Nanometrics Reports Fourth Quarter and Full Year 2008 Financial Results

Nanometrics Incorporated (Nasdaq:NANO), a leading supplier of advanced process control metrology systems used primarily in the manufacturing of semiconductors, solar photovoltaics and high-brightness LEDs, today announced financial results for its fourth quarter and full year ended December 27, 2008.

Highlights for the fourth quarter include:

• Cash increased by $2.2 million (10%) in the quarter, ending the year with $24.0 million
• Revenue of $20.5 million, down 12% compared to the third quarter of 2008
• Operating expenses of $12.1 million declined 15% sequentially; cash operating expenses of $10.1 million
• Gross margin of 42% comprised of 40% product gross margin and 46% service gross margin

"In a difficult market environment, our fourth quarter results are indicative of the progress we have made to streamline our cost structure, cut expenses and improve our balance sheet management, while continuing to develop and introduce new products,” commented Dr. Timothy J. Stultz, president and chief executive officer. "With a backdrop of a 12% decline in revenues from the previous quarter, we increased cash by 10%, cut ongoing operating expenses by 15% and maintained gross margins above 40%. Today, our new products continue to gain traction, and over half of our revenues are derived from sources outside of traditional semiconductor capacity expansion activity.”

"Over the last several quarters we have made significant progress to reduce our cash breakeven level, and in fact we generated cash from operations in the fourth quarter,” added Dr. Stultz. "We will continue to seek opportunities to size our spending to the current business environment while maintaining our focus on balance sheet management and competitive products. With the near-term outlook for semiconductor capital spending continuing to weaken, our management efforts are directed at maintaining a sound financial and liquidity position while not compromising our ability to respond to a future recovery in semiconductor capital spending.”

Fourth Quarter 2008 Summary

Revenues were $20.5 million, down 12% from $23.1 million in the third quarter of 2008 and down 38% from $33.2 million in the fourth quarter of 2007. Included in total sales were a record $7.6 million in service revenues, which benefited by strong upgrade sales in the quarter. Gross margin was 42.1%, down from 44.1% for the prior quarter and 44.1% in the year-ago period. Operating expenses were $12.1 million, a 15% decrease from the prior quarter (exclusive of the restructuring and impairment charges taken in the third quarter of 2008) and down 24% from the year-ago period.

The net loss was $2.6 million, or $0.14 per share. This compares to a net loss of $60.4 million, or $3.25 per share, in the third quarter of 2008 (which included $56.0 million in asset impairment and restructuring charges, equivalent to $3.01 per share) and a net loss of $1.3 million, or $0.07 per share, in the fourth quarter of 2007. The net loss for the fourth quarter of 2008 included $0.7 million for stock-based compensation expense, compared to $1.1 million in the prior quarter and $1.0 million in the year-ago period.

Earnings (loss) before interest, income taxes, depreciation and amortization excluding certain items such as asset impairment, restructuring and acquisition-related charges ("EBITDA”) for the fourth quarter was ($2.0) million, compared to ($2.2) million for the third quarter of 2008 and $1.2 million for the fourth quarter of 2007.

Full Year 2008 Summary

Revenues were $102.1 million, down 30% from $146.3 million in 2007. Gross margin was 43.8%, an increase compared to 42.1% in the prior year. Total research and development, selling, general and administrative expenses were $54.6 million, down 9% from $59.8 million for 2007. Total operating expenses, which include amortization of intangible assets, impairment and restructuring charges, were $128.2 million, compared to $65.7 million in the prior year. The net loss was $82.7 million, or $4.46 per share, compared to a net loss of $4.0 million, or $0.22 per share, for 2007. The net loss for 2008 included $68.5 million in asset impairment charges, $1.5 million in restructuring charges and $3.9 million in stock-based compensation expense. Earnings (loss) before interest, income taxes, depreciation and amortization excluding certain items such as asset impairment, restructuring and acquisition-related charges ("EBITDA”) was ($5.0) million for 2008, compared to $6.9 million for 2007.

Conference Call Details

A conference call to discuss the fourth quarter and full year 2008 results will be held later today at 5:00 p.m. EST (2:00 p.m. PST). To participate in the conference call, the dial-in numbers are 800-510-9691 for domestic callers and 617-614-3453 for international callers. The passcode is 64880278. 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 EBITDA that exclude certain charges and special items are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses EBITDA, which excludes costs associated with acquisitions, asset impairments, restructuring and other special items, to evaluate the company’s operating and financial results. The company believes the presentation of EBITDA 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 EBITDA 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, 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 and optical, electrical and material properties, including the structural composition of silicon, compound semiconductor and photovoltaic devices, during various steps of the manufacturing process. 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 and year, which remain subject to adjustment in connection with the preparation of Nanometrics’ financial statements and periodic report on Form 10-K for the year ended December 27, 2008. For additional information and considerations regarding the risks faced by Nanometrics, see its annual report on Form 10-K, as amended, for the year ended December 30, 2007 as filed with the Securities and Exchange Commission, as well as other periodic reports filed with the SEC from time to time. Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, Nanometrics cannot guarantee future results, levels of activity, performance or achievements. Nanometrics disclaims any obligation to update information contained in any forward-looking statement.