Nanometrics Reports Third Quarter Financial Results

Highlights for the third quarter include:

-- Revenues of $25.8 million were up 78% quarter-on-quarter and 12% year-on-year

-- Gross margin improved by more than twelve percentage points sequentially, from 41.4% to 54.0%

-- Non-GAAP operating income of $4.0 million

-- Net profit margin of 6.1% and net earnings of 8 cents per share

-- A $2.7 million increase in cash and cash equivalents

-- Continued adoption of Nanometrics' thin-film, optical critical dimension (OCD) and overlay metrology solutions by leading semiconductor companies worldwide

Commenting on the third quarter results, president and chief executive officer Dr. Timothy J. Stultz said, "We are very pleased to announce Nanometrics' return to profitability in the third quarter of 2009. Improvements in our served markets together with our well-positioned product offerings translated into significant revenue growth, further improvements to our gross margin and, most importantly, positive cash flow and profits.

"During the economic and industry downturn, we have continued to invest in developing advanced, highly-differentiated, cost-effective and extendable product solutions for our customers. We have expanded our served markets through both internal product development and strategic acquisitions that were non-dilutive to our shareholders. At the same time, we completed a turnaround and restructuring of our business that resulted in a leaner, more efficient and volume-adaptable manufacturing and operating infrastructure. Our third quarter results are evidence that we have grown into our business model at this very early stage of our industry's recovery.

"The growth we achieved in the third quarter was largely driven by multi-system orders and technology upgrades from leading worldwide semiconductor companies in both the memory and logic sectors. We continue to see strong sales of our thin-film and OCD systems, increasing traction with our Caliper(TM) overlay product and Lynx(TM) platform, and further penetration into high-growth segments such as high-brightness LEDs. We are also excited about the emerging market opportunity for metrology in wafer-scale packaging, which represents an expansion of our served markets through the second-quarter acquisition of the Unifire(TM) product line.

"Looking ahead, we see continued improvements in our served markets and further growth in revenues, albeit at a slower rate than what we have achieved in the last two quarters. Our business is on a positive trajectory, with momentum building for continued success in our served markets and improved operational and financial performance."

Third Quarter 2009 Summary

Revenues were $25.8 million, up 78% from $14.5 million in the second quarter of 2009 and up 12% from $23.1 million in the third quarter of 2008. Gross margin increased to 54.0%, compared to 41.4% in the prior quarter and 44.1% in the year-ago period, as a result of higher sales volume, improved factory absorption and an increased contribution of upgrades to service revenue.

Operating expenses were $12.4 million, compared to $12.5 million in the second quarter of 2009 and $70.2 million in the year-ago period. Total operating expenses in the comparative periods included asset impairment and restructuring charges of $2.3 million and $56.0 million, respectively, for the second quarter of 2009 and the third quarter of 2008.

Net income was $1.6 million, or $0.08 per diluted share, compared to a net loss of $7.0 million, or $0.38 per share in the second quarter of 2009 and a net loss of $60.4 million, or $3.25 per share, in the third quarter of 2008. Non-GAAP operating income was $4.0 million, compared to non-GAAP operating losses of $2.3 million and $1.1 million, respectively, in the second quarter of 2009 and the year-ago period.

Summary for the Nine Months Ended September 26, 2009

Revenues were $50.4 million, down 38% from $81.6 million in the year-ago period. Despite the decline in revenues over the comparable period, gross margin increased by 100 basis points, from 44.2% to 45.2%, reflecting improvements to our cost structure. Excluding restructuring and asset impairment charges, operating expenses of $33.8 million decreased 27% from $46.0 million for the first nine months of 2008, as a result of company-wide cost reductions. Net loss was $16.0 million, or $0.87 per share, compared to net loss of $80.1 million, or $4.31 per share, for the first nine months of 2008. Non-GAAP operating loss was $4.9 million, compared to non-GAAP operating income of $0.1 million in the year-ago period.

Conference Call Details

A conference call to discuss the third quarter 2009 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 (866) 543-6405 for domestic callers and (617) 213-8897 for international callers. The passcode is 32099789. 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 operating income, which exclude certain charges and special items, are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses non-GAAP operating income, which excludes non-cash expenses including stock-based compensation, depreciation and amortization, asset impairments, restructuring and other special items, to evaluate the company's ongoing cash-based operating results. The company believes the presentation of non-GAAP operating income 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 operating income is included at the end of this press release.

About Nanometrics

Nanometrics is a leader in the design, manufacture and marketing of high-performance process control metrology systems used primarily in the manufacturing of semiconductors, advanced wafer-scale packaging, solar photovoltaics and high-brightness LEDs, as well as by customers in the silicon wafer and data storage industries. Nanometrics standalone and integrated metrology systems measure various thin film properties, critical dimensions, overlay control, topography, and optical, electrical and material properties, including the structural composition of silicon, compound semiconductor and photovoltaic devices, during various steps of the manufacturing process, from front end of line substrate manufacturing through die preparation for advanced packaging. These 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 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 regarding Nanometrics' expected results for its most recently completed fiscal quarter, which remain subject to adjustment in connection with the preparation of Nanometrics' financial statements and periodic report on Form 10-Q for the quarter ended September 26, 2009, the continued adoption and competitiveness of its products, the expansion of the company's served markets and future revenue growth, profitability and cash flow. 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 slower-than-anticipated market adoption, changes in product mix, a contraction in current levels of industry spending 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 27, 2008 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 per share amounts)
(Unaudited)
                                                                       September 26,       December 27,
ASSETS                                                                 2009                2008
Current assets:
Cash and cash equivalents                                              $    17,207         $    23,980
Accounts receivable, net of allowances of $311 and $309, respectively       21,035              17,143
Inventories                                                                 31,126              31,583
Inventories - delivered systems                                             1,290               205
Assets held for sale                                                        220                 -
Prepaid expenses and other                                                  1,826               1,838
Deferred income tax assets                                                  693                 350
Total current assets                                                        73,397              75,099
Property, plant and equipment, net                                          37,380              40,136
Intangible assets, net                                                      7,477               6,901
Other assets                                                                1,693               1,718
Total assets                                                           $    119,947        $    123,854
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit                                               $    3,500          $    -
Accounts payable                                                            5,713               4,824
Accrued payroll and related expenses                                        3,326               3,435
Deferred revenue                                                            3,435               1,539
Other current liabilities                                                   6,808               5,800
Income taxes payable                                                        845                 1,187
Current portion of debt obligations                                         347                 413
Total current liabilities                                                   23,974              17,198
Deferred revenue                                                            436                 162
Other long-term liabilities                                                 2,629               644
Debt obligations due after one year                                         12,828              13,083
Total liabilities                                                           39,867              31,087
Stockholders' equity
Common stock, $0.001 par value; 47,000,000 shares
authorized; 18,629,915 and 18,413,054, respectively, outstanding            19                  18
Additional paid-in capital                                                  191,765             189,927
Accumulated deficit                                                         (112,666 )          (96,643 )
Accumulated other comprehensive income (loss)                               962                 (535    )
Total stockholders' equity                                                  80,080              92,767
Total liabilities and stockholders' equity                             $    119,947        $    123,854

NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
                                                           Three-Months Ended                   Nine-Months Ended
                                                           September 26,     September 27,      September 26,      September 27,
                                                           2009              2008               2009               2008
Net revenues:
Products                                                   $    16,303       $    16,311        $    29,140        $    62,744
Service                                                         9,511             6,826              21,248             18,882
Total net revenues                                              25,814            23,137             50,388             81,626
Costs of net revenues:
Cost of products                                                8,348             8,150              17,249             30,974
Cost of service                                                 3,533             4,778              10,353             14,548
Total costs of net revenues                                     11,881            12,928             27,602             45,522
Gross profit                                                    13,933            10,209             22,786             36,104
Operating expenses:
Research and development                                        4,100             4,430              10,394             13,107
Selling                                                         3,959             4,280              10,832             13,963
General and administrative                                      3,967             4,935              11,427             15,761
Amortization of intangible assets                               418               600                1,124              3,215
Asset impairment                                                -                 55,332             1,899              68,545
Restructuring charge                                            -                 655                1,134              1,525
Total operating expenses                                        12,444            70,232             36,810             116,116
Profit (Loss) from operations                                   1,489             (60,023 )          (14,024 )          (80,012 )
Other income (expense):
Interest income                                                 12                24                 39                 156
Interest expense                                                (559   )          (240    )          (1,106  )          (343    )
Other, net                                                      546               142                (1,395  )          564
Total other income (expense), net                               (1     )          (74     )          (2,462  )          377
Profit (Loss) before provision (benefit) for income taxes       1,488             (60,097 )          (16,486 )          (79,635 )
Provision (benefit) for income taxes                            (83    )          350                (463    )          450
Net profit (loss)                                          $    1,571        $    (60,447 )     $    (16,023 )     $    (80,085 )
Net profit (loss) per share:
Basic                                                      $    0.08         $    (3.25   )     $    (0.87   )     $    (4.31   )
Diluted                                                    $    0.08         $    (3.25   )     $    (0.87   )     $    (4.31   )
Shares used in per share calculation:
Basic                                                           18,598            18,574             18,513             18,599
Diluted                                                         19,398            18,574             18,513             18,599

NANOMETRICS INCORPORATED
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In thousands, except per share amounts)
(Unaudited)
                                       Three-Months Ended                Nine-Months Ended
                                       September 26,  September 27,      September 26,      September 27,
                                       2009           2008               2009               2008
Income (loss) from operations          $      1,489   $    (60,023 )     $    (14,024 )     $    (80,012 )
Non-GAAP Adjustments:
Amortization of intangible assets             418          600                1,124              3,215
Depreciation                                  862          862                2,288              2,832
Amortization of demonstration systems         369          337                1,072              881
Asset impairment                              -            55,332             1,899              68,545
Stock-based compensation                      852          1,138              1,573              3,137
Restructuring charge                          -            655                1,134              1,525
Non-GAAP Operating Income (Loss)       $      3,990   $    (1,099  )     $    (4,934  )     $    123

SOURCE: Nanometrics Incorporated

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Investor Relations: 
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or 
Nanometrics Incorporated 
James Moniz, CFO, 408-545-6145 
408-521-9370 fax 
jmoniz@nanometrics.com