Filing identity and reporting period
Important source mismatch: The supplied filing is Nanometrics Incorporated’s Form 10-Q for the quarter ended March 31, 2018, not an Onto Innovation filing for 2016 Q1. The financial information below summarizes the supplied filing. Nanometrics designs and sells metrology and inspection systems primarily for semiconductor manufacturing.
Financial performance
Amounts are in U.S. dollars; financial statement figures are in millions unless stated otherwise. The quarter was 13 weeks and is compared with the three months ended April 1, 2017.
| Metric | Q1 2018 | Prior comparable quarter |
|---|---|---|
| Revenue | $82.3 | $59.3 |
| Gross profit | $47.5 | $28.4 |
| Operating income | $20.6 | $5.5 |
| Net income | $16.4 | $5.4 |
| Diluted EPS | $0.67 | $0.21 |
| Cash from operations | $32.7 | $3.1 |
- Revenue increased 38.8%, led by product revenue, up 47.4% to $71.0 million; service revenue rose 1.4% to $11.3 million.
- Gross margin was approximately 57.7% versus 48.0%; operating margin was 25.0% versus 9.3%; net margin was 19.9% versus 9.0%.
- Product gross margin improved to 59.7% from 47.0%, attributed to favorable product and customer mix, improved installation cycles, and lower warranty costs. Service gross margin declined to 45.5% from 52.1%, reflecting lower labor utilization.
- Cash, cash equivalents, and marketable securities totaled $123.9 million at quarter-end, up from $117.0 million at year-end 2017. Working capital was $196.6 million. Current assets were $244.4 million and current liabilities $47.9 million.
- The balance sheet reports no borrowings or debt line item; total liabilities were $51.3 million. Interest expense was $96,000 for the quarter.
- Investing activities provided $21.6 million, mainly reflecting net sales and maturities of marketable securities. Financing activities used $22.9 million, primarily for $23.0 million of share repurchases.
Material changes and comparability
- Nanometrics adopted ASC 606 using the modified retrospective method. The prior-year figures remain under the previous revenue standard, so reported growth is not fully comparable. Management’s ASC 606 reconciliation says Q1 2018 revenue would have been $78.0 million and net income $13.3 million without adoption, versus reported $82.3 million and $16.4 million. The filing attributes $4.3 million of revenue and $3.1 million of net income to the accounting change.
- Product demand drove the increase; service revenue was broadly flat. Revenue by country shifted substantially, including higher sales in South Korea, Japan, and Singapore and lower sales in the United States and Taiwan.
- Operating expenses increased 17.6% to $27.0 million. R&D rose 17.3%; selling expense rose 13.7%; general and administrative expense rose 22.7%, including executive transition and search costs, higher variable compensation, and professional fees.
- The company repurchased 896,187 shares for $23.0 million at an average $25.65 per share during the quarter and reported the $50.0 million authorization as completed. Shares outstanding were 23.9 million at April 27, 2018.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said existing liquidity and expected operating cash generation should meet working-capital, capital spending, commitment, and other operating needs for at least the next 12 months.
- Management identified customer semiconductor capital spending, product mix, new-product adoption, order/shipment/acceptance timing, volume supply agreements, and economic conditions as factors that may materially affect results. It expects a substantial portion of revenue to continue coming from Asia.
- Four customers—Samsung Electronics, SK Hynix, Micron, and Toshiba—each represented more than 10% of Q1 sales and each more than 10% of quarter-end receivables, creating customer concentration exposure.
- The company maintained valuation allowances on certain California and Switzerland deferred tax assets and anticipated approximately $0.4 million of increases in unrecognized tax benefits over the next 12 months. The Q1 tax provision was $4.4 million, or a 21.3% effective rate.
- An ordinary-course dispute with Optical Solutions, Inc. concerns an alleged exclusive purchase contract. Nanometrics said it had no probable and reasonably estimable loss for current legal matters and did not expect them to materially harm results. The filing reports no off-balance-sheet arrangements and no material change in risk factors from its 2017 Form 10-K.
- Foreign-exchange movements affect results; the company uses short-term forward contracts but cautions they may not fully offset currency exposure. A 100-basis-point rate increase was estimated to reduce marketable-securities fair value by $0.3 million.
Key facts for investors to verify
- Confirm the intended company and period: the provided document is Nanometrics Incorporated Q1 2018, not Onto Innovation 2016 Q1.
- Assess reported growth alongside the ASC 606 reconciliation, because prior-year results were not restated.
- Review the sustainability of higher product margins and the service-margin decline, including the effect of mix and installation timing.
- Evaluate exposure to major customers and Asian semiconductor spending, as well as receivables collection and customer acceptance timing.
- Confirm share-repurchase authorization usage and the effect of repurchases on cash and shares outstanding.