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Silicon Motion Announces Results for the Period Ended December 31, 2016

Financial Highlights

4Q 2016 GAAP
4Q 2016 Non-GAAP
* Net sales $144.2 million (-9% Q/Q, +47% Y/Y) $144.2 million (-9% Q/Q, +47% Y/Y)
* Gross margin 50.0%
50.2%
* Operating margin 24.2%
30.4%
* Earnings per diluted ADS $0.73
$0.95
Full Year 2016 GAAP Full Year 2016 Non-GAAP
* Net sales $556.1 million (+54% Y/Y) $556.1 million (+54% Y/Y)
* Gross margin 49.4%
49.4%
* Operating margin 24.7%
28.2%
* Earnings per diluted ADS $3.12
$3.64

Business Highlights

  • Embedded Storage1 sales decreased approximately 10% Q/Q and accounted for about 80% of total sales, similar to the previous quarter
  • Client SSD controller sales increased over 5% Q/Q
  • eMMC controller sales decreased over 5% Q/Q
  • SSD solutions sales decreased over 40% Q/Q
  • Our flash partner began sampling with leading smartphone OEMs their UFS embedded memory with our controller
  • Introduced our Shannon Systems ultra-high performance 12.8TB PCIe SSD with 3D NAND for Chinese hyperscalers

TAIPEI, Taiwan and MILPITAS, Calif., Jan. 24, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended December 31, 2016. For the fourth quarter, net sales decreased 9% sequentially to $144.2 million from $158.6 million in the third quarter. Net income (GAAP) decreased to $26.2 million or $0.73 per diluted ADS (GAAP) from a net income (GAAP) of $32.7 million or $0.92 per diluted ADS (GAAP) in the third quarter.

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

For the fourth quarter, net income (non-GAAP) decreased to $33.9 million or $0.95 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $38.3 million or $1.07 per diluted ADS (non-GAAP) in the third quarter.

Fourth Quarter 2016 Review
“Due to continuing strength of our SSD controller business, representing our ninth consecutive quarter of SSD controller growth, we achieved fourth quarter sales that were on the high-end of our expectations,” said Wallace Kou, President and CEO of Silicon Motion. “Strength from our SSD controllers was however offset by seasonally weak eMMC controller sales and SSD Solutions project transitions.”

Sales

(in millions, except percentages)4Q 20163Q 20164Q 2015
SalesMixSalesMixSalesMix
Mobile Storage*
$
130.3
90%
$
146.9
93%
$
87.5
89%
Q/Q -11% 13% 8%
Y/Y 49% 82% 34%
Mobile Communications**$12.5 9%$10.1 6%$8.8 9%
Others$1.4 1%$1.6 1%$1.7 2%
Total revenue
$
144.2
100
%
$
158.6
100
%
$
98.0
100%
Q/Q -9% 13% 3%
Y/Y 47% 66% 22%

* 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
4Q 20163Q 20164Q 20154Q 20163Q 20164Q 2015
Revenue$ 144.2 $ 158.6 $ 98.0 $ 144.2 $ 158.6 $ 98.0
Gross profit$ 72.1 $ 77.4 $ 49.0 $ 72.3 $ 77.6 $ 49.1
Percent of revenue 50.0% 48.8% 50.0% 50.2% 48.9% 50.1%
Operating expenses$ 37.3 $ 38.9 $ 31.0 $ 28.5 $ 32.0 $ 25.3
Operating income$ 34.9 $ 38.5 $ 18.1 $ 43.8 $ 45.5 $ 23.9
Percent of revenue 24.2% 24.3% 18.4% 30.4% 28.7% 24.4%
Earnings per diluted ADS$ 0.73 $ 0.92 $ 0.38 $ 0.95 $ 1.07 $ 0.55

Other Financial Information

(in millions)4Q 20163Q 20164Q 2015
Cash and cash equivalents, and short-term investments$277.8$269.2$185.2
Bank loans$25.0$35.0 --
Capital expenditures$2.5$2.8$14.4
Dividend payments$7.1$5.3$5.2
Loan repayments$10.0 -- --

During the fourth quarter, we had $2.1 million of capital expenditures for the routine purchase of software and design tools. In this quarter, after loan repayments of $10.0 million, we had $25.0 million of bank loans outstanding.

Our fourth quarter cash flows were as follows:

3 months ended December 31, 2016
(In $ millions)
Net income (GAAP) 26.2
Depreciation & amortization 2.7
Changes in operating assets and liabilities (3.1)
Others 9.0
Net cash provided by operating activities 34.8
Acquisition of property and equipment (2.5)
Changes in restricted assets 0.1
Net cash used in investing activities (2.4)
Dividend (7.1)
Loans (10.0)
Net cash used in financing activities (17.1)
Effects of changes in foreign currency exchange rates on cash (1.3)
Net increase in cash and cash equivalents 14.0

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. On November 17, 2016, we paid $7.1 million to shareholders as the first installment of our annual dividend.

Business Outlook
“For full year 2017, we expect sales of our client SSD controllers to continue growing strongly, but NAND flash availability will affect our SSD Solutions,” said Wallace Kou, President and CEO of Silicon Motion. “NAND flash tightness will start affecting our SSD Solutions beginning in the first quarter. Additionally in the first quarter, our client SSD controllers will decline seasonally, with growth restarting in the following quarter.”

For the first quarter of 2017, management expects:

GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$121m to $128m--$121m to $128m
-16% to -11% Q/Q -16% to -11% Q/Q
+7% to +14% Y/Y +7% to +14% Y/Y
Gross margin48% to 50%Approximately $0.1m*48% to 50%
Operating margin20% to 22%Approximately $3.7m to 4.2m**23% to 25%

* Gross margin (non-GAAP) excludes $0.1 million of stock-based compensation.

** Operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, and $3.2 million to $3.7 million of stock-based compensation.

For the full year 2017, management expects:

GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$556m to $612m--$556m to $612m
0% to +10% Y/Y 0% to +10% Y/Y
Gross margin49% to 51%Approximately $0.5m*49% to 51%
Operating margin24.4% to 26.4%Approximately $17.2m to 19.2m**27.5% to 29.5%

* Gross margin (non-GAAP) excludes $0.5 million of stock-based compensation.

** Operating margin (non-GAAP) excludes $2.1 million of amortization of intangible assets, $0.6 million of litigation expense, and $14.5 million to $16.5 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 January 24, 2017.
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: 4750 3600

REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697
Participant Passcode: 4750 3600
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 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.

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.

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.

Impairment of long-term investments relates to the other-than-temporary, non-operating write down of the Company's minority stake investments. We do not consider these investments, which were made before 2007, to be strategic and exclude the performance of these investments when evaluating our ongoing performance and forecasting our earnings trends, and therefore excluding losses (and gains) from the investments 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
Dec. 31, 2015
($)
Sep. 30, 2016
($)
Dec. 31, 2016
($)
Net Sales 98,041 158,580 144,198
Cost of sales 49,028 81,175 72,080
Gross profit 49,013 77,405 72,118
Operating expenses
Research & development 19,281 25,934 26,038
Sales & marketing 6,136 7,548 5,651
General & administrative 5,008 4,878 5,048
Amortization of intangibles assets 526 526 526
Operating income 18,062 38,519 34,855
Non-operating income (expense)
Gain on sale of investments 1 - -
Interest income, net 455 541 623
Foreign exchange gain (loss), net (523) (375) 112
Impairment of long-term investments - - (13)
Others, net - 28 (4)
Subtotal (67) 194 718
Income before income tax 17,995 38,713 35,573
Income tax expense 4,614 5,991 9,416
Net income 13,381 32,722 26,157
Earnings per basic ADS $0.38 $0.93 $0.74
Earnings per diluted ADS $0.38 $0.92 $0.73
Margin Analysis:
Gross margin 50.0% 48.8% 50.0%
Operating margin 18.4% 24.3% 24.2%
Net margin 13.6% 20.6% 18.1%
Additional Data:
Weighted avg. ADS equivalents2 34,875 35,308 35,324
Diluted ADS equivalents 35,288 35,539 35,623

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
Dec. 31,
2015
($)
Sep. 30,
2016

($)
Dec. 31,
2016

($)
Gross profit (GAAP) 49,013 77,405 72,118
Gross margin (GAAP) 50.0% 48.8% 50.0%
Stock-based compensation expense(A) 132 156 199
Gross profit (non-GAAP) 49,145 77,561 72,317
Gross margin (non-GAAP) 50.1% 48.9% 50.2%
Operating expenses (GAAP) 30,951 38,886 37,263
Stock-based compensation expense (A) (5,091) (6,320) (8,228)
Amortization of intangible assets (526) (526) (526)
Litigation expense (36) (1) (2)
Acquisition-related expense (38) - -
Operating expenses (non-GAAP) 25,260 32,039 28,507
Operating profit (GAAP) 18,062 38,519 34,855
Operating margin (GAAP) 18.4% 24.3% 24.2%
Total adjustments to operating profit 5,823 7,003 8,955
Operating profit (non-GAAP) 23,885 45,522 43,810
Operating margin (non-GAAP) 24.4% 28.7% 30.4%
Non-operating income (expense) (GAAP) (67) 194 718
Foreign exchange loss (gain), net 523 375 (112)
Impairment of long-term investments - - 13
Non-operating income (expense) (non-GAAP) 456 569 619
Net income (GAAP) 13,381 32,722 26,157
Total pre-tax impact of non-GAAP adjustments 6,346 7,378 8,856
Income tax impact of non-GAAP adjustments (76) (1,768) (1,147)
Net income (non-GAAP) 19,651 38,332 33,866
Earnings per diluted ADS (GAAP) $0.38 $0.92 $0.73
Earnings per diluted ADS (non-GAAP) $0.55 $1.07 $0.95
Shares used in computing earnings per diluted ADS (GAAP) 35,288 35,539 35,623
Non-GAAP Adjustments 205 244 201
Shares used in computing earnings per diluted ADS (non-GAAP) 35,493 35,783 35,824
(A) Excludes stock-based compensation as follows:
Cost of Sales 132 156 199
Research & development 3,323 4,009 5,076
Sales & marketing 859 1,038 1,476
General & administrative 909 1,273 1,676


Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
For the Year Ended
Dec. 31, 2015
($)
Dec. 31, 2016
($)
Net Sales 361,297 556,146
Cost of sales 176,765 281,541
Gross profit 184,532 274,605
Operating expenses
Research & development 71,161 92,405
Sales & marketing 20,173 25,765
General & administrative 15,714 17,072
Amortization of intangibles assets 1,051 2,103
Operating income 76,433 137,260
Non-operating expense (income)
Gain on sale of investments 3 2
Interest income, net 1,978 2,031
Foreign exchange gain (loss), net 76 (692)
Impairment of long-term investments - (13)
Others, net 10 42
Subtotal 2,067 1,370
Income before income tax 78,500 138,630
Income tax expense 18,249 27,690
Net income 60,251 110,940
Earnings per basic ADS $1.75 $3.15
Earnings per diluted ADS $1.73 $3.12
Margin Analysis:
Gross margin 51.1% 49.4%
Operating margin 21.2% 24.7%
Net margin 16.7% 20.0%
Additional Data:
Weighted avg. ADS equivalents 34,525 35,230
Diluted ADS equivalents 34,909 35,513


Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
For the Year Ended
Dec. 31, 2015
($)
Dec. 31, 2016
($)
Gross profit (GAAP) 184,532 274,605
Gross margin (GAAP) 51.1% 49.4%
Stock-based compensation expense(A) 262 400
Gross profit (non-GAAP) 184,794 275,005
Gross margin (non-GAAP) 51.2% 49.4%
Operating expenses (GAAP) 108,099 137,345
Stock-based compensation expense (A) (10,157) (16,964)
Amortization of intangible assets (1,051) (2,103)
Litigation expense (128) (52)
Acquisition-related expense (358) -
Operating expenses (non-GAAP) 96,405 118,226
Operating profit (GAAP) 76,433 137,260
Operating margin (GAAP) 21.2% 24.7%
Total adjustments to operating profit 11,956 19,519
Operating profit (non-GAAP) 88,389 156,779
Operating margin (non-GAAP) 24.5% 28.2%
Non-operating income (expense) (GAAP) 2,067 1,370
Foreign exchange loss (gain), net (76) 692
Impairment of long-term investments - 13
Non-operating income (expense) (non-GAAP) 1,991 2,075
Net income (GAAP) 60,251 110,940
Total pre-tax impact of non-GAAP adjustments 11,880 20,224
Income tax impact of non-GAAP adjustments 1,908 (1,171)
Net income (non-GAAP) 74,039 129,993
Earnings per diluted ADS (GAAP) $1.73 $3.12
Earnings per diluted ADS (non-GAAP) $2.11 $3.64
Shares used in computing earnings per diluted ADS (GAAP) 34,909 35,513
Non-GAAP Adjustments 158 155
Shares used in computing earnings per diluted ADS (non-GAAP) 35,067 35,668
(A) Excludes stock-based compensation as follows:
Cost of Sales 262 400
Research & development 6,565 10,529
Sales & marketing 1,790 3,122
General & administrative 1,802 3,313


Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
Dec. 31,
2015
($)
Sep. 30,
2016
($)
Dec. 31,
2016
($)
Cash and cash equivalents 180,519 260,468 274,483
Short-term investments 4,681 8,683 3,302
Accounts receivable (net) 58,963 61,800 73,599
Inventories 47,110 79,728 71,873
Refundable deposits – current 19,328 44,289 44,393
Prepaid expenses and other current assets 4,575 6,392 9,236
Total current assets 315,176 461,360 476,886
Long-term investments 133 133 120
Property and equipment (net) 50,469 48,726 47,892
Goodwill and intangible assets (net) 75,990 74,423 73,883
Other assets 3,860 11,033 7,231
Total assets 445,628 595,675 606,012
Accounts payable 22,541 38,207 31,739
Loans - 35,000 25,000
Income tax payable 13,395 22,148 20,271
Accrued expenses and other current liabilities 52,351 73,308 68,960
Total current liabilities 88,287 168,663 145,970
Other liabilities 12,843 16,766 17,319
Total liabilities 101,130 185,429 163,289
Shareholders’ equity 344,498 410,246 442,723
Total liabilities & shareholders’ equity 445,628 595,675 606,012

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 hyperscale datacenter 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 first quarter of 2017 and full year 2017 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 first quarter of 2017 and full year 2017. 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 E-mail: jtsai@siliconmotion.com Investor Contact: Selina Hsieh Investor Relations E-mail: ir@siliconmotion.com Media Contact: Sara Hsu Project Manager E-mail: sara.hsu@siliconmotion.com

Source:Silicon Motion Technology Corporation