February 7, 2017

Nanometrics Reports Fourth Quarter and Full Year 2016 Financial Results

MILPITAS, Calif., Feb. 07, 2017 (GLOBE NEWSWIRE) -- Nanometrics Incorporated (NASDAQ:NANO), a leading provider of advanced process control systems, today announced financial results for its fourth quarter and full year ended December 31, 2016.

2016 Highlights:

  • Record Memory Sales, Driven by 3D-NAND. Strong market positions with key customers ramping production of 3D-NAND devices led to a near-doubling of last year's 3D-NAND record revenues and an all-time record in product revenues from the overall memory segment.
  • Record Thin-Film Metrology Sales.  Success in expanding our thin-film metrology solutions in both Automated and Integrated systems led to thin-film metrology sales more than doubling year-over-year.
  • Record Integrated Metrology Sales.  Market share gains, particularly in 3D-NAND, led to record sales of Integrated Metrology systems, with revenues up over 34% year-over-year.
  • Revenue Growth and Operational Execution Drove Significant Year-Over-Year Improvements in Financial Results.
      -  Revenue up 18%
      -  Gross Margin improved over 330 basis points; Operating Margin improved over 920 basis points
      -  Incremental Gross Margin and Incremental Operating Margin exceeded 70% and 65%, respectively
      -  Over $40 million in Free Cash Flow generation
   
 GAAP Results 
  Q4 2016Q3 2016Q4 2015FY 2016FY 2015 
 Revenues (Millions)$59.2 $58.7 $42.7 $221.1 $187.4  
 Gross Margin 52.1% 51.8% 48.7% 51.6% 47.9% 
 Operating Margin 15.2% 15.4% -2.4% 13.2% 2.7% 
 Net Income (loss) (Millions)$26.7 $7.9 $(1.8)$44.0 $2.9  
 Earnings per Diluted Share$1.04 $0.31 $(0.07)$1.75 $0.12  
        
 Non-GAAP Results 
  Q4 2016Q3 2016Q4 2015FY 2016FY 2015 
 Gross Margin 52.3% 52.5% 49.8% 52.3% 48.9% 
 Operating Margin 15.4% 16.1% 1.8% 13.8% 4.6% 
 Net Income (Millions)$8.4 $8.3 $0.0 $27.1 $6.4  
 Earnings per Diluted Share$0.33 $0.33 $0.00 $1.08 $0.26  
        

A reconciliation between GAAP operating results and non-GAAP operating results is provided following the financial statements that are part of this release and on the investor page of Nanometrics' website. Non-GAAP results exclude the impact of amortization of acquired intangibles, restructuring charges and certain non-cash tax items.

"Nanometrics' results for 2016 reflect the significant market share gains we have achieved over the past few years in combination with a relentless focus on operational efficiencies, and mark a financial performance inflection point for the company," commented Dr. Timothy J. Stultz, president and chief executive officer. "Our year-on-year revenue growth of 18% significantly outperformed overall industry spending, with a balanced revenue profile and meaningful contributions by every leading semiconductor manufacturer and each device type: 3D-NAND, DRAM and Foundry logic. Over the past three years, we have increased revenues by over 50% while keeping operating expenses relatively flat, resulting in incremental operating margins in the 60% to 65% range, well above our target business model. Improvements in our gross margin profile are enabling us to step up our investments in R&D for the development of entirely new technology platforms and applications that can expand our served markets and contribute to future revenue growth — while still delivering solid bottom line performance.

"As we look to 2017, we expect to continue to benefit from strong spending and our robust market share positions in 3D-NAND, while forecasting increasing revenues for both DRAM and Foundry logic compared to 2016. Our flagship Atlas® III system, launched last year into advanced DRAM, has continued to gain traction with multiple additional key accounts and end markets. The customer response to this system has been the strongest we have ever experienced for a newly-introduced product, and is expected to help drive record shipments for Nanometrics in the current quarter and all-time record revenues in the second quarter. Given the number of first-in-fab shipments in our first-quarter shipping plans and the associated delays in timing of revenue recognition, our first-quarter sales are expected to come in at levels similar to the fourth quarter and, at the midpoint of guidance, 23% higher than the same period last year. Importantly, with the recent upbeat investment announcements by our key customers, the growing tailwinds for our business, and our strong position in the fastest-growing segments of our served markets, we believe we are well-positioned to continue to meaningfully outperform the industry, further improve our financial performance, and achieve double-digit growth and record revenues for the full year 2017."

Fourth Quarter 2016 Summary
Revenues for the fourth quarter of 2016 were $59.2 million, up 0.8% from $58.7 million in the third quarter of 2016, and up 38.6% from $42.7 million in the fourth quarter of 2015.  On a GAAP basis, gross margin was 52.1%, compared to 51.8% in the prior quarter and 48.7% in the year-ago period.  Operating income was $9.0 million, compared to $9.1 million in the prior quarter and an operating loss of $1.0 million in the year-ago period.  The net income, which includes the favorable impact of the change of valuation allowance on certain deferred tax assets of $18.4 million or $0.72 per diluted share, was $26.7 million or $1.04 per diluted share, compared to $7.9 million or $0.31 per diluted share in the prior quarter, and a net loss of $1.8 million or $0.07 per diluted share in the fourth quarter of 2015.

On a non-GAAP basis, which excludes amortization of acquired intangible assets, gross margin was 52.3%, compared to 52.5% in the prior quarter and 49.8% in the year-ago period.  Non-GAAP operating income was $9.1 million compared to $9.5 million in the prior quarter and $0.8 million in the fourth quarter of 2015. Non-GAAP net income, which adjusts for amortization of intangible assets and impact of the change of valuation allowance on deferred tax assets of $18.4 million, was $8.4 million or $0.33 per diluted share, compared to $8.3 million or $0.33 per diluted share in the prior quarter and breakeven in the fourth quarter of 2015.

Full Year 2016 Summary
Revenues were $221.1 million, up 18% from $187.4 million in 2015.  On a GAAP basis, gross margin was 51.6%, compared to 47.9% in 2015, and operating income was $29.1 million, compared to $5.0 million in 2015.  Net income was $44.0 million or $1.75 per diluted share, compared to $2.9 million or $0.12 per diluted share in 2015.

On a non-GAAP basis, which excludes amortization of acquired intangible assets, gross margin was 52.3% compared to 48.9% in 2015.  Non-GAAP operating income, which also excluded restructuring charges in 2015, was $30.6 million, compared to $8.5 million in 2015. Non-GAAP net income, which also adjusts for amortization of intangible assets and the impact of the change of valuation allowance on deferred tax assets of $18.4 million, was $27.1 million or $1.08 per diluted share, compared to $6.4 million or $0.26 per diluted share in 2015.

Deferred Tax Asset Valuation Allowance
In accordance with ASC Topic 740, Income Taxes, the company determined based upon an evaluation of all available objectively verifiable evidence, including but not limited to the company's U.S. operations, current earnings and anticipated future earnings, that a release of the valuation allowance on its U.S., certain state's, and Israel's deferred tax assets, which are comprised of accumulated and unused U.S. tax credits, net operating losses, and other temporary book-tax differences, is required.  The release of a non-cash valuation allowance on the majority of the company's deferred tax assets does not have any impact on its cash, nor does such change in the valuation allowance preclude the company from utilizing its tax losses, tax credits or other deferred tax assets in future periods.

Business Outlook
Management expects first-quarter 2017 revenues in the range of $56 to $61 million, with shipments up significantly from the fourth quarter of 2016. Given the expected mix of revenues in the quarter, gross margin is expected to be in the range of 51% to 52% on both a GAAP and non-GAAP basis. Management expects first-quarter operating expenses to range between $21.6 million and $22.2 million on both a GAAP and non-GAAP basis, and earnings in the range of $0.19 to $0.26 per diluted share on both a GAAP and non-GAAP basis. The significant shipment growth in the first quarter and rapid adoption of the Atlas III is expected to lead to revenues exceeding prior record levels in Q2 and for the full year 2017.

Conference Call Details
A conference call to discuss fourth quarter 2016 results will be held today at 4:30 p.m. EST (1:30 p.m. PST). To participate in the conference call, the dial-in numbers are (877) 374-4041 for domestic callers and (253) 237-1156 for international callers. The conference ID is 48634472. A live and recorded webcast and supplemental financial information will be made available on the investor page of the Nanometrics website at www.nanometrics.com.

Use of Non-GAAP Financial Information
The non-GAAP gross profit, gross margin, operating income, operating income margin, net income, net income per share, which exclude certain expenses, charges and special items, and free cash flow, were not prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses non-GAAP financial results, which exclude amortization of acquired intangibles assets, restructuring charges, and certain non-cash tax items, to evaluate the company's ongoing performance and to enable comparison to other periods that did not include these items. The company believes the presentation of non-GAAP results is useful to investors for analyzing ongoing business trends, comparing performance to prior periods, and enhancing the investor's ability to view the company's results from management's perspective; however, investors are cautioned that other companies may calculate these measures differently than Nanometrics does, which would limit the usefulness of these financial measures. A table presenting a reconciliation of GAAP results to non-GAAP results is included at the end of this press release and is available on the investor page of the Nanometrics website at www.nanometrics.com.

About Nanometrics
Nanometrics is a leading provider of advanced, high-performance process control metrology and inspection systems used primarily in the fabrication of semiconductors and other solid-state devices, including sensors, optoelectronic devices, high-brightness LEDs, discretes and data storage components.  Nanometrics' automated and integrated metrology systems measure critical dimensions, device structures, topography and various thin film properties, including three-dimensional features and film thickness, as well as optical, electrical and material properties. The company's process control solutions are deployed throughout the fabrication process, from front-end-of-line substrate manufacturing, to high-volume production of semiconductors and other devices, to advanced three-dimensional wafer-level packaging applications. Nanometrics' systems enable advanced process control for device manufacturers, providing improved device yield at reduced manufacturing cycle time, supporting the accelerated product life cycles in the semiconductor and other advanced device markets. The company maintains its headquarters in Milpitas, California, with sales and service offices worldwide. Nanometrics is traded on NASDAQ Global Select Market under the symbol NANO. Nanometrics' website is http://www.nanometrics.com.

Forward Looking Statements
Certain statements in this press release, including those found in Dr. Stultz's quote and under the caption "Business Outlook," are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially from those described in this release.  Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from these expectations due to a variety of factors, including, but not limited to: decreased levels of industry spending; Nanometrics' inability to gain additional market share, increase sales, ship products as scheduled, customer acceptance of new products or outperform the industry; decreased demand for Nanometrics' products; shifts in the timing of customer orders and product shipments; technology adoption rates; changes in customer and product mix; changes in market share; changes in operating expenses; and general economic conditions. For additional information and considerations regarding the risks faced by Nanometrics that could cause actual results to differ materially, see its annual report on Form 10-K for the year ended December 26, 2015, as filed with the Securities and Exchange Commission on February 24, 2016, including under the caption "Risk Factors," as well as other periodic reports filed with the SEC from time to time. Nanometrics disclaims any obligation to update information contained in any forward-looking statement, except as required by law. 

 

NANOMETRICS INCORPORATED 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(In thousands) 
(Unaudited) 
      
  December 31,
 2016
 December 26,
 2015
 
ASSETS     
Current assets:     
Cash and cash equivalents $47,062  $38,154  
Marketable securities  82,899   44,931  
Accounts receivable, net  39,457   37,832  
Inventories  38,837   47,749  
Inventories-delivered systems  2,457   2,856  
Prepaid expenses and other  5,667   6,592  
Total current assets  216,379   178,114  
      
Property, plant and equipment, net  44,226   44,493  
Goodwill  8,940   9,415  
Intangible assets, net  412   1,867  
Deferred income tax assets  17,399   1,118  
Other assets  474   533  
Total assets $287,830  $235,540  
      
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current liabilities:     
Accounts payable $11,342  $11,675  
Accrued payroll and related expenses  12,656   10,097  
Deferred revenue  9,168   12,790  
Other current liabilities  8,047   8,878  
Income taxes payable  813   1,771  
Total current liabilities  42,026   45,211  
      
Deferred revenue  816   827  
Income taxes payable  841   775  
Deferred tax liabilities  20   521  
Other long-term liabilities  353   878  
Total liabilities  44,056   48,212  
      
Stockholders' equity:     
Common stock  25   24  
Additional paid-in capital  271,969   258,715  
Accumulated deficit  (22,174)  (66,209) 
Accumulated other comprehensive income (loss)  (6,046)  (5,202) 
Total stockholders' equity  243,774   187,328  
Total liabilities and stockholders' equity $287,830  $235,540  
      


NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
          
  Three Months Ended Twelve Months Ended 
  December 31,
 2016
 December 26,
 2015
 December 31,
 2016
 December 26,
 2015
 
          
Net revenues:         
Products $48,776  $33,255  $185,066  $146,945  
Service  10,383   9,428   36,063   40,422  
Total net revenues  59,159   42,683   221,129   187,367  
          
Costs of net revenues:         
Cost of products  22,766   17,118   85,391   76,224  
Cost of service  5,446   4,292   20,160   19,450  
Amortization of intangible assets  143   469   1,454   2,026  
Total costs of net revenues  28,355   21,879   107,005   97,700  
Gross profit  30,804   20,804   114,124   89,667  
          
          
Operating expenses:         
Research and development  7,996   7,806   31,443   32,701  
Selling  7,614   7,150   30,181   28,055  
General and administrative  6,231   5,543   23,381   22,444  
Amortization of intangible assets  -   25   24   114  
Restructuring  -   1,322   -   1,380  
Total operating expenses  21,841   21,846   85,029   84,694  
Income (loss) from operations  8,963   (1,042)  29,095   4,973  
          
Other income (expense):         
Interest income  2   9   35   71  
Interest expense  (9)  (38)  (285)  (289) 
Other income, net  230   73   290   813  
Total other income, net  223   44   40   595  
          
Income before income taxes  9,186   (998)  29,135   5,568  
Provision for income taxes  (17,468)  816   (14,900)  2,663  
Net income (loss) $26,654  $(1,814) $44,035  $2,905  
          
Net income per share:         
Basic $1.07  $(0.07) $1.79  $0.12  
Diluted $1.04  $(0.07) $1.75  $0.12  
          
Shares used in per share calculation:         
Basic  24,949   24,203   24,655   24,059  
Diluted  25,514   24,203   25,153   24,375  
          


NANOMETRICS INCORPORATED 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands) 
(Unaudited) 
      
      
  Twelve Months Ended 
  December 31,
2016
 December 26,
2015
 
Cash flows from operating activities:     
Net income $44,035  $2,905  
Reconciliation of net income to net cash from operating activities:     
Depreciation and amortization  8,295   9,075  
Stock-based compensation  7,666   6,248  
Excess tax benefit from equity awards  1,036    
Loss on disposal of fixed assets  478   1,121  
Inventory write down  2,110   2,645  
Deferred income taxes  (16,783)  345  
Changes in fair value of contingent consideration  (1,175)  (56) 
Changes in assets and liabilities:     
Accounts receivable  (2,707)  (12,610) 
Inventories  4,526   (16,431) 
Inventories-delivered systems  399   (943) 
Prepaid expenses and other  905   3,271  
Accounts payable, accrued and other liabilities  2,462   4,167  
Deferred revenue  (3,634)  1,006  
Income taxes payable  (1,928)  828  
Net cash provided by operating activities  45,685   1,571  
      
Cash flows from investing activities:     
Sales of marketable securities  5,955   3,383  
Maturities of marketable securities  38,775   41,863  
Purchases of marketable securities  (82,864)  (41,449) 
Purchase of property, plant and equipment  (3,999)  (1,846) 
Net cash provided by (used in) investing activities  (42,133)  1,951  
      
Cash flows from financing activities:     
Payments to Zygo Corporation related to acquisition  (315)  (851) 
Proceeds from sale of shares under employee stock option and purchase plans 9,047   3,974  
Excess tax benefit from equty awards  (1,036)  -  
Taxes paid on net issuance of stock awards  (1,822)  (1,182) 
Repurchases of common stock under share repurchase plans  -   (1,721) 
Repurchases of common stock - other  (600)  -  
Net cash provided by financing activities  5,274   220  
Effect of exchange rate changes on cash and cash equivalents  82   (264) 
Net increase in cash and cash equivalents  8,908   3,478  
Cash and cash equivalents, beginning of period  38,154   34,676  
Cash and cash equivalents, end of period $47,062  $38,154  
      


NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS 
(In thousands, except per share amounts)
(Unaudited)
                     
  Three Months Ended Twelve Months Ended
  December 31,
2016
 September 24,
2016
 December 26,
2015
 December 31,
2016
 December 26,
2015
Reconciliation of GAAP gross profit and gross margin to non-GAAP gross profit and gross margin                    
GAAP gross profit and gross margin, respectively $30,804  52.1% $30,404  51.8% $20,804  48.7% $114,124  51.6% $89,667  47.9%
Non-GAAP adjustments:                    
Amortization of intangible assets  143  0.2%  434  0.7%  469  1.1%  1,454  0.7%  2,026  1.1%
Non-GAAP gross profit and gross margin, respectively $30,947  52.3% $30,838  52.5% $21,273  49.8% $115,578  52.3% $91,693  48.9%
                     
Reconciliation of GAAP operating income to non-GAAP operating income                    
GAAP operating income and operating margin, respectively $8,963  15.2% $9,066  15.4% $(1,042) -2.4% $29,095  13.2% $4,973  2.7%
Non-GAAP adjustments:                    
Amortization of intangible assets included in cost of revenues  143  0.2%  434  0.7%  469  1.1%  1,454  0.7%  2,026  1.1%
Amortization of intangible assets included in operating expenses  -  -   -  -   25  0.0%  24  0.0%  114  0.1%
Restructuring included in operating expenses  -     -  0.0%  1,322  3.1%      1,380  0.7%
Total non-GAAP adjustments to operating income  143  0.2%  434  0.7%  1,816  4.2%  1,478  0.7%  3,520  1.9%
Non-GAAP operating income and operating margin, respectively $9,106  15.4% $9,500  16.1% $774  1.8% $30,573  13.8% $8,493  4.6%
                     
Reconciliation of GAAP net income to non-GAAP net income                    
GAAP net income $26,654    $7,883    $(1,814)   $44,035    $2,905   
Non-GAAP adjustments:                    
Total non-GAAP adjustments to non-GAAP operating income  143     434     1,816     1,478     3,520   
                               
Income tax impact of change of valuation allowance on deferred tax assets  (18,443)    -     -     (18,443)    -   
Non-GAAP net income $8,354    $8,317    $2    $27,070    $6,425   
                     
GAAP net income (loss) per diluted share $1.04    $0.31    $(0.07)   $1.75    $0.12   
                     
Non-GAAP net income per diluted share $0.33    $0.33    $0.00    $1.08    $0.26   
                     
Shares used in diluted net income per share calculation  25,514     25,282     24,446     25,153     24,375   
                     
Reconciliation of net cash provided by operating activities to free cash flow                   
GAAP net cash provided (used in) by operating activities $11,584    $20,881    $(777)   $45,685    $1,571   
Purchase of property and equipment  (650)    (821)    (481)    (3,999)    (1,846)  
Free cash flow $10,934    $20,060    $(1,258)   $41,686    $(275)  
                     
Investor Relations Contact:
Claire McAdams
Headgate Partners LLC
530.265.9899
claire@headgatepartners.com

Company Contact:
Jeffrey Andreson, CFO
Nanometrics Incorporated
408.545.6143
jandreson@nanometrics.com


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