Onto Innovation Inc (ONTO) 2009 Q4 法說會逐字稿

Good afternoon. Welcome to the Nanometrics fourth quarter and fiscal year 2009 financial results conference call.

Before we get started, I would like to call your attention to the following Safe Harbor statement. This conference call contains forward-looking statements including, but not limited to, statements regarding Nanometrics' expected results for its most recent completed fiscal year, quarter and year, which remain subject to adjustments in connection with the preparation of Nanometrics' financial statement and periodic report on Form 10-K for the year ended January 2, 2010, 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 risks including slower than anticipated market adoption, a concentration in current levels of industry spending, and the additional risk factors and cautionary statements set forth in the Company's Form 10-Q for the quarter ended September 26, 2009, as well as other reports filed with the SEC from time to time. Nanometrics disclaims any obligation to update information contained in forward-looking statements.

Leading the call today will be Dr. Tim Stultz, President and CEO of Nanometrics. A Q&A session will be held at the end of the call. Until that time, all participants will be in listen-only mode. I would now like to turn the call over to Dr. Stultz. Please proceed.

Thank you. Good afternoon, everyone. Welcome to our fourth quarter 2009 results conference call. With me today is Jim Moniz, our Chief Financial Officer, who will be reviewing our financial results following my prepared remarks. In my remarks today, I will discuss the financial and business highlights for the quarter, our view of the current and near-term industry environment, and give some perspective on our business outlook for 2010.

We are pleased to report that in the fourth quarter of 2009 we achieved our third straight quarter of revenue growth.

Highlights include product revenues which grew 23% quarter-on-quarter and 56% year-on-year, with product gross margin hitting a 4-year high of 53%. We did see a sequential drop in revenues from our high margin upgrades, as expected and guided to last quarter. However, our core service margins increased for the eighth quarter in a row, coming in above 35%.

Revenues overall were $26.3 million, up 2% on the quarter, and up 29% on the year. During the quarter we generated $6.5 million in positive cash flow, of which $3.5 million was used to pay down our line of credit in full. We also completed a secondary equity offering, which added more than $23 million to our balance sheet and helped bring our year-end cash position to $43.5 million, a level sufficient to support our business growth and strategic initiatives.

Before turning to the business environment and outlook, I would like to make a couple of additional comments about this most recent quarter.

As you are likely aware, our practice over the last few years has been to share our target business model, discuss our progress towards achieving it, and to discuss how the current business climate affects it. Our practice has been not to provide specific revenue guidance for the forthcoming and future quarters. We do this for a couple of reasons, not the least of which is to lessen the pressure and tendency to make business decisions which might offer short-term benefits, such as meeting or beating our numbers, but can also have longer term downside, such as the compromise of our overall business model and future financial performance.

This becomes particularly relevant when, near the end of the quarter, our customers sometimes present us with the option of accelerating shipments and/or product acceptance in exchange for commercial concessions. We believe that the downside of these concessions far outweigh the benefits of near-term revenue contribution. I will make a further observation that in nearly all of those instances, the forecasted revenue recognition or shipments do occur, and usually within the first few weeks of the following quarter.

Our fourth quarter was such a quarter. In fact, a handful of systems representing over $3 million in business, which we anticipated shipping within the fourth quarter, were moved out of the quarter. There were, however, subsequently shipped within the first few weeks of the current quarter and importantly under the original commercial terms.

So why am I speaking to this issue at this time? Because it goes to the heart of our business philosophy and our management beliefs.

Our products are competitive, which is evidenced by our ability to simultaneously increase our gross margin, while at the same time growing market share. We work hard to protect our margins knowing that gross profit is a fuel for investments in new products and technologies, which in turn are the life blood of our future revenues. And importantly we firmly believe it is in our shareholders' best interest that we build a scalable franchise based on long-term growth, operational excellence, and profitability.

Going forward we will continue to opt for business under terms consistent with our business model and our competitive position.

Now turning to the business environment and our position within it. We see continued strengthening in industry dynamics, and with it an increasing demand for our metrology solutions. We believe the overall semiconductor industry is in a healthy cyclical recovery, driven by solid integrated circuit growth, high fab utilization rates, and an improving balance between supply and demand.

With the absence of meaningful near-term capacity expansion through new fab construction or wafer-size changes, our customers are highly focused on meeting growing demand by increasing production and improving performance, through yield improvements and shifts to smaller feature sizes. In our opinion, these directions favor products which either are technology enablers, or those which can be used to reduce process tolerances and increase yield, enabling our customers to deliver more good die per wafer at a lower cost. This is in fact why much of the recent capital spending has been for technology buys.

Over the last few years, in addition to our focus on improving our business fundamentals and driving to a sustainable, robust business model we have invested heavily in R&D to strengthen the performance and competitiveness of our products. We developed new products for each of our served markets, and we used the industry downturn to introduce those products and establish lead positions with key customers, through competitive technology evaluations and selection processes.

In concert with our development of new products, we have also made strategic acquisitions, which have increased our product offerings and expanded our served markets to include new growth areas, such as wafer scale packaging, solar, and high-brightness LEDs. Our overriding mission is to be chosen as tool of record for an expanding number of applications in leading edge and next generation technology nodes, with an increasing number of IC industry leaders.

As we have been reporting, the result of those efforts have been key competitive wins, increased traction for our Lynx metrology platform, and a series of multiple system orders for OCD, thin film, and overlay products. Success in these efforts translate to long-range growth and scale of our business as our customers lock onto common tool sets, and deploy them over multiple factory fan-outs over multiple years.

At the same time, we are gaining market share for our UniFire metrology system, for which we will begin to recognize revenue in the first quarter. And we continue to see increasing adoption of our high-brightness LED metrology systems.

With the improvement in the overall industry and our improved market position, we see 2010 shaping up to be a very strong year for Nanometrics. To elucidate our expectations, I will make four points.

First of all, the $3 million in business I referenced earlier will be incremental to our Q1 revenue plan.

Second, in the first few quarters we have won several competitive customer evaluations that will fan out over the next 2 to 6 years.

Third, we have expanded our served markets to address advanced wafer level packaging, high-brightness LEDs, and solar metrology, which in turn provides us with additional growth opportunities. And fourth, we have demonstrated our competitiveness through consistent improvement of our product gross margin and simultaneous market share growth.

Thus while good visibility is generally limited to a couple of quarters, the competitive improvements and scalability we have added to our franchise, combined with the trends and upturn in the industry gives us growing confidence that we will continue to see sequential revenue growth through 2010 and a level of business above our current revenue rate. With that, I will now turn the call over to Jim Moniz.

Thank you, Tim. Good afternoon, everyone. Nanometrics' press release containing fourth quarter and full year fiscal 2009 results was sent out by BusinessWire today, February 18, around 1 pm Pacific Time. The press release may also be found on our website at Nanometrics.com. Also on our website are reconciliations to non-GAAP figures referred to in our prepared remarks, such as non-GAAP operating income.

Fourth quarter revenues of $26.3 million were up 2% from the previous quarter, and were up 29% from the fourth quarter of fiscal year 2008. Product revenues of $20 million increased 23% quarter-on-quarter, and 56% year-on-year. Service revenues, which include both upgrade and core service revenues, were $6.3 million, down from $9.5 million in Q3 and $7.6 million in the fourth quarter of fiscal year 2008, as a result of lower upgrade revenues.

Revenue by geographic region is based upon the shipped-to or first-in-use destination, and during the quarter the breakdown was -- Korea at 46%, US at 29%, and Rest Of World at 25%. Revenue by product type was -- standalone and integrated metrology at 64%, service and upgrades at 24%, and materials characterization at 12%.

Gross margin in the fourth quarter was 50.7%, compared to 54% in the previous quarter and 42.1% in the fourth quarter of fiscal year 2008. Product gross margin improved over Q3 by 450 basis points to a 4-year high of 53.3% as a result of higher sales volume, increased factory utilization, and our improved manufacturing cost structure.

As we mentioned last quarter, we expected Q4 upgrade revenues to decline sequentially from the record high level seen in Q3, resulting in lower service gross margin. Overall service gross margin did come in lower, and was 42.3% in Q4 compared to 62.9% in Q3.

Notably however, our core service gross margin improved for the eighth straight quarter and is now in the mid-30s. We believe upgrade sales will be an ongoing component of our service revenues, and we remain focused on continuing to improve our core service gross margin.

Total operating expenses in the fourth quarter came in at $12.7 million, which was up slightly over the third quarter, primarily because we had fewer unpaid days off for our employees, in response to improving business conditions. Non-GAAP operating income, which is how management looks at cash generation from the P&L, was $2.8 million in Q4, compared with $4 million in Q3 and a loss of $1.2 million in the fourth quarter of 2008. The sequential decrease in non-GAAP operating income was primarily due to a reduced mix of upgrade revenue in our total revenue.

Interest and other expense in the fourth quarter was $1.1 million, which was increased over Q3 primarily due to $0.4 million of unrealized losses on foreign currency, compared to the unrealized gains of $0.6 million we recorded in the prior quarter.

The net loss for the fourth quarter was $282,000, or $0.01 per share, on a weighted average share count of 19 million shares. The loss per share included approximately $0.03 of stock based compensation expense; it also included approximately $0.02 per share of unrealized losses on foreign currency exchange.

I would like to make a couple of comments on share count. As part of the offering Tim referenced, we issued 2.3 million shares in December. But as it was at the end of the quarter, very little impact is in the share count for EPS. Also due to the small net loss, our diluted share count is not used for Q4 EPS calculation. Starting in the first quarter, we would look at share count being around 21.5 million basic, and around 23 million fully diluted, depending on share price.

Turning to the balance sheet, cash came in at $43.5 million, an increase of $26.3 million above the previous quarter. Our common stock offering resulted in net proceeds to the Company of $23.3 million after expenses. In addition we generated cash during the quarter in the amount of $6.5 million, of which we used $3.5 million to pay down the entire balance on our line of credit.

Accounts Receivable came in at $23 million. DSO is at 79 days, which is up from last quarter's DSO of 73 days. Inventory came in at $32.6 million, which was essentially flat from the previous quarter. We ended the December quarter with headcount of 399 employees, also flat from the previous quarter.

Although we have greatly strengthened our balance sheet, we have not lost our focus on closely managing the cash flow and cash conversion aspects of our business. We will continue to execute on our plans to generate cash from operations.

Going into 2010 Nanometrics is a more efficient company, focused on market share gains and continued development of new products, which we expect will result in increased revenue levels. These increased revenues taken together with our management of margins and expenses should result in significant operating leverage to the bottom line. That concludes our prepared remarks, and now I would like to open up the call for your questions.

(Operator Instructions). One moment while we compile a list of questions. Your first question comes from the line of Gary Hsueh from Oppenheimer. Please proceed.

Hi, this is Wenge for Gary, a couple of questions. First one you mentioned in your press release that you expect to see significant revenue growth in Q1. Could you elaborate a little bit more on what is driving the upside, and in what scale we expect to see the revenue to grow?

Well, what is driving the -- first of all, hi, Wenge; good to talk to you. Thank you. What is driving it is the continued capital spending that I think most of the companies in our sector are experiencing, certainly quarter-on-quarter. A lot of the technology, some of it is shifting to capacity, and we have seen a shift. We have seen a lot of memory and DRAM spending early on. I think you are starting to see some flash spending as well as some of the logic spending taking place. We have very solid positions in the memory area and the logic area in particular, and we are going to benefit from that increased spending.

So that is what is driving it. I won't give you a quantification of the number, but the point I did want to make is that revenues that we pushed out of Q4 have already taken place in the current quarter and will contribute nicely to the performance in Q1.

If you take out that $3 million deferred revenue, do you still see revenue growth based on Q4 level?

Yes, absolutely.

Okay.

Yes, absolutely.

Regarding your upgrade business, obviously Q4 upgrade revenues came down quite a bit. So is that indicating a kind of end of the upgrade cycle, or you see upgrade revenue to pick up again in 2010?

Yes, so it is a good question. Our upgrade revenues have certainly proven to be quite lumpy on a quarterly basis. We initiated the program of upgrades, and our strategy to sell into our installed base and take advantage of the relationships we have with customers, about two years ago. If we look at the revenue contribution from upgrades more on a blended average rather than on a quarterly average, it runs between 6% to 8% of total revenues. We saw that in 2008; we saw that in 2009; and we expect that to continue in 2010.

Okay. So we expect upgrade to be lumpy, but still significant in 2010 revenue growth, right?

Yes, yes. I think it will have about the same percentage contribution in 2010 that it has in the last two years. I would like it not to be so lumpy, but it just happens to be that way.

The origin of that is when we sell an upgrade package -- this might help you understand a little bit, but when we sell an upgrade package to a customer, we go to a place where they have an installed base of multiple tools. So when we get an upgrade order, it applies to anywhere from 4 to 10 tools at one time. It tends to make -- instead of having a smoothing effect it has got a lumping effect, in terms of on a quarterly basis.

But Q3 we had a very high record level. Q4 dropped down quite a bit, and I think we are going to see hopefully returning to more normalized levels quarter-on-quarter going into 2010.

Okay, last question is more regarding your customer base, could you give us the top 10 customers for Q4?

Yes, what we do report on is our 10% customers, and that was Samsung and Intel.

Samsung and Intel, so it remains similar to Q3. And recently there are several announcements of new fabs in the NAND space, specifically in Japan and Singapore. Could you comment on your exposure to this new fab opportunity?

We think it is a great opportunity. I have a pretty high level of confidence in our products and our people. I think that we are going to have a favorable participation in those builds.

Okay. Thanks.

Your next question comes from the line of Weston Twigg from Pacific Crest, please proceed.

Hi, I just have a couple of questions here. One, I am kind of curious how many equipment selections you are currently participating in. In other words, what is the opportunity to win new business this year, if you can quantify that in some way?

Hi, Wes, this is Tim, good to hear from you. Let me address it slightly differently. There's a limited number of customers out there, as you are very well aware of. There are some equipment selections going on at customer sites.

But probably the more relevant response to your question, a more accurate response to your question is that we are participating in evaluations for expanded applications within some of the same customers as well. So it is customer sites plus applications with other customers.

Okay. Can you give us an idea of the number? So, just trying to get a feel; maybe it is new applications and new customers. Just maybe even the number of potential wins that you could be competing for this year?

Yes, I am not comfortable answering that in a quantified way. I would just say that there are several out there that are going on that are of a meaningful size and opportunity for us.

Okay. And then I guess another angle, wondering what you think if you just had your existing customer base and assumed you didn't win any new business or selections, what would be a peak revenue level with your current customer line-up?

I don't know how to -- it depends on what the peak spending levels look like for the CapEx. Our peak revenue which I am sure you realized was in the third quarter of 2007, and we had about $39 million.

I don't think capital spending this year is going to be nearly as high in 2010 as it was in 2007. In fact, I think it is still going to be a lot less than 2008. But I think the incremental business positions and market share will allow us to challenge our previous peak levels with the business in 2010.

Perfect, okay. And then just another question on the Tevet product. Just wondering if you could maybe just give us a little bit of an idea on the current level of traction.

And maybe if you are getting revenue from that product now, what is the scale? And how do you see that trending through 2010?

Well, the Tevet product line which we call the Trajectory product line, those revenues are captured in our materials characterization which in turn captures our high-brightness LED and solar. We don't break it out specifically, but I will tell you that we have introduced a couple of new products based on the original technology that was acquired when we acquired the company Tevet. And we are getting traction with those.

We are focused on some reasonable design wins in the high volume manufacturing environment, in particular in the solar right now.

Does that mean that it is being used in high volume production right now, or still being evaluated?

It is being evaluated.

Okay. And one more question, just on the tax rate for 2010, can you give us an idea of what we should use, or think about using?

Yes, for 2010 I think you should use a nominal tax rate, maybe 3% to 5% at most. We have still got quite a few tax losses. We are looking right now, doing a study to determine if there's any limitations on those losses for 2011 and beyond.

But for 2010 it is really a nominal, more foreign jurisdiction tax rate. I would use maybe 3% to 5%.

Okay, very helpful. Thank you very much.

Thank you, Wes.

Your next question comes from the line of Gus Richard from Piper Jaffrey. Please proceed.

Yes, thanks for taking my question. Just a little bit you mentioned in the press release you have good traction in the overlay part of your business. I was just wondering if there was any update, have you won some new customers on the diffraction-based overlay?

We don't break down whether it is a diffraction-based or image-based overlay. But we are getting new business in overlay in general, and we have had some multiple system orders in that area.

The diffraction-based overlay technology is still an emerging area, and there's a lot of activities on there. But it will be a while before its total volume exceeds that of the more established image-based overlay.

Okay. And then could you just talk a little about the UniFire product? I would expect that you guys are going to start to be able to recognize revenue from that product line this quarter. Is that correct?

Yes, Gus, exactly. We have mentioned in previous calls that there have been some shipments that followed the acquisition of the product line, but due to purchase accounting regulations we couldn't recognize the revenue. We will be recognizing UniFire revenues in Q1.

Okay. So the purchase accounting impact is now done, and now that should be a normal product line for you?

Yes; certainly from revenue recognition, that is correct.

Okay. I think that is it for me at this point.

Thanks, Gus.

Your next question comes from the line of Mahesh Sanganeria from RBC Capital Markets. Please proceed.

Yes, thank you, thank you very much. Tim, one question on the material characterization. That is up pretty significantly. Do you think that is the sustainable level, or do you see an upside to that number? How do we think about material characterization numbers going forward?

We actually, we are very pleased that it is growing. But we think it has got a lot more runway left.

That part of the business actually dropped off quite a bit, partially because of our bare silicon wafer products that are captured in that revenue report, but also because we see some nice opportunities, increasing opportunities in high-brightness LED and the solar. So I would expect that to continue to improve sequentially.

So do you think that you can come back to 2008 kind of level in 2010, or it will take a little longer than that?

Yes, actually our levels are pretty close to that. I think you are going to see us exceeding those 2008 numbers. I think there is going to be some good news coming out of that part of our business.

So the other question, that $3 million pushout that happened, was that in the metrology division?

That was primarily in our standalone business, yes, the metrology business.

Okay, and just one more industry-wide question. I mean, looking at reports by all the guys who have reported, it is kind of all over. Usually normally they are all very correlated, but we had Lam reporting a huge March quarter, and some reporting a more slower growth. Can you -- and there is concern over first-half loaded versus second-half, and I guess there is a lot of --- a lot depends on your customer exposure.

But can you talk in general terms the linearity of the quarter through the years? Is it something like Q2 being strong, and then you see some kind of pause in Q3, and pickup in Q4? Anything, if you can help in that manner, it will be helpful.

Sure. It is a confusing one. I think you have numbers out there from 7% to 35% within the sector. Some of that is timing as I am sure you are aware of, whether or not they are buying some early-adoption technology products, process equipment, or moving into capacity purchases.

For us what drives our opportunity is that as we are winning these slots, which is kind of the key to our future, the slots that have multi-year opportunities, a lot of that, as we have reported in the past, don't really even kick in until the middle or latter half of this year. So I am not smart enough to tell you whether or not capital spending flattens out in general across, in the second half of the year. But I believe with some level of confidence that we are going to see sequential quarterly growth.

I would also point out that the spending as reflected by the different reports that we have seen this quarter, whereas when the tide rises in this one, not all the boats float the same level. We see the spending bias towards technology enablers, lithography, process control, and also some of the --- like say the copper tools for through silicon via, and bumps and stacked wafers.

And I think that those companies who offer those products, as I mentioned in my script, are the ones that probably get a slightly better benefit. And so I would expect going forward you are still going to see a pretty good spread between outlook company to company on each quarter. But I feel pretty good about 2010 being a reasonably smooth growth year for us.

Okay. That is good. One question on gross margins, so for the product and as well as the core service, the core service you hit 35%, is that close to your target, or is there some kind of one-time benefit? What is the long-term sustainable rate we should be modeling for the core service?

And same thing, same questions for the product side. You had a good quarter on the margin side. How should we model a long-term target basis?

Sure. Let me respond to the service. We have a published model which you can find on your web in our IR presentation, that shows what margins we might expect as a function of revenue, going from $30 million, $40 million, $50 million. Our model is that service plus upgrades comes in about 33%.

We have been beating that number pretty consistently, and now our core service has hit those numbers without the upgrades. So we think we are going to do a little bit better in that area, but our model is still that 33%. We haven't revised it yet.

On our product margins, we set our model at 54% gross margin at $30 million, ramping to 57% at $50 million. And we think we are going to, as these tools and the OCD products ramp out, and we get better factory absorption, I think we are going to be hitting our model.

Okay. Then one last question on the other income. I missed, Jim, what your comments were. What was the reason? What was the special expense this time on that other income line?

The other income was $1.1 million.

Go ahead, sorry.

The other expense was $1.1 million, and last quarter it was essentially flat. And the driver between both quarters was this quarter we had an FX translation loss of $400,000, and last quarter we had a translation gain of $600,000. And most of that had to do with the strength of the dollar versus both the yen and the pound.

And how should we model the other income? Is that --- does having that cash help you a lot, or is it all interest free, zero interest right now?

The way you should model it without the FX is the other expense runs around $600,000, which is a combination of the interest that we pay for the loan on the mortgage of the building, which is about $300,000; and then the imputed interest we do based on the acquisition we made on the Zygo UniFire product line, which is around $300,000, it will drop to about $200,000 in the second half of the year.

So it runs anywhere between $600,000 and $500,000 a quarter not counting the FX rate. The FX rate we are looking at a way to try to modify that and moderate that so we don't see such big swings. Some quarters we see a favorable $0.5 million, last quarter we saw an unfavorable $400,000.

We don't really model that, or give people input to model that. Without that, though, you should model about $600,000 in other expense per quarter.

Okay. Thank you very much.

Thanks, Mahesh.

Your next comes from the line of Edwin Mok from Needham & Company. Please proceed.

Thanks for taking my question. First question regarding, I think Tim, your comment that you expect sequential growth throughout the year. Just wondering how much visibility you have on that, and are you referring to product revenue, since you said service could be somewhat lumpy?

Well, I think core service won't be lumpy, and I think it is improving quarter-on-quarter at reasonable levels, 5% to 10%. Clearly the driver will be the product revenues. The lumpy part is the upgrades which is a little hard for us to give you a good forecast on.

Our visibility improves when we win these technology nodes. Because it causes us to have engagements with our customers that address multi-quarter needs. So we are getting some improved visibility that way. I would like to tell you I have absolute visibility, which I don't. But we are doing our best to track it.

Yes, I think the best visibility out there is right now first half anyway. Good. Thanks for the color there. Second question is on your standalone and integrated. I think you reported 64% if I caught that correctly. Can you give us a breakdown position of those too, please?

We don't separate those two, I apologize. But we just kind of lump them together into our product revenues.

Okay. That is fine. And then maybe two questions more longer term. First one is recording the OCD market, I was just wondering how you view that market this year and next year. One of your competitors has talked a lot about OCD replacing or at least optical metrology replacing copper metrology right now. Are you seeing a similar kind of pull from your customer for your products as well?

Yes, I think the way to look at it, OCD is a pretty exciting area and it is evolving, and it also going to probably cause us all to try to redefine what it means.

It is clearly disruptive. It is disruptive to traditional tools used in copper. It is disruptive to CD-SEMs. It has got an expanding application base, and when you start to look up the core capabilities of what these tools are, the way we are starting to look at it is they are optical metrology tools that happen to have reflectometry, ellipsometry, interferometry. And OCD kind of more narrowly defines it, although it is a traditional way to look at it.

So I guess that is a long-winded answer to -- we are pretty excited about it. We think it is going to become the dominant metrology technology if properly defined, encompassing all those different aspects used in process control.

Given the dynamics, do you expect this market to outperform the industry this year and next year?

Yes, I think process control does outperform. As I mentioned earlier, I think lithography outperforms the market. I think process control outperforms it. I think some areas of inspection outperform it. Because I think those are the areas where you give more juice to your customers to get more devices out.

Until those recently announced fabs get put online, the only way to make more money and meet the demand that our customers are getting is to get higher yield and to go to shrinks. And that favors certain types of tools.

Great, that was helpful. Lastly, you have, let's see $43 million of cash end of last quarter, right. And you guys have done a pretty good job in terms of integrating basically some of the metrology company. Right?

Any thoughts of more acquisition, and what is your view on that? Are you guys looking to make bigger acquisitions down the road, or more smaller type (inaudible) acquisitions? Thank you.

Sure. I obviously would not respond to any specifics on M&A activities, but I do believe that this industry needs larger companies, and that consolidation will occur, and it is usually in the shareholders' best interest to create the size to be competitive in this environment, where you have got a shrinking customer base.

You need to have a more concentrated delivery system of tools and support and service, to leverage your channels. So I do think those things are going to occur, and if I have my druthers we are going to be one of the consolidators.

Great. That is all I have. Thank you.

Your next question comes from the line of Bill Frerichs from Radnorwood Capital. Please proceed.

Thank you. Tim, this $3 million push-out, was that the result of a tough negotiation over price or terms, or was it the convenience of the customer, or what?

That is a good question. No, it is really testing our resolve and to some extent exercising us. So the negotiations generally have -- when these occur, the negotiations have been completed, the commercial terms have been set. Then you get towards the end of the wire, and once in a while our customers will test our resolve, and suggest that it is a little difficult to get all the paperwork done in this time frame, but maybe they could push it through if we would make some sort of concession.

We are just not going to do that. We don't lose the business, and if it moves out a week or two, so be it.

Yes, good, very good. That is the way to go.

Thanks for calling, Bill.

Your next question comes from the line of [Michael Amari] from [Americo Incorporated]. Please proceed.

Hello, guys. You had, considering everything, a very strong quarter and strong future. The only thing I am concerned about, do you expect any capacity restraint with the fact that you are having the same number of employees? And are you going to add employees?

Michael, thanks for calling in, and thanks for the comments. No, actually a couple things. Number one is that, as you know, over the last couple years we have put a lot of energy into developing an outsource model, where we leverage factories and manufacturers outside of our core business, where our manufacturing focus has been on our key technology, the optical systems, the software systems, and being a systems integrator as a final step. So we actually have a lot more leverage in our manufacturing environment.

The second thing is that even though we have a significantly reduced headcount versus, say, two years ago, most of that came as a result of our restructuring, where we closed duplicate operations and facilities. We at one time had up to five manufacturing sites, and we had distributed workforce where we have now consolidated those into core competencies. So I feel very good about the team.

I will take this opportunity to say that I think the challenge for all of us during these ramps is in our supply chain management. And although we haven't been impacted in a way that manifests itself on our revenues, I think all of us have to stay very close to our suppliers and our supply chains to make sure that they don't impact our ability to deliver on time.

That is for sure. Another question, I am curious to know whether you have a time limit to finalize your secondary offering. This could come any time, or you cannot comment on it?

The secondary offering that we went on the road with, first of all, there may be two steps. Let me just suggest. We filed an S-3, where we have had a Shelf registration of 5 million shares.

The formal secondary offering -- where we sold 2.3 million shares of ours, then we sold almost 1 million shares of Vince Coates, the founder of the Company -- that concluded that secondary offering. So at this time, we have no other activities in terms of funding or selling shares.

Great. Thank you very much for your good quarter.

Thank you very much.

(Operator Instructions). There are no further questions at this time. I would like to turn the call back over to Dr. Stultz for closing remarks.

Thank you. In closing, I will say that we are very confident and enthusiastic as ever about the business and business opportunities for Nanometrics in the foreseeable future. I want to again give special recognition and thanks to our employees, who have worked tirelessly through some very difficult times, to help grow a stronger and a more resilient company.

And I want to thank all of you for joining our call. We look forward to updating you on our first quarter results in early May.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.