August 1, 2017

Nanometrics Reports Second Quarter 2017 Financial Results

Record Revenues Driven by Strength in Memory; Gross Margin Improves over 400bp from the First Quarter

MILPITAS, Calif., Aug. 01, 2017 (GLOBE NEWSWIRE) -- Nanometrics Incorporated (NASDAQ:NANO), a leading provider of advanced process control systems, today announced financial results for its fiscal second quarter, which ended July 1, 2017.

Q2 2017 Highlights:

  • Record Revenue Quarter. Strong revenue contributions from 3D-NAND and DRAM, as well as continued Foundry spending, led to record quarterly revenues for Nanometrics.
  • Record Adoption of Newest Flagship System, the Atlas® III. Atlas III sales comprised over 50% of all Automated tool revenues in the quarter, evidence of the strongest new product launch in the company's history. Atlas III systems were shipped to four of the six leading spenders of semiconductor wafer fab equipment (WFE) in the quarter, across every key device type: 3D-NAND, DRAM, and Logic.
  • First Revenue Recognized from Domestic China 3D-NAND Manufacturer. A recent competitive win with a new domestic customer in China led to orders for multiple IMPULSE® Integrated Metrology systems, which were shipped and accepted within the second quarter. The IMPULSE systems are being deployed on CMP tools for 3D-NAND devices.
  • Expanded Product Offerings for Thin Film Applications and Data Analytics. The company recently announced the adoption of Atlas MPU and Atlas III systems by multiple leading memory manufacturers, for production control of thin film deposition processes in both DRAM and 3D-NAND.The company also announced the release and delivery to multiple customers of NanoDiffract® 4 and SpectraProbe™, the newest additions to its suite of advanced modeling and analytics software products. These new software products provide improved modeling and analysis for the most advanced device structures. First revenues on the expanded product offerings are expected within fiscal 2017.
 
GAAP Results
 Q2 2017Q1 2017Q2 2016
Revenues (Millions)$64.4$59.3$55.8
Gross Margin 52.2% 48.0% 51.0%
Operating Margin 16.5% 9.3% 13.2%
Net Income (loss) (Millions)$8.3$5.4$6.0
Earnings per Diluted Share$0.32$0.21$0.24
    
Non-GAAP Results
 Q2 2017Q1 2017Q2 2016
Gross Margin 52.4% 48.3% 51.8%
Operating Margin 17.2% 9.9% 13.9%
Net Income (Millions)$7.8$4.8$6.5
Earnings per Diluted Share$0.30$0.19$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, executive search costs and certain discrete tax items.
 

"The second quarter was very notable for Nanometrics in a number of ways," commented Dr. Timothy J. Stultz, president and chief executive officer of Nanometrics. "We achieved a new quarterly revenue record, led by strong contributions and continued strength in our 3D-NAND and DRAM memory businesses, and as expected, gross margins increased from the first quarter, are trending up, and are on track to return to our target model ranges in the second half of the year. The Atlas III launch has turned out to be the most successful new product introduction in Nanometrics' history, and comprised over half of our Automated Metrology tool sales in the second quarter, with expectations that the Atlas III will also comprise over half of our Automated Metrology tool sales for the full year 2017. The adoption rate of this new product has exceeded our earlier expectations, rapidly becoming the OCD tool of choice with our major customers across all key device types.

"During the quarter, we also expanded our software product offerings with the release of the SpectraProbe, a novel model-less analytics software product that increases the capability and utility of our OCD platforms, and the next generation of our NanoDiffract OCD modeling software, further strengthening our leadership in OCD metrology. On the competitive front, we were successful in winning 3D-NAND business at a new domestic China fab with significant future revenue potential. We also expanded our Thin-Film Metrology market position in memory, with competitive wins at multiple customer sites for both DRAM and 3D-NAND process control.

"As we look at the full year, our current outlook is consistent with our prior forecasts for meaningful revenue growth in the second half of the year. 3D-NAND spending is looking to be even stronger than we previously expected, with our DRAM outlook also improving since the beginning of the year. Second-half strength in the memory markets will be somewhat moderated by a slightly front-half weighted year for Foundry. In total, we continue to expect second-half revenues will be up 10% from the first half, back-end loaded toward the fourth quarter, with continued expectations for full-year revenue growth outpacing both industry spending and our year-over-year growth in 2016."

Second Quarter 2017 Summary
Revenues for the second quarter of 2017 were $64.4 million, up 8.6% from $59.3 million in the first quarter of 2017, and up 15.5% from $55.8 million in the second quarter of 2016. On a GAAP basis, gross margin was 52.2%, compared to 48.0% in the prior quarter and 51.0% in the year-ago period. Operating income was $10.7 million, compared to $5.5 million in the prior quarter and $7.3 million in the year-ago period. Net income was $8.3 million or $0.32 per diluted share, compared to $5.4 million or $0.21 per diluted share in the prior quarter and $6.0 million or $0.24 per diluted share in the second quarter of 2016.

On a non-GAAP basis, which excludes amortization of acquired intangible assets and restructuring, gross margin was 52.4%, compared to 48.3% in the prior quarter and 51.8% in the year-ago period. Non-GAAP operating income was $11.1 million, compared to $5.8 million in the prior quarter and $7.8 million in the second quarter of 2016. Non-GAAP net income, which adjusts for amortization of intangible assets, restructuring, executive search costs and certain discrete tax items, was $7.8 million or $0.30 per diluted share, compared to $4.8 million or $0.19 per diluted share in the prior quarter and $6.5 million or $0.26 per diluted share in the second quarter of 2016.

Business Outlook
Management expects third-quarter 2017 revenues in the range of $60 to $64 million. Gross margin is expected to be in the range of 53% to 54% on both a GAAP and non-GAAP basis. Management expects third-quarter operating expenses to range between $23.0 million and $23.5 million on both a GAAP and non-GAAP basis, and earnings in the range of $0.22 to $0.31 per diluted share on both a GAAP and non-GAAP basis.

Conference Call Details
A conference call to discuss second quarter 2017 results will be held today at 4:30 p.m. EDT (1:30 p.m. PDT). 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 51893339. 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 discrete 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 the Q2 2017 Highlights, 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; slowing adoption rate of Nanometrics' new products; Nanometrics' inability to gain additional market share, increase sales, ship products as scheduled, achieve 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 31, 2016, as filed with the Securities and Exchange Commission on March 3, 2017 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)
     
  July 1, 2017 December 31,
2016
ASSETS    
Current assets:    
Cash and cash equivalents $42,354  $47,062 
Marketable securities  93,340   82,899 
Accounts receivable, net  46,966
   39,457 
Inventories  48,862   38,837 
Inventories-delivered systems  1,674   2,457 
Prepaid expenses and other  8,887   5,667 
Total current assets  242,083   216,379 
     
Property, plant and equipment, net  42,018   44,226 
Goodwill  9,756   8,940 
Intangible assets, net  309   412 
Deferred income tax assets  17,827   17,399 
Other assets  399   474 
Total assets $312,392  $287,830 
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $14,925
  $11,342 
Accrued payroll and related expenses  10,615   12,656 
Deferred revenue  11,045   9,168 
Other current liabilities  7,368   8,047 
Income taxes payable  1,258   813 
Total current liabilities  45,211
   42,026 
     
Deferred revenue  776   816 
Income taxes payable  882   841 
Deferred tax liabilities  21   20 
Other long-term liabilities  375   353 
Total liabilities  47,265
   44,056 
     
Stockholders' equity:    
Common stock  25   25 
Additional paid-in capital  275,908   271,969 
Accumulated deficit  (7,449)  (22,174)
Accumulated other comprehensive income (loss)  (3,357)  (6,046)
Total stockholders' equity  265,127   243,774 
Total liabilities and stockholders' equity $312,392  $287,830 
     


NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
         
  Three Months Ended Six Months Ended
  July 1, 2017 June 25, 2016 July 1, 2017 June 25, 2016
         
Net revenues:        
Products $53,576  $47,445  $101,751  $86,659 
Service  10,851   8,322   21,990   16,597 
Total net revenues  64,427   55,767   123,741   103,256 
         
Costs of net revenues:        
Cost of products  25,337   21,736   50,738   39,815 
Cost of service  5,364   5,164   10,642   9,648 
Amortization of intangible assets  52   442   104   877 
Restructuring  53   -   189   - 
Total costs of net revenues  30,806   27,342   61,673   50,340 
Gross profit  33,621   28,425   62,068   52,916 
         
         
Operating expenses:        
Research and development  9,089   7,511   17,689   15,579 
Selling  7,169   7,823   15,053   15,072 
General and administrative  6,591   5,755   12,898   11,175 
Amortization of intangible assets  -   -   -   24 
Restructuring  120   -   268   - 
Total operating expenses  22,969   21,089   45,908   41,850 
Income from operations  10,652   7,336   16,160   11,066 
         
Other income (expense):        
Interest income  3   12   4   21 
Interest expense  (19)  (67)  (59)  (184)
Other income, net  274   (394)  271   (169)
Total other income (expense), net  258   (449)  216   (332)
         
Income before income taxes  10,910   6,887   16,376   10,734 
Provision for income taxes  2,622   856   2,736   1,236 
Net income $8,288  $6,031  $13,640  $9,498 
         
Net income per share:        
Basic $0.33  $0.25  $0.54  $0.39 
Diluted $0.32  $0.24  $0.53  $0.38 
         
Shares used in per share calculation:        
Basic  25,307   24,524   25,220   24,416 
Diluted  25,906   24,927   25,880   24,773 
         


NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
     
     
  Six Months Ended
  July 1, 2017 June 25, 2016
Cash flows from operating activities:    
Net income $13,640  $9,498 
Reconciliation of net income to net cash from operating activities:    
Depreciation and amortization  3,552   4,305 
Stock-based compensation  4,327   3,432 
Loss on disposal of fixed assets  98   128 
Inventory write down  1,015   1,046 
Deferred income taxes  798   (30)
Changes in fair value of contingent consideration  -   95 
Changes in assets and liabilities:    
Accounts receivable  (4,720)  (14,277)
Inventories  (10,090)  6,457 
Inventories-delivered systems  783   (6,737)
Prepaid expenses and other  (947)  (151)
Accounts payable, accrued and other liabilities  (521)  (1,511)
Deferred revenue  1,837   12,080 
Income taxes payable  486   (1,115)
Net cash provided by operating activities  10,258   13,220 
     
Cash flows from investing activities:    
Payment for acquisition of certain assets  (2,000)  - 
Sales of marketable securities  27,391   - 
Maturities of marketable securities  40,923   21,816 
Purchases of marketable securities  (78,787)  (12,880)
Purchase of property, plant and equipment  (1,536)  (2,528)
Net cash provided by (used in) investing activities  (14,009)  6,408 
     
Cash flows from financing activities:    
Payments to Zygo Corporation related to acquisition  -   (315)
Proceeds from sale of shares under employee stock option and purchase plans  2,865   3,466 
Taxes paid on net issuance of stock awards  (3,392)  (1,288)
Net cash provided by (used in) financing activities  (527)  1,863 
Effect of exchange rate changes on cash and cash equivalents  (430)  387 
Net increase in cash and cash equivalents  (4,708)  21,878 
Cash and cash equivalents, beginning of period  47,062   38,154 
Cash and cash equivalents, end of period $42,354  $60,032 
     


NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share amounts)
(Unaudited)
             
  Three Months Ended
  July 1, 2017 April 1, 2017 June 25, 2016
Reconciliation of GAAP gross profit and gross margin to non-GAAP gross profit and gross margin            
GAAP gross profit and gross margin, respectively $33,621  52.2% $28,447  48.0% $28,425  51.0%
Non-GAAP adjustments:            
Restructuring included in cost of revenues  53  0.1%  136  0.2%  -  - 
Amortization of intangible assets  52  0.1%  52  0.1%  442  0.8%
Non-GAAP gross profit and gross margin, respectively $33,726  52.4% $28,635  48.3% $28,867  51.8%
             
Reconciliation of GAAP operating income to non-GAAP operating income            
GAAP operating income and operating margin, respectively $10,652  16.5% $5,508  9.3% $7,336  13.1%
Non-GAAP adjustments:            
Amortization of intangible assets included in cost of revenues  52  0.1%  52  0.1%  442  0.7%
Amortization of intangible assets included in operating expenses  -  -   -  0.0%  -  - 
Restructuring included in cost of revenues  53  0.1%  136  0.2%  -  - 
Restructuring included in operating expenses  120  0.2%  148  0.3%  -  - 
Executive search costs  230  0.3%  -  -   -  - 
Total non-GAAP adjustments to operating income  455  0.7%  336  0.6%  442  0.7%
Non-GAAP operating income and operating margin, respectively $11,107  17.2% $5,844  9.9% $7,778  13.9%
             
Reconciliation of GAAP net income to non-GAAP net income            
GAAP net income $8,288    $5,352    $6,031   
Non-GAAP adjustments:            
Total non-GAAP adjustments to non-GAAP operating income  455     336     442   
Discrete tax items and tax effect of non-GAAP adjustments  (948)    (901)    -   
Non-GAAP net income $7,795    $4,787    $6,473   
             
GAAP net income per diluted share $0.32    $0.21    $0.24   
             
Non-GAAP net income per diluted share $0.30    $0.19    $0.26   
             
Shares used in diluted net income per share calculation  25,906     25,833     24,927   
             
Reconciliation of net cash provided by operating activities to free cash flow           
GAAP net cash provided by operating activities $7,183    $3,075    $12,721   
Purchase of property and equipment  (1,489)    (47)    (1,918)  
Free cash flow $5,694    $3,028    $10,803   
             
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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