My name is Steve Cantor. I'm the Vice President of Corporate Relations, and it's my pleasure today to welcome you to Entegris's 2016 Analyst Meeting. This is our 50th year as a company, so we're very excited to be here this year, and feel that we have a lot of great things happening with our company that we're going to be telling you about in a moment. Our agenda today is as follows. If I can get the slide, Stuart. Oh, maybe not.
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Okay, great. Thank you. Now we're all set. Today, our agenda. We'll start with Bertrand Loy, who's our President and CEO, who will describe how we are leveraging our unique business model and market position as a leading specialty materials company to drive shareholder value. We'll then have James O'Neill, our Chief Technology Officer, provide some more details about how we are using our broad technology portfolio to enable us to address new and market opportunities for growth. Gregory Graves will talk about our financial strategies and our priorities for capital deployment. I'd like to also introduce a couple of other members of the Entegris management team today. Sue Lee is our Chief General Counsel, Todd Edlund is our Chief Operating Officer, and Wenge Yang, somewhere here, is our Vice President of Marketing. A few housekeeping items before we begin.
The meeting today is scheduled to end promptly at 1:00 P.M. local time. We ask that you hold your questions until all of the presentations are complete, which should run a little less than an hour. We should have plenty of time for Q&A. You will notice in front of you there are some surveys. We'd appreciate if you could provide some feedback, since that really helps us continue to improve the effectiveness of these meetings. The meeting today is being webcast live. It's also going to be available on demand for replay. It's accessible on our website. If you would like an electronic or soft copy of the slide material, please see me. We'll be happy to get that to you.
Before turning it over to Bertrand, I just want to remind everyone that we will be making forward-looking statements today. We encourage you to read our filings with the SEC carefully to understand all the risks and uncertainties related to those statements. With that, I'll turn it over to Bertrand.
Thank you, Steve. Good morning, everyone. Thank you for attending our 2016 Analyst Day. This is certainly a very special day, a very special year for us, as it marks the 50th anniversary of the creation of the company. A year for us to celebrate, certainly celebrate a number of past accomplishments. Also a year to reflect. Reflect on those past successes and how we can actually capitalize on them, raise the bar, build additional momentum to create new value for our customers, our shareholders, and our employees. If I had to conceptualize the value creation model of Entegris, it would look a little bit like this. We have a clear mission, we focus, we innovate. In the end, we deliver. Our mission is really to create unique value for our customers by developing mission-critical solutions for their manufacturing processes.
We focus on some of the most difficult manufacturing environments in the world. Primarily, we focus on the electronics industry, broadly defined. We innovate, we collaborate very closely with our customers. A result of that is we've been able to build a very exciting portfolio of opportunities, which we believe will put us in a position to outpace the industry and outgrow our competitors. The result of all of this is really a unique business model that delivers stable, recurring revenue, strong cash flows, and exciting earnings leverage. The company was created 50 years ago with the founding of Fluoroware. The company went public in 2000, and today, through organic growth, through a series of acquisitions, Entegris has emerged as one of the largest global high-performance specialty chemical companies serving the electronics industry. Our success really rests on a number of different things.
First. Our unique customer engagement model. Also, the unique ability to successfully integrate acquired businesses. Finally, a very strong set of corporate values centered around teamwork, innovation, strong execution, and a commitment to excellence. Jim, Greg, and I will be touching on all of those attributes. We will be telling you why we believe our competitive position is strong and our future is bright. Acquisition has certainly been a very important element and will continue to be a very important element of our growth strategy. The most recent transaction of scale was the acquisition of ATMI in early 2014. This transaction was transformational for Entegris and certainly has been a great success for the company.
ATMI helped us broaden the technology portfolio of Entegris. ATMI was also a very nice addition to our global capabilities in terms of tech centers, lab capabilities, talent, but also our manufacturing footprint. All of which are very important attributes for our customers. We will be explaining to you why that is. We executed the integration of ATMI in a very efficient way. That allowed us to create value not only for our customers, but also in a meaningful way, value for our shareholders. You can see that on this simplified P&L. You can see that with the acquisition of ATMI, we've been able to increase our level of R&D funding, which means increase our level of commitment to the technology roadmap of our customers. We've been able to do that while significantly improving the margin profile of the business.
Greg will certainly actually share more details around our past performance, but also our future financial objectives going forward. We have a very broad technology platform. We have a very strong brand. Our solutions are really pervasive across the ecosystem. Through really close collaboration, close partnership with our customers, we've been able, through many years, to come up with market-leading platforms. Think about our Spectra FOUP. Think about our Torrento filters or our SDS gas delivery systems, our NOWPak packaging and delivery solution. The list is very long. I will not even attempt to mention them all. As a matter of fact, we make and we commercialize over 15,000 SKUs. If you want to simplify the picture, I would propose that we regroup all of those product platforms into three major categories.
The first one would be the advanced chemicals and materials, representing about 40% of our revenues. This would be our cleaning solutions, our deposition materials, specialty coatings, specialty gases, graphite, silicon carbide. The next group will be filtration and purification solutions. That would represent about 30% of our revenue. In this group, you will find all of the separation technology that we have for dry and wet processes. Finally, materials handling products, which would be our molded and electromechanical platforms to transport safely critical substrates, as well as offering a comprehensive series of solutions for fluid management, control, monitor, dispensing critical process chemistries. At the bottom of the page, I've also listed a number of companies that we view as being our peers or our competitors in the respective product category. Our served available market amounts to approximately $3 billion.
The major market today remains the semiconductor industry, where the process requirements are certainly the most stringent, and as a result, where we can get the most value for the yield-enhancing and contamination control solutions that we develop. Having said that, we are spending a lot of time looking at ways to expand our served available markets, starting within the semiconductor industry itself. Our traditional market segment has been the fab customers. Recently, we've been increasing our focus to include more work and more closer collaboration with the equipment makers, developing value-added components, developing new materials that can help them improve their tool performance. We have also more recently started to work very closely with the specialty materials company, helping them increase the degree of purity and stability of the chemistries that they are producing.
Beyond semi, we are constantly looking for disruptive trends that could allow us to find an entry point. We're looking for applications that would require purer, more performant materials, or we're looking for processes that would be more susceptible to complex contamination challenges. I would tell you that I am actually very pleased with the recent progress that we have accomplished. Looking at the opportunity pipeline that we have, I have a high degree of confidence that we will be in a position to continue to expand our served available market in many different ways. There are a few other financial attributes that make the Entegris business model unique, and I wanted to share some of them with you. First, 80% of what we do is recurring in nature.
Think about the filters, think about the chemistries that our customers are consuming every day in their production cycles. Our solutions are really part and parcel, part of the production recipes of our customers. Our solutions are very sticky. Once we are designed in, we can enjoy many years of steady revenues and cash flows. The second aspect of our financial profile is that we have a very well-balanced customer base. There are many different ways you can look at this. First one is that our top 10 customers amount to about a little over 40% of our top line. All of those customers buy hundreds of different SKUs every month. Another way to look at that is that in all of the industries that we serve, whether that's in semiconductor, display, life sciences, we serve all of the participants in those ecosystems.
We sell our solutions to the end users, we sell our solutions to their material suppliers, we sell our solutions to the equipment makers. The result, all of that, is really a very balanced customer and product portfolio, which translates into a very stable business model, delivering very appealing cash flow and bottom-line margins. One of the things that I'm probably the most proud of is our demonstrated ability to outpace the market. As you can see, this remain an important objective of Entegris going forward, as we expect to outpace the industry by about 100 to 200 basis points. If I want to go into the details of this growth formula, we'll start with the foundational layer here. Many of the applications that we serve are really closely correlated to GDP, and the baseline assumption for GDP is about 2%.
The next layer up is really an attempt to quantify the impact of the Internet of Things trend as the world continues to add sensors all around us, continues to build more effective, faster networks, fire up more powerful server farms, and continue to build up storage capacity to store millions of terabytes of data. As well as a number of new applications that I'm sure will be developed to leverage this new infrastructure. The sum of all of this is the belief that we have that this is going to add up to wafer starts. It's going to also increase the spending in new capacity, and that should translate to an additional 1% of growth. The final layer is probably the one thing that is most within our control, and it has to do with the very rich and exciting opportunity pipeline that we have.
I will let Jim O'Neill, our CTO, unveil a little bit more details around that in a minute. The sum of all of those components, again, is an objective of 400%-500% growth over the next three to five years. Why do we have such a conviction in our ability to grow? Well, simply stated, I think that I really do believe that we have a well-rounded value proposition to offer to our customers, and that value proposition rests on three pillars. The first one is the unique technology portfolio, which allows us to get invited to collaborate on solving some of the most complex process challenges that our customers are facing. The second one is a very comprehensive series of global capabilities to make it easy for our customers and very effective for our customers to collaborate with us in all of the major markets.
Essentially, we want to be viewed as an extension of their engineering arms. Finally, the last piece of the puzzle here is a relentless dedication to operational excellence. In the end, it really does not matter if you have a differentiated technology unless you can make it in high volume in a repeatable and stable way with very strict, exacting specs. I believe that we've been working on this model for many years now. I think that we've been perfecting this model for many years, and we've got a lot of really positive feedback from our customers, and this is really what is putting us in a situation to have the opportunity pipeline that we have. Let me talk a little bit about each of those pillars. The first one really is around what it takes to be viewed as a reliable and credible partner.
It comes down to really having the means to deliver on the commitments that you're making to your customers. We realized that requirement a few years back, as you can see, we have been steadily increasing the level of R&D spend. As a side note, I would tell you that 10% of revenue is probably the upper limit at which you should expect us to operate in the years to come. We have also invested in systems and internal processes in order to better manage the R&D dollars, in order to foster greater internal alignment early on in the development cycles, also to compress the development time. The result of all of this is, I think, a very exciting pipeline.
To make my comment clear here, I would point to the technology and breakthrough slides of the pie here, which represents a little over 25% of our R&D spend today as compared to probably less than 10% a few years ago. More importantly, this part of the portfolio has the potential to add $75 million of incremental revenue by 2018. With the disappearance of a joint, of a shared industry technology roadmap, with the emergence of a number of very large industry leaders with growing aspirations in Asia, it was important for us to be viewed as a capable supplier, not only in the U.S., but in all of the major global markets. To answer that need, we have made a number of different investments.
We have invested into a network of tech centers staffed with some of the best minds in their respective fields in the U.S., but also in Korea and in Taiwan. We've been adding new local manufacturing capabilities to shorten the lead times of a number of critical product lines. Finally, we have also added a number of new manufacturing capacity for a number of very successful product lines. Examples of that would be the new UPE membrane manufacturing capacity that we added. It would be the new fleet of cylinders that we have invested in for a number of specialty gases. It would be the two new blow molders that we have added in the U.S. or in Taiwan.
The point I'm trying to make here is that over the last two years, we have made a number of very critical investments that are all in the final stages of completion. I think that we are ideally positioned now to grow our top line very nicely and very steadily. The last pillar is really the desire to be viewed as the best manufacturer for the types of products that we make. This is, of course, a never-ending journey. I am very proud of how far the team have come. We've invested in statistical process control capabilities. We have invested in cleaner manufacturing processes. We have invested in more automation. We have upgraded our quality and manufacturing engineering teams, and the results speak for themselves. Back in 2006, we were running our manufacturing processes at about 3.5 sigma. Today, we are approaching 5.5 sigma.
Remember that this is 5.5 sigma in a context of making 15,000 SKUs across a number of different manufacturing sites in the world. Very proud of the accomplishment. Again, as I said, this is a never-ending journey, and we won't stop here. This is my final slide. For those of you who have been following Entegris for long enough, you probably will remember and recognize the little diagram on the left part of the slide. This is our customer engagement model. This is a concept that we launched about 10 years ago. This is a lot more than a concept. This has been really a guiding principle. This has been a compass for our global teams, starting with the leadership team here in this room. This model has really driven a number of very consequential decisions, and I mentioned many of them.
It really has redefined how we've been spending our investments in terms of labs and manufacturing capabilities. It has defined the new shape of the R&D portfolio that we wanted to see. It has impacted the type of skill sets and the mix and the location of the talent around the world. It has really forced us to rethink a number of internal processes. I would argue, in the end, it has really transformed the mindset of the company. The bottom line is this is really what the Entegris brand stands for. This is really about the value proposition that we are offering to our customers as a solution provider to some of their most complex challenges.
The result of that, it is a more balanced portfolio, a more exciting portfolio. I will let Jim actually share the details of that portfolio with you, and you will understand why we have the conviction that we can continue to increase our share, continue to expand our SAM, and ultimately continue to outpace the industry. Thank you.
As Jim comes up, I'm Greg Graves. For those of you who haven't met me, the CFO of Entegris. Just really three or four takeaways from Bertrand's presentation. First thing, being around 50 years in this industry, that's a long time. Our first customers were Fairchild. We were founded a couple of years before a company called Intel. The second point I want to make is what we're doing is important. We're helping customers improve yield. We talk about improving yield, but that's really code for helping them make more money. That makes us important to them. The third thing is we're investing in the business, both our R&D pipeline as well as our infrastructure. From an R&D perspective, we're investing more as a percentage of revenue than we ever have.
With the advent of the ATMI transaction and the value we created there, we're still achieving EBITDA we've ever achieved. Infrastructure, building it out in places like Korea and Taiwan, investing in membrane capacity. What it does is it positions us to grow that top line 5% or so in a 2% GDP environment. Those are all good things. I'm going to turn it over to Jim, who's going to take a few minutes and talk specifically about some of the things that will drive our growth over the next several years.
Great. Thank you very much, and thanks for the opportunity to be here today. What I'd like to address is how we leverage the breadth of our technology portfolio to drive specific key opportunities for growth for the company. As I visit customers around the world and really try to understand the technical challenges that they face, and then I go back and I look at the breadth of the Entegris product portfolio and the depth of the technical capabilities that we've installed in our labs around the world, I remain really excited about the unique position that Entegris is in today to provide comprehensive integrated solutions to some of their really most challenging problems. Our performance-enabling materials, combined with our yield-enabling materials handling capabilities, really lays the foundation for the pillars of growth that Bertrand just described.
It gives us the ability to tap into new markets, to address new applications, and ultimately to outpace our competition. It's been no surprise that over the last several technology generations, advanced materials have become increasingly important in semiconductor processing. Not only are the number of materials used in advanced device builds increasing, you'll find a greater portion of the periodic table in each successive generation of technologies, but these materials are contributing increasingly to the overall performance of the devices themselves. Scaling or miniaturization is no longer sufficient to keep pace with the performance requirements required by the industry. We've needed to implement new materials. We need things like new metallurgies to improve the reliability or resistivity of very fine wiring levels. We need new channel materials that allow for faster electron transport and enable faster switching transistors.
We need new gate materials which allow for transistors that switch at lower powers and allow your cell phone battery to operate for longer periods of time. Clearly, new materials are central to the advancement of the semiconductor industry, and they are, in fact, the key enabler behind the continuation of Moore's Law. At advanced technology nodes, our customers are facing significantly increased challenges. Their processes are becoming more complex. Individual unit processes are less mature, making yield learning much more difficult. Their development cycles are significantly compressed, and all of this means that our customers are really having a problem trying to achieve yield in the time that they have available to them.
It's not just about having the materials, it's being able to make the materials in a pure manner and being able to ensure the purity of those materials as they progress through a very long and complex supply chain. Lower defectivity means higher yield. It also means faster development cycles. The requirements for purity and defect control are ever-increasing. Just as an example, today, our customers are beginning to specify materials with purity levels in the parts per quadrillion level. This is almost unimaginable, but just an example of scale, that's one part in 10 to the 15, or it's like finding a single minnow in a volume of water the size of San Francisco Bay. Those are the magnitude of the contamination challenges that we're faced with today.
These enormous customer challenges that the folks that we're trying to serve are facing plays right into Entegris' strengths. Strengths in filtration, purification for liquids and gases, and the ability to handle these materials in a clean and reproducible manner. These are all things that Entegris technology really is predicated upon. It's the breadth of the Entegris portfolio that distinguishes us, again, from the performance-enhancing materials to the yield-enabling materials handling systems. The breadth of this portfolio is truly unique to the industry. What's more important is it's enabling to our customers. It really allows us to put together comprehensive integrated solutions that address what's really important to them, that is performance of their devices, yield of their process, and ultimate cost of their manufacturing line and their manufacturing system.
The Entegris capabilities that we have span all of the modules that you would find in a semiconductor fab, from litho and implant to etch and deposition and wet clean. Entegris is also critical to the clean operation of the fab itself with wafer handling and reticle handling, FOUPs and pods with bulk chemical distribution capabilities, as well as environmental contaminant control for the fab atmosphere itself. Taken together, these capabilities can be combined to provide comprehensive solutions for our customers. The materials combined with the materials handling to provide a cost-effective combination of both. In fact, our customers care a lot less about the number of products that we can come to them with than they care about how we put these products together in a manner that enables their performance yield and cost goals that they're really trying to achieve.
Like any company, Entegris has competitors, and each of our competitors plays in one or two types of product classes, but none of our competitors compete across the board with Entegris. The breadth of our portfolio is truly unmatched, and it allows us to compete broadly, not just in the semiconductor industry, but in other adjacent markets where our expertise and our materials play quite well. The material supply chain is a long and convoluted process. It spans many months and several continents from the point where materials are manufactured to how they're packaged, transported, stored, ultimately delivered to a fab, implemented on a tool, and dispensed on a wafer. Yet, Entegris has a product portfolio which ensures purity of this long and convoluted supply chain from the point where the materials are manufactured to the point where they're ultimately used.
We work upstream with chemical manufacturers, including ourselves. We work downstream with ultimately our end users and customers to provide and to ensure a clean, defect-free material stream. Protecting purity and enabling contamination is particularly important in areas like photolithography, where the materials are extremely expensive, extremely valuable, and the cost of yield loss is high. I'll talk more specifically about that in coming slides. I'd like to give you a little bit of color around the types of opportunities that we're pursuing. I've selected a handful of projects here which show how we leverage the breadth of Entegris' portfolio, and they were also selected because these projects are ones that should enable us to tackle key opportunities to provide avenues for growth. I should emphasize that these are simply representative projects from among the more than 272 projects that we have going at this time.
This sampling emphasizes capabilities from lithography to implant, to etch, to deposition, and to CMP or chemical mechanical polishing. Some of these projects are about expanding our presence in the markets that we already serve. Others are about addressing new applications. In aggregate, I think these kinds of projects should represent roughly $70 million in growth over our planning horizon. Let's talk about the first project. This is one which addresses yield challenges in photolithography. As I mentioned before, yield challenges at advanced technology nodes are increasing. More stringent contamination control requirements are in place, and this is particularly true in photolithography, where the finest pattern features are defined. Additionally, photolithography uses the most expensive materials in the fab. Photoresist, particularly for EUV, can run upwards of $10,000 a gallon for the photoresist material. The cost of yield loss in this module is very high.
Protecting these materials throughout the supply chain is key, and it plays into Entegris' strengths in filtration. Our solution in this particular case is a new class or new generation of UPE filters intended to address these types of photochemicals. There's also an additional demand for other products that we provide, such as fluid container solutions that maintain the integrity of the clean material once it's produced. Again, we have the ability in the photolithography sector to protect these most expensive materials used in the fab from the point where they're produced all the way until they're used on the wafer. This particular opportunity will open new markets with materials manufacturers who have historically been okay with using less capable solutions, which they're increasingly challenged with. It also allows for market share gain by allowing us to address key challenges at leading-edge nodes.
The second example I want to talk about relates to ion implant. The implant sector in a factory is a key market for Entegris, both for leading-edge and legacy node technologies. Every fab strives for operational efficiency, and tool uptime is a key to achieving that efficiency. If you go into a fab, one of the landmark tools that you'll see in that fab are the suite of ion implant tools. These are large tools. They use an enormous amount of power, consume a lot of very hazardous gases. Yet the uptime of these tools is typically controlled by a key component, which is the ion source, the point where ions are generated for the ion implantation process. The source operates in a highly reactive, highly corrosive environment involving fluorine that attacks tungsten components in the system. It gets very technical very quickly.
Entegris has come along with a solution to this, which is a suite of tailored gas mixtures which liberate less fluorine and enable the source life to be extended by 30%-40%. This is a significant improvement and provides for increased uptime, better fab efficiency, and significantly improved cost point for operating the sector. Much of our business in this market comes from Asia. We have enabled gas mixture filling capabilities in our manufacturing facility in Seongnam, Korea, which should significantly shorten the supply loop to our Asia-based customers. Overall, there's a strong feeling that the demand for the types of ion implant gases and mixtures that Entegris provides will grow strongly over the next several years. The next example that I want to talk about relates to reactive ion etch or reactive ion etching environments.
Patterning and etching of device layers is among the most challenging steps in the manufacturing process. It typically involves very complex stacks of films. You're trying to etch patterns, which could be very small holes through very tall stacks. This requires very aggressive halogen-containing chemistries in order to achieve the etch profiles that are needed for these types of devices to work. These chemistries are very tough on the etch components that are exposed in the etching equipment. Traditional plasma spray coatings that are used to protect these components no longer work, are no longer able to withstand attack from these very aggressive halogen-containing chemistries. You get yield loss due to particles from films that begin to flake and fall off from these coatings. Entegris' solution is a new class of PVD coatings, which are more resistant to attack in these reactive ion etch environments.
We're working very closely with the equipment supplier community and have generated significant interest because of the results that we've been able to demonstrate in terms of lifetime of these films, stability of the etch process, and consistent operation of the equipment. The fourth example relates to polishing or we call chemical mechanical polishing. The CMP sector is among the most complex sectors in the fab. This is a very highly engineered module involving numerous process steps and complex chemical formulations, all of which determine the outcome of the polish process. When most people think about a polishing process and the consumables that are used in it, they think about the polishing slurry and the polishing pad. I would argue that there's a third critical component, and that is the pad conditioner.
The purpose of the pad conditioner is to restore the surface of the pad after each wafer is polished so that you can ensure that wafer to wafer, the process is stable and consistent. Entegris' solution is a new set of pad conditioners leveraging our experience in silicon carbide and CVD diamond-like films to produce technology which has been demonstrated to extend both conditioner life and pad life by a factor of two. This represents a meaningful cost savings for end customers, and it replaces competitive offerings that typically use industrial diamond grit, which can become dislodged and result in significant scratching on the wafer surface. This application represents a new market for Entegris, and it allows us to attack a leading-edge problem with a truly differentiated type of solution. The fifth example that I want to talk about relates to the deposition, film deposition area.
If you've been following the industry, you recognize that advanced device architectures have begun to venture into the vertical dimension. This drives, whether you're talking about the transition to FinFETs or gate-all-around nanowires or if you're talking about 3D NAND structures, these architectures result in a demand on film deposition, which becomes increasingly difficult. If you're trying to deposit this red film here on a planar surface, it's relatively straightforward. Over this fence here, it gets a little bit more difficult, and if you're trying to wrap it around the fence rail itself, it becomes quite challenging. In order to achieve the performance requirements for these types of films, you need excellent conformality. This conformality really only comes from a class of precursors known as chemical vapor deposition precursors, CVD or ALD type precursors.
Increasingly, these precursors come in solid forms. This again drives a need for a whole new class of precursor delivery systems as well. Entegris' solution to this problem is a new suite or a new portfolio of deposition precursors, which have been developed in conjunction with our end users, be these the equipment manufacturers or the device manufacturers, and this comes along with our MegaVAP Solid delivery systems to ensure the stability and the reproducibility, and the efficient utilization of these precursors throughout the life of the process. CVD and ALD precursors represent a significant area of growth for the film deposition market. We think that solid precursors will at least keep pace, if not outpace, the overall trend for CVD films overall.
This is really just a sampling of five representative projects out of a much larger portfolio, that I hope gives you a little bit of a flavor of the technical depth that Entegris has and the breadth of capability that we're able to bring to our customer to tackle some of the industry's most challenging problems and we believe will lay a very strong foundation for growth for the company going forward. Thank you.
Thanks, Jim. I didn't get a chance when I introduced Jim, I didn't get to his background, but he's been with the company about three or four years. His background process, he was a process guy at IBM for the bulk of his career. He's frankly forgotten more about the semi-manufacturing process than most people know. The things that are important, though, that he talked about as it relates from an investor perspective, materials are becoming more critical in the semi-manufacturing process. The role that materials play is going to become greater and greater. Much of what we do is keeping that environment pure is increasingly important, whether it's getting the chemistry to the customer in a clean fashion, whether it's filtering within the fab environment or even some of the cleaning chemistries that we make.
I think the third point I want to bring out is, he talked to you really about why do we win. If you look at sort of who we compete with, we compete with someone different in almost all of our verticals that we participate in. In terms of that applications expertise across the fab environment, we're really second to none at that. Ultimately, that is what is going to drive our growth. Jim talked about five growth initiatives that make up $70 million in revenue by year three of our strategic plan. That amounts to about a third of our growth. That's something different than what we've talked about in the past, where we've got a concentrated number of initiatives that are going to drive a meaningful portion of our growth.
With that, we're going to switch over and talk a little bit about the finances. First of all, looking at our scorecard, we did a fair amount of work last year, and we said, "What drives shareholder value?" We came to really three conclusions. It's about growth, it's about consistency, excuse me. It's about growth, consistency and profitability. Our scorecard really focuses around those several items. It's about growing in excess of the market, achieving the target model, which for us is about achieving consistent performance, and it's about growing our earnings per share. Oops. I'm going to just give you If you look at 2015, we viewed to be a very good year for us, and I'll provide the supporting detail for that, and 2016 is setting up to be a good year as well.
First of all, that growth, that growth in excess of the market. The chart on the left is absolute revenue over time. Obviously, the ATMI acquisition played a big role in driving the revenue growth in 2014 and 2015. On the right-hand side of the slide, though, is our growth on a currency-adjusted basis relative to the market. 2015, we grew about 3.4% versus 2.3% for our market. Recall, our market is 80% tied to wafer starts, 20% tied to capital. In 2015, we outperformed the market. We move into 2016, we think we're setting up again for another year of outperformance relative to the market. Secondly, we executed well versus our target model. For the full year of 2015, we achieved that model. We missed it in Q4. We talked about that on our earnings call.
We slowed the business down more quickly than we initially had anticipated, that showed up in our margins. I want to point out a couple of things on this slide. First of all, across the top, the different revenue levels and the operating margins. If you put 5% growth on top of what we achieved last year in terms of revenue, you need to start to think about the right-hand column of this model, which takes you to operating margins in the 20% range and EPS run rate that approaches $1. The other thing I want to point out is, you move across from 250 to 300 plus, about 40% flow-through. Every incremental dollar of revenue will drop $0.40 through to the operating line. Finally, just the consistency point, consistent execution.
If you look at the bottom chart, which essentially shows how have we executed versus that target model, the blue bar is what was our operating margin. The gray bar is what was the expectation from the target model. You can see, with the exception of two quarters in the last 17, we've achieved our target performance. The last point to make on this slide relates to you look at the last three quarters, we missed the model once, and we were tight in Q3 and in Q1. As we put the i2M Center, the ramp of the i2M Center behind us, and we bring our membrane capacity up, that's going to take about $2 million to $3 million in cost out of our cost of sales. We should be more comfortable as it relates to that target model as we move into Q2 and Q3.
In fact, we talked about higher margins in Q2 versus Q1 and higher yet in Q3. This slide, another one of the objectives is reducing the leverage. When we did the ATMI transaction in 2014, we were at about two times on the net leverage. We exited 2015 at 1.4 times. We've reduced the debt. We've paid down about $150 million in debt through the end of 2015. We expect to pay down at least $50 million in 2016. Another relevant point here, though, is that there is a de-leveraging story at Entegris. If you think about for every half a turn we take that net leverage down, that should be essentially $1 a share in shareholder value. If you think we're running at EBITDA levels in the high $200s, a turn of leverage would be $280 million because we have 140 million shares outstanding.
So for each half a turn of leverage, that's $1 in value if you assume that we can maintain a constant EBITDA multiple of nine to 10 times. I think people forget it's all about growth. But with the cash flow we're generating, the de-leveraging is also going to create value over time. The last thing on the report card that we talked about was that growth in earnings per share. You look at 2014, 2015, both very nice years in terms of earnings per share growth, 19% in 2014, 23% in 2015. We're not going to see those type of numbers in 2016, but we would expect to see a continuing trend in terms of earnings per share growth in 2016. Talking a little bit about cash generation. Bertrand talked a little bit about that EBITDA margin being up 21% to 22%.
That's in line with kind of best-in-class specialty chemical companies. When we benchmark that EBITDA margin versus our peers, that is a very respectable margin. Like I said, as you move further out on that target model, and you're moving 40% of each dollar of revenue through, we should be able to see a continued improving trend on that margin. The chart on the right shows the cash flow generation of the business. If you take the story we've told today, kind of 5% top-line growth with the target model that we've got in place where we drop $0.40 of every dollar of revenue through to the operating line, over the next three years, we should generate operating cash flow of somewhere close to $550 million and free cash flow of somewhere in the $300 million range. So significant opportunity to de-lever over the next several years.
We talk about that free cash flow, which is essentially the capital that we have to allocate, and the question is: what is the capital allocation strategy, and what are you going to do with that cash? That really hasn't changed over the past year. We are focused. We talked about this time last year around increasing our domestic liquidity. We exited the last quarter with $128 million in the U.S. Part of the reason we're building that liquidity is we think we've earned the right to be an industry consolidator. There is a focus on what we call well-targeted M&A. There's nothing in the pipeline today, clearly M&A and growth through M&A will be part of our strategy. We have a share repurchase plan in place.
It's opportunistic in terms of the price targets, we will continue to buy shares on a weakness in the stock price. Obviously, ongoing debt repayments, sitting still with about $600 million in debt. We will continue to pay that debt down. In summary, when you think about the Entegris story, we're an absolutely mission-critical supplier within the semiconductor space. We see that every time there's a natural disaster somewhere in the world. We saw it in Q1 when we had a spike in demand for our FOUPs when there was an earthquake in Taiwan. People absolutely need what we do, and we do it very well. We're essentially a materials-related supplier into the semi and other microelectronics type industry. We think about materials, it's advanced chemistries, it's materials handling, and it's filtration.
We think that combination of products in the market that we're serving is going to give us the opportunity to grow at above-market growth rates. With that, relatively stable compared to other companies in the space because so much of the business is recurring revenue. We'll generate strong cash flow. With the earnings leverage, we should be able to grow the earnings per share
With top line growth of 5%, the flow-through that we have, that kind of math equates into earnings per share growth in the low double digits. With that, we'll open it up for questions.
I'd like to ask Todd and Wenge to come up to the front as well, we'll take your questions. We'll try to remember to repeat the question so that the people on the webcast can hear the questions. With that, we'll open it up for Q&A. Yeah, Patrick.
Thank you. In terms of the semiconductor opportunity, you highlighted a lot of stuff, particularly at the leading edge and contamination. Thank you.
Yeah.
In your presentations today, you highlighted a lot of the opportunities, particularly at the leading edge, where purity and contamination control continue to gain greater relevance. How do you see some of the opportunities for Entegris at, say, the more mature technology nodes, where there are opportunities also growing in areas like IoT and some of the other marketplaces that are growing, say, automotive. How do you see those mature technology nodes benefiting the company?
Well, it's a great question, we actually, as you know, serve all of those legacy fabs today. They are consuming a lot of our filters, our chemistries every day. From a commercial standpoint, we have increased our focus on those legacy fabs because of all of the surge in activity that we've seen and that we expect to continue to see. All of those fabs are facing similar types of challenges. They are very focused on reducing their cost, and as you heard from Jim, we have a number of solutions that will help them actually lower their cost of ownership, whether that's helping them improve their uptime, whether that's actually helping them pick up a few extra points of yields as they start evaluating more advanced filtration and purification solutions. Again, we are actually re-engaging with all of those customers, all of those fabs.
As we do that, we are uncovering a number of new areas of opportunities for us as well.
Next question.
I would just add to that, Patrick, and that the trailing edge for us, the whole IoT, which has driven a lot of the trailing edge, has been much stabler. Five years ago, if you'd have said our 200-millimeter business in 2016 is going to be what it is, I'd have said, "No way." It has been much firmer than we would've expected. The other thing is I would say is, at one level, we generate our cash at the trailing edge because we're not making significant investment in ER&D, and so those are very profitable products for us.
Just sort of following up on that question. On the leading edge, is this sort of just the GDP growth-driven portion of the business, or is this the growth initiative that's really driving that? We're talking about 3D NAND, 10 nanometer, five, seven, and going forward.
I will ask you maybe to add, Todd, but it's really the investments in all of those new customer engagements that Jim actually was characterizing. It's really the ability now to offer those comprehensive solutions that cut across our product lines and product capabilities. All of those contamination challenges are becoming increasingly complex, and they are dealt with in the fab environment, but also working with the equipment makers, helping them adopt cleaner, more performant materials and components, and increasingly, lower in the supply chain with the chemical manufacturers and helping them, again, improve their manufacturing processes, and then preserve that degree of purity and the integrity of those chemistries throughout this very complex supply chain. At high level, that's the concept, that's the business model, and that's the value proposition that we are providing at the leading edge.
Todd, I don't know if you want to add anything to that.
I'm going to add just a little bit. If you look at some of the structures that Jim showed, some of the advanced structures and some of the work in deposition to get films down inside very fine features, that's very much leading-edge activity that's happening both in memory and logic. Some of the other things you saw were about uptime for tools and extending ion source life. That really applies across a wide swath of fabs. We can do that both in a new fab and very much in a retrofit or going back to existing fabs and improving yield and reducing costs, and that's the main focus, actually, of some of those mixes of gases that Jim was talking about. It's really a combination of both.
Usually, we find something at the leading edge that works really well, our customers actually want to extend that back into some of their trailing-edge fabs, obviously, we see opportunities, hey, we can make this more efficient. We can increase uptime, increase pad life in a legacy fab as well. I was just going to add one thing on the IoT part of it. One of our fastest-growing regions right now has been China, and a lot of that has been for, I call, legacy nodes. Sometimes very advanced fab, but what we would call legacy nodes in some of those applications. Part of that growth in 200 millimeter has come from really regional growth that we've enjoyed as well.
Excuse me, it's Chris Kapsch with BB&T Capital Markets. A question about the competitive landscape. There's been a lot going on with numerous competitors that you highlighted in this presentation. Obviously, DowDuPont merging and Versum becoming an independent company, Pall being acquired. Even your Japanese competitors suddenly have a much-
A stronger yen to contend with post-Brexit. Curious if, with all this going on, has there been any change in competitive behavior that you've noticed? I have a follow-up to that.
I can start. I would say we have not. I think that all of those companies have remained very focused on what to do. We have as well. I think that, again, we are not counting on a weakness of a competitor to win. I think that we have a number of technologies that are compelling enough for us, again, to continue to grow our share and expand our SAM.
As a follow-up, if you look at some of the secular changes that have taken place with the industry, as you've emphasized, especially for advanced generations, the proliferation of materials that are used with, I don't know, a third or 40% of the periodic table, with the parts per, what was it? Quadrillion PPQ?
Quadrillion.
I don't think I've heard PPQ before. Juxtaposed against the maturity of the industry, the question is, doesn't this make a case that for a mission-critical supplier like Entegris, that you should get paid more for your value? In the past, there was always this pricing pressure, that was because a function of the growth of the industry, right? Now with the growth being more mature and for innovation to happen, for the chip makers to rely on a supplier like Entegris, is there not an entitlement to greater value from a pricing and value standpoint?
That's a great question, it's one of the kind of core engines that I look at in terms of how we drive the company for the long term. We, as a legacy supplier to the industry and to supplier to really every customer in the industry, we have a responsibility to help our customers stay efficient, find ways to reduce cost, improve efficiency. That's always a headwind for us in that sense, we do it. We embrace it, because it makes us a close partner to them. That gets us in the door to talk about the new applications. New applications, especially at leading edge, are almost always solved with new products. We have mid-20% of our revenues comes from new products, and those are products that are solving leading edge applications. We try to always improve our margins with those.
We almost always price quite a bit higher than legacy products. We get having that pipeline of products continue and having those JDPs with the customers. We earn the credibility to do that, though, by being a good, reliable supplier and help them with efficiency on their. You really have to do both to be successful. The new products are really the engine where we get that entitlement back. We helped you, we solved your problem, we improved your yields, we increased your throughput, we can command the pricing for the new products to make that happen. We can't rest on it is kind of my point.
Yeah. I have a question. This is for Jim. You talked about five initiatives or the growth things that you expect over the next two years or so. I just want to find out which one is near, low-hanging fruit or a near-term opportunity that you can go after. Out of those five opportunities, which one is probably the biggest of the opportunities? Any more color on that? That'll be great.
Yeah. If I look at our gas mixtures, this is a capability that we've got that is pretty much ready-made for both legacy and leading-edge applications. That's something that we can do today, and we're working to continue to penetrate the market and application space with that.
I'll add to that. I think that when you talk about the lithography filtration application, that's really our largest. It's our bread and butter business as well. It's one we made the large investments in that Greg talked about with the i2M Center. That's online now. We got 80% or more of our demand for photolitho filters coming with membrane from that facility. We've alleviated a constraint on our ability to serve that market. We see a lot of growth opportunity. As you heard about the needs of the fab being pushed down through the material suppliers, including all the resist suppliers, we have to go solve the problems for them, just like we did in the fab. We have increased capacity now to make that happen. We're realizing revenue today from that initiative and growth.
Two related questions. The first is, it seems like you're comparing yourself financially to specialty materials companies. You're not solely a specialty materials company. Is there a reason? Are you driving, aside from the obvious fact that you made a large acquisition there a couple of years ago, is this something you're continuing to push as a growth area for the company, and that's why you're using that as your peer group? The second, in a related sense, of your growth initiatives, you already mentioned the specialty materials for lithography as a, or the gas as your number one opportunity. The gas mixtures were your short-term horizon opportunity. Are those growth areas overall mapping more to the specialty materials than the filters for the materials handling?
Well, I'll take the first part. Do you want to take the second part? The first part, I would say that, again, specialty chemical companies can
Can span a very broad range of definitions. It's true that if you think about materials and chemistry specifically, it only represents about 40% of our top line. I would actually lump into the definition of specialty chemical, the filtration and purification product offering that we have. I think, the way we're trying to position ourselves is, and differentiate ourselves, is that we are not a tool maker. We're not an equipment company. Our business is not really driven by the semiconductor CapEx, but it's really driven by the throughput and the output of the fabs and the end users that really constitute the vast majority of our customer base. Do you want to take the second part?
I think relative to, first of all, comparing to equipment company, equipment companies are our customers, and we work with really all of them. You don't find many equipment companies that work with other equipment companies. When we're working with them, we're working on solving materials problems or their materials handling problem, or actually material that they're using to achieve their process, be it a clean or a deposition process. We work with them at the very earliest stages of their tool design to help them enable a material that's going to get the process done. The connection between the cleans chemicals, especially in filtration and resist in filtration, is very intimate today. There's many factors that affect how these materials perform on the wafer, and we learn with the customers in a lot of cases how this is happening. We can alter the filter.
We do this in many ways to solve a specific problem or change a performance attribute. That's very true with the chemistries as well. One of our largest investments is in the dynamics around how the materials interface with the wafer. There's a lot to do between materials handling, to make things effective, not only within our own materials, but with our customers' materials as well. That's the reality that we face today. The other part, of course, is materials handling. When we talk about us, I really think of us as a specialty materials company as opposed to just a specialty chemicals company, because we make materials that aren't just what you would think aqueous chemistries or gaseous chemistries that actually stay on the wafer. We also handle those wafers. We handle all those critical materials all through the fab.
We don't make equipment. We do make some of the materials, and then we make a lot of the things that handle those materials and are consumed during the process in the fab. That's the other thing that makes us unique from capital equipment companies in the semi space.
Thank you. It's just a quick question about some of the capacity that we've added. I think the i2M center, which in my opinion took a little bit longer than I assumed it would to double capacity, if you will. That should be done now, and we should be benefiting from that, not only on a top-line perspective, but maybe a little bit more on the margin perspective, if you could share if that's accurate or not. I know we've added a bunch of capacity, in Minnesota as well. Maybe you could give us an update on where we stand there and when I understand there's a difference between adding capacity and qualifying capacity. Maybe you could let us know where we sit on those two big facilities.
Yep. I alluded a little bit to the i2M facility in my presentation, but I think specifically when we did our Q1 release, we talked about the fact that that capacity constraint was going to be gone. The drag on the margin was going to be gone. We talked about a year ago, going places in Asia and customers being frantic because they couldn't get that product. In addition to the market being decent, there are some Entegris specific things like the i2M center that are creating some tailwinds for us right now. I'll let Todd comment on the Chaska.
Christian, first of all, on the i2M center. It did take longer than I certainly wanted it to take. Really I would say because we were not only ramping a lot of legacy membranes, we're also inventing new membranes for today's challenges. We've taken pore sizes down. We've done additional cleaning steps. We've learned a lot of things continuing to support the industry while we had to ramp this complete move. I certainly got a new appreciation for how complicated it is to bring up a membrane facility. I'm extremely happy that it's up and running today and producing revenue for us in a significant way. That's going really well. We've added capacity. The other areas that I think about that I felt the constraints from our customers is, one is our chemical containers.
We added, we doubled our capacity for drums in Minnesota a couple of years ago and have basically filled that up. We have drum manufacturing in Taiwan as well. We are just now doubling the capacity of that facility because of the pressure of demand from chemical customers, in Taiwan, Korea, China, et cetera. That's just coming online and doing the V&Q process right now. The other area is for gas, is for canisters, for containers, for the SDS gases, as well as for deposition materials. As I said, that's one of our fastest growing businesses. We've been constrained in terms of really part of a differentiation. A big part of it is our containers and how they actually deliver these materials to the fab in a very safe and pure way. We made some investments.
Really a year ago, we started a more significant investment that's largely been accomplished now to put those canister fleets in place so that we can handle the growth there. Part of this growth in these mixtures for gases is coming from outside of semi. It's coming in some other related industries as well. We need to get ready to serve it. I think those three areas of membranes
Gases and containers. Unit-driven parts of the business have been asking the most from our customers for additional capacity, we're seeing the impact of that in a very positive way now. It's happening.
Any other questions? Follow-up?
Yeah. Chris with BB&T again. I think based on your model, Greg, you, absent an acquisition to be roughly debt-free in a few years, I'm sure you don't want to be there. Your comments, you've said that acquisitions are part of the core competence and part of the future of the company. I think, Greg, you said that Entegris has earned the right to be an industry consolidator. I guess, if you could just talk about what the process that you guys have in place to evaluate acquisitions, and what's most important as you look forward for finding a target that would complement your portfolio and help you augment your strategy to grow as you laid it out. Thanks.
Right. This is a question that could certainly be answered in, or would deserve, actually, a lot more time. Simply stated, I would say, yes, M&A will continue to be an important part of our growth strategy. We are certainly constantly looking for potential M&A targets, and we have a pipeline of potential M&A candidates. We are constantly looking for high-quality companies that can help us add value to our existing customers or could actually be helping us get access to new markets as well. It's a combination of both. If I was in a position to share what is on our M&A pipeline, something I cannot do, you would actually see examples of those two types of companies. As Greg said, we have nothing really active at this point in time, and we're going to be in no rush.
I think that the ATMI acquisition was a big success, partially because we took the time to be very selective, and partially we took the time also to do a very thorough due diligence and a very thorough integration planning and integration execution. I would expect for us to apply the same rules and the same principles going forward.
Any more questions?
You mentioned in your presentation, that you are working with copper, and I was wondering if you could maybe talk about some of your work in alternative materials to replace copper in the future, like, maybe I've heard that cobalt or ruthenium.
Yeah. Not to dive too deeply in the weeds really quickly. Copper has been very successful and will continue to be a material in high demand for both leading-edge and legacy node applications. Our position with our partnership with Enthone in terms of copper plating has been quite successful. As you go down to the smallest technology nodes, based on the way in which copper is utilized, it uses a barrier material to prevent the copper from bleeding into the rest of the device. That barrier material limits the ultimate resistivity and therefore the speed at which you can switch a device. There is an effort within the industry to identify alternative metallurgies. Cobalt is one. We participate there extensively and have released products into the industry on that. We are also working with partners and advanced customers to identify other candidates that serve their needs.
Those candidates are out and under investigation within the industry, in university settings as well. Things like cobalt, ruthenium, molybdenum, things like that, have all been published and are things that, in order to be implemented, will require significant development. There is a technological need to identify alternatives for the smallest features. I think right now, it will not displace the big position we have in copper, but it will become increasingly important for the smallest features on the device.
Great. Before I turn it over to Bertrand for some last comments, I want to let the people in the room here today know that we have a hospitality suite, actually one floor below this one, where we have some product. I'll be there after the meeting if you want to stop by. We are also having a reception this evening from 5:00 to 8:00, and if you'd like to attend that will be also at the hospitality suite. If you'd like to attend that, please see me. With that, I'll turn it to Bertrand.
Well, thank you, Steve. Thank you all again for joining us today. Again, a very special day. I hope you can join us for this 50th anniversary celebration in the evening. I would invite each and every one of you who want to understand more about the technology that we develop and the company that we are to visit one of our sites, whether that's in Massachusetts or in any other part of the country. Have a great day.