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Silicon Motion Announces Results for the Period Ended September 30, 2017

3Q 2017 GAAP3Q 2017 Non-GAAP
• Net sales$127.2 million (-4% Q/Q, -20% Y/Y)$127.2 million (-4% Q/Q, -20% Y/Y)
• Gross margin 46.0% 46.0%
• Operating margin 17.0% 20.0%
• Earnings per diluted ADS $0.49 $0.57

Business Highlights

  • Embedded Storage1 sales decreased approximately 5% Q/Q and accounted for about 80% of total sales, similar to the previous quarter
  • Client SSD controller sales decreased approximately 10% Q/Q
  • eMMC controller sales decreased approximately 20% Q/Q
  • SSD solutions sales increased approximately 50% Q/Q
  • Began shipping our SATA3 SSD controller to Micron for the Crucial BX300 SSD
  • Began commercial sales of our 2nd generation PCIe NVMe client SSD controllers

TAIPEI, Taiwan and MILPITAS, Calif., Oct. 27, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended September 30, 2017. For the third quarter, net sales decreased 4% sequentially to $127.2 million from $132.7 million in the second quarter. Net income (GAAP) decreased to $17.6 million or $0.49 per diluted ADS (GAAP) from a net income (GAAP) of $24.0 million or $0.67 per diluted ADS (GAAP) in the second quarter.

For the third quarter, net income (non-GAAP) decreased to $20.3 million or $0.57 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $25.4 million or $0.71 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 2017 Review
“This quarter, NAND flash industry supply increased materially, which enabled us to significantly increase procurement of NAND for both our differentiated Ferri and Shannon SSD solutions,” said Wallace Kou, President and CEO of Silicon Motion. “Despite supply improvements, NAND prices remained elevated and high prices, as expected, continued to temporarily affect broader adoption of client SSDs. Our eMMC controller sales declined as previously communicated, the result of our NAND flash partner re-balancing their limited NAND supply away from mobile phones and towards other applications.”

Sales

(in millions, except percentages)3Q 20172Q 20173Q 2016
SalesMixSalesMixSalesMix
Mobile Storage*
$117.2
92%$121.6
92%$146.9
93%
Q/Q-4% 4% 13%
Y/Y-20% -6% 82%
Mobile Communications**$8.77%$10.07%$10.16%
Others$1.31%$1.21%$1.61%
Total revenue
$127.2
100%$132.7
100%$158.6
100%
Q/Q-4% 4% 13%
Y/Y-20% -6% 66%

* 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 20172Q 20173Q 20163Q 20172Q 20173Q 2016
Revenue$127.2 $132.7 $158.6 $127.2 $132.7 $158.6
Gross profit $58.5 $64.6 $77.4 $58.5 $64.6 $77.6
Percent of revenue 46.0% 48.7% 48.8% 46.0% 48.7% 48.9%
Operating expenses$36.9 $34.3 $38.9 $33.1 $32.8 $32.0
Operating income $21.6 $30.3 $38.5 $25.4 $31.8 $45.5
Percent of revenue 17.0% 22.8% 24.3% 20.0% 23.9% 28.7%
Earnings per diluted ADS$0.49 $0.67 $0.92 $0.57 $0.71 $1.07

Other Financial Information

(in millions)3Q 20172Q 20173Q 2016
Cash and cash equivalents, and short-term investments$332.8$306.0$269.2
Bank loans --$25.0$35.0
Capital expenditures$3.0$2.1$2.8
Dividend payments$7.1$7.1$5.3
Loan repayments$25.0 -- --

During the third quarter, we had $3.0 million of capital expenditures for the routine purchase of software and design tools. We paid $2.9 million for the acquisition of Bigtera, a software defined storage company.

Our third quarter cash flows were as follows:

3 months ended Sep. 30, 2017
(In $ millions)
Net income (GAAP)17.6
Depreciation & amortization3.2
Changes in operating assets and liabilities13.8
Others2.9
Net cash provided by operating activities37.5
Acquisition of property and equipment(3.0)
Acquisition of Bigtera(2.9)
Net cash used in investing activities(5.9)
Dividend(7.1)
Loans(25.0)
Net cash used in financing activities(32.1)
Effects of changes in foreign currency exchange rates on cash0.1
Net decrease in cash, cash equivalents and restricted cash(0.4)

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 August 17, 2017, we paid $7.1 million to shareholders as the fourth installment of our annual dividend. On October 24, 2017, the Board of Directors of the Company declared a $1.20 per ADS annual dividend to be paid in quarterly installments of $0.30 per ADS. The first installment of our new annual dividend will be paid on November 23, 2017.

On August 1, 2017, the Company announced that its Board of Directors has authorized a new program for the Company to repurchase up to $200 million of its ADS over a 12 month period. In the third quarter, the Company did not repurchase any shares.

Business Outlook
“We expect our business to gradually rebound in the fourth quarter, and rebound further next year due to increasing availability of 64L 3D NAND and more competitive NAND pricing,” said Wallace Kou, President and CEO of Silicon Motion. “In the fourth quarter, we expect our Ferri and Shannon SSD solutions customers to take advantage of improving supply of NAND flash to procure more than originally forecasted. We expect our client SSD controller sales to increase strongly in the fourth quarter as our pipeline of 2nd generation PCIe NVMe client SSD controllers start entering production.”

For the fourth quarter of 2017, management expects:

GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$130m to $136m
--$130m to $136m
2% to 7% Q/Q 2% to 7% Q/Q
Gross margin45.4% to 47.4%Approximately $0.2m*45.5% to 47.5%
Operating margin13.2% to 15.5%**Approximately $8.7m to 8.8m***20.0% to 22.0%

* Projected gross margin (non-GAAP) excludes $0.2 million of stock-based compensation.
** Projected operating margin (GAAP) excludes potential impairment charges relating to FCI, which came to our attention after the end of the third quarter and which we are currently in the process of evaluating. The total carrying cost of FCI at the end of the third quarter 2017 is $35.5 million.
*** Projected operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, and $8.2 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 27, 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: 9227 0229

REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697
Participant Passcode: 9227 0229
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 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.

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.

Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
For the Three Months Ended
Sep. 30, 2016
($)
Jun. 30, 2017
($)
Sep. 30, 2017
($)
Net Sales 158,580 132,732 127,216
Cost of sales 81,175 68,121 68,746
Gross profit 77,405 64,611 58,470
Operating expenses
Research & development 25,934 24,476 25,293
Sales & marketing 7,548 5,588 7,157
General & administrative 4,878 3,750 3,917
Amortization of intangibles assets 526 526 526
Operating income 38,519 30,271 21,577
Non-operating income (expense)
Interest income, net 541 958 993
Foreign exchange gain (loss), net (375) (65) 701
Others, net 28 (7) 32
Subtotal 194 886 1,726
Income before income tax 38,713 31,157 23,303
Income tax expense 5,991 7,124 5,709
Net income 32,722 24,033 17,594
Earnings per basic ADS$0.93 $0.67 $0.49
Earnings per diluted ADS$0.92 $0.67 $0.49
Margin Analysis:
Gross margin 48.8% 48.7% 46.0%
Operating margin 24.3% 22.8% 17.0%
Net margin 20.6% 18.1% 13.8%
Additional Data:
Weighted avg. ADS equivalents2 35,308 35,741 35,766
Diluted ADS equivalents 35,539 35,801 35,828

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, 2016
($)
Jun. 30, 2017
($)
Sep. 30, 2017
($)
Gross profit (GAAP) 77,405 64,611 58,470
Gross margin (GAAP) 48.8% 48.7% 46.0%
Stock-based compensation expense (A) 156 2 58
Gross profit (non-GAAP) 77,561 64,613 58,528
Gross margin (non-GAAP) 48.9% 48.7% 46.0%
Operating expenses (GAAP) 38,886 34,340 36,893
Stock-based compensation expense (A) (6,320) (982) (3,263)
Amortization of intangible assets (526) (526) (526)
Litigation expense (1) - -
Operating expenses (non-GAAP) 32,039 32,832 33,104
Operating profit (GAAP) 38,519 30,271 21,577
Operating margin (GAAP) 24.3% 22.8% 17.0%
Total adjustments to operating profit 7,003 1,510 3,847
Operating profit (non-GAAP) 45,522 31,781 25,424
Operating margin (non-GAAP) 28.7% 23.9% 20.0%
Non-operating income (expense) (GAAP) 194 886 1,726
Foreign exchange loss (gain), net 375 65 (701)
Non-operating income (expense) (non-GAAP) 569 951 1,025
Net income (GAAP) 32,722 24,033 17,594
Total pre-tax impact of non-GAAP adjustments 7,378 1,575 3,146
Income tax impact of non-GAAP
adjustments
(1,768) (173) (393)
Net income (non-GAAP) 38,332 25,435 20,347
Earnings per diluted ADS (GAAP) $0.92 $0.67 $0.49
Earnings per diluted ADS (non-GAAP) $1.07 $0.71 $0.57
Shares used in computing earnings per diluted ADS (GAAP) 35,539 35,801 35,828
Non-GAAP Adjustments 244 51 129
Shares used in computing earnings per diluted ADS (non-GAAP) 35,783 35,852 35,957
(A) Excludes stock-based compensation as follows:
Cost of Sales 156 2 58
Research & development 4,009 315 1,960
Sales & marketing 1,038 596 767
General & administrative 1,273 71 536


Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
For the Nine Months Ended
Sep. 30, 2016
($)
Sep. 30, 2017
($)
Net Sales 411,948 387,239
Cost of sales 209,461 199,332
Gross profit 202,487 187,907
Operating expenses
Research & development 66,367 74,107
Sales & marketing 20,114 18,504
General & administrative 12,024 11,887
Amortization of intangibles assets 1,577 1,577
Operating income 102,405 81,832
Non-operating expense (income)
Interest income, net 1,407 2,710
Foreign exchange gain (loss), net (803) 289
Others, net 48 14
Subtotal 652 3,013
Income before income tax 103,057 84,845
Income tax expense 18,274 19,707
Net income 84,783 65,138
Earnings per basic ADS$2.41 $1.83
Earnings per diluted ADS$2.39 $1.82
Margin Analysis:
Gross margin 49.2% 48.5%
Operating margin 24.9% 21.1%
Net margin 20.6% 16.8%
Additional Data:
Weighted avg. ADS equivalents 35,198 35,651
Diluted ADS equivalents 35,476 35,867


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, 2016
($)
Sep. 30, 2017
($)
Gross profit (GAAP) 202,487 187,907
Gross margin (GAAP) 49.2% 48.5%
Stock-based compensation expense(A) 201 127
Gross profit (non-GAAP) 202,688 188,034
Gross margin (non-GAAP) 49.2% 48.6%
Operating expenses (GAAP) 100,082 106,075
Stock-based compensation expense (A) (8,736) (7,313)
Amortization of intangible assets (1,577) (1,577)
Litigation expense (51) -
Operating expenses (non-GAAP) 89,718 97,185
Operating profit (GAAP) 102,405 81,832
Operating margin (GAAP) 24.9% 21.1%
Total adjustments to operating profit 10,565 9,017
Operating profit (non-GAAP) 112,970 90,849
Operating margin (non-GAAP) 27.4% 23.5%
Non-operating income (expense) (GAAP) 652 3,013
Foreign exchange loss (gain), net 803 (289)
Non-operating income (expense) (non-GAAP) 1,455 2,724
Net income (GAAP) 84,783 65,138
Total pre-tax impact of non-GAAP
adjustments
11,368 8,728
Income tax impact of non-GAAP
adjustments
(2,810) (986)
Net income (non-GAAP) 93,341 72,880
Earnings per diluted ADS (GAAP) $2.39 $1.82
Earnings per diluted ADS (non-GAAP) $2.62 $2.03
Shares used in computing earnings per diluted ADS (GAAP) 35,476 35,867
Non-GAAP Adjustments 140 86
Shares used in computing earnings per diluted ADS (non-GAAP) 35,616 35,953
(A) Excludes stock-based compensation as follows:
Cost of Sales 201 127
Research & development 5,453 4,125
Sales & marketing 1,646 1,972
General & administrative 1,637 1,216


Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
Sep. 30,
2016
($)
Jun . 30,
2017
($)
Sep. 30,
2017
($)
Cash and cash equivalents260,468 303,612 327,811
Short-term investments8,683 2,354 4,984
Accounts receivable (net)61,800 76,644 68,652
Inventories79,728 81,767 78,594
Refundable deposits – current44,289 44,119 19,542
Prepaid expenses and other current
assets
6,392 11,278 11,204
Total current assets461,360 519,774 510,787
Long-term investments133 120 120
Property and equipment (net)48,726 48,910 48,552
Goodwill and intangible assets (net)74,423 72,840 77,691
Other assets11,033 5,593 5,914
Total assets595,675 647,237 643,064
Accounts payable38,207 32,949 36,518
Loans35,000 25,000 -
Income tax payable22,148 21,355 22,360
Accrued expenses and other current liabilities73,308 50,750 44,637
Total current liabilities168,663 130,054 103,515
Other liabilities16,766 21,354 22,313
Total liabilities185,429 151,408 125,828
Shareholders’ equity410,246 495,829 517,236
Total liabilities & shareholders’ equity595,675 647,237 643,064

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 fourth quarter of 2017 and full year 2017 expectations of 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 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; changes in our cost of finished goods; the payment, or non-payment, of cash dividends in the future at the discretion of our board of directors and any announced planned increases in such dividends; the effect, if any, on the price of our ADS as a result of the implementation of the announced share repurchase program; 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; any potential impairment recognized in our fourth quarter of 2017 relating to FCI; 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 28, 2017, as amended on May 2, 2017. 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 Media Contact: Sara Hsu Project Manager E-mail: sara.hsu@siliconmotion.com Investor Contact: Selina Hsieh Investor Relations E-mail: ir@siliconmotion.com

Source:Silicon Motion Technology Corporation