Nanometrics, Inc. Q2 2010 Earnings Call Transcript

Nanometrics, Inc. Q2 2010 Earnings Call Transcript
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Nanometrics, Inc. (NANO)

Q2 2010 Earnings Call

August 5, 2010 5:00 pm ET

Executives

Claire McAdams - IR

Timothy J Stultz – President and CEO

James P Moniz – CFO

Analysts

Gary Hsueh of Oppenheimer

Mahesh Sanganeria – RBC Capital Markets

Weston Twigg – Pacific Crest Securities

Michael Amari – Americo, Incorporated

Paul Sweats – Capital Flows

Jen Baxter – Piper Jaffray

Presentation

Operator

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Good afternoon, and welcome to Nanometrics Second Quarter 2010 Financial Results Conference Call. A Q&A session will be held at the end of the call. Until that time, all participants are in a listen-only mode. Please note that this conference is being recorded, August 5, 2010.

At this time, I would like to turn the call over to Claire McAdams, Investor Relations Council for Nanometrics. Please go ahead.

Claire McAdams

Thank you, and good afternoon everyone. Welcome to the Nanometrics Second Quarter 2010 Financial Results Conference Call.

On today’s call are Dr. Timothy Stultz, President and Chief Executive Officer, and Jim Moniz, Chief Financial Officer.

Before we get started, I would call your attention to the following Safe Harbor statement. This conference call contains certain forward-looking statements, including but not limited to statements regarding Nanometrics’ expected results for its most recently completed fiscal quarter, which remains subject to adjustment in connection with the preparation of its financial statements, and periodic report on Form 10Q for the quarter ended July 3

rd

, 2010. The continued adoption and competitiveness of its products, the expansion of the company’s surf markets, and future revenue growth, profitability, and cash flow.

Although Nanometrics believes the expectations reflected in the forward-looking statement are reasonable, actual results could differ materially from the expectation due to a variety of risks, including slower-than-anticipated market adoption, a contraction in current levels of industry spending, and the additional risk factors and cautionary statements set forth in the company’s Form 10K for fiscal year 2009, 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.

I will now turn the call over to Tim Stultz. Tim.

Tim Stultz

Thank you, Claire. Good afternoon, everyone. And thank you for joining us today.

In my remarks today, I will discuss the financial and business highlights for the quarter, our view of the current and near term industry environment. And give some perspective on our business outlook for the next few quarters.

Jim Moniz will provide a closer review of our financial results following my prepared remarks.

By any measure, the second quarter of 2010 was the best quarter in Nanometrics’ 35 year history. During the quarter, we posted record revenues of over $50 million, had our fifth sequential quarter of product margin improvement, and delivered record high industry-leading operating profitability.

Financial highlights for the quarter include revenues of $51 million to 37% growth over the previous quarter. And a 250% growth year over year.

Gross margin up 55%. Operating margin up 25%. Earning up $0.51 per share. And $14 million in cash generation for our P&L, which increased our cash balance by $9 million after investments and working capital.

The IC industry is experiencing huge big growth in chip demand, largely driven by worldwide consumer spending. And the world’s leading chip companies are aggressively investing to address this market demand.

Although we are clearly benefiting from an overall increase in semiconductor capital spending, the real driving force behind our above-average performance is a growing importance and investment and process control metrology, and increasing adoption of Nanometrics’ leading-edge tool that serves the critical growth markets of optical critical dimension, or OCD, overlay, wafer-scale packaging, and high-brightness LEDs.

Our growth in each of these served areas is a direct result of our marketing and engineering teams working closely with our customers to define and develop differentiated products and technologies that solve tough technical challenges. And enable those leading companies to meet their business objectives.

The success of those collaborative efforts is reflected in our numerous tool-of-record designations, strong performance, and sales pipeline.

Going back to our quarterly results, I would like to highlight some important trends that have begun to emerge, strengthening the overall health and outlook for our business.

The second quarter was notable as to the level of revenue, but it was also distinguished by the quality and diversity of our revenue base. Over the last few quarters, we have commented on our growing business within the memory and logic sectors of the semiconductor industry.

As reported, we have had a high concentration of revenues with two major customers, Intel and Samsung, and from two geographic regions, North America and South Korea.

Whereas that business continues to be strong for us, this quarter we reported a third customer that contributed more than 10% to our revenues, which was Hynex.

In addition, we added three countries, Japan, Taiwan, and China as regions that each generated at least 10% of our business in the second quarter. These results reflected growing adoption of our products by a broader customer base over expanded geographic regions, and a healthy reduction in revenue concentration.

Keeping with the quality of revenue seen, I would also like to speak to our product mix. Our flagship product to the semiconductor industry is the Atlas thin film OCD system, which achieved revenue growth of nearly 30% quarter on quarter.

However, many of our other products either met or exceeded that level of growth, including our overlay, integrated metrology, and materials characterization products.

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