NANO Nanometrics Inc

Nanometrics Incorporated (NASDAQ: NANO), a leading provider of advanced process control systems, today announced financial results for its fourth quarter and full year ended December 29, 2018.

Fourth Quarter and Full Year 2018 Highlights:

• Record Revenues for the Year, Outpacing Industry Growth. Record revenues of $324.5 million for the year, an increase of 25% over 2017, well outpaced the growth of the overall wafer fab equipment (WFE) industry, driven by over 60% growth in product sales to the memory market. Along with robust conditions in the memory industry and tool-of-record positions with each of the world’s leading semiconductor companies, the company’s outperformance was bolstered by significant competitive wins and increasing market share. In the fourth quarter, foundry, IDM and other device sales rebounded more than 50% over Q3, setting the stage for a significant increase in sales expected from these markets for the forthcoming year.
• Growth in Earnings Significantly Greater than Revenue Growth, with Record Free Cash Flow. In fiscal 2018, the company increased both gross and operating margins by approximately four percentage points year-over-year, which along with the strong growth in revenues, drove new annual records in operating income, net income, and free cash flow. The company grew earnings significantly faster than revenues, with earnings per share approximately doubling year-over-year, compared to 25% revenue growth. The company reported $103.3 million in cash flow from operating activities, and after capital expenditures of $7.5 million, generated free cash flow of $95.8 million, or 30% of revenues, for fiscal 2018.
• Completed Acquisition of 4D Technology. Nanometrics announced the acquisition of 4D Technology on October 29th and closed the transaction on November 15th. 4D expands the company’s served markets into the scientific research, aerospace, industrial, and optics manufacturing markets. For the partial quarter, 4D contributed $2.1 million in revenues and was accretive to earnings per share.

GAAP Results
	Q4 2018			Q3 2018			Q4 2017			FY2018			FY 2017
Revenues (Millions)	$77.0			$76.6			$78.2			$324.5			$258.6
Gross Margin		54.6%			57.0%			56.2%			56.7%			52.9%
Operating Margin		14.1%			18.6%			24.5%			20.5%			16.6%
Net Income (Millions)	$12.0			$11.6			$10.8			$57.6			$30.2
Earnings per Diluted Share	$0.49			$0.47			$0.42			$2.34			$1.17
Non-GAAP Results
	Q4 2018			Q3 2018			Q4 2017			FY2018			FY 2017
Gross Margin		55.7%			57.0%			56.4%			57.0%			53.1%
Operating Margin		16.8%			19.0%			25.3%			21.5%			17.3%
Net Income (Millions)	$13.0			$11.4			$13.6			$58.3			$31.8
Earnings per Diluted Share	$0.53			$0.47			$0.53			$2.37			$1.23

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.

“I am pleased to announce strong results for the fourth quarter, which exceeded our prior forecast, even before the inclusion of 4D for a portion of the period,” commented Dr. Pierre-Yves Lesaicherre, president and chief executive officer of Nanometrics. “Our record revenues for the year and 25% growth over 2017 are indicative of the robust memory spending environment early in the year, the strength of our customer positions, and the meaningful new competitive wins announced in both 3D-NAND and DRAM. As expected, the robust conditions in the memory market began to slow down in the second half, and particularly in the fourth quarter.  At the same time, we witnessed a significant increase in activity with our foundry, IDM and other device customers late in the year, with second-half product sales more than doubling over the first half. For the full year, 2018 set new records for the company, and was the fifth straight year of double-digit revenue growth, expanding gross and operating margins, and increasing earnings per share.

“As we look to a slowing memory market entering 2019, we have seen a moderation to our prior sales forecast for the first half of the year. With our current visibility, we expect improvement in memory market conditions to commence in the second half of the year. Our outlook today is for strong growth in sales to the foundry and logic segment in 2019, as well as revenue contribution from 4D in the $15 to $20 million range.  Continued growth in our materials characterization and service businesses will also help to offset the expected declines in memory spending in 2019.”  Dr. Lesaicherre concluded, “While navigating through this period of significantly curtailed plans for memory capital spending, we will continue our R&D investments in support of new products that will drive future growth and outperformance for Nanometrics, while continuing to deliver solid margins, profits and free cash flows.”

Fourth Quarter 2018 SummaryRevenues for the fourth quarter of 2018 were $77.0 million, up 1% from $76.6 million in the third quarter of 2018, and down 2% from $78.2 million in the fourth quarter of 2017. On a GAAP basis, gross margin was 54.6%, compared to 57.0% in the prior quarter and 56.2% in the year-ago period. Operating income was $10.9 million, compared to $14.3 million in the prior quarter and $19.2 million in the year-ago period. Net income was $12.0 million or $0.49 per diluted share, compared to $11.6 million or $0.47 per diluted share in the prior quarter and $10.8 million or $0.42 per diluted share in the fourth quarter of 2017.

On a non-GAAP basis, which excludes amortization of acquired intangible assets, acquisition-related costs, and severance costs, gross margin was 55.7%, compared to 57.0% in the prior quarter and 56.4% in the year-ago period. Non-GAAP operating income, which also excludes acquisition-related costs included in operating costs, executive search and transition costs, and severance costs, was $13.0 million, compared to $14.5 million in the prior quarter and $19.8 million in the fourth quarter of 2017. Non-GAAP net income, which also adjusts for a gain on disposal of property and certain discrete tax and other items, was $13.0 million or $0.53 per diluted share, compared to $11.4 million or $0.47 per diluted share in the prior quarter and $13.6 million or $0.53 per diluted share in the fourth quarter of 2017.

Full Year 2018 SummaryRevenues were $324.5 million, up 25% from $258.6 million in 2017.  On a GAAP basis, gross margin was 56.7%, compared to 52.9% in 2017, and operating income was $66.5 million, compared to $42.8 million in 2017.  Net income was $57.6 million or $2.34 per diluted share, compared to $30.2 million or $1.17 per diluted share in 2017.

On a non-GAAP basis, which excludes amortization of acquired intangible assets, acquisition-related costs, and severance costs, gross margin was 57.0% compared to 53.1% in 2017.  Non-GAAP operating income, which also excludes acquisition-related costs included in operating costs, executive search and transition costs, and severance costs, was $69.9 million in 2018, compared to $44.6 million in 2017. Non-GAAP net income, which also adjusts for a gain on disposal of property and certain discrete tax and other items, was $58.3 million or $2.37 per diluted share, compared to $31.8 million or $1.23 per diluted share in 2017.

Business OutlookManagement expects first-quarter 2019 revenues in the range of $62 to $68 million. Gross margin is expected to be approximately 51.0%, plus or minus 1%, on a GAAP basis and 53.5%, plus or minus 1%, on a non-GAAP basis.  Management expects first-quarter operating expenses to range between $28.0 million and $29.0 million on a GAAP and non-GAAP basis, and earnings in the range of $0.09 to $0.20 per diluted share on a GAAP basis and $0.16 to $0.27 on a non-GAAP basis.

Conference Call DetailsA conference call to discuss fourth quarter 2018 results will be held today at 4:30 p.m. EST (1:30 p.m. PST). 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 5877517. 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 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 intangibles 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.

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 or operational 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 rates for 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 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)
		December 29,2018				December 30,2017
ASSETS
Current assets:
Cash and cash equivalents		$	110,951			$	34,899
Marketable securities			40,841				82,130
Accounts receivable, net			50,854				62,457
Inventories			61,915				52,860
Inventories-delivered systems			180				1,534
Prepaid expenses and other			6,140				6,234
Total current assets			270,881				240,114
Property, plant and equipment, net			47,900				44,810
Goodwill			26,372				10,232
Intangible assets, net			27,326				2,206
Deferred income tax assets			2,569				11,924
Other assets			582				413
Total assets		$	375,630			$	309,699
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	16,540			$	13,857
Accrued payroll and related expenses			21,658				12,901
Deferred revenue			8,990				7,408
Other current liabilities			9,421				7,249
Income taxes payable			3,164				2,680
Total current liabilities			59,773				44,095
Deferred revenue			1,753				1,661
Income taxes payable			871				860
Deferred tax liabilities			162				179
Other long-term liabilities			219				521
Total liabilities			62,778				47,316
Stockholders’ equity:
Common stock			24				26
Additional paid-in capital			247,983				255,368
Retained earnings			67,402				9,113
Accumulated other comprehensive loss			(2,557	)			(2,124	)
Total stockholders’ equity			312,852				262,383
Total liabilities and stockholders’ equity		$	375,630			$	309,699

NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
		Three Months Ended								Twelve Months Ended
		December 29,2018				December 30,2017				December 29,2018				December 30,2017
Net revenues:
Products		$	63,765			$	67,555			$	275,286			$	214,877
Service			13,251				10,650				49,237				43,744
Total net revenues			77,016				78,205				324,523				258,621
Costs of net revenues:
Cost of products			27,417				28,746				112,834				100,910
Cost of service			7,382				5,436				27,311				20,804
Amortization of intangible assets			179				50				284				206
Total costs of net revenues			34,978				34,232				140,429				121,920
Gross profit			42,038				43,973				184,094				136,701
Operating expenses:
Research and development			12,778				10,058				48,188				36,716
Selling			9,451				8,109				37,528				30,839
General and administrative			8,845				6,644				31,795				26,340
Amortization of intangible assets			96				-				96				-
Total operating expenses			31,170				24,811				117,607				93,895
Income from operations			10,868				19,162				66,487				42,806
Other income (expense):
Interest income			2				3				10				8
Interest expense			(78	)			(9	)			(331	)			(92	)
Other income, net			850				246				1,358				576
Total other income, net			774				240				1,037				492
Income before income taxes			11,642				19,402				67,524				43,298
Provision for income taxes			(382	)			8,604				9,876				13,096
Net income		$	12,024			$	10,798			$	57,648			$	30,202
Net income per share:
Basic		$	0.50			$	0.43			$	2.39			$	1.19
Diluted		$	0.49			$	0.42			$	2.34			$	1.17
Shares used in per share calculation:
Basic			24,131				25,378				24,120				25,334
Diluted			24,481				25,819				24,600				25,919

 

NANOMETRICS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Twelve Months Ended
		December 29,2018				December 30,2017
Cash flows from operating activities:
Net income		$	57,648			$	30,202
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization			6,846				6,920
Stock-based compensation			11,382				8,819
Excess tax benefit from equity awards			1				-
(Gain) Loss on disposal of fixed assets			(759	)			631
Inventory write down			3,012				2,020
Deferred income taxes			3,732				6,858
Changes in assets and liabilities:
Accounts receivable			15,156				(19,523	)
Inventories			(8,962	)			(18,037	)
Inventories-delivered systems			1,354				923
Prepaid expenses and other			(407	)			(230	)
Accounts payable, accrued and other liabilities			11,438				1,049
Deferred revenue			2,399				(915	)
Income taxes payable			496				1,886
Net cash provided by operating activities			103,336				20,603
Cash flows from investing activities:
Payment for acquisition of certain assets			(2,000	)			(2,000	)
Payments to acquire 4D Technology net of cash acquired			(37,163	)			-
Sales of marketable securities			56,279				53,030
Maturities of marketable securities			38,700				77,250
Purchases of marketable securities			(53,523	)			(129,766	)
Purchase of property, plant and equipment			(7,486	)			(5,204	)
Proceeds from sale of property, plant and equipment			942				-
Net cash used in investing activities			(4,251	)			(6,690	)
Cash flows from financing activities:
Proceeds from sale of shares under employee stock option and purchase plans			3,826				5,576
Taxes paid on net issuance of stock awards			(3,609	)			(4,135	)
Repurchases of common stock under share repurchase plans			(22,987	)			(26,999	)
Net cash used in financing activities			(22,770	)			(25,558	)
Effect of exchange rate changes on cash and cash equivalents			(263	)			(518	)
Net increase in cash and cash equivalents			76,052				(12,163	)
Cash and cash equivalents, beginning of period			34,899				47,062
Cash and cash equivalents, end of period		$	110,951			$	34,899

 

NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share amounts)
(Unaudited)
		Three Months Ended																					Twelve Months Ended
		December 29, 2018							September 29, 2018							December 30, 2017							December 29, 2018							December 30, 2017
Reconciliation of GAAP gross profit and gross margin to non-GAAPgross profit and gross margin
GAAP gross profit and gross margin, respectively		$	42,038			54.6	%		$	43,634			57.0	%		$	43,973			56.2	%		$	184,094			56.7	%		$	136,701			52.9	%
Non-GAAP adjustments:
Severance included in cost of revenues			-			0.0	%			-			0.0	%			77			0.1	%			21			0.0	%			404			0.1	%
Acquisition-related charges			668			0.9	%																	668			0.2	%
Amortization of intangible assets			179			0.2	%			35			0.0	%			50			0.1	%			284			0.1	%			206			0.1	%
Non-GAAP gross profit and gross margin, respectively		$	42,885			55.7	%		$	43,669			57.0	%		$	44,100			56.4	%		$	185,067			57.0	%		$	137,311			53.1	%
Reconciliation of GAAP operating income to non-GAAP operating income
GAAP operating income and operating margin, respectively		$	10,868			14.1	%		$	14,271			18.6	%		$	19,162			24.5	%		$	66,487			20.5	%		$	42,806			16.6	%
Non-GAAP adjustments:
Acquisition-related charges included in cost of revenues			668			0.9	%			-							-							668			0.2	%
Amortization of intangible assets included in cost of revenues			179			0.2	%			35			0.0	%			50			0.1	%			284			0.1	%			206			0.1	%
Amortization of intangible assets included in operating expenses			96			0.1	%																	96			0.0	%
Acquisition-related charges included in operating expenses			903			1.2	%																	903			0.3	%
Severance included in cost of revenues			-			0.0	%										77			0.1	%			21			0.0	%			404			0.2	%
Severance included in operating expenses			-			0.0	%										509			0.6	%			339			0.1	%			845			0.3	%
Executive transition costs			240			0.3	%			236			0.3	%										1,088			0.3	%
Executive search costs			-			0.0	%																	46			0.0	%			355			0.1	%
Total non-GAAP adjustments to operating income			2,086			2.7	%			271			0.4	%			636			0.8	%			3,445			1.1	%			1,810			0.7	%
Non-GAAP operating income and operating margin, respectively		$	12,954			16.8	%		$	14,542			19.0	%		$	19,798			25.3	%		$	69,932			21.5	%		$	44,616			17.3	%
Reconciliation of GAAP net income to non-GAAP net income
GAAP net income		$	12,024						$	11,568						$	10,798						$	57,648						$	30,202
Non-GAAP adjustments:
Total non-GAAP adjustments to non-GAAP operating income			2,086							271							636							3,445							1,810
Gain on Disposal of Property			(874	)																				(874	)
Other Discrete Items			89																					89
Discrete tax items and tax effect of non-GAAP adjustments			(279	)						(448	)						(432	)						(1,983	)						(2,772	)
Tax Reform			-							-							2,569							-							2,569
Non-GAAP net income		$	13,047						$	11,391						$	13,571						$	58,325						$	31,809
GAAP net income per diluted share		$	0.49						$	0.47						$	0.42						$	2.34						$	1.17
Non-GAAP net income per diluted share		$	0.53						$	0.47						$	0.53						$	2.37						$	1.23
Shares used in diluted net income per share calculation			24,481							24,466							25,819							24,600							25,919
Reconciliation of net cash provided by operating activities to free cash flow
GAAP net cash provided by operating activities		$	19,928						$	24,437						$	5,219						$	103,336						$	20,603
Purchase of property and equipment			(4,544	)						(1,181	)						(2,862	)						(7,486	)						(5,204	)
Free cash flow		$	15,384						$	23,256						$	2,357						$	95,850						$	15,399

Investor Relations Contact:
Claire McAdams
Headgate Partners LLC
530.265.9899
claire@headgatepartners.com

Company Contact:
Greg Swyt
Vice President, Finance
408.545.6088
ir@nanometrics.com