Onto Innovation (ONTO) 8-K Nanometrics Reports Second Quarter 2012 Financial Results

Nanometrics Incorporated 1550 Buckeye Drive Milpitas, CA 95035 Tel: 408.545.6000 Fax: 408.232.5910 www.nanometrics.com

Investor Relations Contact:	Company Contact:
Claire McAdams	Ronald Kisling, CFO
Headgate Partners LLC	Nanometrics Incorporated
530.265.9899, 530.265.9699 fax	408.545.6143, 408.521.9490 fax
email: claire@headgatepartners.com	email: rkisling@nanometrics.com

Nanometrics Reports Second Quarter 2012 Financial Results

MILPITAS, Calif., July 26, 2012 - Nanometrics Incorporated (NASDAQ: NANO), a leading provider of advanced process control metrology and inspection systems, today announced financial results for its second quarter ended June 30, 2012.

Second Quarter Highlights

• Revenues of $53.2 million; improved gross margin and profitability;

• Continued increase in foundry business contribution, to 30% of second-quarter product revenues; and

• Multiple market-expanding wins, including IMPULSE^® integrated metrology for foundry etch, SPARK inspection for 3D advanced packaging, and UniFire^® metrology for MEMS applications.

GAAP Results
	Q2 2012		Q1 2012		Q2 2011
Revenues	$	53,181	$	55,492	$	64,372
Gross Profit	$	24,759	$	25,066	$	35,872
Income from Operations	$	4,296	$	4,106	$	17,485
Net Income	$	4,506	$	1,703	$	11,087
Earnings per Diluted Share	$	0.19	$	0.07	$	0.47
Non-GAAP Results
	Q2 2012 (2)		Q1 2012 (1)		Q2 2011
Gross Profit	$	25,396	$	25,703	$	36,104
Income from Operations	$	5,128	$	4,935	$	17,886
Net Income	$	3,079	$	2,884	$	11,344
Earnings per Diluted Share	$	0.13	$	0.12	$	0.48

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 our website. Non-GAAP results exclude the impact of amortization of acquired intangible assets and certain discrete tax items.

(1) Non-GAAP results reported in Q1 reflect a tax benefit of $0.7 million related to certain first quarter foreign losses. This tax benefit was actually recorded for GAAP purposes in the second quarter of 2012 upon receipt of IRS approval of certain company tax elections. See also footnote (a) to the Reconciliation of GAAP to non-GAAP financial results.

(2) Non-GAAP results for Q2 do not include the tax benefit of $0.7 million related to certain foreign losses incurred in Q1 (described in footnote 1 above) and the impact of certain Q2 discrete tax items. The company received the IRS approval described above in Q2, therefore GAAP results for Q2 include both Q1 and Q2 benefits associated with these certain foreign losses.  See also footnote (a) to the Reconciliation of GAAP to Non-GAAP financial results.

Commenting on the company's results, president and chief executive officer Dr. Timothy J. Stultz said, “We are pleased to report another strong quarter for Nanometrics, characterized by improved gross margin, improved profitability, key competitive wins and market-expanding product adoptions. We are currently seeing a decline in spending across our customer base, however our view is that this is a near-term pause, and that investments in both technology and capacity will begin to improve in early 2013. Today, we have more engagements across more products and platforms than at any time in our history - driven by key industry initiatives in 3D transistors, 3D memory devices and 3D packaging - as well as EUV lithography and the transition to 450mm wafers. In light of this, we are optimistic about the outlook for future growth and strengthening of our business."

Second Quarter 2012 Summary

Revenues for the second quarter of 2012 were $53.2 million, down 4% from $55.5 million in the first quarter and down 17% from $64.4 million in the second quarter of 2011. GAAP gross margin was 46.6%, compared to 45.2% in the prior quarter and 55.7% in the year-ago period. Non-GAAP gross margin, which excludes amortization of acquired intangible assets, was 47.8%, compared to 46.3% in the prior quarter and 56.1% in the year-ago period. The improvement compared to the first quarter of 2012 was primarily due to a higher mix of high-margin upgrade service revenues.

Nanometrics Incorporated 1550 Buckeye Drive Milpitas, CA 95035 Tel: 408.545.6000 Fax: 408.232.5910 www.nanometrics.com

GAAP operating income was $4.3 million, compared to $4.1 million in the prior quarter and $17.5 million in the year-ago period. Non-GAAP operating income was $5.1 million, compared to $4.9 million in the prior quarter and $17.9 million in the second quarter of 2011.

GAAP net income was $4.5 million or $0.19 per diluted share, compared to $1.7 million or $0.07 per diluted share in the prior quarter and $11.1 million or $0.47 per diluted share in the second quarter of 2011. Non-GAAP net income was $3.1 million or $0.13 per diluted share, compared to $2.9 million or $0.12 per diluted share in the prior quarter and $11.3 million or $0.48 per diluted share in the second quarter of 2011.

At June 30, 2012, Nanometrics had $95.8 million in cash, cash equivalents and marketable securities and $161.9 million in working capital. Stockholders' equity, excluding intangible assets, was $193.8 million, or $8.36 per share based on 23.2 million shares outstanding at quarter end.

Business Outlook

Management forecasts a slowdown in industry spending, with total revenues expected to be in the range of $40 to $45 million in the third quarter of 2012. Management expects GAAP gross margin in the range of 44% to 48%, non-GAAP gross margin in the range of 46% to 49%, and operating expenses to increase between $0.4 million and $0.7 million from the second quarter. Management expects third quarter GAAP net earnings in the range of ($0.09) to $0.00 per share and non-GAAP net earnings in the range of ($0.07) to $0.02 per share.

Conference Call Details

A conference call to discuss second quarter 2012 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 (877) 374-4041 for domestic callers and (253) 237-1156 for international callers. 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 gross profit, operating income, net income and net income per share, which exclude certain expenses, charges and special items, were not prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Management uses non-GAAP financial results, which exclude acquisition-related expenses such as amortization of acquired intangibles and transaction costs, asset impairments, restructuring charges, legal settlements, certain discrete tax items and the impact of the timing of the approval of elections related to tax treatment of certain foreign subsidiaries, and other unusual and infrequent items to evaluate the company's ongoing performance and to enable comparison to other periods which did not include these unusual and infrequent 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. 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 systems used primarily in the fabrication of semiconductors, high-brightness LEDs, data storage devices and solar photovoltaics. Nanometrics' automated and integrated systems address numerous process control applications, including critical dimension and film thickness measurement, device topography, defect inspection, overlay registration, and analysis of various other film properties such as optical, electrical and material characteristics. The company's process control solutions are deployed throughout the fabrication process, from front-end-of-line substrate manufacturing, to high-volume production of semiconductors and other devices, to advanced wafer-scale packaging applications. Nanometrics' 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 Select 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 included in the quotation from management, and statements included in the business outlook section including statements regarding revenue, margins, profitability and product adoption. These forward looking statements may also be identified by words such as “expect,” “anticipate,” “believe,” “estimate,” “forecasts,” “plan,” “predict,” “view,” and similar terms. 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 economic conditions, levels of industry spending, shifts in the timing of customer orders and product shipments, market adoption rates, changes in product mix, our ability to implement supply cost reductions, 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 31, 2011 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 1550 Buckeye Drive Milpitas, CA 95035 Tel: 408.545.6000 Fax: 408.232.5910 www.nanometrics.com

NANOMETRICS INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

		As of June 30,			As of December 31,
		2012			2011
	ASSETS
Current assets:
	Cash and cash equivalents	$	81,990		$	97,699
	Marketable securities	13,854			—
	Accounts receivable, net of allowances of $82 and $117, respectively	40,308			29,289
	Inventories	45,379			52,260
	Inventories - delivered systems	1,850			1,637
	Prepaid expenses and other	9,959			8,119
	Deferred income tax assets	9,277			12,406
	Total current assets	202,617			201,410
	Property, plant and equipment, net	42,203			35,521
	Goodwill	10,796			11,990
	Intangible assets, net	12,229			14,394
	Deferred income tax assets, non - current	4,927			2,864
	Other assets	866			1,042
	Total assets	$	273,638		$	267,221
	LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	8,988		$	7,975
	Accrued payroll and related expenses	6,967			8,837
	Deferred revenue	9,245			5,788
	Other current liabilities	14,382			16,709
	Income taxes payable	337			707
	Current portion of debt obligations	790			765
	Total current liabilities	40,709			40,781
	Deferred revenue, non - current	5,296			4,547
	Income taxes payable, non - current	2,430			2,401
	Other non - current liabilities	2,078			2,813
	Debt obligations, net of current portion	6,349			6,687
	Total liabilities	56,862			57,229
Stockholders’ equity:
	Common stock, $0.001 par value, 47,000,000 shares
	authorized; 23,189,435 and 23,182,771, respectively,
	issued and outstanding	23			23
	Additional paid - in capital	238,232			236,735
	Accumulated deficit	(22,106		)	(28,315		)
	Accumulated other comprehensive income	627			1,549
	Total stockholders’ equity	216,776			209,992
	Total liabilities and stockholders’ equity	$	273,638		$	267,221

Nanometrics Incorporated 1550 Buckeye Drive Milpitas, CA 95035 Tel: 408.545.6000 Fax: 408.232.5910 www.nanometrics.com

NANOMETRICS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,			July 2,			June 30,			July 2,
		2012			2011			2012			2011
Net revenues:
	Products	$	41,556		$	54,227		$	89,414		$	108,210
	Service	11,625			10,145			19,259			18,305
	Total net revenues	53,181			64,372			108,673			126,515
Costs of net revenues:
	Cost of products	22,627			23,334			47,446			45,981
	Cost of service	5,158			4,934			10,128			9,275
	Amortization of intangible assets	637			232			1,274			464
	Total costs of net revenues	28,422			28,500			58,848			55,720
	Gross profit	24,759			35,872			49,825			70,795
Operating expenses:
	Research and development	7,644			5,779			15,120			11,267
	Selling	7,041			6,997			14,252			13,696
	General and administrative	5,583			5,442			11,664			10,941
	Amortization of intangible assets	195			169			387			343
	Total operating expenses	20,463			18,387			41,423			36,247
	Income from operations	4,296			17,485			8,402			34,548
Other income (expense):
	Interest income	33			65			85			105
	Interest expense	(264		)	(341		)	(533		)	(678		)
	Other, net	(49		)	(470		)	(224		)	(983		)
	Total other expense, net	(280		)	(746		)	(672		)	(1,556		)
Income before income taxes		4,016			16,739			7,730			32,992
Provision (benefit) for income taxes		(490		)	5,652			1,521			11,395
	Net income	$	4,506		$	11,087		$	6,209		$	21,597
Net income per share:
	Basic	$	0.19		$	0.49		$	0.27		$	0.95
	Diluted	$	0.19		$	0.47		$	0.26		$	0.92
Shares used in per share calculation:
	Basic	23,395			22,709			23,372			22,637
	Diluted	23,877			23,442			23,924			23,422

Nanometrics Incorporated 1550 Buckeye Drive Milpitas, CA 95035 Tel: 408.545.6000 Fax: 408.232.5910 www.nanometrics.com

NANOMETRICS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six-month Period Ended
	June 30, 2012			July 2, 2011
Cash flows from operating activities:
Net income	$	6,209		$	21,597
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization	4,511			2,910
Stock-based compensation	3,054			1,777
Excess tax benefit from equity awards	(814		)	(1,519		)
Loss on disposal of fixed assets	134			3
Inventory write down	1,086			728
Deferred income taxes	995			1,425
Other, net	7			—
Changes in fair value of contingent payments to Zygo Corporation	9			391
Changes in assets and liabilities:
Accounts receivable	(11,141		)	1,092
Inventories	(1,136		)	(5,502		)
Inventories-delivered systems	(313		)	(969		)
Prepaid expenses and other	(1,709		)	(3,200		)
Accounts payable, accrued and other liabilities	(3,629		)	2,010
Deferred revenue	4,222			2,607
Income taxes payable	466			2,315
Net cash provided by operating activities	1,951			25,665
Cash flows from investing activities:
Payments to Zygo Corporation related to acquisition	(198		)	(191		)
Escrow payment received related to acquisition of Nanda	508			—
Purchases of marketable securities	(13,860		)	—
Purchases of property, plant and equipment	(2,730		)	(1,746		)
Net cash used in investing activities	(16,280		)	(1,937		)
Cash flows from financing activities:
Repayments of debt obligations	(374		)	(282		)
Proceeds from sale of shares under employee stock option plans and purchase plans	2,632			3,539
Excess tax benefit from equity awards	814			1,519
Taxes paid on net issuance of stock awards	(16		)	(46		)
Repurchase of common stock	(4,960		)	(4,257		)
Net cash provided by (used in) financing activities	(1,904		)	473
Effect of exchange rate changes on cash and cash equivalents	524			1,024
Net increase (decrease) in cash and cash equivalents	(15,709		)	25,225
Cash and cash equivalents, beginning of period	97,699			66,460
Cash and cash equivalents, end of period	$	81,990		$	91,685

Nanometrics Incorporated 1550 Buckeye Drive Milpitas, CA 95035 Tel: 408.545.6000 Fax: 408.232.5910 www.nanometrics.com

NANOMETRICS INCORPORATED

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(In thousands, except per share amounts)

(Unaudited)

			Three Months Ended									Six Months Ended
			Jun 30,			Mar 31,			Jul 2,			Jun 30,			Jul 2,
			2012			2012			2011			2012			2011
Reconciliation of GAAP gross profit to non-GAAP gross profit
GAAP gross profit			$	24,759		$	25,066		$	35,872		$	49,825		$	70,795
	Non-GAAP adjustments:
	Amortization of intangible assets		637			637			232			1,274			464
Non-GAAP gross profit			$	25,396		$	25,703		$	36,104		$	51,099		$	71,259
Reconciliation of GAAP operating income to non-GAAP operating income
GAAP operating income			$	4,296		$	4,106		$	17,485		$	8,402		$	34,548
Non-GAAP adjustments:
	Amortization of intangible assets included in cost of revenues		637			637			232			1,274			464
	Amortization of intangible assets included in operating expenses		195			192			169			387			343
	Total non-GAAP adjustments to operating income		832			829			401			1,661			807
Non-GAAP operating income			$	5,128		$	4,935		$	17,886		$	10,063		$	35,355
Reconciliation of GAAP net income to non-GAAP net income
GAAP net income			$	4,506		$	1,703		$	11,087		$	6,209		$	21,597
Non-GAAP adjustments:
	Total non-GAAP adjustments to non-GAAP operating income		832			829			401			1,661			807
	Income tax effect of non-GAAP adjustments		(304		)	(303		)	(144		)	(607		)	(291		)
	Discrete tax adjustment	(a)	(1,955		)	655			—			(1,300		)	—
Non-GAAP net income			$	3,079		$	2,884		$	11,344		$	5,963		$	22,113
GAAP net income per diluted share			$	0.19		$	0.07		$	0.47		$	0.26		$	0.92
Non-GAAP net income per diluted share			$	0.13		$	0.12		$	0.48		$	0.25		$	0.94
Shares used in diluted income per share calculation			23,877			23,981			23,442			23,924			23,422

(a) Reflects the tax benefit for certain first quarter foreign losses related to entity classification elections that were approved by the IRS in the second quarter. The tax benefit of these first quarter losses was recorded as a decrease to the second quarter tax provision on a GAAP basis. The discrete tax adjustment for the second quarter also excludes the one-time benefit associated with the recognition of Deferred Tax Assets related to the entity classification elections, resulting in a combined first and second quarter effective tax rate of approximately 36.5%.