nano-ex991

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

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.”

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.

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.

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.

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.

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.

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.

	June 30, 2018			December 30, 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

	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
Amortization of intangible assets		-			-			-			-
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

	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	)		(10,090	)
Inventories-delivered systems		(322	)		783
Prepaid expenses and other		(3,422	)		(947	)
Accounts payable, accrued and other liabilities		7,204			(521	)
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		(432	)		(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

	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


Investor Relations Contact:		Company Contact:
Claire McAdams		Greg Swyt
Headgate Partners LLC		Vice President, Finance
530.265.9899		408.545.6146
claire@headgatepartners.com		gswyt@nanometrics.com


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

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