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CST: 19/11/2019 12:17:54   

Nanometrics Reports Fourth Quarter and Full Year 2018 Financial Results

286 Days ago

Outpacing the Industry with 25% Revenue Growth for the Year; Record Free Cash Flow Generation

MILPITAS, Calif., Feb. 05, 2019 (GLOBE NEWSWIRE) -- 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 Summary
Revenues 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 Summary
Revenues 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 Outlook
Management 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 Details
A 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 Information
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, 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 Nanometrics
Nanometrics 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-GAAP
gross 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

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