NANO Nanometrics Inc

Nanometrics Incorporated (NASDAQ: NANO), a leading provider of advanced process control systems, today announced financial results for its second quarter ended June 29, 2019.

Second Quarter 2019 Highlights:

• Revenues at high end of expectations.  Revenues of $67.6 million increased slightly quarter-over-quarter, at the high end of expectations. Revenues were favorable to forecast in spite of the impact of the current trade embargo affecting sales to a customer in China, primarily as a result of a pull-in of revenue due to the acceptance of evaluation systems in the field that had been expected to close in the third quarter.
• Expanded Atlas® III+ wins. In the second quarter, the company continued to increase its penetration of key customer accounts with its latest flagship system, winning both a new logic customer and a new memory customer, both in high-volume manufacturing.
• Record business from services. Service revenues were $15.1 million, up 14% sequentially and up 27% year-over-year.  The company has increased its installed base business significantly, due to its expanded customer footprint, growing sales of upgrades, and stronger activity in refurbishment of legacy systems in the field.

GAAP Results
	Q2 2019			Q1 2019			Q2 2018
Revenues (Millions)	$67.6			$67.1			$88.6
Gross Margin		52.0%			50.4%			57.4%
Operating Margin		5.5%			5.0%			23.5%
Net Income (Millions)	$3.9			$3.0			$17.7
Earnings per Diluted Share	$0.16			$0.12			$0.72
Non-GAAP Results
	Q2 2019			Q1 2019			Q2 2018
Gross Margin		53.5%			52.5%			57.5%
Operating Margin		9.4%			8.5%			24.2%
Net Income (Millions)	$5.3			$4.7			$17.4
Earnings per Diluted Share	$0.21			$0.19			$0.71

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, acquisition-related charges, severance costs, executive transition and search costs, gain on sale of property, and certain discrete tax and other items.

On June 24, 2019 Nanometrics and Rudolph Technologies, Inc. announced that they had agreed to combine in an all-stock merger of equals transaction. In light of this pending merger transaction, Nanometrics will not hold a conference call to discuss its financial results. Concurrent with this earnings release, Nanometrics has published supplemental materials on the Investor Relations section of Nanometrics’ website at www.nanometrics.com.

Second Quarter 2019 SummaryRevenues for the second quarter of 2019 were $67.6 million, up 1% from $67.1 million in the first quarter of 2019, and down 24% from a record $88.6 million in the second quarter of 2018.  On a GAAP basis, gross margin was 52.0%, compared to 50.4% in the prior quarter and 57.4% in the year-ago period.  Operating income was $3.7 million, compared to $3.3 million in the prior quarter and $20.8 million in the year-ago period.  Net income was $3.9 million or $0.16 per diluted share, compared to $3.0 million or $0.12 per diluted share in the prior quarter and $17.7 million or $0.72 per diluted share in the second quarter of 2018.

On a non-GAAP basis, which excludes amortization of acquired intangible assets, severance related costs and acquisition-related charges, gross margin was 53.5%, compared to 52.5% in the prior quarter and 57.5% in the year-ago period. Gross margin was negatively impacted by certain installation, freight and factory costs, which were higher than forecast for the quarter. Non-GAAP operating income, which also excludes amortization of intangible assets and acquisition-related costs included in operating costs, executive search and transition costs, and severance costs, was $6.3 million, compared to $5.7 million in the prior quarter and $21.4 million in the second quarter of 2018. Non-GAAP net income, which also adjusts for a gain on disposal of property and certain discrete tax and other items, was $5.3 million or $0.21 per diluted share, compared to $4.7 million or $0.19 per diluted share in the prior quarter and $17.4 million or $0.71 per diluted share in the second quarter of 2018.

Use of Non-GAAP Financial InformationThe 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 intangible assets, acquisition-related charges, severance costs, executive transition and search costs, gain on disposal of property, certain discrete tax items and other discrete adjustments, 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 NanometricsNanometrics is a leading provider of advanced, high-performance process control metrology and inspection solutions used primarily in the semiconductor manufacturing industry, as well as in the fabrication of other solid-state devices and components in the optoelectronic, LED and storage industries, and more recently in the industrial, aerospace and scientific research markets. Nanometrics’ process control solutions include automated and integrated metrology systems as well as software and analytics that measure and monitor key elements of device performance and yield, such as critical dimensions, device structures, surface shape and profile, overall topography and various thin film properties, including three-dimensional features and film thickness, as well as the optical, electrical and material properties of various substrates, devices and components. Nanometrics’ solutions 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 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.

 

NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
		June 29, 2019				December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents		$	94,035			$	110,951
Marketable securities			50,947				40,841
Accounts receivable, net			51,602				50,854
Inventories			66,630				61,915
Inventories-delivered systems			1,010				180
Prepaid expenses and other			7,955				6,140
Total current assets			272,179				270,881
Property, plant and equipment, net			52,779				47,900
Operating lease - right of use assets, net			10,767				-
Goodwill			26,310				26,372
Intangible assets, net			25,811				27,326
Deferred income tax assets			2,807				2,569
Other assets			446				582
Total assets		$	391,099			$	375,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	19,459			$	16,540
Accrued payroll and related expenses			10,361				21,658
Deferred revenue			9,865				8,990
Operating lease liabilities			2,845				-
Other current liabilities			7,308				9,421
Income taxes payable			1,117				3,164
Total current liabilities			50,955				59,773
Deferred revenue			1,616				1,753
Income taxes payable			1,150				871
Deferred tax liabilities			163				162
Operating lease liabilities			8,017				-
Other long-term liabilities			218				219
Total liabilities			62,119				62,778
Stockholders’ equity:
Common stock			25				24
Additional paid-in capital			256,503				247,983
Retained earnings			74,305				67,402
Accumulated other comprehensive loss			(1,853	)			(2,557	)
Total stockholders’ equity			328,980				312,852
Total liabilities and stockholders’ equity		$	391,099			$	375,630

NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
		Three Months Ended								Six Months Ended
		June 29, 2019				June 30, 2018				June 29, 2019				June 30, 2018
Net revenues:
Products		$	52,541			$	76,704			$	106,396			$	147,723
Service			15,079				11,900				28,324				23,194
Total net revenues			67,620				88,604				134,720				170,917
Costs of net revenues:
Cost of products			24,294				31,235				50,193				59,828
Cost of service			7,683				6,443				14,631				12,597
Amortization of intangible assets			471				35				936				70
Total costs of net revenues			32,448				37,713				65,760				72,495
Gross profit			35,172				50,891				68,960				98,422
Operating expenses:
Research and development			14,098				12,491				27,085				22,693
Selling			8,244				10,151				17,526				19,175
General and administrative			7,885				7,465				15,790				15,206
Merger expenses			907				-				907				-
Amortization of intangible assets			289				-				578				-
Total operating expenses			31,423				30,107				61,886				57,074
Income from operations			3,749				20,784				7,074				41,348
Other income (expense):
Interest expense, net			(15	)			(48	)			(106	)			(141	)
Other income (expense), net			828				(166	)			1,098				186
Total other income (expense), net			813				(214	)			992				45
Income before income taxes			4,562				20,570				8,066				41,393
Provision for income taxes			632				2,895				1,163				7,337
Net income		$	3,930			$	17,675			$	6,903			$	34,056
Net income per share:
Basic		$	0.16			$	0.74			$	0.28			$	1.42
Diluted		$	0.16			$	0.72			$	0.28			$	1.39
Shares used in per share calculation:
Basic			24,525				23,953				24,530				24,008
Diluted			24,843				24,442				24,850				24,488

NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Six Months Ended
		June 29, 2019				June 30, 2018
Cash flows from operating activities:
Net income		$	6,903			$	34,056
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization			5,061				3,326
Stock-based compensation			6,314				5,017
Disposal of fixed assets			(861	)			51
Inventory write-down			2,922				269
Deferred income taxes			-				4,320
Changes in assets and liabilities:
Accounts receivable			473				7,193
Inventories			(8,290	)			(1,722	)
Inventories-delivered systems			(830	)			(322	)
Prepaid expenses and other			(1,974	)			(3,422	)
Operating lease - right of use assets			1,077				-
Accounts payable, accrued and other liabilities			(10,941	)			7,204
Deferred revenue			738				2,464
Operating lease liabilities			(888	)			-
Income taxes payable			(2,007	)			537
Net cash provided by (used in) operating activities			(2,303	)			58,971
Cash flows from investing activities:
Payment for acquisition of certain assets			-				(2,000	)
Sales of marketable securities			1,627				18,507
Maturities of marketable securities			24,700				17,345
Purchases of marketable securities			(36,093	)			(16,320	)
Purchases of property, plant and equipment			(8,314	)			(1,761	)
Proceeds from sale of property, plant and equipment			896				-
Net cash provided by (used in) investing activities			(17,184	)			15,771
Cash flows from financing activities:
Proceeds from sale of shares under employee stock option and purchase plans			4,535				2,709
Taxes paid on net issuance of stock awards			(2,328	)			(2,731	)
Repurchases of common stock under share repurchase plans			-				(22,987	)
Net cash provided by (used in) financing activities			2,207				(23,009	)
Effect of exchange rate changes on cash and cash equivalents			364				(431	)
Net increase (decrease) in cash and cash equivalents			(16,916	)			51,302
Cash and cash equivalents, beginning of period			110,951				34,899
Cash and cash equivalents, end of period		$	94,035			$	86,201

NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share amounts)
(Unaudited)
		Three Months Ended
		June 29, 2019							March 31, 2019							June 30, 2018
Reconciliation of GAAP gross profit and gross margin to non-GAAP gross profit and gross margin
GAAP gross profit and gross margin, respectively		$	35,172			52.0	%		$	33,788			50.4	%		$	50,891			57.4	%
Non-GAAP adjustments:
Severance included in cost of revenues			162			0.2	%			-			0.0	%			21			0.0	%
Acquisition & merger related charges			375			0.6	%			957			1.4	%			-			0.0	%
Amortization of intangible assets			471			0.7	%			466			0.7	%			35			0.0	%
Total non-GAAP adjustments to gross profit			1,008			1.5	%			1,423			2.1	%			56			0.1	%
Non-GAAP gross profit and gross margin, respectively		$	36,180			53.5	%		$	35,211			52.5	%		$	50,947			57.5	%
Reconciliation of GAAP operating expenses to non-GAAP operating expenses
GAAP Operating Expenses		$	31,423			46.5	%		$	30,463			45.4	%		$	30,107			34.0	%
Non-GAAP adjustments:
Amortization of intangible assets included in operating expenses			(289	)		-0.4	%			(289	)		-0.4	%			-			-
Acquisition & merger related charges			(1,015	)		-1.5	%			(164	)		-0.3	%			-			-
Severance included in operating expenses			(128	)		-0.2	%			(260	)		-0.4	%			-			-
Executive transition			(151	)		-0.2	%			(190	)		-0.3	%			(236	)		-0.3	%
Executive search			-			-				-			-				(339	)		-0.4	%
Total non-GAAP adjustments to operating expenses			(1,583	)		-2.3	%			(903	)		-1.4	%			(575	)		-0.7	%
Non-GAAP operating expenses		$	29,840			44.1	%		$	29,560			44.0	%		$	29,532			33.3	%
Reconciliation of GAAP operating income to non-GAAP operating income
GAAP operating income and operating margin, respectively		$	3,749			5.5	%		$	3,325			5.0	%		$	20,784			23.5	%
Non-GAAP adjustments:									.
Non-GAAP adjustments to gross profit			1,008			1.5	%			1,423			2.1	%			56			0.1	%
Non-GAAP adjustments to operating expenses			1,583			2.3	%			903			1.3	%			575			0.6	%
Total non-GAAP adjustments to operating income			2,591			3.8	%			2,326			3.5	%			631			0.7	%
Non-GAAP operating income and operating margin, respectively		$	6,340			9.4	%		$	5,651			8.5	%		$	21,415			24.2	%
Reconciliation of GAAP net income to non-GAAP net income
GAAP net income		$	3,930						$	2,973						$	17,675
Non-GAAP adjustments:
Total non-GAAP adjustments to non-GAAP operating income			2,591							2,326							631
Gain on Disposal of Property			(837	)						-							-
Discrete tax items and tax effect of non-GAAP adjustments			(367	)						(612	)						(912	)
Non-GAAP net income		$	5,318						$	4,687						$	17,394
GAAP net income per diluted share		$	0.16						$	0.12						$	0.72
Non-GAAP net income per diluted share		$	0.21						$	0.19						$	0.71
Shares used in diluted net income per share calculation			24,843							24,783							24,442
		Three Months Ended
		June 29, 2019							March 31, 2019							June 30, 2018
Reconciliation of net cash provided by operating activities to free cash flow
GAAP net cash provided by operating activities		$	(1,447	)					$	(856	)					$	26,257
Purchase of property and equipment			(4,182	)						(4,132	)						(442	)
Free cash flow		$	(5,629	)					$	(4,988	)					$	25,815

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