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Nanometrics Reports Second Quarter 2012 Financial Results

Conference Call Details

A conference call to discuss second quarter 2012 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. A live and recorded webcast will be made available on the investor page of the Nanometrics website at www.nanometrics.com.

Use of Non-GAAP Financial Information

Financial results such as non-GAAP gross profit, operating income, net income and net income per share, which exclude certain expenses, charges and special items, were not prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses non-GAAP financial results, which exclude acquisition-related expenses such as amortization of acquired intangibles and transaction costs, asset impairments, restructuring charges, legal settlements, certain discrete tax items and the impact of the timing of the approval of elections related to tax treatment of certain foreign subsidiaries, and other unusual and infrequent items to evaluate the company’s ongoing performance and to enable comparison to other periods which did not include these unusual and infrequent 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. 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, high-brightness LEDs, data storage devices and solar photovoltaics. Nanometrics’ automated and integrated systems address numerous process control applications, including critical dimension and film thickness measurement, device topography, defect inspection, overlay registration, and analysis of various other film properties such as optical, electrical and material characteristics. 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 wafer-scale packaging applications. Nanometrics’ systems enable device manufacturers to improve yields, increase productivity and lower their manufacturing costs. 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

This press release contains forward-looking statements including, but not limited to, statements included in the quotation from management, and statements included in the business outlook section including statements regarding revenue, margins, profitability and product adoption. These forward looking statements may also be identified by words such as “expect,” “anticipate,” “believe,” “estimate,” “forecasts,” “plan,” “predict,” “view,” and similar terms. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including economic conditions, levels of industry spending, shifts in the timing of customer orders and product shipments, market adoption rates, changes in product mix, our ability to implement supply cost reductions, and increased operating expenses. For additional information and considerations regarding the risks faced by Nanometrics, see its annual report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission, 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.

NANOMETRICS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)(Unaudited)
   
As of Jun 30,2012 As of Dec 31,2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 81,990 $ 97,699
Marketable securities 13,854 -
Accounts receivable, net of allowances of $82 and $117, respectively 40,308 29,289
Inventories 45,379 52,260
Inventories-delivered systems 1,850 1,637
Prepaid expenses and other 9,959 8,119
Deferred income tax assets   9,277     12,406  
Total current assets 202,617 201,410
 
Property, plant and equipment, net 42,203 35,521
Goodwill 10,796 11,990
Intangible assets, net 12,229 14,394
Deferred income tax assets, non-current 4,927 2,864
Other assets   866     1,042  
Total assets $ 273,638   $ 267,221  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 8,988 $ 7,975
Accrued payroll and related expenses 6,967 8,837
Deferred revenue 9,245 5,788
Other current liabilities 14,382 16,709
Income taxes payable 337 707
Current portion of debt obligations   790     765  
Total current liabilities 40,709 40,781
 
Deferred revenue, non-current 5,296 4,547
Income taxes payable, non-current 2,430 2,401
Other non - current liabilities 2,078 2,813
Debt obligations, net of current portion   6,349     6,687  
Total liabilities 56,862 57,229
 
Stockholders’ equity:

Common stock, $0.001 par value, 47,000,000 shares authorized; 23,189,435 and 23,182,771, respectively, issued and outstanding

23 23
Additional paid-in capital 238,232 236,735
Accumulated deficit (22,106 ) (28,315 )
Accumulated other comprehensive income   627     1,549  
Total stockholders’ equity   216,776     209,992  
 
Total liabilities and stockholders’ equity $ 273,638   $ 267,221  
 

NANOMETRICS INCORPORATED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts)(Unaudited)

       
Three Months Ended Year to Date
Jun 30,2012 July 2,2011 Jun 30,2012 July 2,2011
 
Net revenues:
Products $ 41,556 $ 54,227 $ 89,414 $ 108,210
Service   11,625     10,145     19,259     18,305  
Total net revenues 53,181 64,372 108,673 126,515
 
Costs of net revenues:
Cost of products 22,627 23,334 47,446 45,981
Cost of service 5,158 4,934 10,128 9,275
Amortization of intangible assets   637     232     1,274     464  
Total costs of net revenues   28,422     28,500     58,848     55,720  
Gross profit 24,759 35,872 49,825 70,795
 
Operating expenses:
Research and development 7,644 5,779 15,120 11,267
Selling 7,041 6,997 14,252 13,696
General and administrative 5,583 5,442 11,664 10,941
Amortization of intangible assets   195     169     387     343  
Total operating expenses   20,463     18,387     41,423     36,247  
Income from operations 4,296 17,485 8,402 34,548
 
Other income (expense):
Interest income 33 65 85 105
Interest expense (264 ) (341 ) (533 ) (678 )
Other, net   (49 )   (470 )   (224 )   (983 )
Total other expense, net   (280 )   (746 )   (672 )   (1,556 )
 
Income before income taxes 4,016 16,739 7,730 32,992
Provision (benefit) for income taxes   (490 )   5,652     1,521     11,395  
Net income $ 4,506   $ 11,087   $ 6,209   $ 21,597  
 
Net income per share:
Basic $ 0.19   $ 0.49   $ 0.27   $ 0.95  
 
Diluted $ 0.19   $ 0.47   $ 0.26   $ 0.92  
 
Shares used in per share calculation:
Basic   23,395     22,709     23,372     22,637  
 
Diluted   23,877     23,442     23,924     23,422  
 
NANOMETRICS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)(Unaudited)
   
Six-month period ended
June 30,2012 July 2,2011

Cash flows from operating activities:

Net income $ 6,209 $ 21,597
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization 4,511 2,910
Stock-based compensation 3,054 1,777
Excess tax benefit from equity awards (814 ) (1,519 )
Loss on disposal of fixed assets 134 3
Inventory write down 1,086 728
Deferred taxes 995 1,425
Other, net 7 0
Change in the fair value of contingent payments to Zygo 9 391
Changes in assets and liabilities:
Accounts receivable (11,141 ) 1,092
Inventories (1,136 ) (5,502 )
Inventories- delivered systems (313 ) (969 )
Prepaid expenses and other (1,709 ) (3,200 )
Accounts payable, accrued and other liabilities (3,629 ) 2,010
Deferred revenue 4,222 2,607
Income taxes payable   466     2,315  
Net cash provided by operations   1,951     25,665  
 

Cash flows from investing activities:

Payments to Zygo Corporation related to acquisition (198 ) (191 )
Escrow payment received related to acquisition of Nanda 508 0
Purchases of marketable securities (13,860 ) 0
Purchase of property, plant and equipment   (2,730 )   (1,746 )
Net cash used in investing activities   (16,280 )   (1,937 )
 

Cash flows from financing activities:

Repayments of debt obligations (374 ) (282 )
Proceeds from sale of shares under the employee stock option and purchase plans 2,632 3,539
Excess tax benefit from equity awards 814 1,519
Taxes paid on net issuance of stock awards (16 ) (46 )
Repurchase of common stock   (4,960 )   (4,257 )
Net cash provided by (used in) financing activities   (1,904 )   473  
Effect of exchange rate changes on cash and cash equivalents   524     1,024  
Net increase (decrease) in cash and cash equivalents (15,709 ) 25,225
Cash and cash equivalents, beginning of period   97,699     66,460  
Cash and cash equivalents, end of period $ 81,990   $ 91,685  
 

NANOMETRICS INCORPORATED RECONCILIATION OF GAAP TO NON-GAAP RESULTS (In thousands, except per share amounts)(Unaudited)

       
Three Months Ended Six Months Ended
Jun 30,2012 Mar 31,2012 Jul 2,2011 Jun 30,2012 Jul 2,2011

Reconciliation of GAAP gross profit to non-GAAP gross profit

GAAP gross profit $ 24,759 $ 25,066 $ 35,872 $ 49,825 $ 70,795
Non-GAAP adjustments:
Amortization of intangible assets   637     637     232     1,274     464  
Non-GAAP gross profit $ 25,396   $ 25,703   $ 36,104   $ 51,099   $ 71,259  
 

Reconciliation of GAAP operating income to non-GAAP operating income

GAAP operating income $ 4,296 $ 4,106 $ 17,485 $ 8,402 $ 34,548
Non-GAAP adjustments:
Amortization of intangible assets included in cost of revenues 637 637 232 1,274 464
Amortization of intangible assets included in operating expenses   195     192     169     387     343  
Total non-GAAP adjustments to operating income   832     829     401     1,661     807  
Non-GAAP operating income $ 5,128   $ 4,935   $ 17,886   $ 10,063   $ 35,355  
 

Reconciliation of GAAP net income to non-GAAP net income

GAAP net income $ 4,506 $ 1,703 $ 11,087 $ 6,209 $ 21,597
Non-GAAP adjustments:
Total non-GAAP adjustments to non-GAAP operating income 832 829 401 1,661 807
Income tax effect of non-GAAP adjustments (304 ) (303 ) (144 ) (607 ) (291 )
Discrete tax adjustment

(a) 

  (1,955 )   655     -     (1,300 )   -  
Non-GAAP net income $ 3,079   $ 2,884   $ 11,344   $ 5,963   $ 22,113  
 
GAAP net income per diluted share $ 0.19   $ 0.07   $ 0.47   $ 0.26   $ 0.92  
 
Non-GAAP net income per diluted share $ 0.13   $ 0.12   $ 0.48   $ 0.25   $ 0.94  
 
Shares used in diluted income per share calculation 23,877 23,981 23,442 23,924 23,422
 
(a) Reflects the tax benefit for certain first quarter foreign losses related to entity classification elections that were approved by the IRS in the second quarter. The tax benefit of these first quarter losses was recorded as a decrease to the second quarter tax provision on a GAAP basis. The discrete tax adjustment for the second quarter also excludes the one-time benefit associated with the recognition of Deferred Tax Assets related to the entity classification elections, resulting in a combined first and second quarter effective tax rate of approximately 36.5%.




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