November 2, 2017

Nanometrics Reports Third Quarter 2017 Financial Results

MILPITAS, Calif., Nov. 02, 2017 (GLOBE NEWSWIRE) -- Nanometrics Incorporated (NASDAQ:NANO), a leading provider of advanced process control systems, today announced financial results for its fiscal third quarter, which ended September 30, 2017.

Q3 2017 Highlights:

  • Continued Broad-Based Deployment of Atlas® III. The company recognized revenues on Atlas III systems into high-volume manufacturing at multiple leading company fabs and regions, and across every key device type in the industry: foundry/logic, 3D-NAND and DRAM.
  • SpectraProbe™ Adopted for High-Volume Manufacturing.  Nanometrics recognized revenues of its new SpectraProbe data analytics product with its first high-volume manufacturing customer during the third quarter. Launched in July of this year, this new software-based process control solution is designed to provide advanced analytics to maximize fab productivity.
  • Accelerating Deployment of NanoDiffract® 4. The company's most advanced version of its proprietary NanoDiffract modeling software, launched in July, was deployed in multiple sites for R&D and high-volume manufacturing of the industry's most advanced 3D-NAND and foundry/logic devices.
      
 GAAP Results 
  Q3 2017Q2 2017Q3 2016 
 Revenues (Millions)$56.7 $64.4 $58.7  
 Gross Margin 54.1% 52.2% 51.8% 
 Operating Margin 13.2% 16.5% 15.4% 
 Net Income (Millions)$5.8 $8.3 $7.9  
 Earnings per Diluted Share$0.22 $0.32 $0.31  
      
 Non-GAAP Results 
  Q3 2017Q2 2017Q3 2016 
 Gross Margin 54.4% 52.4% 52.5% 
 Operating Margin 13.9% 17.2% 16.2% 
 Net Income (Millions)$5.7 $7.8 $8.3  
 Earnings per Diluted Share$0.22 $0.30 $0.33  
      

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 positive business environment continues, for our industry as well as for Nanometrics, as we drive to record business levels in 2017," commented Dr. Timothy J. Stultz, president and chief executive officer. "Whereas third-quarter revenue results were hampered by the timing of customer acceptance of a few systems, we continue to expect fourth-quarter revenues to be at record levels — significantly above our previous quarterly highs — even before adding the contribution of revenues delayed from the third quarter. With wafer fab equipment spending tracking to an all-time high — driven largely by significant investments in 3D-NAND, where Nanometrics has a strong market leadership position — we are expecting 2017 to be our fourth straight year of double-digit revenue growth, with record annual revenues and increasing earnings per share for our company." 

Third Quarter 2017 Summary
Revenues for the third quarter of 2017 were $56.7 million, down 12.0% from $64.4 million in the second quarter of 2017, and down 3.5% from $58.7 million in the third quarter of 2016. On a GAAP basis, gross margin was 54.1%, compared to 52.2% in the prior quarter and 51.8% in the year-ago period. Operating income was $7.5 million, compared to $10.7 million in the prior quarter and $9.1 million in the year-ago period. Net income was $5.8 million or $0.22 per diluted share, compared to $8.3 million or $0.32 per diluted share in the prior quarter and $7.9 million or $0.31 per diluted share in the third quarter of 2016.

On a non-GAAP basis, which excludes amortization of acquired intangible assets and restructuring, gross margin was 54.4%, compared to 52.4% in the prior quarter and 52.5% in the year-ago period. Gross margin improved primarily as a result of higher-than-expected service margins in the quarter. Non-GAAP operating income was $7.9 million, compared to $11.1 million in the prior quarter and $9.5 million in the third quarter of 2016. Non-GAAP net income, which adjusts for amortization of intangible assets, restructuring, executive search costs and certain discrete tax items, was $5.7 million or $0.22 per diluted share, compared to $7.8 million or $0.30 per diluted share in the prior quarter and $8.3 million or $0.33 per diluted share in the third quarter of 2016.

Business Outlook
Management expects fourth-quarter 2017 revenues in the range of $72 to $80 million. Gross margin is expected to be in the range of 53.5% to 54.5% on both a GAAP and non-GAAP basis. Management expects fourth-quarter operating expenses to range between $23.5 million and $24.3 million on both a GAAP and non-GAAP basis, and earnings in the range of $0.40 to $0.50 per diluted share on both a GAAP and non-GAAP basis.

Conference Call Details
A conference call to discuss third 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, executive search costs 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 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) 
      
  September 30,
2017
 December 31,
2016
 
ASSETS     
Current assets:     
Cash and cash equivalents  $  44,041  $  47,062  
Marketable securities    96,316     82,899  
Accounts receivable, net     41,261     39,457  
Inventories     55,020     38,837  
Inventories-delivered systems     3,320     2,457  
Prepaid expenses and other     9,910     5,667  
Total current assets     249,868     216,379  
      
Property, plant and equipment, net     42,317     44,226  
Goodwill    10,099     8,940  
Intangible assets, net     2,258     412  
Deferred income tax assets    16,472     17,399  
Other assets     389     474  
Total assets  $  321,403  $  287,830  
      
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current liabilities:     
Accounts payable  $  17,180  $  11,342  
Accrued payroll and related expenses     10,260     12,656  
Deferred revenue     7,229     9,168  
Other current liabilities     7,704     8,047  
Income taxes payable     1,689     813  
Total current liabilities     44,062     42,026  
      
Deferred revenue    1,551     816  
Income taxes payable    907     841  
Deferred tax liabilities    21     20  
Other long-term liabilities     377     353  
Total liabilities     46,918     44,056  
      
Stockholders' equity:     
Common stock    26     25  
Additional paid-in capital     278,722     271,969  
Accumulated deficit     (1,685)    (22,174) 
Accumulated other comprehensive income (loss)    (2,578)    (6,046) 
Total stockholders' equity     274,485     243,774  
Total liabilities and stockholders' equity  $  321,403  $  287,830  
      


  
NANOMETRICS INCORPORATED 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(In thousands except per share amounts) 
(Unaudited) 
          
  Three Months Ended Nine Months Ended 
  September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
 
          
Net revenues:         
Products  $  45,571  $  49,631  $  147,322  $  136,290  
Service     11,104     9,083     33,094     25,680  
Total net revenues     56,675     58,714     180,416     161,970  
          
Costs of net revenues:         
Cost of products     21,276     22,810     72,014     62,625  
Cost of service     4,549     5,066     15,191     14,714  
Amortization of intangible assets    52     434     156     1,311  
Restructuring    138     -      327    
Total costs of net revenues     26,015     28,310     87,688     78,650  
Gross profit     30,660     30,404     92,728     83,320  
          
          
Operating expenses:         
Research and development     8,825     7,868     26,514     23,447  
Selling     7,553     7,495     22,606     22,567  
General and administrative     6,730     5,975     19,628     17,150  
Amortization of intangible assets     -      -      -      24  
Restructuring    68     -      336     -   
Total operating expenses    23,176     21,338     69,084     63,188  
Income from operations     7,484     9,066     23,644     20,132  
          
Other income (expense):         
Interest income     2     12     6     33  
Interest expense     (25)    (92)    (84)    (276) 
Other income, net     59     229     330     60  
Total other income (expense), net     36     149     252     (183) 
          
Income before income taxes     7,520     9,215     23,896     19,949  
Provision for income taxes     1,756     1,332     4,492     2,568  
Net income $  5,764  $  7,883  $  19,404  $  17,381  
          
Net income per share:         
Basic  $  0.23  $  0.32  $  0.77  $  0.71  
Diluted  $  0.22  $  0.31  $  0.75  $  0.70  
          
Shares used in per share calculation:         
Basic     25,494     24,826     25,320     24,550  
Diluted     25,932     25,282     25,933     24,979  
          


  
NANOMETRICS INCORPORATED 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands) 
(Unaudited) 
      
      
  Nine Months Ended 
  September 30,
2017
 September 24,
2016
 
Cash flows from operating activities:     
Net income $  19,404  $  17,381  
Reconciliation of net income to net cash from operating activities:     
Depreciation and amortization    5,219     6,440  
Stock-based compensation    6,775     5,432  
Loss on disposal of fixed assets    98     162  
Inventory write down    1,412     1,451  
Deferred income taxes    2,153     (14) 
Changes in fair value of contingent consideration    -      158  
Changes in assets and liabilities:     
Accounts receivable    1,418     (986) 
Inventories    (16,828)    6,652  
Inventories-delivered systems    (864)    (1,560) 
Prepaid expenses and other    (3,850)    889  
Accounts payable, accrued and other liabilities    709     (4,310) 
Deferred revenue    (1,204)    3,825  
Income taxes payable    942     (1,419) 
Net cash provided by operating activities    15,384     34,101  
      
Cash flows from investing activities:     
Payment for acquisition of certain assets    (2,000)    -   
Sales of marketable securities    28,624     2,093  
Maturities of marketable securities    62,923     25,461  
Purchases of marketable securities    (104,984)    (63,840) 
Purchase of property, plant and equipment    (2,342)    (3,349) 
Net cash used in investing activities    (17,779)    (39,635) 
      
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   3,678     5,984  
Taxes paid on net issuance of stock awards    (3,838)    (1,578) 
Net cash provided by (used in) financing activities    (160)    4,091  
Effect of exchange rate changes on cash and cash equivalents    (466)    710  
Net increase in cash and cash equivalents    (3,021)    (733) 
Cash and cash equivalents, beginning of period    47,062     38,154  
Cash and cash equivalents, end of period $  44,041  $  37,421  
      


 
NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS 
(In thousands, except per share amounts)
(Unaudited)
           
  Three Months Ended
  September 30, 2017
 July 1, 2017
 September 24, 2016
Reconciliation of GAAP gross profit and gross margin to non-GAAP gross profit and gross margin          
GAAP gross profit and gross margin, respectively $  30,660  54.1% $   33,621  52.2% $  30,404  51.8%
Non-GAAP adjustments:          
 Restructuring included in cost of revenues     138  0.2%     53  0.1%    -     -  
 Amortization of intangible assets     52  0.1%     52  0.1%    434  0.7%
 Non-GAAP gross profit and gross margin, respectively  $  30,850  54.4% $   33,726  52.4% $  30,838  52.5%
               
Reconciliation of GAAP operating income to non-GAAP operating income          
GAAP operating income and operating margin, respectively $  7,484  13.2% $   10,652  16.5% $  9,066  15.4%
Non-GAAP adjustments:          
 Amortization of intangible assets included in cost of revenues     52  0.1%     52  0.1%    434  0.7%
 Restructuring included in cost of revenues     138  0.3%     53  0.1%    -    - 
 Restructuring included in operating expenses     68  0.1%     120  0.2%    -    - 
 Executive search costs     125  0.2%     230  0.3%    -    - 
 Total non-GAAP adjustments to operating income     383  0.7%     455  0.7%    434  0.7%
 Non-GAAP operating income and operating margin, respectively  $  7,867  13.9% $   11,107  17.2% $  9,500  16.2%
               
Reconciliation of GAAP net income to non-GAAP net income          
GAAP net income  $  5,764   $   8,288   $  7,883   
Non-GAAP adjustments:          
 Total non-GAAP adjustments to non-GAAP operating income     383       455      434   
 Discrete tax items and tax effect of non-GAAP adjustments     (491)      (948)      
 Non-GAAP net income  $  5,656   $   7,795   $  8,317   
           
GAAP net income per diluted share $  0.22   $   0.32   $  0.31   
           
Non-GAAP net income per diluted share $  0.22   $   0.30   $  0.33   
           
Shares used in diluted net income per share calculation    25,932       25,906      25,282   
           
Reconciliation of net cash provided by operating activities to free cash flow         
GAAP net cash provided by operating activities $  5,126   $   7,183   $  20,881   
 Purchase of property and equipment     (806)      (1,489)     (821)  
 Free cash flow  $  4,320   $   5,694   $  20,060   
           
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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