SEC Filing Summary
Filing and period: The supplied filing is Nanometrics Incorporated’s unaudited Form 10-Q for the quarter ended July 2, 2011, not an Onto Innovation filing for 2009 Q2. It reports the three- and six-month periods ended July 2, 2011, compared with periods ended July 3, 2010.
Business context
Nanometrics sells process-control metrology systems and related services used in semiconductor, LED, data-storage, and solar manufacturing. The company says demand is cyclical and depends in part on customers’ fabrication capacity investments.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $64.4 million | $50.8 million | $126.5 million | $88.0 million |
| Gross profit | $36.1 million | $28.0 million | $71.3 million | $48.6 million |
| Operating income | $17.5 million | $12.9 million | $34.5 million | $18.8 million |
| Net income | $11.1 million | $11.6 million | $21.6 million | $17.5 million |
| Diluted EPS | $0.47 | $0.51 | $0.92 | $0.77 |
| Operating cash flow | Not separately reported | Not separately reported | $25.7 million | $13.4 million |
Quarterly revenue increased 26.6%; six-month revenue increased 43.8%. Product revenue drove most of the growth, with quarterly product sales up 24.9% and service revenue up 36.5%. Overall gross margin was approximately 56.1% in Q2 2011 versus 55.1% a year earlier; six-month gross margin was approximately 56.3% versus 55.2%. Product margins were 57.0% for Q2, while service margins improved to 51.4% from 40.5%.
Quarterly net income declined despite higher revenue and operating income, primarily alongside a substantially higher income-tax provision and greater other expense, including foreign-exchange losses. The six-month tax provision was $11.4 million versus $1.3 million in the prior-year period; management attributed the difference largely to the prior-year tax-rate effects and tax benefits.
Balance sheet, liquidity, and debt
- At July 2, 2011, cash and equivalents were $91.7 million, up from $66.5 million at January 1, 2011; working capital was $164.5 million.
- Total assets were $251.0 million and total liabilities were $54.6 million.
- Debt obligations totaled $9.8 million, including $0.6 million current. No borrowings were outstanding under the $20 million revolving credit facility; reported borrowing availability was $19.1 million. The company said it was in compliance with covenants.
- Six-month cash from operations was $25.7 million; investing used $1.9 million and financing provided $0.5 million. Cash increased by $25.2 million over the period.
- On July 26, 2011, after quarter-end, the company prepaid $1.95 million of its mortgage, an amount described as 20% of the outstanding balance.
Changes, outlook, risks, and unusual items
- Management attributed revenue growth to increased customer demand and capacity expansion, including stronger automated metrology, integrated systems, and materials-characterization sales. South Korea was the largest reported revenue geography in Q2.
- Operating expenses rose 23.2% in Q2 and 23.5% for the six-month period, reflecting higher labor, selling, and research-and-development costs. No impairment charge was recorded in 2011; the comparable 2010 six-month period included a $0.4 million impairment.
- The filing provides no quantified revenue or earnings guidance. Management said cash, equivalents, and borrowing availability should meet liquidity needs for at least the next twelve months and said it planned to renew the revolving facility, which was due to expire April 30, 2012.
- Major customers represented substantial revenue concentration: Samsung was 25.6% of Q2 revenue, Intel 12.8%, and Hynix 18.1%. Hynix represented 26.9% of accounts receivable at quarter-end.
- KLA-Tencor’s patent-infringement case against Nanometrics remained stayed pending patent reexaminations; the company had accrued no loss because the outcome and any loss range could not be estimated. On August 3, 2011, Nanometrics filed a separate patent complaint against KLA. These are material contingencies, not quantified liabilities in the filing.
- The company cited semiconductor-industry cyclicality, foreign-currency exposure, and uncertainty in customer investment patterns. It reported no material change in risk factors from its prior annual report and said disclosure controls were effective.
Important facts for investors to verify
- Confirm the intended issuer and period: the supplied source is Nanometrics Incorporated, Q2 2011, rather than Onto Innovation, 2009 Q2.
- Assess whether growth and margins are sustainable given industry cyclicality, customer concentration, and capacity-driven demand.
- Review the Q2 decline in net income, elevated tax provision, and foreign-exchange losses.
- Track the KLA litigation and patent proceedings, including any change in potential exposure or status.
- Confirm the effect of the post-quarter mortgage prepayment and the status and renewal terms of the revolving credit facility.