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Nanometrics Reports Second Quarter 2018 Financial Results

MILPITAS, Calif., July 31, 2018 (GLOBE NEWSWIRE) -- Nanometrics Incorporated (NANO), a leading provider of advanced process control systems, today announced financial results for its second quarter ended June 30, 2018.

Second Quarter 2018 Highlights:

  • Record Revenue and Earnings.  The positive business environment for memory capital spending, as well as the company’s strong positions with key customers in the memory market, drove revenues to a new quarterly record of $88.6 million, up 8% from the first quarter, and up 38% from the second quarter of 2017. With gross margins continuing to deliver ahead of our financial model targets, and further improvements made to our tax rate, earnings per share also set a new quarterly record.

  • Continued Strong Adoption of Atlas® III. The company’s flagship automated optical critical dimension (“OCD”) system, the Atlas III, was qualified for high-volume manufacturing at a fifth leading 3D-NAND customer during the second quarter. With this qualification, the Atlas III has now been adopted into volume production at each of the five major 3D-NAND manufacturers, and at both of the largest DRAM manufacturers. Demonstrating the Atlas III’s market leadership for OCD metrology for three-dimensional device structures, the company celebrated its 100th Atlas III shipment earlier this month.

  • Strong Free Cash Flow Generation. The second quarter was another strong period of free cash flow generation, following record cash flow performance in the first quarter. Year-to-date, the company has reported $59.0 million in cash flow from operating activities, and after capital expenditures of $1.8 million, generated first-half 2018 free cash flow of $57.2 million, or 33% of first-half revenues. Total cash, cash equivalents and marketable securities increased $24.8 million in the second quarter, to a record $148.7 million at quarter-end.
 
GAAP Results
  Q2 2018 Q1 2018 Q2 2017
Revenues (Millions) $88.6 $82.3 $64.4
Gross Margin 57.4% 57.7% 52.2%
Operating Margin 23.5% 25.0% 16.5%
Net Income (Millions) $17.7 $16.4 $8.3
Earnings per Diluted Share $0.72 $0.67 $0.32
       
Non-GAAP Results
  Q2 2018 Q1 2018 Q2 2017
Gross Margin 57.5% 57.8% 52.4%
Operating Margin 24.2% 25.6% 17.2%
Net Income (Millions) $17.4 $16.5 $7.8
Earnings per Diluted Share $0.71 $0.67 $0.30
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, severance costs, executive transition and search costs and certain discrete
tax items.

“We are very pleased to report new quarterly records for both revenue and earnings per share in the second quarter,” commented Dr. Pierre-Yves Lesaicherre, president and chief executive officer of Nanometrics. “Our financial results reflect the first-half strength in memory capital spending, our gains in market share, and the demonstrable progress the company is making toward our financial model targets. Customer demand from both the NAND and DRAM market segments was very strong throughout the first half, and, as expected, will be lower in the second half. While we have seen some shifts in demand – both between NAND and DRAM, and among our key customers – our outlook for strong year-over-year growth in 2018 is consistent with our prior forecast.

“With Nanometrics’ revenue growth expected to outperform the overall increase in industry spending this year, our company has been scaling to support a much higher level of business. Our continued strong gross margin performance has enabled us to increase our investments in R&D and our global sales organization to support higher levels of revenue, while delivering strong profits and cash flows.” Dr. Lesaicherre concluded, “With our current visibility, we continue to forecast 2018 revenue growth of at least 20% year-over-year.  We remain confident that 2018 will be our fifth straight year of double-digit revenue growth, with expanding gross and operating margins, increased earnings per share, and significant free cash flow generation.”

Second Quarter 2018 Summary
Revenues for the second quarter of 2018 were $88.6 million, up 8% from $82.3 million in the first quarter of 2018, and up 38% from $64.4 million in the second quarter of 2017.  On a GAAP basis, gross margin was 57.4%, compared to 57.7% in the prior quarter and 52.2% in the year-ago period.  Total operating expenses were $30.1 million, compared to $27.0 million in the prior quarter and $23.0 million in the year-ago period. Operating income was $20.8 million, compared to $20.6 million in the prior quarter and $10.7 million in the year-ago period.  Net income was $17.7 million or $0.72 per diluted share, compared to $16.4 million or $0.67 per diluted share in the prior quarter and $8.3 million or $0.32 per diluted share in the second quarter of 2017.

On a non-GAAP basis, which excludes amortization of acquired intangible assets and severance included in cost of revenues, gross margin was 57.5%, compared to 57.8% in the prior quarter and 52.4% in the year-ago period.  Gross margin continued to benefit from a strong contribution of high-margin upgrades in both the first and second quarters, while the first quarter gross margin also benefited from a non-recurring favorable accrual adjustment. Non-GAAP operating expenses exclude severance and executive search and transition costs, and were $29.5 million, up from $26.5 million in the first quarter primarily due to higher R&D project spending, investments in the global sales organization, and increased accruals for variable compensation due to the increased level of profitability. Non-GAAP operating income was $21.4 million, compared to $21.0 million in the prior quarter and $11.1 million in the second quarter of 2017. Non-GAAP net income also adjusts for certain discrete tax items and the tax effect of non-GAAP adjustments and was $17.4 million or $0.71 per diluted share, reflecting a non-GAAP tax rate of 18%. This compares to non-GAAP net income of $16.5 million or $0.67 per diluted share in the prior quarter and $7.8 million or $0.30 per diluted share in the second quarter of 2017. 

Business Outlook
Management expects third quarter 2018 revenues in the range of $70 to $78 million and gross margin is expected to be approximately 57%, plus or minus 1%, on both a GAAP and non-GAAP basis. Management expects third-quarter operating expenses of approximately $29 million, plus or minus $0.5 million, on both a GAAP and non-GAAP basis, and earnings in the range of $0.36 to $0.52 per diluted share on both a GAAP and non-GAAP basis. The earnings per share expectations reflect an improved tax rate of 19% to 20%, compared to the 22% to 23% rate provided previously.

Conference Call Details
A conference call to discuss second quarter 2018 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 3279607. 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, severance costs, executive transition and 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. Lesaicherre’s quote, under the caption “Business Outlook,” and elsewhere regarding expected future financial performance, 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 product; 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 30, 2017, as filed with the Securities and Exchange Commission on February 26, 2018 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)
     June 30,    December 30,
    2018   2017
ASSETS        
Current assets:        
Cash and cash equivalents   $ 86,201     $ 34,899  
Marketable securities     62,501       82,130  
Accounts receivable, net     54,623       62,457  
Inventories     54,238       52,860  
Inventories-delivered systems     1,855       1,534  
Prepaid expenses and other     9,851       6,234  
Total current assets     269,269       240,114  
         
Property, plant and equipment, net     43,050       44,810  
Goodwill     10,611       10,232  
Intangible assets, net     4,136       2,206  
Deferred income tax assets     7,405       11,924  
Other assets     332       413  
Total assets   $ 334,803     $ 309,699  
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 18,976     $ 13,857  
Accrued payroll and related expenses     13,457       12,901  
Deferred revenue     8,962       7,408  
Other current liabilities     8,508       7,249  
Income taxes payable     3,133       2,680  
Total current liabilities     53,036       44,095  
         
Deferred revenue     1,649       1,661  
Income taxes payable     943       860  
Deferred tax liabilities     179       179  
Other long-term liabilities     512       521  
Total liabilities     56,319       47,316  
         
Stockholders’ equity:        
Common stock     24       26  
Additional paid-in capital     237,378       255,368  
Retained earnings     43,811       9,113  
Accumulated other comprehensive income (loss)     (2,729 )     (2,124 )
Total stockholders’ equity     278,484       262,383  
Total liabilities and stockholders’ equity   $ 334,803     $ 309,699  
         


NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
                 
    Three Months Ended   Six Months Ended
    June 30,
2018
  July 1,
2017
  June 30,
2018
  July 1,
2017
                 
Net revenues:                
Products    $   76,704     $   53,576     $   147,723     $   101,751  
Service        11,900         10,851         23,194         21,990  
Total net revenues        88,604         64,427         170,917         123,741  
                 
Costs of net revenues:                
Cost of products        31,235         25,337         59,828         50,815  
Cost of service        6,443         5,417         12,597         10,754  
Amortization of intangible assets       35         52         70         104  
Total costs of net revenues        37,713         30,806         72,495         61,673  
Gross profit        50,891         33,621         98,422         62,068  
                 
                 
Operating expenses:                
Research and development        12,491         9,139         22,693         17,833  
Selling        10,151         7,239         19,175         15,177  
General and administrative        7,465         6,591         15,206         12,898  
Total operating expenses       30,107         22,969         57,074         45,908  
Income from operations        20,784         10,652         41,348         16,160  
                 
Other income (expense):                
Interest income        1         3         4         4  
Interest expense        (49 )       (19 )       (145 )       (59 )
Other income, net        (166 )       274         186         271  
Total other income (expense), net        (214 )       258         45         216  
                 
Income before income taxes        20,570         10,910         41,393         16,376  
Provision for income taxes        2,895         2,622         7,337         2,736  
Net income   $   17,675     $   8,288     $   34,056     $   13,640  
                 
Net income per share:                
Basic    $   0.74     $   0.33     $   1.42     $   0.54  
Diluted    $   0.72     $   0.32     $   1.39     $   0.53  
                 
Shares used in per share calculation:                
Basic        23,953         25,307         24,008         25,220  
Diluted        24,442         25,906         24,463         25,880  
                 


NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
       
  Six Months Ended
  June 30,
2018
  July 1,
2017
Cash flows from operating activities:      
Net income $   34,056     $   13,640  
Reconciliation of net income to net cash from operating activities:      
Depreciation and amortization     3,326         3,552  
Stock-based compensation     5,017         4,327  
Loss on disposal of fixed assets     51         98  
Inventory write down     269         1,015  
Deferred income taxes     4,320         798  
Changes in assets and liabilities:      
Accounts receivable     7,193         (4,720 )
Inventories     (1,722 )       (8,726 )
Inventories-delivered systems     (322 )       783  
Prepaid expenses and other     (3,422 )       (947 )
Accounts payable, accrued and other liabilities     7,204         (1,885 )
Deferred revenue     2,464         1,837  
Income taxes payable     537         486  
Net cash provided by operating activities     58,971         10,258  
       
Cash flows from investing activities:      
Payment for acquisition of certain assets     (2,000 )       (2,000 )
Sales of marketable securities     18,507         27,391  
Maturities of marketable securities     17,345         40,923  
Purchases of marketable securities     (16,320 )       (78,787 )
Purchase of property, plant and equipment     (1,761 )       (1,536 )
Net cash provided by (used in) investing activities     15,771         (14,009 )
       
Cash flows from financing activities:      
Proceeds from sale of shares under employee stock option and purchase plans     2,709         2,865  
Taxes paid on net issuance of stock awards     (2,731 )       (3,392 )
Repurchases of common stock under share repurchase plans     (22,987 )       -   
Net cash (used in) financing activities     (23,009 )       (527 )
Effect of exchange rate changes on cash and cash equivalents     (431 )       (430 )
Net increase in cash and cash equivalents     51,302         (4,708 )
Cash and cash equivalents, beginning of period     34,899         47,062  
Cash and cash equivalents, end of period $   86,201     $   42,354  
       


NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS 
(In thousands, except per share amounts)
(Unaudited)
                         
    Three Months Ended
             
    June 30,
2018
  March 31,
2018
  July 1,
2017
Reconciliation of GAAP gross profit and gross margin to non-GAAP gross profit and gross margin                        
GAAP gross profit and gross margin, respectively   $   50,891     57.4 %   $   47,531     57.7 %   $   33,621     52.2 %
Non-GAAP adjustments:                              
 Severance included in cost of revenues        21     0.0 %       -      0.0 %       53     0.1 %
 Amortization of intangible assets        35     0.0 %       35     0.0 %       52     0.1 %
 Non-GAAP gross profit and gross margin, respectively    $   50,947     57.5 %   $   47,566     57.8 %   $   33,726     52.4 %
                               
Reconciliation of GAAP operating income to non-GAAP operating income                              
GAAP operating income and operating margin, respectively   $   20,784     23.5 %   $   20,564     25.0 %   $   10,652     16.5 %
Non-GAAP adjustments:                              
 Amortization of intangible assets included in cost of revenues        35     0.0 %       35     0.0 %       52     0.1 %
 Severance included in cost of revenues        21     0.0 %       -      0.0 %       53     0.1 %
 Severance included in operating expenses        339     0.4 %       -      0.0 %       120     0.2 %
 Executive transition costs        236     0.3 %       376     0.4 %       -      0.0 %
 Executive search costs        -      0.0 %       46     0.0 %       230     0.4 %
 Total non-GAAP adjustments to operating income        631     0.7 %       457     0.6 %       455     0.7 %
 Non-GAAP operating income and operating margin, respectively    $   21,415     24.2 %   $   21,021     25.6 %   $   11,107     17.2 %
                         
Reconciliation of GAAP net income to non-GAAP net income                        
GAAP net income    $   17,675         $   16,381         $   8,288      
Non-GAAP adjustments:                        
 Total non-GAAP adjustments to non-GAAP operating income        631             457             455      
 Discrete tax items and tax effect of non-GAAP adjustments        (912 )           (344 )           (948 )    
 Tax Reform        -              -              -       
 Non-GAAP net income    $   17,394         $   16,494         $   7,795      
                         
GAAP net income per diluted share   $   0.72         $   0.67         $   0.32      
                         
Non-GAAP net income per diluted share   $   0.71         $   0.67         $   0.30      
                         
Shares used in diluted net income per share calculation       24,442             24,483             25,906      
                         
Reconciliation of net cash provided by operating activities to free cash flow                     
GAAP net cash provided by operating activities   $   26,257         $   32,714         $   7,183      
 Purchase of property and equipment        (442 )           (1,319 )           (1,489 )    
 Free cash flow    $   25,815         $   31,395         $   5,694      
                         


Investor Relations Contact:   Company Contact:
Claire McAdams   Greg Swyt
Headgate Partners LLC   Vice President, Finance
530.265.9899   408.545.6088
claire@headgatepartners.com   ir@nanometrics.com