC Materials.

5 Represents retention charges related directly to the CMC Materials acquisition and completed and announced divestitures, and are not part of our normal, recurring cash operating expenses.

6 Represents other employee-related costs and other costs incurred relating to the CMC Materials acquisition and completed and announced divestitures. These costs arise outside of the ordinary course of our continuing operations.

7 Represents non-recurring costs associated with the CMC retention program that was agreed upon and set forth in the definitive acquisition agreement.

8 Represents the non-cash incremental expense associated with adopting retirement vesting obligations on Entegris equity awards, similar to those of CMC Materials equity awards.

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9 Relates to the change in control agreements that were in place with management of CMC Materials prior to the acquisition and the associated expense post-acquisition.

10 Restructuring charges resulting from cost saving initiatives.

11 Non-recurring loss on extinguishment of debt and modification of our debt.

12 Loss (gain) from the sale of our businesses.

13 Gain on termination of the Alliance Agreement with MacDermid Enthone.

14 Non-recurring gain from the termination fee with Infineum.

15 Represents the additional cost of goods sold recognized in connection with the step-up of inventory valuation related to the CMC Materials acquisition.

16 Non-recurring interest costs related to the financing of the CMC Materials acquisition.

17 Impairment of long-lived assets.

18 Non-cash amortization expense associated with intangibles acquired in acquisitions.

19 The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the “Cautionary Statements” section of this Item 7 below. You should review Item 1A “Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The Company has elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented except for the segment analysis. Information pertaining to fiscal year 2020 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2021 and 2020 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 4, 2022.

Cautionary Statements

This Annual Report on Form 10-K and the portions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form 10-K contain “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements may include statements about the ongoing impacts of the COVID-19 pandemic and the conflict in Ukraine on the Company’s operations and markets, including supply chain issues and inflationary pressures related thereto; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers of any growth trends; the development of new products and the success of their introductions; the focus of the Company’s engineering, research and development projects; the Company’s ability to execute on our business strategies, including with respect to Company’s expansion of its manufacturing presence in Taiwan and in Colorado Springs; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has made and commercial partnerships the Company has established, including the acquisition of CMC Materials; the closing of any announced divestitures, including the timing thereof; trends relating to the fluctuation of currency exchange rates; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Quarterly Report, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, weakening of global and/or regional economic conditions, generally or specifically in the semiconductor industry, which could decrease the demand for the Company’s products and solutions; the level of, and obligations associated with, the Company’s indebtedness, including the debts incurred in connection with the acquisition of CMC Materials; risks related to the acquisition and integration of CMC Materials, including unanticipated difficulties or expenditures relating thereto, the ability to achieve the anticipated synergies and value-creation contemplated by the acquisition of CMC Materials and the diversion of management time on transaction-related matters; risks related to the COVID-19 pandemic and the conflict in Ukraine on the global economy and financial markets, as well as on the Company, its customers and suppliers, which may impact its sales, gross margin, customer demand and its ability to supply its products to its customers; raw material shortages, supply and labor constraints and price increases; pricing and inflationary pressures and rising interest rates; operational, political and legal risks of the Company’s international operations; the Company’s dependence on sole source and limited source suppliers; the Company’s ability to meet rapid demand shifts; the Company’s ability to continue technological innovation and introduce new products to meet customers’ rapidly changing requirements; substantial competition; the Company’s concentrated customer base; the Company’s ability to identify, complete and integrate acquisitions, joint ventures , divestitures or other similar transactions; the Company’s ability to consummate pending transactions on a timely basis or at all and the satisfaction of the conditions precedent to consummation of such pending transactions, including the satisfaction of regulatory conditions on the terms expected, at all or in a timely manner; the Company’s ability to effectively implement any organizational changes; the Company’s ability to protect and enforce intellectual property rights; the increasing complexity of certain manufacturing processes; changes in government regulations of the countries in which the Company operates, including the imposition of tariffs, export controls and other trade laws and restrictions and changes to national security and international trade policy, especially as they relate to China; fluctuation of currency exchange rates; fluctuations in the market price of the Company’s stock; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report on Form 10-K, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking

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statements. These risks and uncertainties include, but are not limited to, the risk factors and additional information described in this Annual Report on Form 10-K under the caption “Risk Factors,” elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings. Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.

Overview

This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.

The Company is a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology industries. We help our customers maximize manufacturing yields, reduce manufacturing costs and enable higher device performance by leveraging our unique breadth of capabilities to provide mission critical enhanced materials and process solutions for the most advanced manufacturing environments.

Our business is organized and operated in four operating segments, which align with the key elements of the advanced semiconductor manufacturing ecosystem.

•The Specialty Chemicals and Engineered Materials segment, or SCEM, provides high-performance and high-purity process chemistries, gases and materials, and safe and efficient materials delivery systems to support semiconductor and other advanced manufacturing processes.

•The Advanced Planarization Solutions segment, or APS, provides complementary chemical mechanical planarization solutions, advanced materials and high-purity wet chemicals; including CMP slurries, pads, formulated cleans and other electronic chemicals.

•The Microcontamination Control segment, or MC, offers solutions to filter and purify critical liquid and gaseous chemistries used in semiconductor manufacturing processes and other high-technology industries.

•The Advanced Materials Handling segment, or AMH, develops solutions to monitor, protect, transport and deliver critical liquid chemistries, wafers and other substrates for a broad set of applications in the semiconductor industry, life sciences and other high-technology industries.

These segments share common business systems and processes, technology centers and technology roadmaps. With the complementary capabilities across these segments, we believe we are uniquely positioned to create new, co-optimized and increasingly integrated solutions for our customers. For example, after the acquisition of CMC Materials, we now offer an end-to-end offering for our customers consisting of advanced deposition materials from our SCEM segment, CMP slurries, pads and post-CMP cleaning chemistries from our APS segment, CMP slurry filters from our MC segment, and CMP slurry high-purity packaging and fluid monitoring systems from our AMH segment.

Impact of New Export Control Regulations

On October 7, 2022, the U.S Department of Commerce, Bureau of Industry and Security (“BIS”) announced new export control regulations that restrict the sale of certain products and services to some companies and domestic fabs in China. Since these rules were published, we have assembled a global, cross-functional team to interpret the regulations, analyze how they may impact Entegris and determine how to best serve our customers going forward in compliance with these rules. These new rules restrict the sale of products and the provision of service to domestic fabs in China operating at or above certain advanced technology nodes. We currently estimate that the new regulations will reduce our net sales by approximately $20 million per quarter in 2023. We intend to apply for export licenses where appropriate. See Item 1A, “Risk Factors,” for additional information regarding risk associated with the impact of new export control regulations, including under the caption “The impact of tariffs, export controls and other trade laws and restrictions, especially with respect to China”.

Impact of COVID-19 on our Business

The COVID-19 pandemic continues to impact the global economy. Infection rates vary across the countries in which we operate, and governmental authorities have continued to implement numerous and constantly evolving measures to try to contain the virus. Continuing impacts of the pandemic include a more challenging supply chain and global logistics environment. While we have experienced instances of raw material constraints, higher freight costs and delivery delays in both inbound shipments of raw materials and outgoing shipments of finished products to customers, we have not experienced material adverse impacts to our global operations. See Item 1A, “Risk Factors,” for additional information regarding risks associated with the COVID-19 pandemic, including under the caption “The impact of the COVID-19 pandemic.”

Impact of Conflict Between Russia and Ukraine

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The military conflict between Russia and Ukraine and the sanctions imposed by the United States and other governments in response to this conflict have caused significant volatility and disruptions to global markets. We source certain materials from Russia and Ukraine, and we have been able to obtain an adequate supply of these materials to serve our customers, albeit at increased cost. We are proactively assessing and evaluating alternative sources to bolster our supply of these materials moving forward, in addition to working closely with our customers on any product re-qualification that may be required. Revenue relating to products manufactured from raw materials sourced from this region does not constitute a material portion of our business and historically, we have not received significant revenue from this region. The ultimate impact of the conflict on the global economy, supply chains, logistics, fuel prices, raw material pricing and our business remains uncertain. We cannot currently predict the ultimate impact of the conflict on our financial condition, results of operations or cash flows. See Item 1A, “Risk Factors,” for additional information regarding risk associated with the conflict between Russia and Ukraine, including under the caption “Risks Related to Our Business and Industry”.

Recent Events

On July 6, 2022 (“Closing Date”), we completed the acquisition of CMC Materials. We acquired all of the issued and outstanding common shares of CMC Materials for $133.00 in cash and 0.4506 shares of our common stock per share, representing a total purchase price (inclusive of debt retired and cash assumed) at close of $6.0 billion (based on our closing price on June 30, 2022), including $3.8 billion in cash paid to CMC Materials’ shareholders, the issuance of 12.9 million shares of our common stock (excluding unvested CMC stock options and unvested CMC restricted stock units, restricted shares and performance share units equity awards assumed), $0.9 billion of debt retired and approximately $0.3 billion of acquired cash. We financed the cash portion of the purchase price through debt financing. See Note 10 to our consolidated financial statements for further discussion of the debt financing that occurred prior to and on the Closing Date.

During the three months ended October 1, 2022, the Company realigned its financial reporting structure to reflect management and organizational changes. The Company will report its financial performance based on four reportable segments: Specialty Chemicals and Engineered Materials, Microcontamination Control, Advanced Material Handling and Advanced Planarization Solutions. See Note 20 to the consolidated financial statements for additional information on the Company’s four segments.

On July 28, 2022, we entered into an interest rate swap agreement. The interest rate swap is a floating-to-fixed interest rate swap contract to hedge the variability in Secured Overnight Financing Rate (“SOFR”)-based interest payments associated with $1.95 billion of our $2.495 billion Initial Term Loan Facility. The notional amount is scheduled to decrease quarterly and will expire on December 30, 2025. See Note 12 to our consolidated financial statements for further discussion of our derivative instruments.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (“IRA”) that includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on “adjusted financial statement income” exceeding $1 billion and a 1% excise tax on net repurchases of stock after December 31, 2022, as well as tax credits for clean energy initiatives. We are evaluating the IRA and its requirements, as well as any potential impact on our business.

On October 11, 2022, the Company entered into a definitive agreement with Infineum USA L.P. to sell our PIM business, which became part of the Company with the recent acquisition of CMC Materials. Effective February 10, 2023, the Company terminated the definitive agreement in accordance with its terms. At the time of the termination, the transaction had not received clearance under the HSR Act.

On January 20, 2023, the Company announced a definitive agreement for Quad-C Management to acquire the QED business, which became part of the Company with the recent acquisition of CMC Materials. The selling price is expected to be approximately $135.0 million, subject to customary purchase price adjustments.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including, but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangible assets), goodwill and income taxes. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Management’s utilization of different judgments or estimates could result in material differences in the amount and timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings.

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Our critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below. See Note 1 to the Company’s consolidated financial statements for additional information about the Company’s other significant accounting policies.

Business Acquisitions

The Company accounts for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Accordingly, for significant items the Company typically obtains assistance from a third-party valuation firm.

There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For intangible assets, the Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates.

Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives, influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net income.

Results of Operations

Year ended December 31, 2022 compared to year ended December 31, 2021

The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for 2022 and 2021.

Net sales For 2022, net sales were $3,282.0 million, up $983.1 million, or 43%, from 2021. An analysis of the factors underlying the increase in net sales is presented in the following table:

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Total net sales increased primarily driven by the inclusion of sales from the acquisition of CMC Materials for the six-month period subsequent to the Closing Date. Growth was also driven in our unit driven solutions, including liquid filtration, selective etch, gas purification systems and advanced deposition materials, which are of growing importance to our customers’ technology. Total net sales also reflected unfavorable foreign currency translation effects of $106.9 million, mainly due to the significant weakening of the Japanese yen and the Korean won relative to the U.S. dollar.

Sales percentage on a geographic basis for 2022 and 2021 and the percentage increase in sales for 2022 compared to sales for 2021 were as follows:

The increase in sales for all geographic areas was primarily driven by the inclusion of sales from the CMC Materials acquisition and a general increase in demand for products.

Gross margin

The following table sets forth gross margin as a percentage of net revenues:

Gross margin decreased by 3.6 percentage points for 2022 compared to 2021, primarily due to a $61.9 million charge or 1.9 percentage point change for fair value write-up of acquired CMC Materials inventory sold during the three-month period subsequent to the CMC Materials acquisition, and the inclusion of CMC Materials’ products, which have aggregate lower gross margins.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2022 increased $251.1 million, or 86%, to $543.5 million from $292.4 million in 2021.

An analysis of the factors underlying the increase in SG&A expenses is presented in the following table:

Engineering, research and development expenses

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Engineering, research and development expenses consist of expenses for the support of current product lines and the development of new products and manufacturing technologies. These expenses were $229.0 million in 2022 and $167.6 million in 2021.

An analysis of the factors underlying the increase in ER&D expenses is presented in the following table:

The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications, and the Company often works directly with its customers to address their particular needs. As a percentage of revenue, the Company expects to increase ER&D expenses in the coming years.

Amortization of intangible assets Amortization of intangible assets was $144.0 million in 2022 compared to $47.9 million for 2021. The increase primarily reflects additional amortization expense associated with the recent acquisition of CMC Materials.

Interest expense Interest expense was $212.7 million in 2022 and $41.2 million in 2021. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. The increase primarily reflects higher interest expense related to the debt financing of the CMC Materials acquisition.

Interest income Interest income was $3.7 million in 2022 and $0.2 million in 2021. The increase reflects rising average interest rates and cash balances.

Other expense, net Other expense, net, was $23.9 million in 2022 compared to $31.7 million in 2021.

In 2022, other expense, net consisted mainly of consisted mainly of foreign currency transaction losses of $23.0 million.

In 2021, other expense, net consisted mainly of a loss on extinguishment of debt of $23.1 million associated with the redemption of the Company’s $550 million aggregate principal amount of senior unsecured notes due 2026 and foreign currency transaction losses of $7.9 million.

Income tax expense The Company recorded income tax expense of $38.2 million in 2022 compared to income tax expense of $70.0 million in 2021. The Company’s effective tax rate was 15.4% in 2022 compared to an effective tax rate of 14.6% in 2021.

The increase in the effective tax rate from 2021 to 2022 primarily relates to a reduction in creditable foreign withholding taxes during the year. This was partially offset by certain acquisition related expenses that were recorded during the year and a change in income geographic mix. Additionally, the tax rate for 2021 included the reversal of a valuation allowance on foreign tax credits generated during 2020 of $6.2 million and the recognition of a capital loss tax benefit of $5.1 million. These tax benefits were offset in part by tax recorded on the sale of intangible property of $3.5 million in 2021. The income tax expense for 2022 and 2021 includes discrete benefits of $4.0 million and $13.8 million, respectively, recorded in connection with share-based compensation.

Net income Net income was $208.9 million, or $1.46 per diluted share, in 2022 compared to net income of $409.1 million, or $3.00 per diluted share, in 2021. The decrease reflects the Company’s aforementioned operating results described in greater detail above and an increase of 12.9 million shares of common stock issued in connection with the CMC Materials acquisition that increased the number of dilutive shares outstanding.

Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measures.

The Company’s non-GAAP financial measures include adjusted EBITDA and adjusted operating income, together with related percentage changes, and non-GAAP earnings per share, or EPS.

Adjusted EBITDA increased to $973.2 million in 2022, compared to $699.4 million in 2021. Adjusted EBITDA as a percent of net sales was 29.7% in 2022 compared to 30.4% in 2021. Adjusted operating income increased 37.6% to $837.9 million in

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2022, compared to $609.1 million in 2021. Adjusted operating income as a percent of net sales was 25.5% in 2022 compared to 26.5% in 2021. Non-GAAP EPS increased 8.4% to $3.73 in 2022, compared to $3.44 in 2021. The decreases in adjusted EBITDA and adjusted operating income as a percentage net sales reflects lower gross margin.

Segment Analysis

Effective July 6, 2022, coincident to and in conjunction with the CMC acquisition (see Note 3 to the consolidated financial statements) the Company changed its financial segment reporting to reflect management and organizational changes made by the Company. The Company reports its financial performance based on four reportable segments: Specialty Chemicals and Engineered Materials, Microcontamination Control, Advanced Material Handling and Advanced Planarization Solutions. The change which included a transfer of some related operations in our Specialty Chemicals and Engineered Materials reportable segment to our Advanced Planarization Solutions reportable segment. Accordingly, our segment information was restated retroactively in the third quarter of fiscal 2022. The segment realignment had no impact on the Microcontamination Control or Advanced Materials Handling segments. See Note 20 to the consolidated financial statements for additional information on the Company’s four segments. The following is a discussion of the results of operations of these four business segments.

The following table and discussion concern the results of operations of the Company’s four reportable segments for the years ended December 31, 2022, 2021 and 2020.

Specialty Chemicals and Engineered Materials (SCEM)

For 2022, SCEM net sales increased to $773.6 million, up 24% from $625.7 million in 2021. The sales increase primarily reflects the inclusion of sales of $90.1 million from inclusion of certain product lines from the acquisition of CMC Materials, while the remainder reflects modestly improved sales of advanced deposition materials, formulated cleans, selective etch and specialty coatings products.

SCEM reported a segment profit of $122.3 million for 2022, down 11% compared to $137.4 million in 2021. The decrease in SCEM’s profit in 2022 was primarily due unfavorable product mix, the absence of a gain on a sale of non-core intangibles and higher operating expenses of 31% mainly due to the expenses incurred by the inclusion of certain product lines of CMC Materials and a $5.1 million charge for a fair value write-up of acquired CMC Materials inventory sold, partially offset by higher sales.

For 2021, SCEM net sales increased to $625.7 million, up 18% from $530.0 million in 2020. The sales increase was mainly due to increased sales of specialty gases and advanced deposition materials, formulated cleaning chemistries and advanced coatings products.

SCEM reported a segment profit of $137.4 million for 2021, up 38% compared to $99.5 million in 2020. The increase in SCEM’s profit in 2022 was primarily due to higher sales and a gain on a sale of non-core intangibles.

Microcontamination Control (MC)

For 2022, MC net sales increased to $1,106.0 million, up 20% from $919.4 million in 2021. The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products.

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MC reported a segment profit of $411.5 million for 2022, up 28% compared to $321.3 million in 2021. The increase in MC’s profit in 2022 was primarily due to higher gross profit related to the increased sales volume, partially offset by higher operating expenses of 17%, primarily due to higher compensation costs.

For 2021, MC net sales increased to $919.4 million, up 24% from $742.2 million in 2020. The sales increase was due to improved performance across substantially all platforms, with growth especially strong in liquid filtration and gas filtration products.

MC reported a segment profit of $321.3 million for 2021, up 29% compared to $248.9 million in 2020. The increase in MC’s profit in 2021 was primarily due to higher gross profit related to the increased sales volume, partially offset by higher operating expenses of 13%, primarily due to higher compensation costs.

Advanced Materials Handling (AMH)

For 2022, AMH net sales increased 20% to $846.5 million from $704.9 million in 2021. The sales increase was mainly due to improved sales from wafer handling and fluid handling.

AMH reported a segment profit of $183.7 million for 2022, up 15% compared to $160.0 million in 2021. The increase in AMH’s profit in 2022 was primarily due to higher sales volume, partially offset by a 16% increase in operating expenses, primarily due to higher compensation costs.

For 2021, AMH net sales increased 31% to $704.9 million from $538.7 million in 2020. The sales increase was mainly due to improved sales from wafer handling, fluid handling and measurement products and sales of our Aramus high purity bags, as well as additional sales of $6.8 million attributable to the acquisition of Global Measurement Technologies, Inc. and its manufacturing partner Clean Room Plastics, Inc., which are referred to collectively herein as GMTI.

AMH reported a segment profit of $160.0 million for 2021, up 44% compared to $111.0 million in 2020. The increase in AMH’s profit in 2021 was primarily due to higher sales volume, favorable product mix, partially offset by a 16% increase in operating expenses, primarily due to higher compensation costs.

Advanced Planarization Solutions (APS)

For 2022, APS net sales increased 608% to $606.6 million from $85.6 million in 2021. The sales increase was mainly due to sales attributed to the CMC Materials acquisition.

APS reported a segment profit of $96.9 million for 2022, up 219% compared to $30.4 million in 2021. The segment profit increase was primarily due to the segment profit attributed to the CMC Materials acquisition, partially offset by a $56.8 million charge for a fair value write-up of acquired CMC Materials inventory sold.

For 2021, APS net sales increased 8% to $85.6 million from $79.5 million in 2020. The sales increase was mainly due to improved sales from CMP cleans products, as well as additional sales of $1.2 million attributable to the acquisition of BASF’s Precision Microchemicals business in the fourth quarter of 2021.

APS reported a segment profit of $30.4 million for 2021, up 7% compared to $28.5 million in 2020. The increase in APS’s profit in 2022 was primarily due to higher sales volume.

Unallocated general and administrative expenses

Unallocated general and administrative expenses for 2022 totaled $190.5 million compared to $49.5 million for 2021. The $141.0 million increase mainly reflects the increase of $106.2 million and $34.8 million in integration related and deal and transaction costs, respectively, related to the acquisition of CMC Materials.

Liquidity and Capital Resources

We consider the following when assessing our liquidity and capital resources:

The Company has historically financed its operations and capital requirements through cash flow from its operating activities, long-term loans, lease financing and borrowings under domestic and international short-term lines of credit. On April 14, 2022, the Company, via a wholly-owned escrow subsidiary, completed a private offering of $1.6 billion aggregate principal amount of the 2029 Notes. On June 30, 2022, the Company, via a wholly-owned escrow subsidiary, completed a private offering of $0.9 billion aggregate principal amount of the 2030 Notes. In connection with the acquisition of CMC Materials on the Closing Date, the Company borrowed $2.495 billion under the Initial Term Loan Facility and increased commitments by $175.0 million

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under the Revolving Facility (from $400.0 million to $575.0 million). The Company used a portion of the proceeds of the offering to repay the remaining principal amount of the $145.0 million senior secured term loan facility due 2025. In addition, on the Closing Date, the Company entered into a 364-Day Bridge Credit Agreement and borrowed $275 million aggregate principal amount with a pricing of SOFR plus 4.55%. During the year, the Company made $140.0 million principal payments on the Bridge Credit Facility.

Based on our analysis, we believe our existing balances of domestic cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months and for the longer term.

We may seek to take advantage of opportunities to raise additional capital through additional debt financing or through public or private sales of securities. If in the future our available liquidity is not sufficient to meet the Company’s operating and debt service obligations as they come due, management would need to pursue alternative arrangements through additional equity or debt financing in order to meet the Company’s cash requirements. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. In 2022, we did not experience difficulty accessing capital and credit markets, but future volatility in the capital and credit markets may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt and/or react to changing economic and business conditions.

In summary, our cash flows for each period were as follows:

Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities.

Compared to 2021, the $48.2 million decrease in cash provided by operating activities in 2022 was primarily driven by a $41.6 million of changes in operating assets and liabilities and a $6.5 million decrease of net income adjusted for non-cash reconciling items.

Changes in working capital for 2022 were driven by higher inventory and lower accounts payable and accrued liabilities, partially offset by lower income taxes payables and lower trade accounts receivable. The change for inventory is due to an increase in raw material purchases to mitigate potential supply chain issues related to COVID-19 and increased business activity. The change for accounts payable and accrued liabilities was driven by timing of payments. The change for taxes was primarily driven by higher tax provision compared to the prior year. The change for trade accounts receivables and notes receivables was primarily due a lower increase in sales compared to that of the comparable previous period.

Investing activities

Investing cash flows consist primarily of capital expenditures, cash used for acquisitions and proceeds from sales of property and equipment.

The increase in cash used in investing activities in 2022 compared to 2021 was primarily due to higher cash paid for acquisitions of property, plant and equipment and for acquisitions.

Acquisition of property and equipment totaled $466.2 million in 2022, which primarily reflected investments in facilities, equipment and tooling, compared to $210.6 million in 2021, which also primarily reflected investments in equipment and tooling. Capital expenditures in 2022 generally reflected more spending related to growth capacity investments and the investment in our previously announced investment in our new facility in Taiwan.

In 2022, the Company acquired CMC Materials. The cash used to acquire these assets was $4,474.9 million, net of cash acquired. The transaction is described in further detail in Note 3 to the Company’s consolidated financial statements.

In 2021, the Company acquired BASF’s Precision Microchemicals business and certain assets of another company in an immaterial transaction. The cash used to acquire these assets was $91.9 million, net of cash acquired. The transactions are described in further detail in Note 3 to the Company’s consolidated financial statements.

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Financing activities

Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, and proceeds from the sale of shares of common stock through employee equity incentive plans.

In 2022, there was $4,766.2 million of cash provided by financing activities compared to $276.5 million cash used in financing activities in 2021. The change was primarily due to the net debt activity, which was a source of cash of $4.8 billion in 2022 compared to a use of cash of $174.1 million, and the absence of $67.1 million of repurchase and retirement of common stock. See Note 10 to the Company’s consolidated financial statements for further discussion of the debt financing that occurred during the year. In anticipation of its acquisition of CMC Materials, the Company suspended its previously announced share repurchase program in the fourth quarter of 2021 and did not authorize a new repurchase program or resume a repurchase program in 2022.

The Company’s total dividend payments were $57.3 million in 2022 compared to $43.5 million in 2021. The Company has paid a cash dividend in each quarter since the fourth quarter of 2017. On January 18, 2023, the Company’s board of directors declared a quarterly cash dividend of $0.10 per share to be paid on February 22, 2023 to shareholders of record as of February 1, 2023.

Other Liquidity and Capital Resources Considerations

Debt at par value outstanding

In connection with the acquisition of CMC Materials, the Company obtained the following financing: On the Closing Date, the Company entered into a Term Loan B Facility of $2.495 billion with a pricing at SOFR plus 3.00%. The Company previously syndicated the Initial Term Loan Facility on March 2, 2022 and incurred ticking fees through the Closing Date. The Company used a portion of the proceeds of the offering to repay the remaining principal amount of the $145.0 million senior secured term loan facility due 2025. During the year, the Company incurred $12.0 million in ticking fees, which were recorded to interest expense in the consolidated statement of operations. On the Closing Date, the Company entered into a $275 million senior unsecured Bridge Credit Facility with a pricing of SOFR plus 4.55%. The Company made $140.0 million of principal payments on the Bridge Credit Facility during 2022. On June 30, 2022, the Company issued, via a wholly-owned escrow subsidiary, $895 million aggregate principal amount of the 2030 Notes. On April 14, 2022, the Company also issued, via a wholly-owned escrow subsidiary, $1.6 billion aggregate principal amount of the 2029 Notes.

The Company increased the commitments under the Revolving Facility by $175.0 million (from $400.0 million to $575.0 million) in connection with the closing of the acquisition of CMC Materials on the Closing Date. The Revolving Facility bears interest at a rate per annum equal to, at the Company’s option, either a base rate (such as prime rate) or SOFR, plus, in each case, an applicable margin. During the year, the Company borrowed and repaid $201.0 million under the Revolving Facility. At December 31, 2022, there was no balance outstanding under the Revolving Facility and we had undrawn outstanding letters of credit of $1.5 million.

On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount is scheduled to decrease quarterly and will expire on December 30, 2025.

Through December 31, 2022, the Company was in compliance with all applicable financial covenants included in the terms of its debt arrangements.

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The Company also has a line of credit with one bank that provides for borrowings of Japanese yen for the Company’s Japanese subsidiary equivalent to an aggregate of approximately $7.6 million. There were no outstanding borrowings under this line of credit at December 31, 2022.

Cash and cash requirements

Our cash and cash equivalents include cash on hand and highly liquid debt securities with original maturities of three months or less, which are valued at cost and approximate fair value. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

Our restricted cash represents cash held in a “Rabbi” trust and is not available for general corporate purposes. See Note 5 to the consolidated financial statements for additional information.

Cash requirements

We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements, but in the event that additional liquidity is required we may also borrow under our Revolving Facility.

The following table summarizes our short and long-term cash requirements as of December 31, 2022:

Long-term debt and interest payments on long-term debt. We have contractual obligations for principal and interest payments on our long-term debt. See Note 10 of the consolidated financials for additional information. Debt obligations are classified based on their stated maturity date, regardless of their classification on the Company’s consolidated balance sheets. Interest projections on both variable and fixed rate long-term debt are based on interest rates effective as of December 31, 2022 and do not include $140.1 million for net unamortized discounts and debt issuance costs. On July 28, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge the variability in SOFR-based interest payments associated with $1.95 billion of its $2.495 billion Initial Term Loan Facility. The notional amount is scheduled to decrease quarterly and will expire on December 30, 2025. The impact of the interest rate swap is not considered in the interest payments above.

Capital purchase obligations. We have capital purchase obligations that represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2022, as the Company had not yet received the related goods or taken title to the property.

We expect capital expenditure spending to be approximately $500.0 million in 2023 for growth capacity investments and the construction of our new manufacturing facilities in Taiwan and Colorado.

Supply purchase obligations. We have non-cancelable commitments, including take-or-pay contracts, that are not presented as capital purchase commitments above. They were not recorded as liabilities on the Company’s consolidated balance sheet as of December 31, 2022, as the Company had not yet received the related goods or taken title to the property.

Operating lease commitments. Commitments under operating leases primarily relate to leasehold properties. See Note 14 of the consolidated financials for additional information.

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Income tax liabilities. Of the tax liabilities included in the table above, $53.5 million relates to uncertain tax positions. We are unable to accurately predict when these amounts will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to a tax audit settlement or some other unforeseeable event. See Note 16 of the consolidated financials for additional information.

New Accounting Pronouncements

Recently adopted accounting pronouncements Refer to Note 1 to the Company’s consolidated financial statements for a discussion of accounting pronouncements implemented in 2022. Other than the adoption of ASU 2021-08, Business Combinations (Topic 805) and ASU 2021-10, Government Assistance (Topic 832), there were no recently issued accounting pronouncements adopted in 2022.

Recently issued accounting pronouncements Refer to Note 1 of the Company’s consolidated financial statements for a discussion of accounting pronouncements recently issued but not yet adopted.

Non-GAAP Information The Company’s consolidated financial statements are prepared in conformity with GAAP.

The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. These non-GAAP financial measures include adjusted EBITDA and adjusted operating income, together with related measures thereof, and non-GAAP earnings per share, as well as certain other supplemental non-GAAP financial measures included in the discussion of the Company’s financial results.

Adjusted EBITDA is defined by the Company as net income before (1) income tax expense, (2) interest expense, (3) interest income, (4) other expense (income), net, (5) charge for fair value write-up of acquired inventory sold, (6) deal and transaction costs, (7) integration costs, (8) contractual and non-cash integration costs (9) severance and restructuring costs, (10) gain on sale of subsidiary, (11) amortization of intangible assets and (12) depreciation. Adjusted operating income is defined by the Company as adjusted EBITDA exclusive of the depreciation addback noted above. The Company also utilizes non-GAAP financial measures whereby adjusted EBITDA and adjusted operating income are each divided by the Company’s net sales to derive adjusted EBITDA margin and adjusted operating margin, respectively.

Non-GAAP Net Income is defined by the Company as net income before, as applicable, (1) charge for fair value write-up of acquired inventory sold, (2) deal and transaction costs, (3) integration costs, (4) contractual and non-cash integration costs (5) severance and restructuring costs, (6) loss on extinguishment of debt and modification, (7) interest expense, net (8) gain on sale of business, (9) amortization of intangible assets and (10) the tax effect of the foregoing adjustments to net income, stated on a per share basis, divided by diluted weighted average shares outstanding. Non-GAAP EPS is defined as our Non-GAAP Net Income divided by our diluted weighted-average shares outstanding.

The Company provides supplemental non-GAAP financial measures to help management and investors to better understand its business and believes these measures provide investors and analysts additional and meaningful information for the assessment of the Company’s ongoing results. Management also uses these non-GAAP measures to assist in the evaluation of the performance of its business segments and to make operating decisions.

Management believes the Company’s non-GAAP measures help indicate the Company’s baseline performance before certain gains, losses or other charges that may not be indicative of the Company’s business or future outlook and offer a useful view of business performance in that the measures provide a more consistent means of comparing performance. The Company believes the non-GAAP measures aid investors’ overall understanding of the Company’s results by providing a higher degree of transparency for such items and providing a level of disclosure that will help investors understand how management plans, measures and evaluates the Company’s business performance. Management believes that the inclusion of non-GAAP measures provides greater consistency in its financial reporting and facilitates investors’ understanding of the Company’s historical operating trends by providing an additional basis for comparisons to prior periods.

Management uses adjusted EBITDA and adjusted operating income to assist it in evaluations of the Company’s operating performance by excluding items that management does not consider as relevant in the results of its ongoing operations. Internally, these non-GAAP measures are used by management for planning and forecasting purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; for evaluating the effectiveness of operational strategies; and for evaluating the Company’s capacity to fund capital expenditures, secure financing and expand its business.

In addition, and as a consequence of the importance of these non-GAAP financial measures in managing its business, the Company’s board of directors uses non-GAAP financial measures in the evaluation process to determine management compensation.

The Company believes that certain analysts and investors use adjusted EBITDA, adjusted operating income and non-GAAP EPS as supplemental measures to evaluate the overall operating performance of firms in the Company’s industry. Additionally, lenders or potential lenders use adjusted EBITDA measures to evaluate the Company’s creditworthiness.

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The presentation of non-GAAP financial measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure.

Management notes that the use of non-GAAP measures has limitations, including but not limited to:

First, non-GAAP financial measures are not standardized. Accordingly, the methodology used to produce the Company’s non-GAAP financial measures is not computed under GAAP and may differ notably from the methodology used by other companies. For example, the Company’s non-GAAP measure of adjusted EBITDA may not be directly comparable to EBITDA or an adjusted EBITDA measure reported by other companies.

Second, the Company’s non-GAAP financial measures exclude items such as amortization and depreciation that are recurring. Amortization of intangibles and depreciation have been, and will continue to be for the foreseeable future, significant recurring expenses with an impact upon the Company’s results of operations, notwithstanding the lack of immediate impact upon cash flows.

Third, there is no assurance that the Company will not have future charges for fair value write-up of acquired inventory, restructuring activities, deal and transaction costs, integration costs, loss on extinguishment of debt or similar items and, therefore, may need to record additional charges (or credits) associated with such items, including the tax effects thereon. The exclusion of these items in the Company’s non-GAAP measures should not be construed as an implication that these costs are unusual, infrequent or non-recurring.

Management considers these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The calculations of adjusted EBITDA, adjusted operating income, and non-GAAP EPS, and reconciliations between these financial measures and their most directly comparable GAAP equivalents, are presented below in the accompanying tables.

The reconciliation of GAAP measures to adjusted operating income and adjusted EBITDA for the years ended December 31, 2022 and 2021 are presented below:

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The reconciliation of GAAP measures to non-GAAP earnings per share for the years ended December 31, 2022 and 2021 are presented below:

1The tax effect of pre-tax adjustments to net income was calculated using the applicable marginal tax rate for each respective year.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company’s consolidated financial condition and results of operations should be read along with the consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described in Item 1A, “Risk Factors” and the “Cautionary Statements” section of this Item 7 below. You should review Item 1A “Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The Company has elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented. Information pertaining to fiscal year 2019 results of operations and the year-over-year comparison of changes in our Financial Condition and Results of Operations as of and for the year ended December 31, 2020 and 2019 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020, filed on February 4, 2021.

Cautionary Statements

This Annual Report on Form 10-K and the portions of the Company’s Definitive Proxy Statement incorporated by reference in this Annual Report on Form 10-K contain “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements. These forward-looking statements may include statements about the impact of the Company’s pending merger with CMC; the COVID-19 pandemic on the Company’s operations and markets, including supply chain issues related thereto; future period guidance or projections; the Company’s performance relative to its markets, including the drivers of such performance; market and technology trends, including the duration and drivers of any growth trends and the impact of the COVID-19 pandemic on such trends; the development of new products or new applications for existing products and the success of their introductions; the focus of the Company’s engineering, research and development projects and levels of spending related thereto; the Company’s ability to execute on its business strategies, including with respect to the Company’s expansion of its manufacturing presence in Taiwan; the Company’s capital allocation strategy, which may be modified at any time for any reason, including share repurchases, dividends, debt repayments and potential acquisitions; the impact of the acquisitions the Company has made and commercial partnerships the Company has established; future capital and other expenditures, including estimates thereof; the Company’s expected tax rate; the impact, financial or otherwise, of any organizational changes; the impact of accounting pronouncements; quantitative and qualitative disclosures about market risk; and other matters. These forward-looking statements are based on current management expectations and assumptions only as of the date of this Annual Report on Form 10-K, are not guarantees of future performance and involve substantial risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors and additional information described in this Annual Report on Form 10-K under the caption “Risk Factors,” elsewhere in this Annual Report on Form 10-K and in the Company’s other periodic filings. Except as required under the federal securities laws and the rules and regulations of the SEC, the Company undertakes no obligation to update publicly any forward-looking statements or information contained herein, which speak as of their respective dates.

Overview

This overview is not a complete discussion of the Company’s financial condition, changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of its financial condition and operating performance and to provide a context for the detailed discussion and analysis that follows, and must be read in its entirety in order to fully understand the Company’s financial condition and results of operations.

The Company is a leading supplier of advanced materials and process solutions for the semiconductor and other high-technology industries. Our mission is to help our customers improve their productivity, performance and technology by providing enhanced materials and process solutions for the most advanced manufacturing environments. We leverage our unique breadth of capabilities to create mission-critical microcontamination control products, specialty chemicals and advanced materials handling solutions that maximize manufacturing yields, reduce manufacturing costs and enable higher device performance for our customers.

Our customized materials solutions enable the highest levels of performance essential to the manufacture of semiconductors. As our customers introduce more complex architectures and search for new materials with better electrical and structural properties to improve the performance of their devices, they rely on Entegris as a trusted partner to address these challenges. We understand these challenges and have solutions to address them, such as our advanced deposition materials, implant gases, formulated cleaning chemistries and selective etch chemistries. Our customers also require greater end-to-end materials purity and integrity in their manufacturing process that, when combined with smaller dimensions and more complex architectures, can be challenging to achieve. To enable the use of new metals and the further miniaturization of chips, and to maximize yield and

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increase long-term device reliability, we provide products such as our advanced liquid and gas filtration and purification products that help to selectively remove new classes of contaminants throughout the semiconductor supply chain. In addition, to ensure purity levels are maintained across the entire supply chain, from bulk manufacturing, to transportation to and delivery through a fab, to application onto the wafer, we provide high-purity packaging and materials handling products.

Our business is organized and operated in three operating segments, which align with the key elements of the advanced semiconductor manufacturing ecosystem. The Specialty Chemicals and Engineered Materials, or SCEM, segment provides high-performance and high-purity process chemistries, gases, and materials, and safe and efficient delivery systems to support semiconductor and other advanced manufacturing processes. The Microcontamination Control, or MC, segment offers solutions to filter and purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries. The Advanced Materials Handling, or AMH, segment develops solutions to monitor, protect, transport, and deliver critical liquid chemistries, wafers and other substrates for a broad set of applications in the semiconductor industry, life sciences and other high-technology industries. While these segments have separate products and technical know-how, they share common business systems and processes, technology centers, and strategic and technology roadmaps. With the technology, capabilities and complementary product portfolios from these three segments, we are uniquely positioned to collaborate across divisions to create new, co-optimized and increasingly integrated solutions for our customers. For example, our SCEM segment offers a highly selective nitride etch chemistry, our MC segment provides a liquid filter that is specifically matched to that formulation and our AMH segment ensures the integrity of the product as it is moved to and through the fab environment.

Key operating factors Key factors which management believes have the largest impact on the overall results of operations of the Company include:

•Level of sales Since a significant portion of the Company’s product costs (except for raw materials, purchased components and direct labor) are largely fixed in the short-to-medium term, an increase or decrease in sales affects gross profits and overall profitability significantly. Also, increases or decreases in sales and operating profitability affect certain costs such as incentive compensation and commissions, which are highly variable in nature. The Company’s sales are subject to the effects of industry cyclicality, technological change, substantial competition, pricing pressures and foreign currency fluctuation.

•Variable margin on sales The Company’s variable margin on sales is determined by selling prices and the costs of manufacturing and raw materials. This is affected by a number of factors, which include the Company’s sales mix, purchase prices of raw material (especially polymers, membranes, stainless steel and purchased components), domestic and international competition, direct labor costs, and the efficiency of the Company’s production operations, among others.

•Fixed cost structure The Company’s operations include a number of large fixed or semi-fixed cost components, which include salaries, indirect labor and benefits, facility costs, lease expenses, and depreciation and amortization. It is not possible to vary these costs easily in the short term as volumes fluctuate. Accordingly, increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components, resulting in a large impact on the Company’s profitability.

Impact of COVID-19 on our Business

The COVID-19 pandemic continues to impact the global economy and cause significant macroeconomic uncertainty. Infection rates vary across the countries in which we operate. Governmental authorities have continued to implement numerous and constantly evolving measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, vaccine recommendations and mandates, limits on gatherings, quarantines, shelter-in-place orders and business shutdowns. We have taken proactive, aggressive action to protect the health and safety of our employees, customers, partners and suppliers, consistent with the latest and evolving governmental guidelines. We expect to continue to implement appropriate measures until the COVID-19 pandemic is adequately contained. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations and requirements or as we otherwise see fit to protect the health and safety of our employees, customers, partners and suppliers.

While certain of our operations have from time-to-time been temporarily affected by government-mandated restrictions, to date we have not experienced significant adverse impacts to our global operations as a result of the COVID-19 pandemic. Broader impacts of the pandemic have included a more dynamic supply chain and global logistics environment, and we have experienced instances of raw material constraints, higher freight costs and delivery delays in both inbound shipments of raw materials and outgoing shipments of finished products to customers. While we continue to focus on mitigating risks to our operations and supply chain in the current industry environment, we expect some of the foregoing challenges to linger. From a

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demand perspective, during 2021 we continued to see strong demand for our leading-edge products, largely driven by accelerated digitalization, 5G applications and high-performance computing.

In the current circumstances, given the dynamic nature of the situation, any impact on our financial condition, results of operations or cash flows in the future continues to be difficult to estimate and predict, as it depends on future events that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, the duration and continued spread of the outbreak, its severity, potential additional waves of infection, the emergence of more virulent or more dangerous strains of the virus, the actions taken to mitigate the virus or its impact, the development, distribution, efficacy and acceptance of vaccines worldwide, how quickly and to what extent normal economic and operating conditions can resume, the broader impact that the pandemic is having on the economy and our industry and specific implications the pandemic may have on our suppliers and on global logistics. See Item 1A, “Risk Factors,” for additional information regarding risks associated with the COVID-19 pandemic, including under the caption “The COVID-19 pandemic and continuing governmental responses could materially adversely affect our financial condition and results of operations.”

Overall Summary of Financial Results for the Year Ended December 31, 2021

Total net sales for 2021 were $2,298.9 million, up $439.6 million, or 24%, from sales of $1,859.3 million for 2020.

Total net sales increased primarily as a result of an increase in overall demand for the Company’s products from semiconductor industry customers, particularly in the sale of liquid filtration, advanced deposition materials, selective etch and other areas of increasing importance to our customers. Total net sales also reflected net sales associated with acquisitions of $8.6 million and favorable foreign currency translation effects of $2.7 million.

The Company’s gross profit increased by $209.9 million for 2021 to $1,059.7 million, up from $849.7 million for 2020. Accordingly, the Company reported a 46.1% gross margin rate compared to 45.7% in 2020. The increases in gross profit and gross margin primarily reflect higher factory utilization associated with stronger sales levels.

The Company’s selling, general and administrative, or SG&A, expenses increased in 2021 by $27.3 million, mainly reflecting higher employee costs.

The Company’s engineering, research and development, or ER&D, expenses increased in 2021 by $31.6 million, mainly reflecting higher employee costs of $17.3 million and project related costs of $10.8 million.

As a result of the aforementioned and other factors discussed below, net income for 2021 was $409.1 million, or $3.00 per diluted share, compared to net income of $295.0 million, or $2.16 per diluted share, in 2020.

In 2021, the Company acquired BASF’s Precision Microchemicals business for $89.7 million in cash, net of cash acquired. The transaction is described in further detail in note 3 to the Company’s consolidated financial statements.

On December 14, 2021, the Company entered into the merger agreement with merger sub and CMC. Pursuant and subject to the terms and conditions of the merger agreement, upon completion of the transaction, merger sub will merge with and into CMC, with CMC surviving and continuing as a wholly-owned subsidiary of the Company. At the effective time of the proposed merger, each outstanding share of common stock of CMC (with certain exceptions set forth in the merger agreement) will be converted into the right to receive $133.00 in cash and 0.4506 shares of common stock of Entegris, plus cash in lieu of any fractional shares. The transaction is subject to certain conditions, including the affirmative vote of holders of a majority of the outstanding shares of common stock of CMC approving the adoption of the merger agreement and the receipt of approvals under United States and certain foreign antitrust and competition laws. The Company has agreed to operate its business in the ordinary course during the period between the execution of the merger agreement and the effective time of the proposed merger, subject to specific exceptions set forth in the merger agreement, and has agreed to certain other customary restrictions on operations, as set forth in the merger agreement. The Company has obtained fully committed debt financing from Morgan Stanley Senior Funding, Inc. and certain other financial institutions.

During 2021, the Company’s operating activities provided cash flow of $400.5 million. Cash and cash equivalents were $402.6 million at December 31, 2021 compared with $580.9 million at December 31, 2020. The Company had long-term borrowings, including current maturities, of $937.0 million at December 31, 2021 compared with $1,085.8 million at December 31, 2020.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates, including, but not limited to, those related to long-lived assets (property, plant and equipment, and identified intangible assets), goodwill and income taxes. The Company bases its estimates on historical experience and various other assumptions that management believes to be

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reasonable under the circumstances. Management’s utilization of different judgments or estimates could result in material differences in the amount and timing of the Company’s results of operations for any period. In addition, actual results could be different from the Company’s current estimates, possibly resulting in increased future charges to earnings.

Our critical accounting policies that are most significantly affected by estimates, assumptions and judgments used in the preparation of the Company's consolidated financial statements relate to business acquisitions and are discussed below. See note 1 to the Company’s consolidated financial statements for additional information about the Company’s other significant accounting policies.

Business Acquisitions

The Company accounts for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income. Accordingly, for significant items the Company typically obtains assistance from a third-party valuation firm.

There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For intangible assets, the Company normally utilizes the “income method,” which starts with a forecast of all of the expected future net cash flows attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Depending on the asset valued, the key assumptions included one or more of the following: (1) future revenue growth rates, (2) future gross margin, (3) future selling, general and administrative expenses, (4) royalty rates, and (5) discount rates.

Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives, influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net income.

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Results of Operations

Year ended December 31, 2021 compared to year ended December 31, 2020

The following table sets forth the results of operations and the relationship between various components of operations, stated as a percent of net sales, for 2021 and 2020.

Net sales For 2021, net sales were $2,298.9 million, up $439.6 million, or 24%, from 2020. An analysis of the factors underlying the increase in net sales is presented in the following table:

The Company’s net sales reflected an increase in overall demand for the Company’s products from semiconductor industry customers, particularly in the sale of liquid filtration, advanced deposition materials, selective etch and other areas of increasing importance to our customers. Total net sales also reflected net sales associated with acquisitions of $8.6 million and favorable foreign currency translation effects of $2.7 million.

In addition to our semiconductor focused products, during 2021 we reached over $50 million of sales of Aramus “high purity bags”, used for COVID-19 vaccines. We will seek to expand the use of these solutions into non-COVID biologics.

Sales percentage on a geographic basis for 2021 and 2020 and the percentage increase in sales for 2021 compared to sales for 2020 were as follows:

The increase in sales for all geographic areas was primarily driven by a general increase in demand for products in all three of the Company’s segments.

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Gross margin

The following table sets forth gross margin as a percentage of net revenues:

Gross margin increased by 0.4 percentage points for 2021 compared to 2020, primarily due to higher factory utilization associated with stronger sales levels.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of payroll and related expenses for the sales and administrative staff, professional fees (including accounting, legal and technology costs and expenses), and sales and marketing costs. SG&A expenses for 2021 increased $27.3 million, or 10%, to $292.4 million from $265.1 million in 2020. SG&A expenses, as a percent of net sales, decreased to 12.7% from 14.3% a year earlier, primarily reflecting the increase in sales.

An analysis of the factors underlying the increase in SG&A expenses is presented in the following table:

Engineering, research and development expenses

Engineering, research and development expenses consist of expenses for the support of current product lines and the development of new products and manufacturing technologies. These expenses were $167.6 million in 2021 and $136.1 million in 2020. ER&D expenses as a percent of net sales remained flat at 7.3% compared to a year earlier.

An analysis of the factors underlying the increase in ER&D expenses is presented in the following table:

The Company’s overall ER&D efforts will continue to focus on developing and improving its technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications, and the Company often works directly with its customers to address their particular needs. As a percentage of revenue, the Company expects to increase ER&D expenses in the coming years.

Amortization of intangible assets Amortization of intangible assets was $47.9 million in 2021 compared to $53.1 million for 2020. The decrease primarily reflects the elimination of amortization expense of $6.8 million for identifiable intangible assets acquired in acquisitions that became fully amortized in previous periods, partially offset by additional amortization expense of $1.7 million associated with recent acquisitions as discussed in note 3 to the consolidated financial statements.

Interest expense Interest expense was $41.2 million in 2021 and $48.6 million in 2020. Interest expense includes interest associated with debt outstanding and the amortization of debt issuance costs associated with such borrowings. The decrease primarily reflects lower average debt levels and interest rates in 2021.

Interest income Interest income was $0.2 million in 2021 and $0.8 million in 2020. The decrease reflects lower average interest rates and cash balances.

Other expense (income), net Other expense, net, was $31.7 million in 2021 compared to other income, net, of $6.7 million in 2020.

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In 2021, other expense, net consisted mainly of a loss on extinguishment of debt of $23.1 million associated with the redemption of the Company’s $550 million aggregate principal amount of senior unsecured notes due 2026, or the 2026 Notes (see note 8 to the Company’s consolidated financial statements), and foreign currency transaction losses of $7.9 million.

In 2020, other income, net consisted mainly of foreign currency transaction gains of $9.8 million, partially offset by loss on debt extinguishment costs of $2.4 million associated with payments on the Term Loan Facility.

Income tax expense The Company recorded income tax expense of $70.0 million in 2021 compared to income tax expense of $59.3 million in 2020. The Company’s effective tax rate was 14.6% in 2021 compared to an effective tax rate of 16.7% in 2020.

The decrease in the effective tax rate from 2020 to 2021 is primarily due to a benefit related to the reversal of a valuation allowance on federal foreign credits generated in 2020 of $6.2 million. Additionally, the Company recognized a net capital loss tax benefit of $5.1 million during the tax year ended December 31, 2021. These benefits were partially offset by tax recorded on the sale of intangible property of $3.5 million in 2021. The 2020 tax rate included a benefit of $1.5 million related to additional R&D tax credits, an increase in discrete benefits related to share-based compensation of $8.8 million, and lower accrued withholding taxes on foreign earnings. These decreases were partially offset by a valuation allowance on federal foreign tax credits generated during the year of $6.2 million.

Net income Net income was $409.1 million, or $3.00 per diluted share, in 2021 compared to net income of $295.0 million, or $2.16 per diluted share, in 2020. The increase reflects the Company’s aforementioned operating results described in greater detail above.

Non-GAAP Financial Measures Information The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The Company also utilizes certain non-GAAP financial measures as a complement to financial measures provided in accordance with GAAP in order to better assess and reflect trends affecting the Company’s business and results of operations. See “Non-GAAP Information” included below in this section for additional detail, including the reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measures.

The Company’s non-GAAP financial measures include adjusted EBITDA and adjusted operating income, together with related percentage changes, and non-GAAP earnings per share, or EPS.

Adjusted EBITDA increased to $699.4 million in 2021, compared to $542.5 million in 2020. Adjusted EBITDA as a percent of net sales was 30.4% in 2021 compared to 29.2% in 2020. Adjusted operating income increased 32.7% to $609.1 million in 2021, compared to $459.0 million in 2020. Adjusted operating income as a percent of net sales was 26.5% in 2021 compared to 24.7% in 2020. Non-GAAP EPS increased 35.4% to $3.44 in 2021, compared to $2.54 in 2020. The increases in adjusted EBITDA and adjusted operating income as a percentage of net sales reflect the increases in sales and gross profit.

Segment Analysis

The Company reports its financial performance based on three reporting segments. See note 16 to the consolidated financial statements for additional information on the Company’s three segments.

The following table and discussion concern the results of operations of the Company’s three reportable segments for the years ended December 31, 2021 and 2020.