Nanometrics' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Nanometrics Incorporated ( NANO)

Q1 2011 Earnings Call

April 28, 2011 4:30 PM ET


Clair McAdams – IR

Tim Stultz – President and CEO

Ron Kisling – CFO


Mahesh Sanganeria – RBC Capital Markets

Weston Twigg – Pacific West Securities

Auguste Richard – Piper Jaffray

Graham Tanaka – Tanaka Capital

Michael Lamari [ph] – Anoriko [ph] Inc.

Steven Shapiro – Intrepid Capital



Good afternoon and welcome to Nanometrics first quarter 2011 financial results conference call. (Operator instructions) A Q&A session will be held at the end of the call. Until that time, all participants will be in a listen-only mode. Please note that this conference call is being recorded today, April 28, 2011. At this time, I would like to turn the call over to Clair McAdams, Investor Relations/Council for Nanometrics. Please go ahead.

Clair McAdams

Thank you and good afternoon everyone. Welcome to the Nanometrics first quarter 2011 financial results conference call. On today’s call are Dr. Timothy Stutlz, President and Chief Executive Officer and Ronald Kisling, Chief Financial Officer.

Before we get started, I would like to call your attention to the following safe harbor statement. This conference call contains certain forward-looking statements including but not limited to statements regarding financial results for our most recently completed fiscal quarter, which remains subject to adjustment in connection with the preparation of our financial statements and periodic report on Form 10-Q for the first fiscal quarter 2011, the continued adoption and competitiveness of our products, the expansion of our served markets and future revenue growth, profitability and cash flow. Although Nanometrics believes 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 a contraction in current levels of industry spending, shifts in the timing of customer orders and product shipments, slower than anticipated market adoption, changes in product mix, increased operating expense and the additional risk factors and cautionary statements set forth in the company’s Form 10-K for fiscal year 2010 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 statements.

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

Tim Stultz

Thank you Clair and good afternoon everyone and thank you for joining us today. With me today for his first conference call with Nanometrics is Ron Kisling, our new Chief Financial Officer. We are quite excited about the added dimensions bring to the management team and as you will soon see, he has hit ground running.

In my remarks this afternoon, I will discuss the business and financial highlights for the first quarter of 2011 and our view of the current and near term industry environment. Following that, Ron will provide a closer review of our financial performance, after which I will return with our guidance for the forthcoming quarter.

In the first quarter of this year we saw a continuation of healthy investments in capital equipment by the leading semiconductor device manufacturers in all three areas of technology development, capacity expansion and new fab construction.

These, combined with our leading market position in OCD, where we continue to gain market share through competitive wins, our growing position in Metrology for 3D device structures and strong operating performance have enabled us to deliver another record quarter of financial results.

In addition to record revenues of $62 million and ten year operating profit margin of 27.5%, Q1 marked the seventh straight quarter of positive cash flow and gross margins exceeding 50%. This consistency of solid performance across the cycle reflects the strength of our business model, our ability to compete, our success in shifting fixed costs to a largely variable cost structure and solid operational execution.

We also believe our above average gross margins reflect the competitiveness of our products and the efficiency of our operations and we know that consistent profitability and strong positive cash flows enable us to make the investments in our business necessary to remain competitive and deliver above average performance to our shareholders.

Turning to the key drivers of our business, although we have a diverse product line serving multiple markets including semiconductor, high brightness LED’s, solar photovoltaics and data storage, our core competencies and technology base is tightly centered upon high speed, non-destructive optical measurements used for process control Metrology.

Our products are used to directly address the challenges brought on by increasing device complexity and the growth in the number of process steps resulting from our customer’s never ending quest for improved performance at lower manufacturing costs.

And whereas shrinks may be the ultimate driver for performance, through put and yield have the greatest impact on manufacturing costs and profitability for our customers. By making more measurements and using our products throughout the manufacturing process, our customers are able to increase the productivity of their more expensive process tools, reduce yield destroying process variation and increase their ROI for their overall capital equipment investments.

Of particular importance and relevance in Nanometrics is the growing demand for three dimension Metrology measurements; both the device as well as the packaging level. As I mentioned earlier, leading edge, solid state devices are fabricated with a growing number of steps and material layers with smaller features and increasingly complex physical shapes.

OCD stands alone in its ability to quickly, precisely and non-destructively measure complex three dimensional device structures. Because of this, growth in the OCD market has exceeded the growth of any other process control technology both through and intrinsic expansion of applications as well as the displacement of otherwise conventional technologies such as CD SIMS.

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