NANOMETRICS INC (Form: 10-Q, Received: 05/01/2019 16:05:53)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-13470

NANOMETRICS INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware		94-2276314
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1550 Buckeye Drive Milpitas, California		95035
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (408) 545-6000

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ☐ No ☒


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	NANO	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

As of April 26, 2019, there were 24,534,582 shares of common stock, $0.001 par value, issued and outstanding.

NANOMETRICS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 30, 2019

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets at March 30, 2019 and December 29, 2018 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three Months Ended March 30, 2019 and March 31, 2018 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 30, 2019 and March 31, 2018 (Unaudited)	5

	Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 30, 2019 and March 31, 2018 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2019 and March 31, 2018 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 6.	Exhibits	33

Signatures		34

PART I — FINANC IAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share amounts)

(Unaudited)

	March 30, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	95,212		$	110,951
Marketable securities		52,851			40,841
Accounts receivable, net of allowances of $179 and $170, respectively		45,252			50,854
Inventories		63,470			61,915
Inventories-delivered systems		349			180
Prepaid expenses and other		7,235			6,140
Total current assets		264,369			270,881
Property, plant and equipment, net		50,532			47,900
Operating lease - right of use assets, net		11,567		—
Goodwill		26,372			26,372
Intangible assets, net		26,572			27,326
Deferred income tax assets		2,473			2,569
Other assets		440			582
Total assets	$	382,325		$	375,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,901		$	16,540
Accrued payroll and related expenses		9,490			21,658
Deferred revenue		10,641			8,990
Operating lease liabilities		2,893		—
Other current liabilities		6,859			9,421
Income taxes payable		1,623			3,164
Total current liabilities		50,407			59,773
Deferred revenue		1,505			1,753
Income taxes payable		1,027			871
Deferred tax liabilities		166			162
Operating lease liabilities		8,614		—
Other long-term liabilities		220			219
Total liabilities		61,939			62,778
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.001 par value; 3,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.001 par value, 47,000,000 shares authorized: 24,534,582 and 24,372,193, respectively, issued and outstanding		25			24
Additional paid-in capital		251,841			247,983
Retained earnings		70,375			67,402
Accumulated other comprehensive loss		(1,855	)		(2,557	)
Total stockholders’ equity		320,386			312,852
Total liabilities and stockholders’ equity	$	382,325		$	375,630

See Notes to Condensed Consolidated Financial Statements

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share amounts)

(Unaudited)

	Three Months Ended
	March 30, 2019			March 31, 2018
Net revenues:
Products	$	53,855		$	71,019
Service		13,245			11,294
Total net revenues		67,100			82,313
Costs of net revenues:
Cost of products		25,898			28,593
Cost of service		6,948			6,154
Amortization of intangible assets		466			35
Total costs of net revenues		33,312			34,782
Gross profit		33,788			47,531
Operating expenses:
Research and development		12,987			10,202
Selling		9,282			9,024
General and administrative		7,905			7,741
Amortization of intangible assets		289			-
Total operating expenses		30,463			26,967
Income from operations		3,325			20,564
Other income (expense):
Interest expense, net		(91	)		(93	)
Other income, net		270			352
Total other income, net		179			259
Income before income taxes		3,504			20,823
Provision for income taxes		531			4,442
Net income	$	2,973		$	16,381
Net income per share:
Basic	$	0.12		$	0.68
Diluted	$	0.12		$	0.67
Weighted average shares used in per share calculation:
Basic		24,474			24,063
Diluted		24,783			24,483

See Notes to Condensed Consolidated Financial Statements

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended
	March 30, 2019		March 31, 2018
Net income	$	2,973	$	16,381
Other comprehensive income:
Change in foreign currency translation adjustment		647		1,987
Net change in unrealized gains (losses) on available-for-sale investments		55		(89	)
Other comprehensive income		702		1,898
Comprehensive income	$	3,675	$	18,279

See Notes to Condensed Consolidated Financial Statements

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Common Stock						Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount			Capital			Earnings			Loss			Equity
Balance as of December 29, 2018		24,372,193		$	24		$	247,983		$	67,402		$	(2,557	)	$	312,852
Net income		—			—			—			2,973			—			2,973
Foreign currency translation adjustments		—			—			—			—			647			647
Unrealized gain on investments, net of tax		—			—			—			—			55			55
Issuance of common stock under stock-based compensation plans, net of taxes paid		162,389			1			744			—			—			745
Stock-based compensation expense		—			—			3,114			—			—			3,114
Balance as of March 30, 2019		24,534,582		$	25		$	251,841		$	70,375		$	(1,855	)	$	320,386

	Common Stock						Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount			Capital			Earnings			Loss			Equity
Balance as of December 30, 2017		24,628,722		$	26		$	255,368		$	9,113		$	(2,124	)	$	262,383
Net income		—			—			—			16,381			—			16,381
Adjustment due to adoption of ASU 2014-09 Revenue from Contracts with Customers, net of tax		—			—			—			725			—			725
Restructuring of foreign subsidiaries		—			—			3			(83	)		—			(80	)
Foreign currency translation adjustments		—			—			—			—			1,987			1,987
Unrealized loss on investments, net of tax		—			—			—			—			(89	)		(89	)
Issuance of common stock under stock-based compensation plans, net of taxes paid		158,028			—			69			—			—			69
Stock-based compensation expense		—			—			2,338			—			—			2,338
Repurchases and retirement of common stock under share repurchase plans		(896,187	)		(2	)		(22,985	)		—			—			(22,987	)
Balance as of March 31, 2018		23,890,563		$	24		$	234,793		$	26,136		$	(226	)	$	260,727

See Notes to Condensed Consolidated Financial Statements

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 30, 2019			March 31, 2018
Cash flows from operating activities:
Net income	$	2,973		$	16,381
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		2,406			1,724
Stock-based compensation		3,114			2,338
Disposal of fixed assets		2			45
Inventory write-down		1,747			95
Deferred income taxes		4			2,062
Changes in assets and liabilities:
Accounts receivable		6,604			8,035
Inventories		(2,864	)		315
Inventories-delivered systems		(169	)		41
Prepaid expenses and other		(1,189	)		(454	)
Operating lease - right of use assets		148			—
Accounts payable, accrued and other liabilities		(13,656	)		(1,474	)
Deferred revenue		1,403			2,172
Operating lease liabilities		(90	)		—
Income taxes payable		(1,289	)		1,434
Net cash provided by (used in) operating activities		(856	)		32,714
Cash flows from investing activities:
Payments to acquire certain assets		—			(1,000	)
Sales of marketable securities		739			17,435
Maturities of marketable securities		11,450			6,500
Purchases of marketable securities		(24,021	)		—
Purchases of property, plant and equipment		(4,132	)		(1,319	)
Net cash provided by (used in) investing activities		(15,964	)		21,616
Cash flows from financing activities:
Proceeds from sale of shares under employee stock option plans and purchase plan		1,548			545
Taxes paid on net issuance of stock awards		(803	)		(476	)
Repurchases of common stock under share repurchase plans		—			(22,987	)
Net cash provided by (used in) financing activities		745			(22,918	)
Effect of exchange rate changes on cash and cash equivalents		336			(399	)
Net increase (decrease) in cash and cash equivalents		(15,739	)		31,013
Cash and cash equivalents, beginning of period		110,951			34,899
Cash and cash equivalents, end of period	$	95,212		$	65,912
Supplemental disclosure of non-cash investing activities:
Transfers between inventory and property, plant and equipment, net	$	406		$	91
Unpaid property, plant and equipment		516			265

See Notes to Condensed Consolidated Financial Statements

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Business, Basis of Presentation and Significant Accounting Policies

Description of Business – Nanometrics Incorporated (“Nanometrics” or the “Company”) and its wholly-owned subsidiaries provide advanced, high-performance process control metrology and inspection systems used primarily in the fabrication of semiconductors and other solid-state devices as well as industrial and scientific applications. Nanometrics' metrology systems precisely measure a wide range of film types deposited on substrates during manufacturing to control manufacturing processes and increase production yields in the fabrication of integrated circuits. The Company’s optical critical dimension (“OCD”) technology is a patented critical dimension measurement technology that is used to precisely determine the dimensions on the semiconductor wafer that directly control the resulting performance of the integrated circuit devices. The thin film metrology systems use a broad spectrum of wavelengths, high-sensitivity optics, proprietary software, and patented technology to measure the thickness and uniformity of films deposited on silicon and other substrates as well as their chemical composition. The overlay metrology systems are used to measure the overlay accuracy of successive layers of semiconductor patterns on wafers in the photolithography process. Nanometrics' inspection systems are used to find defects on patterned and unpatterned wafers at nearly every stage of the semiconductor production flow. The corporate headquarters of Nanometrics is in Milpitas, California.

Basis of Presentation – The accompanying condensed consolidated financial statements (“financial statements”) have been prepared on a consistent basis with the audited consolidated financial statements as of December 29, 2018 and include all normal recurring adjustments necessary to fairly state the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2019.

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics’ fiscal quarter. The fiscal quarters reported herein are 13 week periods.

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. Estimates are used for, but not limited to, revenue recognition, the provision for doubtful accounts, the provision for excess, obsolete, or slow-moving inventories, valuation of intangible and long-lived assets, warranty accruals, income taxes, valuation of stock-based compensation, and contingencies.

Changes to Significant Accounting Policies

Except for the change below, the Company has consistently applied its accounting policies to all periods presented in these financial statements.

Leases - The Company adopted the new accounting standard Topic 842, Leases and all related amendments, as of December 30, 2018, the first day of its 2019 fiscal year, by electing to use the additional optional transition method permitted under the Topic of applying the new leases standard at the adoption date for all then-active leases and prospectively to leasing arrangements entered after the adoption date. The Company’s reporting for the comparative period presented in the financial statements continues to follow prior U.S. GAAP.

The main impact of Topic 842 was to increase the transparency and comparability of the Company’s financial statements by requiring the recognition of right of use assets (“ROU assets”) and lease liabilities on the Company’s balance sheet for leases classified as operating leases under which the Company is lessee. Under the Topic, disclosures are required to meet the objective of enabling users of the Company’s financial statements to assess the amount, timing, and uncertainty of cash flows arising from such leases.

The Company elected all available practical expedients, adopted an accounting policy to not recognize lease liabilities or ROU a ssets for short-term leases, and implemented internal controls and system functionality to enable the preparation of financial information upon adoption of Topic 842.

The Company has identified all its leases as operating leases, which primarily comprised leases for office space, data centers, colocation agreements, ISP services, logistics arrangements, equipment rental, and others. The Company’s lease accounting policy can be summarized into 4 categories, namely (1) identifying the lease, (2) classifying the lease, (3) measuring the lease, and (4) accounting for the lease.

Identifying the lease – The Company evaluates each service contract upon inception to determine whether it is, or contains, a lease. Such determination is made by applying judgment in evaluating each service contract within the context of the 5-step decision making process under Topic 842. The key concepts of the 5-step decision making process that the Company must evaluate can be summarized as: (1) is there an identified physical asset, (2) does the Company have the right to substantially all the economic benefits from the asset throughout the contract period, (3) does the Company control how and for what purpose the asset is used, (4) does the Company operate the asset, and (5) did the Company design the asset in a way that predetermines how it will be used.

For the service contract to be identified as a lease there must be an underlying physical asset (step 1) that the Company can obtain substantially all the economic benefits from (step 2) by exercising control over (step 3) throughout the lease term. The Company has been able to identify which of its contracts are leases through its evaluations of steps 1, 2, and 3.

Classifying the lease – Once the Company identifies a lease, it then applies judgment in evaluating the contract to determine how the lease should be classified. If any of the following criteria have been met the lease is classified as a financing lease, otherwise it is classified as an operating lease.

The lease transfers ownership of the underlying identified asset to the Company by the end of the lease term.

The lease grants the Company an option to purchase the underlying identified asset that it is reasonably certain to exercise.

Generally, the lease term is for the major part of the remaining economic useful life of the underlying identified asset.

The present value of the sum of the lease payments and any residual value guaranteed by the Company that is not already reflected in the lease payments equals or exceeds substantially all the fair value of the underlying identified asset.

The underlying asset is of such a specialized nature that it wouldn’t have an alternative use to the lessor at the end of the lease term.

The Company has not entered into any contracts that transfer ownership of the underlying identified asset to the Company by the end of the lease term and there are only a small number of individually insignificant leases that contain a purchase option, none of which the Company intends to exercise. The Company has evaluated its contracts under these criteria and has determined that all such contracts are operating leases.

The Company does not reassess the lease classification after the commencement date unless (a) the contract is modified, and the modification is not accounted for as a separate contract, (b) there is a change in the lease term, or (c) there is a change in the assessment of whether the Company is reasonably certain to exercise an option to purchase the underlying asset.

Measuring the lease – Topic 842 requires the Company to record a ROU Asset and a lease liability at the lease commencement date for all leases. The Company does this by measuring and recording a lease liability equal to the present value of all remaining lease payments. The Company applies judgment in estimating the remaining lease term. For its offices, data centers, colocation agreements, ISP services and logistics it assesses the current life of the lease, defined renewal periods in the contract (if any), the strategic plan for maintaining (or replacing) the asset, among other factors in determining the future lease term when measuring the lease. While implementing Topic 842, the Company noted that none of its leases contained residual value guarantees, variable lease payments or any restrictions or covenants imposed by the lessors, outside of standard restrictions on subletting office space.

Under Topic 842, if the interest rate implicit in the lease is or can be known, the Company is required to use such rate. The rate implicit in the lease is not known for any of the Company’s leases, so the Company bases its interest rate on its incremental borrowing rate, using significant judgment to adjust its incremental borrowing rate to align with the term of the lease and the incremental borrowing rates in the countries in which the Company operates.

Once the Company has calculated the initial lease liability, it uses such measurement as the starting point for determining the ROU asset value. Any lease payments made to the lessor at or before the lease commencement date (for which the underlying service period has not expired) are added to the value of the initial lease liability along with any initial direct costs (such as broker’s commissions) incurred by the Company to arrive at the initial ROU asset value.

The Company initially measures the lease as of the lease commencement date, and except as noted below, it does not remeasure the lease. The Comp any applies significant judgment in consider ing all relevant factors that create an economic benefit (e.g.; contract-based, asset-based, entity-based, and market-based, among others) as of the commencement date in determining the initial lease term and future lease payments. For example, the Company exercises judgment in determining whether renewal periods will be exercised during the initial measurement process. If the Company believes it will exercise the renewal option, and the lease payments associat ed with the renewal periods are known or calculable, such renewal lease payments would be included in the initial measurement of the lease liability. Otherwise, even if the Company believes that it will exercise the renewal period, if the renewal payments are unknown or not calculable, they would not be included until they became known or calculable at which time the Company would remeasure the remaining lease payments similar to a lease modification.

At the implementation date, the Company measured its initial lease liability as $11.5 million for all leases in effect at such date. The Company determined it had made $0.1 million of lease payments to lessors at or before the implementation date for which the underlying service period had not expired; consequently, the Company initially recognized $11.6 million as a right to use asset at the implementation date. During the three-month period ended March 30, 2019, the Company recognized $0.7 million of lease liabilities and right of use assets related to contracts entered into during the period.

Generally, the Company does not reassess lease terms or purchase options, nor does it remeasure lease payments unless certain circumstances occur. The Company reassesses the lease term or its option to purchase the underlying asset only if and at the point in time that (a) there is a significant event of change in circumstances within the Company’s control that directly impacts the lease, (b) an event occurs that is written into the lease that obliges the Company to exercise an option, (c) the Company elects to exercise an option that it did not previously determine it was going to exercise, or (d) the Company decides to not exercise an option that it previously had determined it was going to exercise. The Company remeasures the lease payments if and at the point in time that (a) the lease is modified and the modification is not accounted for as a separate contract, (b) a contingency is resolved that causes variable lease payments to meet the definition of fixed lease payments, (c) the lease term changes, (d) the Company changes its assessment as to whether it will exercise an option to purchase the leased asset, or (e) there is a change in amounts probable of being owed under a residual guarantee value clause.

Accounting for the lease – Topic 842 requires the Company to recognize a ROU asset and a lease liability, initially measured as set forth above, for each of its operating leases in its statement of financial position. At adoption of Topic 842, any difference in the initial measurement of the ROU asset and the lease liability was charged to opening retained earnings as a cumulative effect adjustment; however, no such adjustment was recorded by the Company as the initial measurement resulted in no such difference. Topic 842 also requires the Company to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis in the statement of operations. The Company uses the effective interest rate method to accrete interest on the lease liability.

The components of lease expense for the three months ended March 30, 2019 were as follows (in thousands):

		Amount
Operating lease expense		$	847

Other information related to leases as of and for the three months ended March 30, 2019 was as follows (in thousands, except as indicated):

Supplemental Cash Flows Information	Amount
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	$	789

Right of use assets recognized in exchange for operating lease liabilities		698

Imputed interest - operating leases		120

Weighted average remaining lease term - operating leases (months)		62
Weighted average discount rate - operating leases (per annum)		4.86	%

The following table presents a maturity analysis of the Company’s leases (all of which are operating leases), showing the undiscounted annual cash flows for each of the periods presented with a reconciliation to the operating lease liabilities recognized in the Statement of Financial Position as of March 30, 2019 (in thousands):

Fiscal year	Amount
2019 (remaining nine months)	$	2,895
2020		3,113
2021		2,105
2022		1,545
2023		1,249
Thereafter		2,706
Total future minimum lease payments		13,613
Less: future interest		(2,106	)
Total	$	11,507

Reported as of March 30, 2019
Operating lease liability - short term	$	2,893
Operating lease liability - long term		8,614
Total	$	11,507

Future minimum lease payments as of December 29, 2018 for the leases then in effect, as reported under previous guidance, was as follows (in thousands):

Fiscal year	Amount
2019	$	3,002
2020		1,891
2021		1,051
2022		970
2023		750
Thereafter		696
Total	$	8,360

Note 2. New Accounting Pronouncements

Recently Adopted Accounting Standards

In June 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which simplifies the accounting for nonemployee share-based payment transactions. The accounting for share-based payments to nonemployees and employees will be substantially aligned because of this update. The standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The adoption of this guidance did not have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

In February 2018, the FASB issued an accounting standard update that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”). This accounting standard update eliminates the stranded tax effects from the TCJA and improves the usefulness of information reported to users of the Company’s financial statements. This standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements as an election was not made to reclassify such income tax effects from accumulated other comprehensive income to retained earnings.

Recently Issued Accounting S tandards

In August 2018, the FASB issued an accounting standard update to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

In August 2018, the FASB issued an accounting standard update which improves the effectiveness of fair value measurement disclosures in the notes to the financial statements. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain amendments within the update should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. Entities are permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

In January 2017, the FASB issued an accounting standard update which simplifies the subsequent measurement of goodwill and removes step 2 from the goodwill impairment test. Instead, an entity should record an impairment charge based on excess of a reporting unit’s carrying amount over its fair value. The standard is effective for public companies for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial condition and results of operations.

In June 2016, the FASB issued an accounting standard which requires measurement and timely recognition of expected credit losses for financial assets. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

Note 3. Acquisition

On November 15, 2018, the Company completed the acquisition of 4D Technology Corporation (“4D”), an Arizona-based supplier of high-performance interferometric measurement inspection systems, for $42.6 million.

4D’s Dynamic Interferometry® solutions are used in a variety of industries to provide accurate shape and surface measurement data, which provides feedback to customers of optical quality, machine finish, and surface defectivity, to improve manufacturing yield and performance. The addition of 4D’s technology added new technology to the Company’s portfolio, expanded its served markets with new applications in the scientific research, aerospace, industrial and optics manufacturing markets.

The following table presents the preliminary purchase price allocation as of November 15, 2018. Since the acquisition date, no measurement period adjustments have yet been recorded; accordingly, such adjustments as of March 30, 2019 have been omitted from the table (in thousands):

	Preliminary Allocation November 15, 2018
Cash and cash equivalents	$	1,414
Accounts receivable, net		4,156
Inventories		4,563
Prepaid and other current assets		104
Property and equipment		145
Accounts payable		(702	)
Accrued liabilities		(760	)
Deferred revenue		(197	)
Deferred tax liabilities		(5,408	)
Total assets acquired/liabilities assumed		3,315
Developed technology		15,500
In-process research and development		1,400
Customer relationships		4,600
Order backlog		500
Trade name		1,500
Total identified intangible assets		23,500
Total identifiable net assets		26,815
Goodwill		15,762
Total purchase consideration	$	42,577

Note 4. Revenue

The Company disaggregates its revenue from contracts with customers by geographic location. See Note 15 for further information.

Contract assets and liabilities

Contract assets and liabilities consisted of the following (in thousands):

	March 30, 2019		December 29, 2018
Contract assets	$	3,707	$	2,189
Contract liabilities		12,146		10,743
Net contract liabilities	$	8,439	$	8,554

During the three months ended March 30, 2019 the Company recognized $1.5 million of revenue related to amounts that had been reported as contract liabilities at December 29, 2018. Net contract liabilities at March 30, 2019 were relatively unchanged from December 29, 2018. The Company classifies its contract liabilities as deferred revenue on its condensed consolidated balance sheet.

Most of the Company’s remaining performance obligations on contracts with customers are expected to be recognized as revenue within the next six to twelve months.

Note 5. Fair Value Measurements and Disclosures

The Company determines the fair values of its financial instruments based on the fair value hierarchy established in FASB Accounting Standards Codification (“ASC”) 820, Fair Value Measurement , which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into the following three levels that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Such unobservable inputs include an estimated discount rate used in the Company’s discounted present value analysis of

future cash flows, which reflects the Company’s estimate of debt with similar terms in the current credit markets. As there is currently minimal activity in such markets, the actual rate could be materially different.

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability.

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	March 30, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	10,526	$	—	$	—	$	10,526	$	113	$	—	$	—	$	113
Commercial paper		—		3,989		—		3,989		—		1,993		—		1,993
Certificates of deposit		—		1,000		—		1,000		—		—		—		—
Total cash equivalents	$	10,526	$	4,989	$	—	$	15,515	$	113	$	1,993	$	—	$	2,106

Marketable securities:
Certificates of deposits	$	—	$	11,257	$	—	$	11,257	$	—	$	9,497	$	—	$	9,497
Commercial paper		—		16,905		—		16,905		—		7,932		—		7,932
Corporate debt securities		—		16,256		—		16,256		—		15,730		—		15,730
Asset-backed Securities		—		8,433		—		8,433		—		7,682		—		7,682
Total marketable securities	$	—	$	52,851	$	—	$	52,851	$	—	$	40,841	$	—	$	40,841
Total ⁽¹⁾	$	10,526	$	57,840	$	—	$	68,366	$	113	$	42,834	$	—	$	42,947

⁽¹⁾	Excludes $79.7 million and $108.8 million held in operating accounts as of March 30, 2019 and December 29, 2018, respectively. See “Note 6. Cash and Investments” of the Notes to Condensed Consolidated Financial Statements for more information.

The fair values of the marketable securities that are classified as Level 1 in the table above were derived from quoted market prices for identical assets or liabilities in active markets that the Company can access. The fair value of marketable securities that are classified as Level 2 in the table above were derived from non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. There were no transfers of instruments between Level 1, Level 2 and Level 3 during the financial periods presented.

Derivatives

The Company uses foreign currency exchange forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives are carried at fair value with changes recorded in other income (expense), net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately 30 days.

The settlement result of forward foreign currency contracts included in the three months ended March 30, 2019 was a loss of $0.2 million, and for the three months ended March 31, 2018 was a loss of $1.0 million.

The following table presents the notional amounts and fair values of the Company’s outstanding derivative instruments in U.S. Dollar equivalent as of the following dates (in millions):

	March 30, 2019						December 29, 2018
			Fair Value						Fair Value
	Notional Amount		Asset		Liability		Notional Amount		Asset		Liability
Undesignated Hedges:
Forward Foreign Currency Contracts
Purchase	$	27.4	$	—	$	0.1	$	25.9	$	—	$	—
Sell	$	—	$	—	$	—	$	21.8	$	—	$	0.2

Note 6. Cash and Investments

The following tables present cash, cash equivalents, and available-for-sale investments as of the following dates (in thousands):

	March 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	79,697	$	—	$	—		$	79,697
Cash equivalents:
Money market funds		10,526		—		—			10,526
Commercial paper		3,989		—		—			3,989
Certificates of deposit		1,000		—		—			1,000
Marketable securities:
Certificates of deposit		11,251		6		—			11,257
Commercial paper		16,896		9		—			16,905
Corporate debt securities		16,269		—		(13	)		16,256
Asset-backed securities		8,433		—		—			8,433
Total cash, cash equivalents, and marketable securities	$	148,061	$	15	$	(13	)	$	148,063

	December 29, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	108,845	$	—	$	—		$	108,845
Cash equivalents:
Money market funds		113		—		—			113
Commercial paper		1,993		—		—			1,993
Marketable securities:
Certificates of deposits		9,500		—		(3	)		9,497
Commercial paper		7,933		—		(1	)		7,932
Corporate debt securities		15,788		—		(58	)		15,730
Asset-backed securities		7,706		—		(24	)		7,682
Total cash, cash equivalents, and marketable securities	$	151,878	$	—	$	(86	)	$	151,792

Available-for-sale marketable securities, readily convertible to cash, with maturity dates of 90 days or less are classified as cash equivalents, while those with maturity dates greater than 90 days are classified as marketable securities within short-term assets. All marketable securities as of March 30, 2019 and December 29, 2018, were available-for-sale and reported at fair value based on the estimated or quoted market prices as of the balance sheet date.

Realized gains and losses on sale of securities are recorded in other income (expense), net, in the Company’s condensed consolidated statement of operations. For the three months ended March 30, 2019 and March 31, 2018, net realized gains and losses were not material.

Unrealized gains or losses, net of tax effect, are recorded in accumulated other comprehensive income (loss) within stockholders’ equity. Both the gross unrealized gains and gross unrealized lo sses for the three months ended March 30, 2019 and March 31, 2018 were not material, and no marketable securities had other than temporary impairment.

All marketable securities as of March 30, 2019 and December 29, 2018 had maturity dates of less than 36 months.

Note 7. Accounts Receivable

The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to unrelated third-party financial institutions. These receivables were not included in the condensed consolidated balance sheets as the criteria for sale treatment had been met. The Company pays administrative fees as well as interest, which ranged 0.63% to 1.68% during the three months ended March 30, 2019, based on the anticipated length of time between the date the sale is consummated, and the expected collection date of the receivables sold.

The Company sold $12.1 million and $21.9 million of receivables during the three months ended March 30, 2019 and March 31, 2018, respectively. There were no amounts due from such third-party financial institutions at March 30, 2019 and December 29, 2018.

Note 8. Financial Statement Components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	March 30, 2019			December 29, 2018
Inventories:
Raw materials and sub-assemblies	$	34,922		$	31,434
Work in process		20,171			22,383
Finished goods		8,377			8,098
Inventories		63,470			61,915
Inventories-delivered systems		349			180
Total inventories	$	63,819		$	62,095

Property, plant and equipment, net:(1)
Land	$	15,570		$	15,571
Building and improvements		21,423			21,354
Machinery and equipment		36,309			39,898
Furniture and fixtures		2,578			2,551
Software		10,309			10,116
Capital in progress		9,009			6,027
Total property, plant and equipment, gross		95,198			95,517
Accumulated depreciation and amortization		(44,666	)		(47,617	)
Total property, plant and equipment, net	$	50,532		$	47,900

(1) Depreciation and amortization expense of property, plant and equipment was $1.7 million and $1.7 million for the three months ended March 30, 2019 and March 31, 2018, respectively.

Other Current Liabilities:
Accrued warranty	$	3,848		$	4,379
Accrued taxes		851			1,738
Customer deposits		321			293
Accrued professional services		469			448
Third party commissions		168			1,382
Other		1,202			1,181
Total other current liabilities	$	6,859		$	9,421

Components of Accumulated Other Comprehensive Income (Loss)

	Foreign Currency Translations			Defined Benefit Pension Plans			Unrealized Income (Loss) on Investment		Accumulated Other Comprehensive Income (Loss)
Balance as of December 29, 2018	$	(2,129	)	$	(646	)	$	218	$	(2,557	)
Current period change		647			—			55		702
Balance as of March 30, 2019	$	(1,482	)	$	(646	)	$	273	$	(1,855	)

The items above, except for unrealized income (loss) on investment, did not impact the Company’s income tax provision. The amounts reclassified from each component of accumulated other comprehensive income (loss) into income statement line items were insignificant.

Note 9. Goodwill and Intangible Assets

Goodwill is recorded at cost and tested for potential impairment at least annually. Goodwill was $26.4 million as of March 30, 2019 and December 29, 2018.

Intangible assets are recorded at cost, less accumulated amortization. Certain of the Company’s intangible assets are denominated in foreign currencies. The aggregate $50,000 increase in the adjusted cost basis of the Company’s intangible assets as of March 30, 2019, as compared with December 29, 2018, was due to foreign currency movements. Such foreign currency movements also increased the March 30, 2019 balance of accumulated amortization of the intangibles assets by $50,000 as compared with December 29, 2018. Intangible assets as of March 30, 2019 and December 29, 2018 consisted of the following (in thousands):

	March 30, 2019
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	35,997	$	(17,040	)	$	18,957
Customer relationships		6,538		(1,790	)		4,748
In-process research and development		1,400		—			1,400
Trade name		1,500		(33	)		1,467
Total	$	45,435	$	(18,863	)	$	26,572

	December 29, 2018
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	35,954	$	(16,532	)	$	19,422
Customer relationships		6,531		(1,519	)		5,012
In-process research and development		1,400		—			1,400
Trade name		1,500		(8	)		1,492
Total	$	45,385	$	(18,059	)	$	27,326

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated remaining lives of finite-lived intangibles range from less than one year to fifteen years. The total amortization expense for the three months ended March 30, 2019 and March 31, 2018 was $755,000 and $35,000, respectively.

There were no impairment charges related to intangible assets recorded during the three months ended March 30, 2019 and March 31, 2018.

The estimated future amortization expense of finite intangible assets as of March 30, 2019 is as follows (in thousands):

Fiscal Years	Amounts
2019 (remaining nine months)	$	2,099
2020		2,905
2021		2,905
2022		2,905
2023		2,905
Thereafter		11,453
Total future amortization expense	$	25,172

In-process research and development of $1.4 million has been omitted from the above table as its estimated useful life is indeterminant at March 30, 2019. It will be tested for potential impairment, along with Goodwill, until its estimated useful life becomes finite.

Note 10. Warranties

The Company generally sells its products with a 12 months repair or replacement warranty from the date of acceptance or shipment date. The Company accrues estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold. The estimated future warranty obligations related to product sales are recorded in the period in which the related revenue is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure rates, material usage, and labor and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage, labor or replacement costs were to differ from the Company’s estimates, revisions to the estimated warranty obligations would be required. For new product introductions where limited or no historical information exists, the Company may use warranty information from other previous product introductions to guide it in estimating its warranty accrual.

Components of the warranty accrual, which were included in the accompanying condensed consolidated balance sheets with other current liabilities, were as follows (in thousands):

	Three Months Ended
	March 30, 2019			March 31, 2018
Balance as of beginning of period	$	4,379		$	4,863
Accruals for warranties issued during period		960			1,445
Settlements during the period		(1,491	)		(1,665	)
Balance as of end of period	$	3,848		$	4,643

Note 11. Commitments and Contingencies

Intellectual Property Indemnification Obligations – The Company will, from time to time, in the normal course of business, agree to indemnify certain customers, vendors or others against third party claims that the Company’s products, when used for their intended purpose(s), or the Company’s intellectual property, infringe the intellectual property rights of such third parties or other claims made against parties with whom it enters into contractual relationships. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. Historically, the Company has not made payments under these obligations and believes that the estimated fair value of these agreements is immaterial. Accordingly, no liabilities have been recorded for these obligations in the accompanying condensed consolidated balance sheets as of March 30, 2019 and December 29, 2018.

Legal Proceedings - From time to time, the Company is subject to various legal proceedings or claims arising in the ordinary course of business.

On August 2, 2017, the Company was named as defendant in a complaint filed in New Hampshire Superior Court (“Complaint”). The Complaint, brought by Optical Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and the Company pertaining to certain product. On September 18, 2017, the Company removed the action to the United States District Court for the District of New Hampshire. On September 25, 2017, the Company moved to transfer the Complaint to the District Court for the Northern District of California. On December 20, 2017, the Company filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders. The Company’s complaint was later removed by OSI to the Northern District of California. On May 29, 2018, the

District Court of New Hampshire issued an order granting the Company’s motion to transfer OSI’s Complaint to the Northern District of California and denying the Company’s motion to dismiss the Complaint without prejudice. On Ju ne 14, 2018, OSI’s Complaint was consolidated with the Company’s complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, the Company filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. Th e Company’s motion to dismiss was heard on February 28, 2019. On March 5, 2019 the Court granted the Company’s motion to dismiss with leave to amend. OSI filed a Second A mended C omplaint on March 29, 2019. The Company ’s response to the Second Amended Compl aint is due on or before May 24, 2019. Trial has been set for May 16, 2022.

The Company records a provision for a loss when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Based on current information, the Company believes it does not have any probable and reasonably estimable losses related to any current legal proceedings and claims. Although it is difficult to predict the outcome of legal proceedings, the Company believes that any liability that may ultimately arise from the resolution of these ordinary course matters will not have a material adverse effect on the business, financial condition and results of operations.

Note 12. Net Income Per Share

The Company presents both basic and diluted net income per share on the face of its condensed consolidated statements of operations. Basic net income per share excludes the effect of potentially dilutive shares and is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding for the period plus the effect of all dilutive securities representing potential shares of common stock outstanding during the period.

A reconciliation of the share denominator of the basic and diluted net income per share computations for three months ended March 30, 2019 and March 31, 2018 is as follows (in thousands):

	Three Month Ended
	March 30, 2019		March 31, 2018
Weighted average common shares outstanding used in basic net income per share calculation		24,474		24,063
Potential dilutive common stock equivalents, using treasury stock method		309		420
Weighted average shares used in diluted net income per share calculation		24,783		24,483

Note 13. Stockholders’ Equity and Stock-Based Compensation

Options and Employee Stock Purchase Plan (“ESPP”) Awards

The fair value of each option and ESPP award is estimated on the grant date using the Black-Scholes valuation model and the assumptions noted in the following table. The expected lives of options granted were calculated using the simplified method allowed by the Staff Accounting Bulletin No. 107, Share-Based Payment . The risk-free rates were based on the U.S Treasury rates in effect during the corresponding period of grant. The expected volatility was based on the historical volatility of the Company’s stock price. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

	Three Months Ended
	March 30, 2019	March 31, 2018
Employee Stock Purchase Plan:
Expected life	0.5 years	0.5 years
Volatility	41.3%	27.2%
Risk free interest rate	2.51%	1.61%
Dividends	—	—

No stock options were awarded during the three months ended March 30, 2019 and March 31, 2018.

A summary of activity of stock options during the three months ended March 30, 2019 is as follows:

	Number of Shares Outstanding (Options)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at December 29, 2018		83,394	$	15.80		1.19	$	988
Exercised		—		—
Cancelled		—		—
Outstanding at March 30, 2019		83,394	$	15.80		0.94	$	1,258
Exercisable at March 30, 2019		83,394	$	15.80		0.94	$	1,258

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of $30.88 and $27.65 as of March 29, 2019 and December 28, 2018, respectively, the last trading day of each period, which would have been received by the option holders had all option holders exercised their options as of such date.

Restricted Stock Units (“RSUs”)

Time-based RSUs are valued using the market value of the Company’s common stock on the date of grant, assuming no expectation of dividends paid.

A summary of activity for RSUs during the three months ended March 30, 2019 is as follows:

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 29, 2018		769,003		$	31.39
Granted		99,644			28.95
Released		(107,063	)		23.06
Cancelled		(22,876	)		30.83
Outstanding RSUs as of March 30, 2019		738,708		$	32.28

Market-Based Performance Stock Units (“PSUs”)

In addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to certain executives. The PSUs vest in three tranches over one, two and three years based on the relative performance of the Company’s stock during those periods, compared to a peer group over the same period. If target stock price performance is achieved, 66.7% of the shares of the Company’s stock subject to the PSUs will vest and up to a maximum of 100% of the shares subject to the PSUs will vest if the maximum stock price performance is achieved for each tranche.

A summary of activity for PSUs for the three months ended March 30, 2019 is as follows:

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 29, 2018		112,163		$	22.37
Granted		43,429			19.09
Released		(16,066	)		25.09
Cancelled		(1,138	)		26.75
Outstanding PSUs as of March 30, 2019		138,388		$	20.99

The preceding table reflects the maximum awards that can be achieved upon full vesting.

Valuation of PSUs

On the date of grant, the Company estimated the fair value of PSUs using a Monte Carlo simulation model. The assumptions for the valuation of PSUs are summarized as follows:

	2019 Award		2018 Award
Grant Date Fair Value Per Share	$13.12-$23.75		$20.73-$25.18
Weighted-average assumptions/inputs:
Expected Dividend		—		—
Range of risk-free interest rates	2.45%		2.39%-2.63%
Range of expected volatilities for peer group	22%-63%		22%-66%

Stock-based Compensation Expense

Stock-based compensation expense for all share-based payment awards made to the Company’s employees and directors pursuant to the employee stock option and employee stock purchase plans by function were as follows (in thousands):

	Three Months Ended
	March 30, 2019		March 31, 2018
Cost of products	$	260	$	99
Cost of service		185		155
Research and development		772		476
Selling		805		533
General and administrative		1,092		1,075
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	3,114	$	2,338

Note 14. Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Accounting for Income Taxes. The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items, including changes in judgment about valuation allowances and effects of changes in tax laws or tax rates, in the interim period in which they occur. The Company's effective tax rate reflects the impact of a portion of its earnings being taxed in foreign jurisdictions as well as a valuation allowance maintained on certain deferred tax assets.

The 2017 Tax Act created a new requirement that global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, the Company was allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy in 2018 with respect to the GILTI tax rules was to treat GILTI tax as a current period expense under the period cost method.

The provision for income taxes consists of the following (in thousands):

	Three Months Ended
	March 30, 2019		March 31, 2018
Provision for income taxes	$	531	$	4,442

The Company recorded a tax provision of $0.5 million and $4.4 million for the three months ended March 30, 2019 and March 31, 2018, respectively. The decrease in the tax provision for 2019 from 2018 was primarily related to the Company’s decreased profitability for the three months ending March 30, 2019 as well as less U.S. tax required on foreign earnings under the Tax Cuts and Jobs Act (“TCJA”).

The Company continues to maintain a valuation allowance against its California and Switzerland deferred tax assets as a result of uncertainties regarding the realization of the assets due to cumulative losses and uncertainty of future taxable income. The Company will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event the Company determines that the

deferred tax assets are realizable, an adjustment to the valuation allowance will be reflected in the tax provision for the period such determination is made.

The Company is subject to taxation in the U.S. and various states including California, and foreign jurisdictions including Korea, Japan, Taiwan, China, Singapore, Germany, U.K., Ireland, France, and Israel. Due to tax attribute carry-forwards, the Company is subject to examination for tax years 2003 forward for U.S. tax purposes. The Company is also subject to examination in various states for tax years 2002 forward. The Company is subject to examination for tax years 2011 forward for various foreign jurisdictions.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were not material as of March 30, 2019 and December 29, 2018. During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately $0.6 million.

Note 15. Segment, Geographic, Product and Significant Customer Information

The Company has one operating segment, which is the sale, design, manufacture, marketing and support of optical critical dimension and thin film systems. The following tables summarize total net revenues and long-lived assets (excluding intangible assets) attributed to significant countries (in thousands):

	Three Months Ended
	March 30, 2019		March 31, 2018
Total net revenues:
United States	$	16,874	$	6,738
China		14,361		8,042
South Korea		13,968		37,818
Taiwan		11,288		1,060
Japan		4,318		13,379
Singapore		1,551		12,155
Other		4,740		3,121
Total net revenues	$	67,100	$	82,313

	March 30, 2019		December 29, 2018
Long-lived tangible assets:
United States	$	48,986	$	46,325
International		1,546		1,575
Total long-lived tangible assets	$	50,532	$	47,900

With respect to customer concentration, SK hynix, Intel and Taiwan Semiconductor each accounted for more than 10% of total sales for the three months ended March 30, 2019, and Samsung Electronics Co. Ltd., SK hynix, Micron Technology, Inc., and Toshiba Memory Corporation each accounted for more than 10% of total sales for the three months ended March 31, 2018.

With respect to accounts receivable concentration, Taiwan Semiconductor and SK hynix each accounted for more than 10% of total accounts receivable as of March 30, 2019. SK hynix and Toshiba Memory Corporation each accounted for more than 10% of total accounts receivable as of December 29, 2018.

Note 16. Subsequent Event

Gain on Disposal of Fixed Asset – Condominium

On April 2, 2019, the Company closed escrow on the sale of the last condominium it owned in Milpitas, California, at a sales price of $0.9 million. The Company expects to report a gain on the sale of the asset, net of certain fees and commissions, as a component of other income, during the three months ending June 29, 2019 of approximately $0.8 million. As part of its facilities strategy, the Company had determined that it would no longer house traveling employees in owned condominiums and has divested all such assets.

ITE M 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding future periods, financial results, revenues, margins, growth, customers, tax rates, product performance, and the impact of accounting rules on our business and the future implications of our statements regarding goals, strategy, and similar terms. We may identify these statements by the use of words such as “anticipate,” “believe,” “continue,” “could,” “expect,” “may,” “might,” “project,” “will,” and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risks, uncertainties and changes in circumstances, many of which may be difficult to predict or beyond our control, including those factors referenced in this document, including in Part II, Item 1A, Risk Factors below, and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2019 (our “Annual Report”). In particular, our results could vary significantly based on: changes in customer and industry spending; rate and extent of changes in product mix; adoption of new products; timing of orders, shipments, and acceptance of products; our ability to secure volume supply agreements; uncertainties related to our acquisition of 4D Technology Corporation; and general economic conditions. In evaluating our business, investors should carefully consider these factors in addition to any other risks and uncertainties set forth elsewhere. The occurrence of the events described in the risk factors of our Annual Report and risk factors elsewhere in this report as well as other risks and uncertainties could materially and adversely affect our business, operating results and financial condition. While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information presented, we recommend that you read this discussion and analysis in conjunction with (i) our audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, which were included in our Annual Report, (ii) the section captioned “Risk Factors” in this Quarterly Report and our Annual Report, and (iii) our other filings with the SEC.

Overview

Together with our subsidiaries, we are an innovator in the field of optical metrology systems, optical inspection systems and advanced analytics for semiconductor manufacturing and other industries. Our systems and solutions are designed to precisely monitor optical critical dimensions, film thickness, and other parameters that are necessary to control the manufacturing process, identify defects, and detect manufacturing equipment anomalies that can affect production yields and device performance.

Principal factors that impact our revenue growth include capital expenditures by manufacturers of semiconductors to increase capacity and to enable their development of new technologies, and our ability to improve market share. The increasing complexity of the manufacturing processes for semiconductors is an important factor in the demand for our innovative metrology systems. Our strategy is to continue to innovate organically as well as to evaluate strategic acquisitions to address business challenges and opportunities.

In November of 2018 we acquired 4D Technology Corporation (“4D”), based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the measurement and inspection of high precision surfaces. 4D’s solutions are used primarily in the manufacture of advanced aerospace and industrial systems as well as for scientific research and semiconductor applications.

We derive our revenues primarily from product sales but also from customer service and system upgrades for the installed base of our products. For the three months ended March 30, 2019, we derived 80% of our total net revenues from product, upgrade and software sales, and 20% of our total net revenues from services.

Nanometrics Products

We offer a diverse line of systems to address the broad range of process control requirements of the semiconductor device and industrial manufacturing markets. In addition, we believe that our product development and engineering expertise and strategic acquisitions will enable us to develop and offer advanced process control solutions that, in the future, should address industry advancement and trends.

Automated Systems

Our automated systems primarily consist of fully automated metrology systems that are employed in semiconductor production environments. The Atlas ^® family of products represent our line of high-performance metrology systems providing optical critical dimension (“OCD” ^® ) technology, thin film metrology and wafer stress metrology for transistor and interconnect metrology

applications. The thin film and OCD technology is supported by our NanoCD suite of solutions including our NanoDiffract® software, SpectraProbe™ software and NanoGen™ scalable computing engine that enables visualization, modeling, and analysis of complex structures.

Integrated Systems

Our integrated metrology (“IM”) systems are installed directly onto wafer processing equipment to provide near real-time measurements for improved process control and maximum throughput. Our IM systems are sold directly to end user customers. The IMPULSE family of products include the latest technology for OCD, and thin film metrology, and have been successfully qualified on numerous independent Wafer Fabrication Equipment Suppliers’ platforms. Our NanoCD suite of solutions is sold in conjunction with our IMPULSE systems.

Software

NanoDiffract® is a modeling, visualization and analysis software that takes signals from the metrology systems, providing critical dimension, thickness, and optical properties from in-line measurements. The software has an intuitive three-dimensional modeling interface to provide visualization of today’s advanced and complex semiconductor devices. There are proprietary fitting algorithms in NanoDiffract that enable very accurate and very fast calculations for signal processing for high fidelity model-based measurements. SpectraProbe is a model-less fitting engine that enables fast time to solution for in-line excursion detection and control. SpectraProbe complements the high-fidelity modeling of NanoDiffract with a simple machine learning interface for rapid recipe deployment. The software is supported by NanoGen, an enterprise scale computing hardware system that is deployed to run the computing intensive analysis software. NanoGen utilizes commercial server chips and networking architecture and is optimized to support the workload of NanoDiffract and SpectraProbe analysis.

Materials Characterization

Our materials characterization products include systems that are used to monitor the physical, optical, electrical and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility.

We have a broad portfolio of products for materials characterization including photoluminescence mapping and Fourier-Transform Infrared (“FTIR”) spectroscope in automated and manual systems for substrate quality and epitaxial thickness metrology. The NanoSpec ^® line supports thin film measurement across all applications in both low volume production and research applications.

Industrial, Scientific, and Research Markets: 4D Technology

In November of 2018 we acquired 4D Technology Corporation, based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems.

We are continually working to strengthen our competitive position by developing new technologies and products in our market segment. We have expanded our product offerings to address growing applications within the semiconductor manufacturing and adjacent industries. In pursuit of our goals, we have:

•

Introduced new products, applications, and upgrades in every core product line and primary market served;

•

Diversified our product line and served markets through acquisitions; and

•

Continued development of new measurement and inspection technologies for advanced fabrication processes and packaging.

Important Themes and Significant Trends

The semiconductor equipment industry is characterized by new manufacturing processes (node) coming to market every two to three years. At every new node in the semiconductor industry, our customers drive the need for metrology as a major component of device manufacturing. These trends include:

•

Proliferation of Optical Critical Dimension Metrology across Fabrication Processes . Device dimensions must be carefully controlled during each step of processing. These patterned structures are measured at many subsequent production steps including Chemical Mechanical Polishing, Etch, and Thin Film processing, all driving broader OCD adoption. Our proprietary OCD systems can provide the critical process control of these circuit dimensions that is necessary for successful manufacturing of these state-of-the-art devices. Nanometrics OCD technology is broadly adopted across 3D-NAND, DRAM, and logic semiconductor manufacturing processes.

•

Proliferation of 3D Transistor Architectures . Our end customers continue to improve device density and performance by scaling front-end-of-line transistor architectures. Many of these designs, including FinFET transistors, have buried features and high aspect ratio stacked features that enable improved performance and density. The advanced designs require additional process control to manage the complex shapes and materials properties, driving additional applications of our systems.

•

Proliferation of High-Density 3D-NAND . Our end customers have migrated to multi (many) layered high aspect ratio 3D-NAND devices. Many stacks of NAND cells are formed in parallel. This 3D-NAND architecture enables cost effective density scaling, removing the burden of density from lithography to deposition and etch processes. These devices require additional process control of deposition stacks, planarization processes, and critical high aspect ratio etch processes. Nanometrics thin films and OCD technologies are adopted across the 3D-NAND process including the periphery CMOS processing, NAND cell formation, and Interconnect of the devices.

•

Adoption of New Types of Thin Film Materials . The need for ever increasing device circuit speed coupled with lower power consumption has pushed semiconductor device manufacturers to new materials and processing methods with single atom/sub nanometer control over these processes.

•

Need for Improved Process Control to Drive Process Efficiencies . Competitive forces influencing semiconductor device manufacturers, such as price-cutting, shorter product life cycles and time to market, place pressure on manufacturers to rapidly achieve production efficiency. Device manufacturers are using our integrated and automated systems, as well as advanced metrology algorithms and analytics, throughout the fabrication process to ensure that manufacturing processes scale rapidly, are accurate and can be repeated on a consistent basis.

Critical Accounting Policies and Estimates

The preparation of our financial statements conforms to accounting principles generally accepted in the United States of America, which requires management to make estimates and judgments in applying our accounting policies that have an important impact on our reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of our financial statements. On an ongoing basis, management evaluates its estimates including those related to bad debts, inventory valuations, warranty obligations, impairment and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates.

Except for the changes noted below, there were no significant changes in our critical accounting policies during the three months ended March 30, 2019. Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report for a complete discussion of our critical accounting policies.

Change in Accounting for Leases (Adoption of ASU 2016-02 Leases) - We adopted the new accounting standard ASC 842 and related amendments in the first quarter of fiscal 2019 using the alternative optional transition method. As such, we recognized the cumulative effect of initially applying the new lease standard as an adjustment to the opening balance of retained earnings for fiscal 2019. Comparative financial statements for fiscal 2018 have been prepared under the previous accounting standard. Please refer to Note 1. Nature of Business, Basis of Presentation and Significant Accounting Policies for further discussion of this change.

Recent Accounting Pronouncements

See Note 2 of the Unaudited Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the respective dates of adoption and effects or anticipated effects on our results of operations and financial condition.

Results of Operations

Net Revenues

Our net revenues comprised the following (in thousands, except percentages):

	Three Months Ended
	March 30, 2019		March 31, 2018		Change
Product		53,855		71,019		(17,164	)	-24.2	%
Service		13,245		11,294		1,951		17.3	%
Total net revenues	$	67,100	$	82,313	$	(15,213	)	-18.5	%

Capital spending by our customers is dependent on the timing of new semiconductor fabrication plants, capacity expansion within existing plants, and the adoption of modern technology for current and future manufacturing needs. Results may vary significantly based on changes in any of these factors. For the three months ended March 30, 2019, total net revenues decreased by $15.2 million relative to the comparable period in fiscal 2018. The decrease comprised a $17.2 million decrease in product revenue, mainly as a result of lower demand in the overall wafer fab equipment market, and a $2.0 million increase in service revenue compared to the same prior year period.

A significant portion of the world’s semiconductor manufacturing capacity is in Asia. We generated 68% of our revenues in Asia in the three months ended March 30, 2019 compared to 88% for the three months ended March 31, 2018, a decrease of 20%. This was mainly due to an increase in revenue from a strategic U.S. customer related to fab expansion as a result of new technology adoption. Although sales to customers within individual countries of that region will vary from time to time, we expect that a substantial portion of our revenues will continue to be generated in Asia.

Gross margin

Our gross margin breakdown was as follows:

	Three Months Ended
	March 30, 2019	March 31, 2018
Products	51.0%	59.7%
Service	47.5%	45.5%

The calculation of product gross margin includes both cost of products and amortization of intangibles.

The gross margin on product revenue decreased to 51.0% in the three months ended March 30, 2019 from 59.7% in the three months ended March 31, 2018. The decrease was partially due to an unfavorable product and customer mix and lower factory utilization. Additionally, the amortization of intangibles of $0.5 million, or 0.7%, and acquisition-related adjustments of $1.0 million, or 1.4%, negatively impacted product margin by an aggregate 2.1%. The gross margin on our services business increased to 47.5% in the three months ended March 30, 2019 from 45.5% in the three months ended March 31, 2018. The increase was due to higher labor utilization rates, increased revenue from service contracts with higher margins and lower service spending.

Operating expenses

Our operating expenses comprised the following categories (in thousands, except percentages):

	Three Months Ended
	March 30, 2019		March 31, 2018		Change
Research and development	$	12,987	$	10,202	$	2,785		27.3	%
Selling		9,282		9,024		258		2.9	%
General and administrative		7,905		7,741		164		2.1	%
Amortization of intangible assets		289		—		289	na
Total operating expenses	$	30,463	$	26,967	$	3,496		13.0	%

Research and development

Investments in research and development personnel and associated projects are part of our strategy to ensure our products remain competitive and meet customers’ needs. For the three months ended March 30, 2019, research and development costs increased by $2.8 million, or 27.3%, compared to the same period in 2018. The increase was driven by additional headcount and new product development initiatives, and costs of $0.7 million resulting from the acquisition of 4D subsequent to the same period in 2018, which were partially offset by lower variable compensation costs.

Selling

Selling expenses for the three months ended March 30, 2019 increased by $0.3 million, or 2.9% compared to the same period in 2018. The increase was driven by additional headcount, partially offset by lower variable compensation costs and lower sales commission expenses.

General and administrative

General and administrative expenses increased by $0.2 million, or 2.1%, in the three months ended March 30, 2019 compared to the same period in 2018. The increase was primarily due to additional headcount, severance costs, and IT infrastructure costs, partially offset by lower variable compensation costs and professional services fees.

Other income (expense), net.

Our other income (expense), net, consisted of the following items (in thousands):

	Three Months Ended
	March 30, 2019			March 31, 2018			Change
Interest expense, net	$	(91	)	$	(93	)	$	2
Net gains on investments		310			269			41
Other losses, net		(40	)		83			(123	)
Other income, net		270			352			(82	)
Total other income, net	$	179		$	259		$	(80	)

Other income, net, decreased by $0.1 million in the three months ended March 30, 2019 relative to the comparable period in 2018. The change was principally due to lower returns on marketable securities and foreign exchange net losses.

Provision for income taxes

We recorded a tax provision of $0.5 million and $4.4 million for the three months ended March 30, 2019 and March 31, 2018, respectively. The decrease in the tax provision for 2019 from 2018 was primarily related to our decreased profitability for the three months ended March 30, 2019, as well as less U.S. tax required on foreign earnings under the Tax Credit and Jobs Act (“TCJA”).

Our provision for income taxes for the three months ended March 30, 2019 of $0.5 million reflects an effective tax rate of 15.2%. The tax rate for the three months ended March 30, 2019 differs from the Federal statutory rate of 21.0% primarily due to foreign and R&D tax credits and tax benefits associated with the settlement of equity options/awards offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.

The TCJA created a new requirement that global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, we were allowed to make an accounting policy choice of either (1) treati ng taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our sel ection of an accounting policy in 2018 with respect to the GILTI tax rules was to treat GILTI tax as a current period expense under the period cost method.

As of March 30, 2019, we continue to maintain a valuation allowance against our California and Switzerland deferred tax assets as a result of uncertainties regarding the realization of the assets due to cumulative losses and uncertainty of future taxable income. We will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event we determine that the deferred tax assets are realizable, an adjustment to the valuation allowance will be reflected in the tax provision for the period such determination is made.

We are subject to taxation in the U.S. and various states including California, and foreign jurisdictions including Korea, Japan, Taiwan, China, Singapore, U.K., Ireland, Germany, France, and Israel. Due to tax attribute carry-forwards, we are subject to examination for tax years 2003 forward for U.S. tax purposes. We are also subject to examination in various states for tax years 2002 forward. We are subject to examination for tax years 2011 forward for various foreign jurisdictions.

We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. The total amount of penalties and interest were not material as of March 30, 2019 and March 31, 2018. During the next twelve months, we anticipate increases in our unrecognized tax benefits of approximately $0.6 million.

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents, and marketable securities, and cash flow generated from our operations. Our liquidity is affected by many factors, including those that relate to our specific operations and those that relate to the uncertainties of global and regional economies and the sectors of the semiconductor industry in which we operate in. Although our cash requirements will fluctuate based on the timing and extent of these factors, we believe our existing cash, cash equivalents and marketable securities, combined with cash currently projected to be generated from our operations, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations over the next twelve months.

The following tables present selected financial information and statistics as of March 30, 2019 and December 29, 2018 and for the three months ended March 30, 2019 and March 31, 2018 (in thousands):

	As of
	March 30, 2019		December 29, 2018
Cash, cash equivalents and marketable securities	$	148,063	$	151,792
Working capital	$	213,962	$	211,108

	As of
	March 30, 2019			March 31, 2018
Cash provided by (used in) operating activities	$	(856	)	$	32,714
Cash provided by (used in) investing activities		(15,964	)		21,616
Cash provided by (used in) financing activities		745			(22,918	)

Cash, cash equivalents and marketable securities totaled $148.1 million at March 30, 2019, which reflects a decrease of $3.7 million from December 29, 2018. Of our total cash, cash equivalents and marketable securities at March 30, 2019, approximately $28.5 million was held by foreign subsidiaries, a portion of which would have to be repatriated to the United States. We continuously evaluate if there is a need to repatriate these funds. We believe our existing cash, cash equivalents and marketable securities will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations over at least the next twelve months. Working capital was $214.0 million at March 30, 2019, which reflects an increase of $2.9 million when compared to $211.1 million at December 29, 2018.

Cash used in operating activities during the three months ended March 30, 2019 was $0.9 million, consisting primarily of net income of $3.0 million, adjusted for non-cash items of $7.3 million, and $11.2 million of net cash outflows related to changes in operating assets and liabilities. We expect that cash provided by operating activities may fluctuate in future periods due to several factors, including variations in our operating results, accounts receivable collections performance, inventory and supply chain management, vendor payment initiatives, tax benefits or charges from stock-based compensation, and the timing and amount of compensation and other payments. The non-cash items of $7.3 million related to depreciation, amortization, inventory reserves and

stock-based compensation. The net cash outflows related to the use of operating assets and liabilities was primarily due to the timing of payments of variable compensation to employees , timing of tax payments and higher inventory purchases for some new product introductions. These payments hav e been partially offset by collections from customers against early payment programs and improvements in payment terms from some vendors, resulting in lower days sales outstanding and higher days payables outstanding.

Cash provided by operating activities during the three months ended March 31, 2018 was $32.7 million, consisting primarily of net income of $16.4 million, adjusted for non-cash items of $6.3 million, and $10.1 million of net cash inflows related to changes in operating assets and liabilities. The changes in operating assets and liabilities were generally driven by the timing of our customer payments for accounts receivable and the timing of inventory purchases and the associated vendor payments for accounts payable.

Cash used in investing activities of $16.0 million during the three months ended March 30, 2019 consisted primarily of $24.0 million of purchases of marketable securities and payments for acquisition of property, plant and equipment and certain assets of $4.1 million, partially offset by sales and maturities of marketable securities of $12.2 million.

Cash provided by investing activities of $21.6 million during the three months ended March 31, 2018 consisted primarily of net of sales and maturities of marketable securities of $23.9 million, offset in part by payments for acquisition of property, plant and equipment and certain assets of $2.3 million.

Cash provided by financing activities of $0.7 million during the three months ended March 30, 2019 consisted primarily of proceeds from the issuance of common stock under employee stock purchase program of $1.5 million, partially offset by $0.8 million cash paid for taxes on net issuance of stock awards.

Cash used in financing activities of $22.9 million during the three months ended March 31, 2018 consisted primarily of $23.0 million of common stock repurchases and $0.5 million cash paid for taxes on net issuance of stock awards, partially offset by proceeds from the issuance of common stock from the employee stock purchase program and the exercise of stock options of $0.5 million.

Repurchases of Common Stock

On March 14, 2019 our Board of Directors authorized the repurchase of up to $80.0 million of our common stock. This plan is referred to as the Stock Repurchase Plan. Under the terms of the Stock Repurchase Plan shares may be repurchased through open market or privately negotiated transactions. During the three months ended March 30, 2019 no shares were repurchased under the Stock Repurchase Plan.

During the three months ended March 31, 2018, the Stock Repurchase Plan for $50.0 million that was authorized on November 15, 2017 was completed and we repurchased 896,187 shares at an average purchase price of $25.65 per share for a total of $23.0 million.

Off-Balance Sheet Arrangements

As of March 30, 2019, we had no off-balance sheet arrangements or obligations.

Contractual Obligations

There have been no material changes outside the ordinary course of our business from those reported in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019.

ITEM 3.

QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk does not differ materially from that discussed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019. However, we cannot give any assurance as to the effect that future changes in interest rates or foreign currency rates will have on our consolidated balance sheet, results of operations or cash flows.

Foreign Currency Risk

Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany balances in which costs are charged between our U.S. headquarters and our foreign subsidiaries. On our consolidated balance sheet these intercompany balances are eliminated and thus no consolidated balances are associated with these intercompany balances; however, since each foreign entity's functional currency is generally its respective local currency, there is exposure to foreign exchange risk on a consolidated basis for transactions not denominated in each foreign entity’s functional currencies. Intercompany balances are denominated primarily in U.S. dollars and, to a lesser extent, other local currencies.

To manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we enter into foreign currency forward exchange contracts to protect against currency exchange risks associated with existing assets and liabilities. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the unrealized gains and losses are recognized in other income (expense), net, in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities or other current assets.

We do not use forward contracts for trading purposes. Our forward contracts generally have maturities of 30 days or less. We enter into foreign currency forward exchange contracts based on estimated future asset and liability exposures, and the effectiveness of our hedging program depends on our ability to estimate these future asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will ultimately depend on how accurately we are able to match the amount of foreign currency forward exchange contracts with actual underlying asset and liability exposures.

We actively monitor our foreign currency risks, but there is no guarantee that our foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on our results of operations, cash flows and financial position. See “Note 5, Fair Value Measurement and Disclosures” in the Notes to Consolidated Financial Statements for more information regarding our derivatives and hedging activities.

Interest Rate Risk

Our exposure to market risk resulting from changes in interest rates relates primarily to our investment portfolio. As of March 30, 2019 and December 29, 2018, we held $52.9 million and $40.8 million, respectively, in marketable securities. The fair value of our marketable securities could be adversely impacted due to a rise in interest rates. Assuming a hypothetical immediate and consistent increase in interest rates by 100 basis points from levels as of March 30, 2019, the fair value of our marketable securities would have declined by $0.2 million, as compared to $0.5 million as of December 29, 2018. Securities with longer maturities are subject to a greater interest rate risk than those with shorter maturities and as of March 30, 2019 and December 29, 2018, the average duration of our portfolio was less than nine months. We do not hold securities for trading purposes.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer (“CEO”), and our Vice President, Finance (who is our Principal Financial Officer (“PFO”)), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation, our CEO and PFO concluded that as of March 30, 2019, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 were (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and reported to our management, including our Chief Executive Officer and Principal Financial Officer, to allow timely discussions regarding required disclosures.

Changes in Internal Control over Financial Reporting

During the quarter ended March 30, 2019, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and PFO, has designed our disclosure controls and procedures and our internal control over financial reporting to provide reasonable assurances that the controls’ objectives will be met. However, management does not expect that disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Nanometrics have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any system’s design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of a system’s control effectiveness into future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II — OTHE R INFORMATION

ITEM 1

LEGAL PROCEEDINGS

The information set forth under Note 11. Commitments and Contingencies of Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A.

RISK FACTORS

Investing in our securities involves a high degree of risk. In assessing these risks, you should carefully consider the information included in this report, including our financial statements and the related notes thereto. You should carefully review and consider all of the risk factors set forth in Part l, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019.

The risks described in our Annual Report on Form 10-K are not the only ones we face. Additional risks and uncertainties that are not currently known to us or that we currently believe are immaterial may also impair our business operations. Our business, operating results and financial conditions could be materially harmed by any of these risks. The trading price of our common stock could decline due to any of these risks and investors may lose all or part of their investment.

There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.

ITEM 6.

E XHIBITS

The following exhibits are filed, furnished or incorporated by reference with this Quarterly Report on Form 10-Q:

Exhibit No.	Description	Form	File Number	Date of First Filing	Exhibit Number/ Appendix Reference
3.(i)	Certificate of Incorporation
3.1	Certificate of Incorporation of the Registrant	8-K	000-13470	10/5/2006	3.1
3.(ii)	Bylaws
3.2	Bylaws of the Registrant	8-K	000-13470	4/12/2012	3.1
4	Instruments Defining the Rights of Security Holders, Including Indentures
4.1	Reference is made to Exhibits 3.1 and 3.2	-	-	-	-
10	Material Contracts
	Management Contracts, Compensatory Plans, Contracts or Arrangements
10.1	General Severance Benefits and Change in Control Severance Benefits Agreement between Registrant and James Barnhart, dated March 12, 2018	-	-	-	-
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	-	-	-	-
31.2	Certification of Greg Swyt, principal financial officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	-	-	-	-
32	Section 1350 Certifications
32.1	Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, and Greg Swyt, principal financial officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall, not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.	-	-	-	-
101	The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at March 30, 2019 and December 29, 2018, (ii) Condensed Consolidated Statements of Operations for the three months ended March 30, 2019 and March 31, 2018, (iii) Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 30, 2019 and March 31, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2019 and March 31, 2018, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNA TURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NANOMETRICS INCORPORATED
	(Registrant)

	By:		/s/ GREG SWYT
			Greg Swyt
			Vice President, Finance
			(Duly Authorized Officer, Principal Financial Officer)

Dated: May 1, 2019

Exhibit 10.1

GENERAL SEVERANCE BENEFITS AND

CHANGE IN CONTROL SEVERANCE BENEFITS AGREEMENT

This GENERAL SEVERANCE BENEFITS AND CHANGE IN CONTROL SEVERANCE BENEFITS

AGREEMENT (this "Agreement") is entered into as of the 12th day of March 2018 (the "Effective Date"),

by and between JAMES BARNHART ("Executive") and NANOMETRICS INCORPORATED (the "Company") (together, the "Parties"). This Agreement is intended to provide Executive with certain compensation and benefits in the event of certain qualifying terminations of Executive's employment. Certain capitalized terms used in this Agreement are defined in Article 6.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1 Upon termination of Executive's employment for any reason, Executive shall be entitled to the Accrued Obligations. The Company and Executive wish to set forth in this Agreement the compensation and benefits that Executive shall be entitled to receive upon a Covered Termination or Change in Control Termination.

1.2 The duties and obligations of the Company to Executive under this Agreement in the event of a Covered Termination or Change in Control Termination shall be in consideration for Executive's compliance with the limitations and conditions on benefits as described in Article 4, including the timely provision of an effective Release, return of Company property and continued compliance with certain obligations described in Article 4. Provision of the Accrued Obligations to Executive is not conditioned upon Executive's compliance with the conditions on benefits described in Article 4.

1.3 This Agreement shall supersede any other policy, plan, program or arrangement, including, without limitation, any contract between Executive and the Company (or any subsidiary or affiliate of the Company), relating to severance benefits payable by the Company to Executive in connection with a termination of employment.

ARTICLE2

COVERED TERMINATION SEVERANCE BENEFITS (NOT IN CONNECTION WITH CHANGE IN CONTROL)

2.1 Covered Termination Severance Benefits. Upon a Covered Termination, and subject to the limitations and conditions set forth in this Agreement, including Executive's timely provision of an effective Release and satisfaction of all other conditions set forth in Article 4, Executive shall be eligible to receive the benefits set forth in this Article 2 (in addition to the Accrued Obligations}.

2.2 Salary Continuance. Executive shall receive, as severance, an amount equal to Executive's Base Salary for six (6) months, payable in equal installments over the six (6) month period following the Termination Date in accordance with the Company's payroll schedule then in effect, provided that (i) the payments shall commence on the first regularly scheduled payroll pay date following the effective date of the Release, (ii) the first payment shall be a "catch up" payment to include the total amount that Executive would have received as of such date if these payments had commenced with the

first payroll pay date following the Termination Date, and (iii) such payment schedule is subject to any delay in payment required by Section 5.5.

2.3

Health Continuation Coverage.

(a) Provided that Executive is eligible and has made the necessary elections for continuation coverage pursuant to COBRA under a health, dental, or vision plan sponsored by the Company, the Company shall pay the applicable premiums (inclusive of premiums for Executive's dependents for such health, dental, or vision plan coverage as in effect immediately prior to the date of the Covered Termination) for such continued health, dental, or vision plan coverage following the date of the Covered Termination for up to six (6) months (such period, the "COBRA Payment Period") but in no event after such time as Executive and Executive's dependents are no longer eligible for COBRA coverage. Such coverage shall be counted as coverage pursuant to COBRA. If Executive and Executive's dependents continue coverage pursuant to COBRA following the conclusion of the period that the Company makes premium payments hereunder, Executive will be responsible for the entire payment of such premiums required under COBRA for the remainder of the applicable COBRA period.

(b) For purposes of this Section 2.4 (i) references to COBRA shall be deemed to refer also to analogous provisions of state law, and (ii) any applicable insurance premiums that are paid by the Company shall not include any amounts payable by Executive under a Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Executive.

(c) Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot provide the COBRA premium benefits without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof pay Executive a taxable cash amount, which payment shall be made regardless of whether the Executive or his qualifying family members elect or are eligible for COBRA continuation coverage (the "Health, Care Benefit Payment"). The Health Care Benefit Payment shall be paid in monthly or bi-weekly installments on the same schedule that the COBRA premiums would otherwise have been paid to the insurer. The Health Care Benefit Payment shall be equal to the amount that the Company otherwise would have paid for COBRA insurance premiums (which amount shall be calculated based on the premium for the first month of coverage), and shall be paid until the expiration of the COBRA Payment Period.

ARTICLE3

CHANGE IN CONTROL SEVERANCE BENEFITS

3.1 Change in Control Severance Benefits. Upon a Change in Control Termination, and subject to the limitations and conditions set forth in this Agreement, including Executive's timely provision of an effective Release and satisfaction of all conditions set forth in Article 4, Executive shall be eligible to receive the benefits set forth in this Article 3 (in addition to the Accrued Obligations).

3.2 Salary Severance Payment. Executive shall receive, as severance, an amount equal to Executive's Base Salary for twelve (12) months, payable in a single lump sum on the first regularly scheduled payroll pay date following the effective date of the Release, subject to any delay in payment required by Section 5.5.

3.3 Bonus Severance Payment. Executive shall receive an additional severance payment in an amount equal to 100% of Executive's target annual bonus in effect for the fiscal year in which the Termination Date occurs (the “ Bonus Severance Payment"). The Bonus Severance Payment shall be

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paid on the first regular payroll date following the effective date of the Release, subject to any delay in payment required by Section 5.5.

3.4

Health Continuation Coverage.

(a) Provided that Executive is eligible and has made the necessary elections for continuation coverage pursuant to COBRA under a health, dental, or vision plan sponsored by the Company, the Company shall pay the applicable premiums (inclusive of premiums for Executive's dependents for such health, dental, or vision plan coverage as in effect immediately prior to the Termination Date) for such continued health, dental, or vision plan coverage following the Termination Date for up to twelve (12) months (such period, the "CIC COBRA Payment Period") but in no event after such time as Executive and Executive's dependents are no longer eligible for COBRA coverage. Such coverage shall be counted as coverage pursuant to COBRA. If Executive and Executive's dependents continue coverage pursuant to COBRA following the conclusion of the period that the Company makes premium payments hereunder, Executive will be responsible for the entire payment of such premiums required under COBRA for the remainder of the applicable COBRA period.

(b) For purposes of this Section 3.4, (i) references to COBRA shall be deemed to refer also to analogous provisions of state law, and (ii) any applicable insurance premiums that are paid by the Company shall not include any amounts payable by Executive under a Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Executive.

(c) Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot provide the COBRA premium benefits without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof pay Executive a taxable cash amount, which payment shall be made regardless of whether the Executive or his qualifying family members elect or are eligible for COBRA continuation coverage (the "CIC Health Care Benefit Payment"). The CIC Health Care Benefit Payment shall be paid in monthly or bi-weekly installments on the same schedule that the COBRA premiums would otherwise have been paid to the insurer. The CIC Health Care Benefit Payment shall be equal to the amount that the Company otherwise would have paid for COBRA insurance premiums (which amount shall be calculated based on the premium for the first month of coverage), and shall be paid until the expiration of the CIC COBRA Payment Period.).

3.5 Equity Awards. Executive shall receive the following benefits with respect to the Executive's equity awards.

(a) The vesting and exercisability of all outstanding options to purchase the Company's common stock, stock appreciation rights, stock units or other equity rights with respect to the Company granted to Executive pursuant to any equity incentive plan of the Company which would otherwise have vested conditioned solely upon Executive's continued services with the Company shall accelerate vesting in full.

(b) Any reacquisition or repurchase rights held by the Company with respect to common stock issued or issuable pursuant to any equity award granted to Executive pursuant to any equity incentive plan of the Company which would otherwise have lapsed conditioned solely upon Executive's continued services with the Company shall lapse in full.

(c) Any equity awards granted to Executive pursuant to any equity incentive plan of the Company which would otherwise vest based on attainment of performance criteria ("Performance Awards") will either: (i) not be subject to acceleration of vesting pursuant to this Agreement if the terms

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of such Performance Awards supersede this Agreement, or (ii) if the terms of such Performance Awards do not supersede this Agreement, such Performance Awards will accelerate vesting in full; provided however , that if such Performance Awards have multiple vesting levels depending on the level of performance, such Performance Awards will accelerate vesting at the "target leve l l . "

(d) If Executive is unable to exercise all or a portion of any exercisable equity awards granted to Executive pursuant to any equity incentive plan of the Company during the applicable post Termination Date exercise period due to a contractual, legal or regulatory restriction that prohibits the exercise of such Company's equity awards, the exercise period of such equity awards shall be automatically extended for an additional ninety (90) days following the termination of such contractual, legal or regulatory restriction; provided, however that in no event will such exercise period be extended beyond the maximum permitted contractual term for such equity awards and nothing herein is intended to prohibit earlier cancellation or termination of such equity awards in connection with a Change in Control in which such exercisable awards are not assumed, substituted or continued.

ARTICLE4

LIMITATIONS AND CONDITIONS ON BENEFITS

4.1 Rights Conditioned on Compliance. Executive's rights to receive all severance benefits described in Article 2 and Article 3 (other than the Accrued Obligations) shall be conditioned upon and subject to Executive's compliance with all the limitations and conditions on benefits as described in this Article 4. Executive acknowledges and agrees that Executive's obligations under this Article 4 are an essential part of the consideration Executive is providing hereunder in exchange for which and in reliance upon which the Company has agreed to provide the payments and benefits under this Agreement. Accordingly, Executive agrees that Executive will forfeit, effective as of the date of any breach or failure to comply with any of Executive's continuing obligations under this Article 4, any right, entitlement, claim or interest in or to any then unpaid portion of the severance payments or benefits provided in Article 2 or Article 3.

4.2 Resignation of all Company Positions on Termination Date. No later than the Termination Date, and prior to the provision or payment of any benefits under this Agreement on account of such Covered Termination or Change in Control Termination, as applicable, Executive must resign from all positions that Executive holds with the Company unless otherwise requested by the Company.

4.3 Release Prior to Payment of Benefits. Prior to the provision or payment of any benefits under this Agreement on account of a Covered Termination or Change in Control Termination, as applicable, Executive must execute a general waiver and release of all known and unknown claims in substantially the form attached hereto as Exhibit A (or in such other form as may later be specified by the Company) (the "Release"), and such release must become effective in accordance with its terms, but in no event later than sixty (60) days following the Termination Date (the "Release Deadline"). No amount shall be paid under this Agreement prior to the effective date of the Release . The Company may modify the Release in its discretion to comply with changes in applicable law at any time prior to Executive's execution of such Release. Such Release shall specifically relate to all of Executive's rights and claims in existence at the time of such execution and shall confirm Executive's obligations under Executive's written confidentiality or proprietary information agreement (or any successor agreement thereto) and any similar obligations under applicable Jaw. It is understood that, as specified in the applicable Release, Executive has a certain number of calendar days to consider whether to execute such Release. If Executive does not execute such Release within the applicable period, Executive shall have no further

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rights, title or interests in or to any severance benefits or payments pursuant to, this Agreement. It is further understood that if Executive is aged 40 years old or older at the time of a Change in Control Termination or a Covered Termination, as applicable, Executive may revoke the applicable Release in writing within seven (7) calendar days after its execution by Executive. If Executive revokes such Release within such subsequent seven (7) day period, no benefits shall be provided or payable under this Agreement pursuant to such Covered Termination or Change in Control Termination, as applicable.

4.4 Return of Company Property. Not later than the Termination Date (unless otherwise agreed by the Company in writing), Executive shall return to the Company all documents (and all copies thereof) and other property and information belonging to the Company that Executive has in his or her possession or control. The documents and property to be returned include, but are not limited to, all files, correspondence, email, memoranda, notes, notebooks, records, plans, forecasts, reports, studies, analyses, compilations of data, proposals, agreements, financial information, research and development information, marketing information, operational and personnel information, databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, facsimile machines, mobile telephones, and servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). Executive agrees to make a diligent search to locate any such documents, property and information. If Executive has used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, then within ten (10) business days after the Termination Date (or within such other timing as provided in writing by the Company), Executive shall provide the Company with a computer-useable copy of all such information and then permanently delete and expunge such confidential or proprietary information from those systems without retention of any reproductions. Executive agrees to provide the Company access to Executive's personally owned computer, server or e-mail systems as requested to verify that the necessary copying and/or deletion is done.

4.5

Cooperation and Continued Compliance with Proprietary Information Obligations.

(a) From and after the Termination Date, Executive shall cooperate fully with the Company in connection with its actual or contemplated defense, prosecution, or investigation of any existing or future litigation, arbitrations, mediations, claims, demands, audits, government or regulatory inquiries, or other matters arising from events, acts, or failures to act that occurred during the time period in which Executive was employed by the Company (including any period of employment with an entity acquired by the Company). Such cooperation includes, without limitation, being available upon reasonable notice, without subpoena, to provide accurate and complete advice, assistance and information to the Company, including offering and explaining evidence, providing truthful and accurate sworn statements, and participating in discovery and trial preparation and testimony. Executive also agrees to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by Executive in connection with any such legal proceedings, unless Executive is expressly prohibited by law from so doing. The Company will reimburse Executive for reasonable out-of-pocket expenses incurred in connection with any such cooperation (excluding foregone wages, salary, or other compensation) within thirty (30) days of Executive's timely presentation of appropriate documentation thereof, in accordance with the Company's standard reimbursement policies and procedures, and will make reasonable efforts to accommodate Executive's scheduling needs.

(b) From and after the Termination Date, Executive shall continue to abide by all of the terms and provisions of Executive's written confidentiality or proprietary information agreement (and any other comparable agreement signed by Executive), in accordance with its terms.

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4.6 Continued Compliance with Nondisparagement, Noncompetion and Nonsolicitation Requirements.

(a) During the period of Executive's employment with the Company and during the Continuation Period, Executive will not knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding the Company or any officer, director or agent of the Company nor will the Company knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding Executive. Notwithstanding the foregoing, nothing contained in this Agreement will be deemed to restrict Executive, the Company or any of the Company's current or former officers and/or directors from providing information to any governmental or regulatory agency (or in any way limit the content of any such information) to the extent they are requested or required to provide such information pursuant to applicable law or regulation.

(b) Executive acknowledges that the nature of the Company's business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company during the Continuation Period, it would be very difficult for Executive not to rely on or use the Company's trade secrets and confidential information. Thus, to avoid the inevitable disclosure of the Company's trade secrets and confidential information, Executive agrees and acknowledges that Executive's right to receive any then unpaid portion of the severance payments or benefits provided in Article 2 or Article 3 shall be conditioned upon Executive not directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate officer, director or otherwise), nor having any ownership interested in or participating in the financing, operation, management or control of, any person, firm, corporation or business that competes with Company or is a customer of the Company; provided, however, that nothing contained in this Section 4.6(b) shall be construed to prohibit Executive from purchasing and owning (directly or indirectly) up to two percent (2%) of the capital stock or other securities of any competitor corporation or other or other entity whose stock or securities are traded on any national or regional securities exchange or the national over-the counter market and such ownership shall be excluded from the prohibition set forth in this Section 4.6(b).

(c) During the Continuation Period Executive shall not either directly or indirectly solicit, induce, attempt to hire, recruit, encourage, take away, hire any employee of the Company or cause any employee of the Company to leave his or her employment either for Executive or for any other entity or person.

4.7 Survival. The provisions of this Article 4 shall survive the termination of this Agreement.

ARTICLES

TAX TREATMENT, REDUCTIONS AND OFFSETS

5.1

Parachute Payments.

(a) If any payment or benefit (including payments and benefits pursuant to this Agreement) Executive would receive in connection with a Change in Control from the Company or otherwise ("Payment") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such Payment will be equal to the Reduced Amount. The "Reduced Amount" will be either (x) the largest portion of the Payment that would result in no portion of the

6 .

Payment being subject to the Excise Tax, or (y) the largest portion, up to and including the total, of the Payment, whichever amount set forth in clause (x) or (y), after taking into account all applicable fede ral , state, provincial, foreign, and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in such Participant's receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the "Reduction Met h od") that results in the greatest economic benefit for Participant. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the "Pro Rata Reduction Met h od").

(b) Notwithstanding any provision of this Section 5.1 to the contrary, if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxes pursuant to Section 409A of the Code that would not otherwise be subject to taxes pursuant to Section 409A of the Code, then the Reduction Method and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A of the Code as follows: (i) as a first priority, the modification shall preserve to the greatest extent possible, the greatest economic benefit for the Executive as determined on an after-tax basis; (ii) as a second priority, Payments that are contingent on future events (e.g., being terminated without Cause), shall be eliminated before Payments that are not contingent on future events; and (iii) as a third priority, Payments that are "deferred compensation" within the meaning of Section 409A of the Code shall be reduced before Payments that are not "deferred compensation" within the meaning of Section 409A of the Code.

(c) The professional firm engaged by the Company for general tax purposes as of the day prior to the effective date of the Change in Control shall make all determinations required to be made under this Section 5.1. If the professional firm so engaged by the Company is serving as an accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such professional firm required to be made hereunder. Any good faith determinations of the professional firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

(d) If Executive receives a Payment for which the Reduced Amount was determined pursuant to clause (x) of Section 5.1(a) and the Internal Revenue Service determines thereafter that some portion of the Payment (after reduction pursuant to clause (x) of Section 5.1(a)) is subject to the Excise Tax, Executive shall promptly return to the Company a sufficient amount of the Payment so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to clause (y) of Section 5.1(a), Executive shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.

5.2 Certain Reductions and Offsets. To the extent that any federal, state or local laws, including, without limitation, the federal Worker Adjustment and Retraining Notification Act (the "WARN Act") or any other so-called "plant closing" laws (including but not limited to California Labor Code Section 1400 et seq.), require the Company to give advance notice or make a payment of any kind to Executive because of Executive's involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change in control, or any other similar event or reason, the benefits payable under this Agreement shall be correspondingly reduced. The benefits provided under this Agreement are intended to satisfy any and all statutory obligations that may arise out of Executive's involuntary termination of employment for the foregoing reasons, and the parties shall construe and enforce the terms of this Agreement accordingly.

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5.3

Mitigation. Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by any retirement benefits received by Executive after the date of a Covered Termination or Change in Control Termination.

5.4 Indebtedness of Executive. If Executive is indebted to the Company on the effective date of a Covered Termination or Change in Control Termination, the Company reserves the right to offset any severance payments and benefits under this Agreement by the amount of such indebtedness; provided, however, that any such offset does not violate or result in the imposition of tax under Section 409A of the Code.

5.5

Section 409A.

(a) Notwithstanding anything to the contrary herein, the following provisions apply to the extent severance and other benefits provided herein are subject to Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively "Section 409A "). Severance benefits shall not commence until Executive has a "separation from service" for purposes of Section 409A. Each installment of severance benefits is a separate "payment" for purposes of Treas. Reg. Section I .409A-2(b)(2)(i), and the severance benefits are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections l.409A l(b)(4), l.409A-l(b)(5) and l.409A-l(b)(9). However, if such exemptions are not available and Executive is, upon separation from service, a "specified employee" for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive's separation from service, or (ii) Executive's death.

(b) If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive separates from service, the separation agreement will not be deemed effective any earlier than the Release Deadline. None of the severance benefits will be paid or otherwise delivered prior to the effective date of the Release.

(c) All expenses or other reimbursements as provided herein shall be payable in accordance with the Company's policies in effect from time to time, provided that such reimbursements

(i) shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive; (ii) no such reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchanged for another benefit.

(d) The severance and other benefits provided herein are intended to qualify for an exemption from application of Section 409A or comply with its requirements to the extent necessary to avoid adverse personal tax consequences under Section 409A, and any ambiguities herein shall be interpreted accordingly.

5.6 Tax Withholding. All payments made and benefits provided under this Agreement shall be subject to applicable withholding for federal, state and local income and employment taxes.

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ARTICLE6

DEFINITIONS

Unless otherwise provided, for purposes of this Agreement, the following definitions shall apply:

6.1 "Accrued Obligations" means (i) any portion of Executive's annual base salary or incentive compensation earned through Executive's termination date not theretofore paid, (ii) any unreimbursed business expenses which are eligible for reimbursement in accordance with the Company's policies, (iii) any accrued but unused vacation pay or paid time off owed to Executive, and (iv) any amount arising from Executive's participation in, or benefits under, any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements. Accrued Obligations also includes any rights to indemnification Executive many have under the Company's Certificate of Incorporation, Bylaws, or separate indemnification agreement, as applicable, and as each may be amended from time to time.

6.2 "Base Salary" means I/ 12 th of Executive's annual base salary (excluding incentive pay, premium pay, commissions, overtime, bonuses, and other forms of variable compensation) as in effect on the date of a Change in Control Termination or a Covered Termination, as applicable, but determined without giving effect to any reduction in Base Salary that would give rise to the Executive's right to resign for Good Reason.

6.3

"Board" means the Board of Directors of the Company.

6.4 "Cause" means (i) Executive's willful gross misconduct; (ii) Executive's unjustifiable neglect of his duties (as determined in the good faith judgment of the Board); (iii) Executive's acting in any manner that has a direct, substantial and adverse effect on the Company or its reputation; (iv) Executive's repeated material failure or repeated refusal to comply with reasonable written policies, standards and regulations established by the Company from time to time which failure, if curable, is not cured to the reasonable satisfaction of the Board during the thirty (30) day period following written notice of such failure from the Company; (v) any tortuous act, unlawful act or malfeasance which causes or reasonably could cause (for example, if it became publicly known) material harm to the Company's standing, condition or reputation; (vi) any material breach by Executive of the provisions of any confidential information agreement with the Company or other material improper disclosure of the Company's confidential or proprietary information; (vii) Executive's theft, dishonesty, or falsification of any Company records; (viii) Executive's being found liable in any Securities and Exchange Commission or other civil or criminal securities law action or entering any cease and desist order with respect to such action (regardless of whether or not Executive admits or denies liability); or (ix) Executive (A) obstructing or impeding; (B) endeavoring to influence, obstruct or impede, or (C) failing to materially cooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity (an "Investigation"). However, Executive's failure to waive attorney-client privilege relating to communications with Executive's own attorney in connection with an Investigation will not constitute "Cause."

6.5 "Change in Control" means the occurrence of any of the following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by, or 50% or more of the fair value of, the Company's then outstanding voting power represented by, or 50% or more of the fair value of, the Company's then outstanding voting securities; (ii) any action or event occurring within a two-year period, as a result of which less than a majority of the directors are Incumbent

9 .

Directors. "Incumbent Directors" will mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted in to voting securities of the surviving or resulting entity, including any parent holding company) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving or resulting entity outstanding immediately after such merger or consolidation; or (iv) the consummation of the sale, lease or other disposition by the Company of all or substantially all the Company's assets. In addition, to the extent required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a "change in the ownership or effective control or' the Company or a "change in the ownership of a substantial portion of the assets or• the Company, as determined under Treasury Regulations Section I .409A-3(i)(5).

6.6 "Change in Control Termination" means an "Involuntary Termination Without Cause" or "Resignation for Good Reason," either of which occurs on or within twelve (12) months following, the effective date of a Change in Control, provided that any such termination is a "separation from service" within the meaning of Treasury Regulation Section l.409A-t (h). For the sake of clarity, a termination of employment due to Executive's death or disability will not constitute a Change in Control Termination for purposes of this Agreement.

6.7 "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

6.8

"Code" means the Internal Revenue Code of 1986, as amended.

6.9 "Company" means Nanometrics Incorporated or, following a Change in Control, the surviving entity resulting from such transaction, or any subsequent surviving entity resulting from any subsequent Change in Control.

6.10

"Continuation Period" means the 6 month period following the Termination Date in the event of a Covered Termination and the 12 month period following the Termination Date in the event of a Change in Control Termination, as applicable.

6.11 "Covered Termination" means an "Involuntary Termination Without Cause" or "Resignation for Good Reason" either of which occurs other than on or within twelve ( 12) months following, the effective date of a Change in Control, provided that any such termination is a "separation from service" within the meaning of Treasury Regulation Section I .409A-I (h). For the sake of clarity, a termination of employment due to Executive's death or disability will not constitute a Covered Termination for purposes of this Agreement.

6.12 "Involuntary Termination Without Cause" means Executive's dismissal or discharge by the Company for reasons other than Cause and other than as a result of death or disability.

6.13 "Resignation for Good Reason" means Executive's resignation from all positions Executive holds with the Company at such time, which resignation occurs within ninety (90) days following any of the following events taken without Executive's written consent, provided that Executive has given the Company written notice of such event within thirty (30) days after the first occurrence of

IO.

such event and the Company has not cured such event, to the extent curable, within thirty (30) days thereafter:

(a) A material decrease in Executive's base compensation (which includes Executive's base salary and target bonus);

(b) A material diminution in Executive's authority, duties or responsibilities (including any change in Executive's position such that Executive is no longer employed in substantially the same position and with substantially the same level of authority, responsibilities or duties at the ultimate parent corporation in an affiliated group of companies);

(c) A relocation of Executive's assigned office location to a facility which is more than fifty (50) miles from its current location and which materially increases Executive's one-way driving distance from Executive's principal personal residence to such office location at which Executive is required to perform services (except for required business travel to the extent consistent with Executive's prior business travel obligations); or

(d) The material breach by the Company of this Agreement or any other then current agreement under which Executive performs services for the Company.

6.14

"Termination Date" means the effective date of the Change in Control Termination or Covered Termination, as applicable.

ARTICLE?

GENERAL PROVISIONS

7.1

Employment Status. This Agreement does not constitute a contract of employment or impose upon Executive any obligation to remain as an employee, or impose on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at-will employee or (iii) to change the Company's policies regarding termination of employment.

7.2

Notices. Any notices provided hereunder must be in writing, and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at Executive's address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at the address as listed in the Company's payroll records. Either Party can change his or its address for receipt of notice by providing writing notice to the other Party of such change.

7.3 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

7.4 Waiver. If either party should waive any breach of any provisions of this Agreement, such Party shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

11 .

7.5

Complete Agreement. This Agreement, including EXHIBIT A hereto constitutes the entire agreement between Executive and the Company and is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter, wholly superseding all written and oral agreements with respect to payments and benefits to Executive in the event of employment termination . It is entered into without reliance on any promise or representation other than those expressly contained herein.

7.6 Amendment or Termination of Agreement; Continuation of Agreement. This Agreement may be changed or terminated only upon the mutual written consent of the Company and Executive. The written consent of the Company to a change or termination of this Agreement must be signed by an executive officer of the Company (other than Executive) after such change or termination has been approved by the Board. Unless so terminated, this Agreement shall continue in effect for as long as Executive continues to be employed by the Company or by any surviving entity following any Change in Control. In other words, if, following a Change in Control, Executive continues to be employed by the surviving entity without a Change in Control Termination and the surviving entity then undergoes a Change in Control, following which Executive is terminated by the subsequent surviving entity in a Change in Control Termination, then Executive shall receive the benefits described in Article 3 hereof.

7.7 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

7.8

Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

7.9

Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, and the Company, and any surviving entity resulting from a Change in Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company, and their respective successors, assigns, heirs, executors and administrators, without regard to whether or not such person actively assumes any rights or duties hereunder; provided, however, that Executive may not assign any duties hereunder and may not assign any rights hereunder without the written consent of the Company .

7.10

Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California, without regard to such state's conflict of laws rules.

7.11 Dispute Resolution. To ensure the rapid and economical resolution of disputes that may arise in connection with Executive's employment and services for the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive's employment with and services for the Company, or the termination of Executive's employment with and services for the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in San Jose, California (or such other location as mutually agreed by the parties) by JAMS, Inc. ("JAMS") or its successors by a single arbitrator. Both Executive and the Company acknowledge that by agreeing to this arbitration procedure, they each waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. Any such arbitration proceeding will be governed by JAMS' then applicable rules and procedures for employment disputes, which can be found at http://www. jamsadr .co m/ru les- clauses/ and which will be provided to Executive upon request. In any such proceeding, the arbitrator shall (a) have the authority to compel

12 .

adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator's essential findings and conclusions and a statement of the award. Executive and the Company each shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law. Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration pursuant to applicable law. The Company shall pay all filing fees in excess of those that would be required if the dispute were decided in a court of law, and shall pay the arbitrator's fees and any other fees or costs unique to arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent ju risdiction .

7.12 Construction of Agreement. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

IN WITNESS WHEREOF, the parties have executed this Agreement on the Effective Date

written above .

NANOMETRICS INCORPORATED JAMES BARNHART


By:	/S/ Dr. Pierre-Yves Lesaicherre	By:	/S/ James Barnhart

Name:	Dr. Pierre-Yves Lesaicherre	Date:	March 12, 2018

Title:	President & CEO

Date:	March 26, 2018

A- 1 .

EXHIBIT A RELEASE OF CLAIMS

In consideration of the payments and other benefits set forth in the General Severance Benefits and Change in Control Severance Benefits Agreement dated March 12, 2018 to which this form is attached, I, James Barnhart, hereby furnish Nanometrics Incorporated (the "Company") with the following release and waiver ("Release and Waiver").

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the "Released Parties") from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that I sign this Release and Waiver (collectively, the "Released Claims"). The Released Claims include, but are not limited to:

(a) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (b) all claims related to my compensation or benefits from the Company including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing;

(d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, misclassification, attorneys' fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act of 1967 (as amended) (the "ADEA "), the California Labor Code, and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the "Excluded Claims"): (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; (b) any rights or claims to unemployment compensation, funds accrued in my 401k account, or any vested equity incentives; (c) any rights that are not waivable as a matter of law; or (d) any claims arising from the breach of this Release and Waiver . I hereby represent and warrant that , other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor." I hereby expressly waive and relinquish all rights and benefits under that Section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; and (c) I have twenty-one (21) days from the date of termination of my employment with the

A- 2 .

Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired without my having previously revoked this Release and Waiver.

I acknowledge my continuing obligations under my Proprietary Information and Inventions Agreement. Pursuant to the Proprietary Information and Inventions Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control. I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions Agreement.

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.

JAMES BARNHART

Date: ---------------

A- 3 .

Exhibit 31.1

I, Pierre-Yves Lesaicherre, the Chief Executive Officer of Nanometrics Incorporated, certify that:

I have reviewed this quarterly report on Form 10-Q of Nanometrics Incorporated;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:		May 1, 2019

By:		/s/ Pierre-Yves Lesaicherre
		Pierre-Yves Lesaicherre
		Chief Executive Officer

Exhibit 31.2

I, Greg Swyt, Vice President, Finance (Duly Authorized Officer, Principal Financial Officer) certify that:

I have reviewed this quarterly report on Form 10-Q of Nanometrics Incorporated;

(a)

(b)

(c)

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:		May 1, 2019

By:		/s/ Greg Swyt
		Greg Swyt
		Vice President, Finance (Duly Authorized Officer, Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Pierre-Yves Lesaicherre, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Nanometrics Incorporated on Form 10-Q for the quarterly period ended March 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Nanometrics Incorporated.

May 1, 2019		/s/ Pierre-Yves Lesaicherre
		Pierre-Yves Lesaicherre
		Chief Executive Officer

I, Greg Swyt, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Nanometrics Incorporated on Form 10-Q for the quarterly period ended March 30, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Nanometrics Incorporated.

May 1, 2019		/s/ Greg Swyt
		Greg Swyt
		Vice President, Finance (Duly Authorized Officer, Principal Financial Officer)

This certification accompanies the Quarterly Report on Form 10-Q for the period ended March 30, 2019 of Nanometrics Incorporated (the “Company”) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, made before or after the date of this Quarterly Report and irrespective of any general incorporation language contained in such filing.