May 6, 2010

Nanometrics Reports First Quarter Financial Results

Revenues Up 41% Sequentially; 55% Gross Margin; 16% Operating Margin; GAAP EPS $0.26

Nanometrics Incorporated (Nasdaq: NANO), a leading provider of advanced process control metrology systems used primarily in the fabrication of semiconductors, high-brightness LEDs, data storage devices and solar photovoltaics, today announced financial results for its fiscal first quarter ended April 3, 2010.

Highlights for the first quarter include:

– Revenues of $37.2 million, up 41% quarter-on-quarter and 270% year-on-year;
– Gross margin improved to 55.3%;
– Operating margin of 16.0%;
– Multi-system deployment of UniFire™ systems in high-volume advanced packaging applications; and,
– Continued customer adoption of Atlas®, Lynx™ and Caliper Mosaic™ for optical critical dimension (OCD), thin film and overlay metrology solutions.

Commenting on the first quarter results, president and chief executive officer Dr. Timothy J. Stultz said, “Our first quarter results demonstrate the operating leverage and improved profitability achieved in concert with our significant growth in revenues. We believe the strength of our gross margin speaks directly to the competitiveness of our product offering and the efficiency of our operations, and our improved operating margin reflects our continued close management of expenses. Still, our team is focused on further improvements to these and other key financial performance metrics, in order to further demonstrate the strength of our new business model.

“Our business continues to benefit from technology purchases of several of our metrology platforms, in our customers’ ongoing push to shrink geometries and move to advanced process nodes. In the first quarter, we witnessed the emergence of capacity buys, which over the next several quarters should benefit us following the key tool-of-record product selections we have won over the last few quarters. We also began to recognize revenue on UniFire systems, demonstrating the expansion of our served markets into the advanced packaging market and emerging applications for through-silicon-via stacked semiconductors. We have also seen further growth in sales of our HB-LED metrology systems.

“In the first quarter of 2010, a period which we believe is still at the early stage of the current upturn in capital spending, we have produced margin and profitability metrics exceeding our performance at prior similar revenue levels. With our first quarter results, we have delivered financial results consistent with the expectations of our target model, yet believe we can continue to improve on all financial metrics. Going forward, we see positive signs for continued revenue growth through the end of 2010, with new fab capacity contributing to further growth in 2011.”

First Quarter 2010 Summary
Revenues were $37.2 million, up 41% from $26.3 million in the fourth quarter of 2009 and up 270% from $10.1 million in the first quarter of 2009. Revenues consisted of $28.5 million in product revenues and $8.6 million in service revenues, which respectively increased 43% and 37% over the prior quarter and 478% and 68% over the year-ago period. Gross margin of 55.3% increased compared to 50.7% in the prior quarter and 28.3% in the year-ago period, primarily as a result of increased product gross margin, higher overall sales volume, improved factory absorption, greater mix of product revenues and higher contribution of upgrades to service revenue.

Total operating expenses were $14.6 million, up 15% from $12.7 million in the fourth quarter of 2009 and up 23% from $11.9 million in the year-ago period. The increase over prior periods primarily reflects the higher sales volume, increased levels of variable compensation expense and the impact of a reduction in the number of unpaid employee days off, as well as a $0.3 million asset impairment charge. The increase over the first quarter of 2009 also reflects the added expenses relating to the acquisition of the Unifire business completed in June 2009.

Net income was $5.9 million, or $0.26 per diluted share, compared to a net loss of $0.3 million, or $0.01 per diluted share, in the fourth quarter of 2009 and a net loss of $10.6 million, or $0.58 per diluted share, in the first quarter of 2009. Non-GAAP operating income was $8.7 million, compared to non-GAAP operating income of $2.8 million in the prior quarter and non-GAAP operating loss of $6.6 million in the year-ago period.

View Q1 2010 Tables [pdf]

Conference Call Details
A conference call to discuss first quarter results will be held today at 5:00 p.m. EDT (2:00 p.m. PDT). To participate in the conference call, the dial-in numbers are (866) 825-1709 for domestic callers and (617) 213-8060 for international callers. The passcode is 44581459. A live and recorded webcast will be made available on the investor page of the Nanometrics website at www.nanometrics.com.

Use of Non-GAAP Financial Information
Financial results such as non-GAAP operating income, which exclude certain expenses, charges and special items, are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses non-GAAP operating income, which excludes non-cash expenses including stock-based compensation, depreciation and amortization, as well as asset impairments, restructuring charges and other special items, to evaluate the company’s ongoing performance and cash flow from operations. The company believes the presentation of non-GAAP operating income 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. A table presenting a reconciliation of GAAP results to non-GAAP operating income is included at the end of this press release.

About Nanometrics
Nanometrics is a leading provider of advanced, high-performance process control metrology systems used primarily in the fabrication of semiconductors, high-brightness LEDs, data storage devices and solar photovoltaics. Nanometrics’ automated and integrated metrology systems measure critical dimensions, device structures, overlay registration, topography and various thin film properties, including 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 wafer-scale packaging applications. Nanometrics’ systems enable device manufacturers to improve yields, increase productivity and lower their manufacturing costs. The company maintains its headquarters in Milpitas, California, with sales and service offices worldwide. Nanometrics is traded on NASDAQ Global Market under the symbol NANO. Nanometrics’ website is http://www.nanometrics.com.

Forward Looking Statements
This press release contains forward-looking statements including, but not limited to, statements regarding Nanometrics’ expected results for its most recently completed fiscal quarter, which remain subject to adjustment in connection with the preparation of Nanometrics’ financial statements and periodic report on Form 10-Q for the quarter ended April 3, 2010, the continued adoption and competitiveness of its products, the expansion of the company’s served markets and future revenue growth, profitability and cash flow. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including slower-than-anticipated market adoption, changes in product mix, a contraction in current levels of industry spending and increased operating expenses. For additional information and considerations regarding the risks faced by Nanometrics, see its annual report on Form 10-K for the year ended January 2, 2010 as filed with the Securities and Exchange Commission, 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.

Contact
Company Contact:
Jim Moniz, CFO
408-545-6145 tel; 408-521-9370 fax
jmoniz@nanometrics.com

Investor Relations:
Claire McAdams
Headgate Partners LLC
530-265-9899 tel; 530-265-9699 fax
claire@headgatepartners.com


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