Silicon Motion Announces Results for the Period Ended September 30, 2016

Financial Highlights

GAAP Non-GAAP
Net sales $158.6 million (13% Q/Q) $158.6 million (13% Q/Q
Gross margin 48.8% 48.9%
Operating margin 24.3% 28.7%
Earnings per diluted ADS $0.92 $1.07

Business Highlights

  • Embedded Storage1 sales increased over 15% Q/Q and accounted for about 80% of total sales, similar to the previous quarter
  • Client SSD controller sales increased 25% Q/Q
  • eMMC controller sales increased over 15% Q/Q
  • Enterprise and industrial SSD solutions sales increased less than 10% Q/Q
  • Started to ship PCIe NVMe SSD controllers to one flash partner and one module maker
  • Secured PCIe NVMe SSD controller design-wins with nearly 10 customers

TAIPEI, Taiwan and MILPITAS, Calif., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS:SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended September 30, 2016. For the third quarter, net sales increased 13% sequentially to $158.6 million from $140.7 million in the second quarter. Net income (GAAP) increased to $32.7 million or $0.92 per diluted ADS (GAAP) from a net income (GAAP) of $29.0 million or $0.82 per diluted ADS (GAAP) in the second quarter.

For the third quarter, net income (non-GAAP) increased to $38.3 million or $1.07 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $30.7 million or $0.86 per diluted ADS (non-GAAP) in the second quarter.

1 Embedded Storage comprises primarily eMMC and client SSD controllers and enterprise and industrial SSD solutions.

Third Quarter 2016 Review
“Third quarter sales exceeded our original expectations due to continuing strong demand for our client SSD and eMMC controllers, especially from our NAND flash partners,” said Wallace Kou, President and CEO of Silicon Motion. “We are excited that our NAND flash partners have continued to grow their sales of SSDs to PC OEMs and eMMCs to smartphone OEMs. This has led to further expansion of our market shares in both client SSD controllers and eMMC controllers.”

Sales

(in millions, except percentages)3Q 20162Q 20163Q 2015
SalesMixSalesMixSalesMix
Mobile Storage*
Q/Q
Y/Y
$

146.9
13
82

%
%
93

%

$129.5
25
83

%
%
92

%

$80.9
14
12

%
%
85%
Mobile Communications**$10.1 6%$9.7 7%$12.5 13%
Others$1.6 1%$1.5 1%$2.0 2%
Total Revenue
Q/Q
Y/Y
$158.6
13
66

%
%
100

%

$140.7
25
61

%
%
100

%

$95.4
9
10

%
%
100%

* Mobile Storage products include Embedded Storage products (eMMC and client SSD controllers and enterprise and industrial SSD solutions) and Expandable Storage products (SD and USB flash drive controllers)
** Mobile Communications products include mobile TV SoCs and handset transceivers

Key Financial Results

(in millions, except percentages and per ADS amounts)GAAPNon-GAAP
3Q 20162Q 20163Q 20153Q 20162Q 20163Q 2015
Revenue$158.6 $140.7 $ 95.4 $158.6 $140.7 $95.4
Gross profit
Percent of revenue
$77.4
48.8

%
$ 68.1
48.4

%
$
49.1
51.5

%
$ 77.6
48.9

%
$ 68.1
48.4

%
$ 49.2
51.6

%
Operating expenses$38.9 $31.9 $ 29.7 $32.0 $30.9 $25.8
Operating income
Percent of revenue
$38.5
24.3

%
$ 36.2
25.7

%
$
19.4
20.4

%
$45.5
28.7

%
$ 37.2
26.5

%
$ 23.4
24.5

%
Earnings per diluted ADS$0.92 $0.82 $ 0.38 $1.07 $0.86 $0.57

Other Financial Information

(in millions)3Q 2016 2Q 2016 3Q 2015
Cash and cash equivalents, and short-term investments $269.2 $219.1 $183.7
Capital Expenditures$2.8 $4.9 $4.6
Dividend payments$5.3 $5.3 $5.2

During the third quarter, we had $2.8 million of capital expenditures for the routine purchase of software and design tools.

This quarter, we received $35.0 million in bank financing secured by a $25.0 million restricted deposit. These loans are for accelerating the unwinding of intercompany transactions. We expect to repay the loans within 12 months from our operating cash flow.

Our third quarter cash flows were as follows:

3 months ended September 30, 2016
(In $ millions)
Net income (GAAP) 32.7
Depreciation & amortization 2.4
Changes in operating assets and liabilities 15.1
Others 4.7
Net cash provided by operating activities 54.9
Acquisition of property and equipment (2.8)
Changes in restricted assets (25.2)
Net cash used in investing activities (28.0)
Dividend (5.3)
Loans 35.0
Net cash provided by financing activities 29.7
Effects of changes in foreign currency exchange rates on cash 0.5
Net increase in cash and cash equivalents 57.1

Returning Value to Shareholders
On October 24, 2016, the Board of Directors of the Company declared a $0.80 per ADS annual dividend to be paid in quarterly installments of $0.20 per ADS. Because of our strong business outlook and improvements in free cash flow, our Board raised our annual dividend from last year’s $0.60 per ADS.

On August 5, 2016, we paid $5.3 million to shareholders as the fourth installment of our previously announced annual dividend, which was declared on November 2, 2015.

Business Outlook
“We expect our revenue to decline in the fourth quarter. Our client SSD controller sales should grow further, but will likely be offset by declining sales of card and USB flash drive controllers due to tightness in flash availability and SSD solutions due to project timing,” said Wallace Kou, President and CEO of Silicon Motion. “Year-over-year, our fourth quarter revenue should grow in the range of 39% to 47%, a solid finish for an outstanding year. We will be exiting the year with a solid pipeline of projects relating to our client SSD controllers, eMMC and UFS controllers and SSD solutions, which we believe will position us for further growth in 2017.”

For the fourth quarter of 2016, management expects:

GAAPNon-GAAP AdjustmentNon-GAAP
Revenue $136.4m to $144.3m
-14% to -9% Q/Q
-- $136.4m to $144.3m
-14% to -9% Q/Q
Gross margin48.5% to 50.5%Approximately $0.2m*48.5% to 50.5%
Operating margin19% to 21% Approximately $8.7m to 9.1m** 25% to 27%

* Gross margin (non-GAAP) excludes $0.2 million of stock-based compensation.
** Operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, $0.3 million of restructuring expenses, and $7.9 million to $8.3 million of stock-based compensation.

Conference Call & Webcast:
The Company’s management team will conduct a conference call at 8:00 am Eastern Time on October 28, 2016.
Speakers
Wallace Kou, President & CEO
Riyadh Lai, CFO
Jason Tsai, Senior Director of Investor Relations and Strategy

CONFERENCE CALL ACCESS NUMBERS:
USA (Toll Free): 1 866 519 4004
USA (Toll): 1 845 675 0437
Taiwan (Toll Free): 0080 112 6920
Participant Passcode: 9414 5523

REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697
Participant Passcode: 9414 5523

A webcast of the call will be available on the Company's website at www.siliconmotion.com.

Discussion of Non-GAAP Financial Measures

To supplement the Company’s unaudited selected financial results calculated in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the Company discloses certain non-GAAP financial measures that exclude stock-based compensation and other items, including gross profit (non-GAAP), operating expenses (non-GAAP), operating profit (non-GAAP), net income (non-GAAP), and earnings per diluted ADS (non-GAAP). These non-GAAP measures are not in accordance with or an alternative to GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all the amounts associated with the Company’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measure. We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

Our non-GAAP financial measures are provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future. Specifically, we believe the non-GAAP results provide useful information to both management and investors as these non-GAAP results exclude certain expenses, gains and losses that we believe are not indicative of our core operating results and because it is consistent with the financial models and estimates published by many analysts who follow the Company. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with our forecasts, and for benchmarking our performance externally against our competitors. Also, when evaluating potential acquisitions, we exclude the items described below from our consideration of the target’s performance and valuation. Since we find these measures to be useful, we believe that our investors benefit from seeing the results from management’s perspective in addition to seeing our GAAP results. We believe that these non-GAAP measures, when read in conjunction with the Company’s GAAP financials, provide useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of the Company’s on-going operating results;
  • the ability to better identify trends in the Company’s underlying business and perform related trend analysis;
  • a better understanding of how management plans and measures the Company’s underlying business; and
  • an easier way to compare the Company’s operating results against analyst financial models and operating results of our competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of each of the adjustments that we incorporate into our non-GAAP measures, as well as the reasons for excluding each of these individual items in our reconciliation of these non-GAAP financial measures:

Stock-based compensation expense consists of non-cash charges related to the fair value of stock options and restricted stock units awarded to employees. The Company believes that the exclusion of these non-cash charges provides for more accurate comparisons of our operating results to our peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, the Company believes it is useful to investors to understand the specific impact of share-based compensation on its operating results.

Foreign exchange gains and losses consist of translation gains and/or losses of non-US$ denominated current assets and current liabilities, as well as certain other balance sheet items which result from the appreciation or depreciation of non-US$ currencies against the US$. We do not use financial instruments to manage the impact on our operations from changes in foreign exchange rates, and because our operations are subject to fluctuations in foreign exchange rates, we therefore exclude foreign exchange gains and losses when presenting non-GAAP financial measures.

Amortization of intangibles assets consists of non-cash charges that can be impacted by the timing and magnitude of our acquisitions. The Company considers its operating results without these charges when evaluating its ongoing performance and forecasting its earnings trends, and therefore excludes such charges when presenting non-GAAP financial measures. The Company believes that the assessment of its operations excluding these costs is relevant to its assessment of internal operations and comparisons to the performance of its competitors.

Litigation expenses consist of legal expenses relating to intellectual property disputes, commercial claims and other types of litigation. While litigation may arise in the ordinary course of our business, we nevertheless consider litigation to be an unusual and unplanned activity and therefore exclude this charge when presenting non-GAAP financial measures.

Acquisition-related expenses consist of direct costs of acquisitions, such as transaction fees, which vary significantly and are unique to each acquisition. The Company does not acquire businesses on a predictable cycle, so we have excluded the effect of these costs when presenting our non-GAAP financial measures.

Restructuring expenses consists of costs relating to the restructuring of our corporate organization according to a formal plan to streamline operations and improve financial performance. The Company does not engage in restructuring activities in the ordinary course of business, so have excluded the effect of these costs when presenting non-GAAP financial measures.

Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
For the Three Months Ended
Sep. 30, 2015
($)
Jun. 30, 2016
($)
Sep. 30, 2016
($)
Net Sales 95,397 140,686 158,580
Cost of sales 46,285 72,565 81,175
Gross profit 49,112 68,121 77,405
Operating expenses
Research & development 19,628 21,234 25,934
Sales & marketing 5,545 6,351 7,548
General & administrative 3,994 3,797 4,878
Amortization of intangibles assets 526 526 526
Operating income 19,419 36,213 38,519
Non-operating income (expense)
Gain on sale of investments - 1 -
Interest income, net 506 441 541
Foreign exchange gain (loss), net 220 (488) (375)
Others, net 4 19 28
Subtotal 730 (27) 194
Income before income tax 20,149 36,186 38,713
Income tax expense 6,969 7,139 5,991
Net income 13,180 29,047 32,722
Earnings per basic ADS$0.38 $0.82 $0.93
Earnings per diluted ADS$0.38 $0.82 $0.92
Margin Analysis:
Gross margin 51.5% 48.4% 48.8%
Operating margin 20.4% 25.7% 24.3%
Net margin 13.8% 20.6% 20.6%
Additional Data:
Weighted avg. ADS equivalents2 34,726 35,273 35,308
Diluted ADS equivalents 34,941 35,476 35,539

2 Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents four ordinary shares.

Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
For the Three Months Ended
Sep. 30,
2015
($)
Jun. 30,
2016

($)
Sep. 30,
2016

($)
Gross profit (GAAP) 49,112 68,121 77,405
Gross margin (GAAP) 51.5% 48.4% 48.8%
Stock-based compensation expense(A) 88 2 156
Gross profit (non-GAAP) 49,200 68,123 77,561
Gross margin (non-GAAP) 51.6% 48.4% 48.9%
Operating expenses (GAAP) 29,693 31,908 38,886
Stock-based compensation expense (A) (3,347) (470) (6,320)
Amortization of intangible assets (526) (526) (526)
Litigation expense (28) (9) (1)
Acquisition-related expense 6 - -
Operating expenses (non-GAAP) 25,798 30,903 32,039
Operating profit (GAAP) 19,419 36,213 38,519
Operating margin (GAAP) 20.4% 25.7% 24.3%
Total adjustments to operating profit 3,983 1,007 7,003
Operating profit (non-GAAP) 23,402 37,220 45,522
Operating margin (non-GAAP) 24.5% 26.5% 28.7%
Non-operating income (expense) (GAAP) 730 (27) 194
Foreign exchange loss (gain), net (220) 488 375
Non-operating income (expense) (non-GAAP) 510 461 569
Net income (GAAP) 13,180 29,047 32,722
Total pre-tax impact of non-GAAP adjustments 3,763 1,495 7,378
Income tax impact of non-GAAP adjustments 3,105 162 (1,768)
Net income (non-GAAP) 20,048 30,704 38,332
Earnings per diluted ADS (GAAP) $0.38 $0.82 $0.92
Earnings per diluted ADS (non-GAAP) $0.57 $0.86 $1.07
Shares used in computing earnings per diluted ADS (GAAP) 34,941 35,476 35,539
Non-GAAP Adjustments 332 63 244
Shares used in computing earnings per diluted ADS (non-GAAP) 35,273 35,539 35,783
(A) Excludes stock-based compensation as follows:
Cost of Sales 88 2 156
Research & development 2,125 278 4,009
Sales & marketing 604 159 1,038
General & administrative 618 33 1,273


Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
For the Nine Months Ended
Sep. 30, 2015
($)
Sep. 30,2016
($)
Net Sales 263,256 411,948
Cost of sales 127,737 209,461
Gross profit 135,519 202,487
Operating expenses
Research & development 51,876 66,367
Sales & marketing 14,037 20,114
General & administrative 10,710 12,024
Amortization of intangibles assets 526 1,577
Operating income 58,370 102,405
Non-operating expense (income)
Gain on sale of investments 2 1
Interest income, net 1,523 1,407
Foreign exchange gain (loss), net 599 (803)
Others, net 8 47
Subtotal 2,132 652
Income before income tax 60,502 103,057
Income tax expense 13,635 18,274
Net income 46,867 84,783
Earnings per basic ADS $1.36 $2.41
Earnings per diluted ADS $1.35 $2.39
Margin Analysis:
Gross margin 51.5% 49.2%
Operating margin 22.2% 24.9%
Net margin 17.8% 20.6%
Additional Data:
Weighted avg. ADS equivalents 34,408 35,198
Diluted ADS equivalents 34,782 35,476


Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
For the Nine Months Ended
Sep. 30, 2015
($)
Sep. 30, 2016
($)
Gross profit (GAAP) 135,519 202,487
Gross margin (GAAP) 51.5% 49.2%
Stock-based compensation expense(A) 129 201
Gross profit (non-GAAP) 135,648 202,688
Gross margin (non-GAAP) 51.5% 49.2%
Operating expenses (GAAP) 77,149 100,082
Stock-based compensation expense (A) (5,066) (8,736)
Amortization of intangible assets (526) (1,577)
Litigation expense (93) (51)
Acquisition-related expense (320) -
Operating expenses (non-GAAP) 71,144 89,718
Operating profit (GAAP) 58,370 102,405
Operating margin (GAAP) 22.2% 24.9%
Total adjustments to operating profit 6,134 10,565
Operating profit (non-GAAP) 64,504 112,970
Operating margin (non-GAAP) 24.5% 27.4%
Non-operating income (expense) (GAAP) 2,132 652
Foreign exchange loss (gain), net (599) 803
Non-operating income (expense) (non-GAAP) 1,533 1,455
Net income (GAAP) 46,867 84,783
Total pre-tax impact of non-GAAP adjustments 5,535 11,368
Income tax impact of non-GAAP adjustments 1,984 (2,810)
Net income (non-GAAP) 54,386 93,341
Earnings per diluted ADS (GAAP) $1.35 $2.39
Earnings per diluted ADS (non-GAAP) $1.56 $2.62
Shares used in computing earnings per diluted ADS (GAAP) 34,782 35,476
Non-GAAP Adjustments 144 140
Shares used in computing earnings per diluted ADS (non-GAAP) 34,926 35,616
(A) Excludes stock-based compensation as follows:
Cost of Sales 129 201
Research & development 3,242 5,453
Sales & marketing 931 1,646
General & administrative 893 1,637


Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
Sep. 30,
2015

($)
Jun. 30,
2016
($)
Sep. 30,
2016
($)
Cash and cash equivalents 182,984 203,420 260,468
Short-term investments 679 15,691 8,683
Accounts receivable (net) 56,432 71,931 61,800
Inventories 50,176 81,542 79,728
Refundable deposits – current 19,531 19,149 44,289
Prepaid expenses and other current assets 4,244 5,417 6,392
Total current assets 314,046 397,150 461,360
Long-term investments 133 133 133
Property and equipment (net) 38,322 48,336 48,726
Goodwill and intangible assets(net) 76,528 74,942 74,423
Other assets 3,945 8,501 11,033
Total assets 432,974 529,062 595,675
Accounts payable 14,077 48,315 38,207
Loans - - 35,000
Income tax payable 21,791 16,362 22,148
Accrued expenses and other current liabilities 41,887 49,359 73,308
Total current liabilities 77,755 114,036 168,663
Other liabilities 8,338 16,264 16,766
Total liabilities 86,093 130,300 185,429
Shareholders’ equity 346,881 398,762 410,246
Total liabilities & shareholders’ equity 432,974 529,062 595,675

About Silicon Motion:
We are the global leader in supplying NAND flash controllers for solid state storage devices and the merchant leader in supplying SSD controllers. We have the broadest portfolio of controller technologies and solutions and ship over 750 million NAND controllers annually, more than any other company in the world. Our controllers are widely used in embedded storage products such as SSDs and eMMCs which are found in smartphones, PCs and industrial and commercial applications. We also supply specialized high-performance enterprise and industrial SSD solutions. Our customers include most of the NAND flash vendors, storage device module makers and leading OEMs. For further information on Silicon Motion, visit us at www.siliconmotion.com.

Forward-Looking Statements:
This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements about Silicon Motion’s currently expected fourth quarter of 2016 and full year 2016 revenue, gross margin and operating expenses, all of which reflect management’s estimates based on information available at this time of this press release. While Silicon Motion believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts for the fourth quarter of 2016 and full year 2016. Forward-looking statements also include, without limitation, statements regarding trends in the multimedia consumer electronics market and our future results of operations, financial condition and business prospects. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Although such statements are based on our own information and information from other sources we believe to be reliable, you should not place undue reliance on them. These statements involve risks and uncertainties, and actual market trends or our actual results of operations, financial condition or business prospects may differ materially from those expressed or implied in these forward looking statements for a variety of reasons. Potential risks and uncertainties include, but are not limited to the unpredictable volume and timing of customer orders, which are not fixed by contract but vary on a purchase order basis; the loss of one or more key customers or the significant reduction, postponement, rescheduling or cancellation of orders from these customers; general economic conditions or conditions in the semiconductor or consumer electronics markets; decreases in the overall average selling prices of our products; changes in the relative sales mix of our products; our ability to continue to successfully integrate our 2015 acquisition of Shannon Systems; changes in our cost of finished goods; the payment, or non-payment, of cash dividends, including our recently announced increase to our annual dividend, in the future at the discretion of our board of directors; changes in our cost of finished goods; the availability, pricing, and timeliness of delivery of other components and raw materials used in our customers’ products; our customers’ sales outlook, purchasing patterns, and inventory adjustments based on consumer demands and general economic conditions, its customers and consumers; our ability to successfully develop, introduce, and sell new or enhanced products in a timely manner; and the timing of new product announcements or introductions by us or by our competitors. For additional discussion of these risks and uncertainties and other factors, please see the documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 20-F filed on April 29, 2016. We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release.

Investor Contact: Jason Tsai Senior Director of IR and Strategy Tel: +1 408 519 7259 Fax: +1 408 519 7101 E-mail: jtsai@siliconmotion.com Investor Contact: Selina Hsieh Investor Relations Tel: +886 3 552 6888 x2311 Fax: +886 3 560 0336 E-mail: ir@siliconmotion.com Media Contact: Sara Hsu Project Manager Tel: +886 2 2219 6688 x3509 Fax: +886 2 2219 6868 E-mail: sara.hsu@siliconmotion.com

Source:Silicon Motion Technology Corporation