We can close the door. So my name is Steve Cantor. I'm the Vice President of Corporate Relations. And it's my pleasure today to welcome you to Integris'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 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. I can get to slide Stewart.
Oh, hang on.
Just a moment. Okay, great. Thank you. Now we're all set. So today, our agenda, so we'll start with Bertrand Lau, 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 Jim O'Neil, 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. And then Greg Graves we'll talk about our financial strategies and our priorities for capital deployment. So I'd like to also introduce a couple other members of the Entegris managed team today. Sue Lee is our Chief General Counsel. Todd Edlund is our Chief Operating Officer and Wenga 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 EM local time, and we ask that you hold your questions until all of the presentations are complete, which should run a little less than an hour So we should have plenty of time for Q And A. You will notice in front of you, there are some surveys, and we 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 accessable on our website.
And if you would like an electronic or soft cop of the slide material, please see me and 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, and we encourage you to read our filings with the SEC carefully to understand all the risks and uncertainties related to those statements. And with that, turn it over to Bertrand.
Thank you, Steve. Good morning, everyone, and thank you for attending our 2016 Analyst Day. This is certainly a very special day of a special year for us that it marks the 50th anniversary of the creation of the company. So a year for us to celebrate, certainly, celebrate, a number of past accomplishments, but also a year to reflect on those past successes and how we can actually capitalize on them, raise the bar, and build additional momentum So, if I had to conceptualize the value creation model of Entegris, it would not a little bit like this. We have a clear mission.
We focus. We innovate. And in the end, we deliver. So 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 and primarily, we focused on the electronics industry broadly defined.
We innovate. We collaborate very closely with our customers. And 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. So 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 free or rare.
The company went public in 2000. And today, through organic growth, through a series of acquisitions, Integris has emerged as 1 of the largest Global High Performance Specialty Chemical Companies serving the electronics industry. Our success really rests on a number of different things. 1st, our unique custom engagement model also the unique ability to successfully integrate acquired businesses. And then 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, and we'll 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 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, but HMI was also a very nice addition to our global capabilities in terms of tech centers, lab capabilities, talent, but also our manufacturing footprint. So all of which are very important attributes for our customers, and we will be explaining to you why that is So we executed the integration of ATMI in a very efficient way, and that allowed us to create value not only for our customers, but also in a meaningful way, value for our shareholders. And you can see that on this simplified P and 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 the technology roadmap of our customers, and we've been able to do that while significantly improving the margin profile of the business.
And Greg will certainly actually share more details around our past performance, but also our future financial objectives going forward. So we have a very broad, technology platform We have a very strong brand. Our solutions are really pervasive across the ecosystem and 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 Torento filters or our SDS gas delivery systems or no PAC packaging and delivery solution. The list is very long, and I will not even attempt to mention them all.
As a matter of fact, we make and we commercialize over 15,000 SKUs. So you want to simplify the picture, I would propose that we regroup all of those product platforms into 3 major categories. The first one would be the advanced chemicals and materials, representing about 40% of our revenues. This would be our cleaning solutions or deposition materials, specialty coatings, specialty gases, graphite, silicon carbide. The next group will be Filtration And Purification Solutions.
So that would represent about 30% of our revenue. And 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. So our served available market amounts to approximately $3,000,000,000.
And the major market today, remains the 3, where the process requirements are certainly the most stringent. And as a result, where we can get the most value for the ease enhancing and contamination control solutions that we developed. 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. Traditional, market segment has been the fab customers. But 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 Beyond semi, we are constantly looking for disruptive trends that could allow us to find an entry point. So we're looking for applications that would require pure, more performance materials. So 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.
And 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. So there are a few other financial attributes that make the Integra's business model unique. And I wanted to share some of them with you. 1st, 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 And 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.
And all of those customers buy 100 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, which 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.
So 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. And as you can see, this remains an important objective of Entegris going forward as we expect to outpace the industry by about 100 to 200 basis points. So 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. So the sum of all of this is So believe 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. And I will let Jim O'Neil, our CTO, unveil a little bit more details around that in a minute. But the sum of all of those components again, is an objective of 4 to 500 percent growth over the next 3 to 5 years. So 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 3 pillars. The first one is the unique technology portfolio, which allows us to get invited to collaborate on solving some of the most 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.
Because 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 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 this situation to have the opportunity pipeline that we have. So 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 And it comes down to really having the means to deliver on the commitments that you're making to your customers.
So we realized that requirement a few years back. And 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. But we have also invested systems and internal processes in order to better manage the R and D dollars in order to foster greater internal alignment early on in the development cycles and also to compress the development time. So the result of all of this is, I think, a very exciting pipeline And 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 and D spend today as compared to probably less than 10% a few years ago.
But more importantly, this part of the portfolio has the potential to add $75,000,000 So with the disappearance of a joint of a shared industry technology road map, 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. So 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 and in Taiwan. We've been adding new local manufacturing capabilities to shorten the lead times of a number of critical product lines.
And then 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 UP 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. The 2 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, And I think that we The last pillar is really the desire to be viewed as the And this is, of course, a never ending journey. But I am very, 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 speaks for themselves. Back in 2006, we were running our manufacturing processes at about 3.5 Sigma. Today, we are approaching 5.5 Sigma. And 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.
So very proud of the accomplishment. But again, as I said, this is a never ending journey, and, we won't stop here. So this is my final slide. And for those of you who have been following integrase 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, but this is a lot more than a concept. This has been really a guiding principle. This has been a compass for global teams, starting with the leadership team here in this room. And this model has really driven a number of very consequential decision. 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 and 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. So the bottom line is this is really what the Integris 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 is a more balanced portfolio a more exciting portfolio. And I will let Jim actually share the details of that portfolio with you, and he 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.
As Jim comes up, I'm Craig Graves, you haven't met me as CFO of Integris. Which is really 3 or 4 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. So that makes us important to them. The third thing is we're investing in the business, both our R and D pipeline well as our infrastructure.
From an R and D perspective, we're investing more as a percentage of revenue than we ever have, But with the advent of the ATMI transaction and the value we created there, we're still achieving EBITDA ever achieved. Infrastructure, building it out in places like Korea and Taiwan, investing in membrane capacity. So what does is it positions us to grow that top line 5% or so in a 2% GDP environment. So 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
What I'd like to address is how we leverage the breadth of our technology portfolio to drive specific key opportunities for growth for for the company. So as I visit customers around the world and really try to understand the technical challenge 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 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 gives us the ability to tap into new markets to address new applications and ultimately to outpace our competition.
Now it's been no surprise 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 enable to keep pace with the performance requirements required by the industry. So we've needed to implement new materials. We need things like new metallurgies to the faster switching transistors. We need new gate materials, which allow for transistors to switch at lower powers and allow your cell phone battery to operate, for longer periods time.
So clearly, new materials are central to the advancement of the Semiconductor Industry and they are in fact the key enabler behind the continuation customers are facing significantly increased challenges. Their processes are becoming more complex, individual unit processes are less mature, making yield learning much, 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. So 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. So the requirements for purity and defect control are ever increasing. And so just as an example, today, our customers are beginning to specify materials with purity levels in the parts per quadrillion level.
Is almost unimaginable, but just an example of scale, that's one part in 10 to 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. So these enormous customer challenges that the folks that we're trying to serve are facing plays right into Entegris' strengths. Strengths and filtration purification for liquids and gases and the ability to handle these materials in the clean and reproducible manner. These are all things that Entegris technology really is predicated upon.
And it's the breadth of the Entegris integris portfolio that it 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, but 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 device this yield of their process and ultimate cost of their manufacturing line in their manufacturing system. So 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 in wet clean and Entegris is also critical to the clean operation of the fab itself with wafer handling and reticle handling foops 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 into 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.
So like any company, Entegris has competitors and each of our competitors, plays in 1 or 2 types of product classes, but none of our competitors compete across the board with Entegris. So 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 The material supply chain is a long and convoluted process. It spans many months in several continents from the point where materials are manufactured to how they're packaged transported, stored, ultimately delivered to a, to a fab implemented on a tool and dispensed on a wafer. And yet, Entegris has a product portfolio, which addresses the 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 with chemical manufacturers, including ourselves, We work downstream with, 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. And I'll talk more specifically about that in coming slides. So I'd like to give you a little bit of color around the types of opportunities that we're pursuing. And I've selected handful of projects here, which demonstrate which show how we leverage the breadth of Integris' portfolio, and they should 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 2 seventy two projects that we have going, at this time, but they This sampling emphasizes capabilities from lithography to implants to etch, to deposition and to CMP or chemical mechanical polishing. Some of these projects are about expanding the markets, our presence in the markets that we already serve.
Others are about addressing new applications, but in aggregate, I think these kinds of projects should represent roughly $70,000,000 in growth over our planning horizon. So 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. Total resist, particularly for EUV can run upwards of $10,000 a gallon, for the photoresist material. So the cost of yield loss in this module is very high. So protecting these materials throughout the supply chain, is key, and it plays into Entegris' strengths in infiltration. Our solution in this particular case is a new class or new generation of UPE filters intended to address these types of 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. So 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 are, increasingly, they're increasingly challenged with. And it also allows for market share gain by allowing us to address key challenges at leading edge, leading edge nodes. The second example I want to talk about relates to IN implant.
Now the implant sector in a factory is a key market integris, both for leading edge and legacy node technologies. Now every fab tries strives for operational efficiency and tool up time 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 or the suite of IN implant tools. These are large tools. They use an enormous amount of power, consume a lot of very hazardous gases.
And 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. Tungsten components in the system. It gets very technical very quickly. But, Entegris has come along with a solution to this which is a suite of tailored gas mixtures, which liberate less flooring and enable the source life to be extended by 30% to 40%. A significant improvement and provides for increased uptime, better fab efficiency and significantly improved cost point for operating the sector.
Now much of our business in this market comes from Asia, So we have enabled, gas mixture filling capabilities in our manufacturing facility in ZhongAn Korea, which should significantly shorten the supply loop to our Asia based customers. Overall, there's a sense that 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 reactive by an etch or, pattern reactive by an 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, very tall, tall stacks.
And this requires very aggressive halogen containing chemistries in order to achieve the etch profiles that's 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. So you get yield loss due to particles from films that begin to flake and fall off from these coatings.
So Entegris' solution is a new class of PVD coatings, which are more resistant to attack in these reactive INH environments. And we're working very closely with the equipment supplier community and have generated significant interest because of the, the results that we've been able to demonstrate in terms of lifetime of these films, stability of the Edge process, and consistent operation of the equipment. The 4th example relates to polishing 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 polished process.
And most people think 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. But I would argue that there's a third critical component, and that is the, 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. So Entegris' solution is a new class, a new set of, pad conditioners, leveraging our experience in Silicon Carbide and Cbd diamond like films to, produce technology, which has been demonstrated to This represents a meaningful cost savings for our end customers and it replaces competitive offerings that use, that typically use industrial diamond grit which can become dislodged and and it allows us to attack a leading edge problem with a truly differentiated, type of solution. The third example or the sorry, the 5th example that I want to talk about relates to the deposition, film deposition, area.
And as if you've been following the industry, you recognize that advanced device architectures have begun to venture into the vertical dimension. And this drives, whether you're talking about the transition to FinFETs or gate all around nanowires or if you're talking about 3 d NAND structures, these architectures result in a demand on, on film deposition, which becomes increasingly difficult. So if you're trying to deposit this red film here, on a planar surface, it's relatively straightforward over this sense 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. So in order to achieve the performance requirements for these types of films, you need excellent conformality.
And this conformality really only comes from a class of precursors known as chemical vapor deposition precursors, Cbd, 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. So Entegris' solution to this problem is a new suite or new portfolio of deposition precursors, which have been developed in conjunction with our end users, be 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. Cbd 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 for Cbd Films overall. So this is really just a sampling of 5 representative projects out of a much larger portfolio, that I hope gives you a little bit of a flavor of the technical depths that Integris 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 be, will lay a very strong foundation the
background. And he's been with me about 3 or 4 years. His background process he was a process guy at IBM for the bulk of his career. Frankly forgotten more about the semi manufacturing process than most people know. The things that are important though that he talk 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. And increasingly important, whether it's getting the chemistry of 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 3rd point I want to bring out is, if you talk to you really about why do we win if you look at sort of who we compete with if you look at sort of who we compete with, We compete with someone different in almost all of the verticals that we participate in. So in terms of that applications expertise across the fab environment, we're really second to none at that. And then ultimately, that is what drives is going to drive our growth Jim talked about 5 growth initiatives that make up $70,000,000 in revenue by year 3 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. So with that, we're going to switch over and talk a little bit about the finances. So first of all, looking at our scorecard, we did a fair amount of work last year, and we said, what drives shareholder value. And we came to really three conclusions.
It's about growth. It's about consistency. Excuse me. It's about growth, consistency and profitability. So our scorecard really focuses around those several items.
It's about growing in excess of the market, the achieving the target model, which for us is about achieving consistent performance, and it's about growing our earnings per share. So I'm going to just give you, if you look at 2015, we view it to be a very good year for us. And I'll provide the supporting detail for that. And 6 teen is setting up to be a good year as well. So first of all, that growth and that's both in excess of the market.
The chart on the left is our is absolute revenue over time. Obviously, the ATMI acquisition played a big role in driving the revenue growth in 2014 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 mark. Recall our market is 80% tied to wafer starts, 20% tied to capital.
So In 2015, we outperformed the market. As 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 2015, we achieved that model We missed it in Q4. We talked about that on our earnings call.
The business, we slowed the business down more quickly than we initially had anticipated and 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, 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 a dollar. The other thing I want to point out is as you move across from $2.50 to $300 plus, about 40% flow through.
So every incremental dollar of revenue will drop 40¢ through to the 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. And 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 $2,000,000 to $3,000,000 in cost out of our cost of sales. So we should be more comfortable as it relates to that target model as we move into Q2 and Q3. And in fact, we talked about higher margins in Q2 versus Q1. And higher yet in Q3. We went into the when we did the ATMI transaction in 2014, we were at about two times on the net leverage.
We execute we exited 2015 at 1.4 times. We've reduced the debt. We've paid down about $150,000,000 in debt through the end of 2015 We expect to pay down at least $50,000,000 in, 2016. Another relevant point here, though, is that there is a deleveraging 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.
I mean, if you think we're running at EBITDA levels in the high 200s, A turn of leverage would be $280,000,000 because we have $140,000,000 we have $140,000,000 shares outstanding,000,000 shares outstanding standing. So for each half a turn of leverage, that's a dollar in value. If you assume that we can main contain a constant EBITDA multiple of 9 to 10 times. And I think people forget there's the it's all about growth, growth, growth, With the cash flow we're generating, the deleveraging 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.
If you look at 2014, 2015, both very nice years in terms of earnings per share growth, 19% in 14%, 23% in 15 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, we talked Bertrand talked a little bit about the EBITDA margin being up 21% to 22%. That's in line with kind of best in class special chemical companies. When we benchmark that EBITDA margin versus our peers, that is a very respectable margin. And 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.
We also, 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 bottom line. Over the next three years, we should generate operating cash flow of somewhere close to $550,000,000 and free cash flow of somewhere in the $300,000,000 range. So significant opportunity to de lever over the next several years. We talk about that free cash is essentially the capital that we have to allocate.
And the question is, is what is the capital allocation strategy and what are you going to do with that cash? That really hasn't
changed
liquidity. We exited, the last quarter with $128,000,000 in the U. S. We want part of the reason we're building that liquidity is we think we've earned the right to be an industry consolidator So there is a focus on what we call well targeted M and A. There's nothing in the pipeline today, but clearly, M and A and growth through M and A will be part of our strategy.
We have a share repurchase plan in place, It's opportunistic in terms of the price targets, but we are gonna be opportune you know, we will continue to buy shares on a weakness in the stock price. And then obviously ongoing debt repayments sitting with still with about $600,000,000 in debt, we will continue to pay that debt down. So in summary, when you think about the Entegris story, I mean, 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 have spike in demand for our Foops, 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 industries. We think about materials its advanced chemistries, its materials handling and its filtration. We think that combination of product in the market that we're serving is going to give us the opportunity to grow at above market growth rates. And with that, stable relatively stable compared to other companies in the space because so much of the business is recurring revenue will generate strong cash flow With the earnings leverage, we should be able to grow the earnings per share in the with top line growth of 5%, the flow through that we have I mean, that kind of math equates into earnings per share growth in the low double digits.
So with that, we'll open it up for questions.
So I'd like to ask, Todd and Wenga, to come up to the front as well. And we'll take your questions. And then We'll try to, remember to repeat the questions so that the people on the web, webcast can hear the questions. So with that, we'll open it up for Q and
Thank you. In your presentations that you highlighted a lot of the opportunities, particularly at the leading edge where purity and contamination control contain to gain continue to gain greater relevance. How do you see some of the opportunities for 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 automotive? How do you see those mature technology nodes benefiting the company?
Well, it's a great question. And We actually, as you know, serve all of those legacy fabs today. They are, consuming a lot of our filters or chemistries every day. And from a commercial standpoint, we have increased our focus on those legacy fabs because of, all of the search and activity that we've seen and that we expect to continue to see. So all of those fabs are facing similar types of challenges.
They are very focused on reducing their costs. 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 the filtration and purification solutions. So again, we are actually reengaging with all of those customers, all of those fabs. And 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 then the trailing edge for us mean, in the whole IoT, which has driven a lot of the trailing edge, has been much stapler than 5 years ago, if you'd have set our 200 millimeter business in 20 16 is going to be what it is. Ida said no way, it has been much firmer than we would have expected. The other thing is I would say we generate our at one level, we generate our cash at the trailing edge because we're not making significant investment in ER and 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 us talking about 3 d NAND nanometer 5.7 and going forward?
So I will ask you maybe to add Todd, but it's really the investments in all of those new customer engagements that, Jaym actually was characterizing it's really the ability now to offer those comprehensive solutions that cut across our product product lines and product capabilities. All of those, contamination challenges are becoming increasingly complex and they are dealt with in the fab and frame environment, but also, you know, working with the equipment makers helping them adopt cleaner, more performing materials and components and increasingly lower in the supply chain with 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. So that's 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.
Tom, I don't know if
you want to add anything to
little bit. If you look at some of the structures that Jim showed, some of the advanced structures and some of the work and deposition to get films down inside very fine features, that's very much leading edge activity happening both in memory and logic. But some of the other things you saw were about uptime for tools and extending ion sourced life. That really applies across a a wide swath of fabs. So 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 reduce costs.
And that's the main focus actually some of those, those mixes of gases that Jim was talking about. So it's really a combination of both So we usually, we find something at the leading edge that works really well. And then our customers actually want to extend that back into some of their trailing edge fabs. And then, obviously, is, 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. 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 some of those applications. So part of that growth in 200 millimeter has come from really regional growth that we've enjoyed as well.
Yes, excuse me, it's Chris CAPch with BB And T Capital Markets. Just a question about the competitive landscape. There's been a lot going on with numerous competitors that you highlighted in this presentation. And just wondering if so obviously do DowDuPont merging and Versum becoming an independent company. Paul being acquired, even your Japanese competitors suddenly have a much stronger yen to contend with post Brexit.
So just curious if with all this going on, have you has there been any change in competitive behavior that you've noticed. And then I have a follow-up to that. I can start But I would say, we
have not. I mean, I think that all of those companies have remained very focused on what do. And, and we have as well. So I think that, again, we are not counting on a weakness of 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
And then just on the as a follow-up, if you look at some of the secular changes that have taken place with the industry and And as you've emphasized, the, especially for advanced generations, the proliferation of materials that are used with kind of a 3rd or 40% of the periodic table, with the parts per wood. Quite 1,000,000,000,000 or EPQ. I don't think I've heard PPQ before. Just but and then juxtapose against the maturity of the industry, the question is, isn't doesn't this make a case that for a mission critical supplier like integrase that you should get paid more for your value? In the past, there was, there was always this pricing pressure, but that was because a function of the growth of the industry, right?
But now with the growth be more mature and for that for innovation to happen for them to for the chip makers to rely on a supplier like integrat. Is there not an entitlement to greater value from a pricing and value standpoint?
That's a great question. And one of the core engines that I look at in terms of how we drive the company for the company. We as a legacy supplier to the industry and to supply really every customer industry. We have responsibility to help our customers stay efficient, find ways to reduce cost, improve efficiencies. So that's always a headwind for us in that sense, but we do it we embrace makes us a close partner to them.
And that gets us in the door to about the new applications. New applications, especially a leading edge, are almost always sold with new products. And so, I mean, we have mid-20s percent of our revenues come from new products. And those are products that are solving leading edge applications. And we try to always improve our margins with those.
Quite a bit higher than legacy products. So we get having that pipeline of products continue and having those JDAs with the customers in the credibility to do that, though, by being a good reliable supplier and help them with efficiency on their really have to do both to be successful. But 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 and we can command the pricing for the new products to make that happen. We can't rest on it is kind of my point.
Yes. I have a question. This is for Jim. You talked about 5 initiatives or the growth things that you expect over the next 2 years or so. I just want to find out which one is near a low hanging fruit or near term opportunity that you can go and go after.
And out of those five opportunities, which one is probably the biggest of the opportunities. Any more color on that, that will be great.
Yes. So I mean, if I look at our gas mixtures. This is a capability that we've got that is, is pretty much ready made for both legacy and leading, leading edge applications. That's something that we can, 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. And so when we made the large investments in that Greg talked about with the ITwem Center, that's online now. Got 80% or more of our demand for photo litho filters coming from with membrane from that facility.
So we've alleviated a constraint on our ability to serve that market. And so 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, and we have increased capacity now to make that happen. So we're realizing revenue today.
That initiative and growth?
2 related questions. The first is, It seems like you're comparing yourself financially to, specialty materials companies. But you're not a solely a specialty materials company. Is there a reason? Are you driving trying aside from the obviously, I'd be making large acquisition there a couple of years ago.
Is this something you're continuing to pushes a growth area for the company. And that's why you're using that as your peer group. And then the second related sense of your growth initiatives. You already mentioned the specialty materials for lithography. As a, or the gas as your number one opportunity.
And then the gas next year is where near opportunity short term horizon opportunity. Are those growth areas, overall mapping more to the specialty materials and the filters for the, materials handling.
Well, I'll take the first part. You want to take the second part, the first part, I would say that again, specialty chemical companies can span a very broad range of definitions. And so it's true that if you think about materials and chemistry specifically, it only represents about 40% of our top line, but I would actually lump into the definition of specialty chemical, the futuration and purification product offering that we have. So again, I think the way we're trying to position ourselves is and differentiate ourselves is that we are not a toolmaker. 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 divest majority of, customer base. Do you want to take the second part?
Think relative to, 1st of all, comparing to equipment company, equipment companies are our customers. And we work with really all of them don't find many equipment companies who work with other equipment companies. So when we were working with them, we're working on solving materials problems, their materials handling problem, or action 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 the material that's going to get the process done. The connection between the cleans chemicals, especially in filtration and resist infiltration is very, very intimate today.
I mean, there's many factors that affect how these materials perform on the wafer. We learn with the customers in a lot of cases how this is happening and we can alter the filter and we do this in many, many ways to solve a specific problem or change a performance attribute. And that's very true with the chemistries as well. One of our largest investments is in the the dynamics around the, how the materials interface with the wafer. So there's a lot, there's a lot to do between materials handling, to make things affect make things effective, not only within our own materials, but with our customers' materials as well.
And that's the reality that we face today. The other part of course is materials handling. So when we talk about us, I really think of it 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, but we also handle those wafer we handle all those critical materials all through the fab. So we don't make equipment. We do make some of the materials, and we make a lot of the things that handle those materials and are consumed during the process and the fab.
That's another thing that makes us unique from capital equipment companies in the semi space.
Thank you. I just had a quick question about some of the capacity that we've added. I think the I2M center, which my opinion, took a little bit longer than I assumed it would to double, capacity, if you will, but 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 you could share if that's accurate or not. And then, I know we've added a bunch of capacity in Minnesota as well.
And maybe you could give us an update on where we stand there and when those You know, I understand there's a difference between adding capacity and qualifying capacity. And maybe you could let us know where we sit on those 2 big facilities.
Yes. I alluded a little bit to the I2M facility in my presentation, but think specifically when we City 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. So in addition to the market being decent, I mean, there are some integra specific things like the I2M center that are creating some tailwinds for us right now.
I'll let Todd comment on the Chaska.
So, Christian, first of all, on the I2M center. So, it did take longer than I'd certainly wanted it to take. And 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. So we've taken core size is down. We've done additional cleaning steps.
We've learned a lot of things continuing to support the industry while we had a ramp this complete move. And, it certainly got it 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, in producing revenue for us in a significant way. So that's going really well. We've added capacity other areas that I think about that I felt constraints from our customers is, one is our chemical containers.
So we added, we doubled our capacity for drums in Minnesota a couple of years ago and have basically filled that up. And we had a, we had our manufacturing in Taiwan as well. And we are just now doubling the capacity of that facility because of the pressure from of demand from chemical customers, in Taiwan, Korea, China, etcetera. So that's, that's just coming online and doing the B and Q process right now. The other areas 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, and 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 and are very safe. And in a pure way. And 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. And so we need to get ready to serve it. So I think those three areas of membranes, gases and containers, unit driven parts of the business asking the most from our customers for additional capacity.
And we're seeing the impact of that in a very positive way now. It's happening. Any other questions?
Yes. Chris Captcher with BB And C again. I think based on your model, Greg, you had absent an acquisition to be roughly debt free in a few years. I'm sure you don't want to be there. Your comments of your, you've said, that acquisitions are part of the core competence and part of the future.
The company, I think, Greg, you said, you've earned that Entegris earn 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 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 to grow as you've laid it out? Thanks.
Right. So, this is a question that could certainly be answered in? Or we deserve actually a lot more time, but simply stated, I would say, so yes, you know, M and A will continue to be an important part of our growth strategy. We are certainly, constantly looking for potential M and A targets and we have a pipeline of potential M and A candidate. 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. So it's a combination of both. And if I was in a position to share what is on our M and A pipeline, something I cannot do, you would actually see examples of those 2 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. And 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, different cobalt or Yes.
So not to dive too deeply in the weeds really quickly. Copper has been a very successful and will continue to be a material and high demand for both leading edge and legacy node applications. Our position with, our partnership with Anthone 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 a barrier material to prevent the copper from bleeding into the rest of the device. The that barrier material limits the ultimate resistivity therefore, the speed at which you can switch a device.
So there is a, a, an effort within the industry to identify alternative metallurgies Cobalt is 1. We participate there extensively and have released products into the on that. We are also working with partners and advanced customers to identify other candidates that serve their needs. And, you know, those candidates are out and under investigation within the industry in university settings as well. So things like Cobaltrithinium, molybdenum, things like that have all been have all been published and are, things that, you know, in order to be implemented will require significant development, but there isn't, there isn't a technological need to to identify alternatives for the smallest features, but I think right now, you know, 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. And, I'll be there after the meeting if you want to stop by. We are also having a a reception this evening from 5 to 8. And if you'd like to attend that, that will be also at the Hospitality suite. So if you'd attend that, please see me.
And 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. Hope you can join us for this 50th anniversary celebration, in the evening. And, 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 attention and have a great day.