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Silicon Motion Announces Results for the Period Ended December 31, 2018

Financial Highlights   
 4Q 2018 GAAP 4Q 2018 Non-GAAP
•  Net sales$123.4 million (-11% Q/Q, -9% Y/Y) $123.4 million (-11% Q/Q, -9% Y/Y)
•  Gross margin50.3% 50.5%
•  Operating margin14.0% 25.1%
•  Earnings per diluted ADS$0.48 $0.83
 
 Full Year 2018 GAAP Full Year 2018 Non-GAAP
•  Net sales$530.3 million (+1% Y/Y) $530.3 million (+1% Y/Y)
•  Gross margin49.2% 49.3%
•  Operating margin20.4% 25.0%
•  Earnings per diluted ADS$2.78 $3.41
    

Business Highlights

TAIPEI, Taiwan and MILPITAS, Calif., Jan. 30, 2019 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended December 31, 2018. For the fourth quarter, net sales decreased sequentially to $123.4 million from $138.6 million in third quarter 2018. Net income (GAAP) decreased to $17.3 million or $0.48 per diluted ADS (GAAP) from a net income (GAAP) of $29.2 million or $0.81 per diluted ADS (GAAP) in third quarter 2018.

For the fourth quarter, net income (non-GAAP) decreased to $30.2 million or $0.83 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $34.5 million or $0.95 per diluted ADS (non-GAAP) in third quarter 2018.

Fourth Quarter 2018 Review
“Our fourth quarter sales declined as expected, near the midpoint of guidance,” said Wallace Kou, President and CEO of Silicon Motion. “Our client SSD controller sales weakened largely due to more cautious than expected procurement of NAND flash from module makers that face the transitional risk of operating during a period of rapidly falling NAND prices. Our eMMC+UFS controller sales declined because of weak smartphone sales. Sales of our Shannon data center SSDs declined while our Ferri industrial SSDs increased.”

Sales
(in millions, except percentages)4Q 20183Q 20184Q 2017
SalesMixSalesMixSalesMix
Mobile Storage*$113.4 92%$129.8 94%$125.3 92%
Q/Q-13% +0%  +7% 
Y/Y-10% +11%  -4% 
Mobile Communications**$7.2 6%$7.0 5%$9.4 7%
Others$2.8 2%$1.7 1%$1.5 1%
Total revenue$123.4 100%$138.6 100%$136.2 100%
Q/Q-11% +0%  +7% 
Y/Y-9% +9%  -6% 

 * Mobile Storage products include Embedded Storage products (eMMC+UFS and SSD controllers and data center and industrial SSD solutions) and Expandable Storage products (SD memory cards and USB flash drive controllers)
** Mobile Communications products include mobile TV SoCs

   
Key Financial Results
  
(in millions, except
percentages and per ADS
amounts)
GAAPNon-GAAP
4Q 20183Q 20184Q 20174Q 20183Q 20184Q 2017
Revenue$123.4$138.6$136.2$123.4$138.6$136.2
Gross profit$62.1$70.6$63.3$62.3$70.7$63.5
Percent of revenue50.3%50.9%46.5%50.5%51.0%46.6%
Operating expenses$44.9$38.3$49.8$31.4$33.1$30.6
Operating income$17.2$32.2$13.5$31.0$37.5$32.9
Percent of revenue14.0%23.3%9.9%25.1%27.1%24.1%
Earnings per diluted ADS$0.48$0.81$0.27$0.83$0.95$0.79


Other Financial Information
(in millions)4Q 20183Q 20184Q 2017
Cash and cash equivalents, and short-term investments $288.6$308.2$366.4
Bank loans--$3.9$25.0
Loan repayments$3.9$8.1--
Capital expenditures$5.0$62.9$3.5
Dividend payments$10.8$10.8$10.7
Share repurchase$33.6----

During the fourth quarter, we had $5.0 million of capital expenditures, primarily for routine purchases of software, design tools and other items.

Our fourth quarter cash flows were as follows:

 
3 months ended Dec. 31, 2018
  (In $ millions)
Net income (GAAP) 17.3
Depreciation & amortization 3.8
Impairment loss of goodwill 0.6
Impairment loss of long term investment 1.2
Changes in operating assets and liabilities 1.3
Others 10.6
Net cash provided by operating activities 34.8
Acquisition of property and equipment (5.0)
Net cash used in investing activities (5.0)
Dividend (10.8)
Share repurchase (33.6)
Loans (3.9)
Net cash used in financing activities (48.3)
Effects of changes in foreign currency exchange rates on cash -
Net decrease in cash, cash equivalents and restricted cash (18.5)
   

Returning Value to Shareholders
On October 29, 2018, 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. On November 23, 2018, we paid $10.8 million to shareholders as the first installment of our annual dividend.

On November 21, 2018, the Company announced that its Board of Directors had authorized a new program for the Company to repurchase up to $200 million of its ADS over a 24 month period. In the fourth quarter, the Company repurchased $34.8 million of its ADS at an average price of $34.52 per ADS.

Business Outlook
“We expect NAND prices to continue falling through 2019, which will drive meaningful increase in client SSD adoption in PCs starting in the middle of this year,” said Wallace Kou, President and CEO of Silicon Motion. “As one would expect, benefits from this price elasticity of demand does not happen immediately. Also, during the current transitional period of rapidly falling NAND prices, our module maker customers may be more cautious than usual in their NAND and controller procurements. NAND flash vendors have also been temporarily limiting sales and building inventory. Finally, our OEM customers are operating with worse than usual business visibility due to weakening economic conditions, compounded by the US-China tariff situation and other uncertainties.”

 
For the first quarter of 2019, management expects:
 GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$97.5m to $103.6m
-21% to -16% Q/Q
--$97.5m to $103.6m
-21% to -16% Q/Q
Gross margin46.9% to 49.9%Approximately $0.1m*47.0% to 50.0%
Operating margin6.8% to 11.2%Approximately $5.0m to $5.1m**12.0% to 16.0%

* Projected gross margin (non-GAAP) excludes $0.1 million of stock-based compensation.
** Projected operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets and $4.5 million to $4.6 million of stock-based compensation.

For full-year 2019, management expects GAAP and Non-GAAP Revenue to be approximately similar to 2018 and Gross Margin and Operating Margin to be approximately similar to the prior year if product mix remains unchanged.

Conference Call & Webcast:
The Company’s management team will conduct a conference call at 8:00 am Eastern Time on January 30, 2019.
  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): 080 909 1568
  Participant Passcode: 4485756

  REPLAY NUMBERS (for 7 days):
  USA (Toll Free): 1 855 452 5696
  USA (Toll): 1 646 254 3697
  Participant Passcode: 4485756
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 they are 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 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.

Impairment of goodwill evaluates the recoverability of goodwill annually, or sooner if events or changes in circumstances indicate that the carrying amount may not be recoverable.

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.

Gain and loss on equity-method investment consists of gain and/or loss related to our investment in a privately-held company, which varies depending on the operational and financial performance of the company in which we invested. We believe that providing non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations.

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 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,  2017
 Sep. 30, 2018
 Dec. 31, 2018
 ($)
  ($)
  ($)
     
            
Net Sales 136,165   138,562   123,386 
Cost of sales 72,878   67,988   61,288 
Gross profit 63,287   70,574   62,098 
Operating expenses           
Research & development 27,946   25,506   30,675 
Sales & marketing 7,364   7,735   7,435 
General & administrative 5,046   4,355   5,397 
Amortization of  intangibles assets 956   741   741 
Impairment loss of goodwill 10,337   -   625 
Gain from disposal of other assets (1,880)  -   - 
Operating income 13,518   32,237   17,225 
            
Non-operating income (expense)           
Interest income, net 1,135   1,597   1,718 
Foreign exchange gain (loss), net (447)  (749)  (9)
Gain (loss) on equity-method investment -   (98)  (169)
Impairment of long-term investments (120)  -   (1,242)
Others, net 70   55   38 
Subtotal 638   805   336 
Income before income tax 14,156   33,042   17,561 
Income tax expense 4,338   3,858   260 
Net income 9,818   29,184   17,301 
            
Earnings per basic ADS$0.27  $0.81  $0.48 
Earnings per diluted ADS$0.27  $0.81  $0.48 
            
Margin Analysis:           
Gross margin 46.5%  50.9%  50.3%
Operating margin 9.9%  23.3%  14.0%
Net margin 7.2%  21.1%  14.0%
            
Additional Data:           
Weighted avg. ADS equivalents2 35,785   36,136   35,974 
Diluted ADS equivalents 36,005   36,171   36,070 
            
            

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,  2017 Sep. 30, 2018 Dec. 31, 2018
  ($)  ($)  ($)
Gross profit (GAAP)  63,287   70,574   62,098 
Gross margin (GAAP)  46.5%  50.9%  50.3%
Stock-based compensation expense (A)  167   80   246 
Gross profit (non-GAAP)  63,454   70,654   62,344 
Gross margin (non-GAAP)  46.6%  51.0%  50.5%
             
Operating expenses (GAAP)  49,769   38,337   44,873 
Stock-based compensation expense (A)  (7,887)  (4,468)  (12,132)
Amortization of intangible assets  (956)  (741)  (741)
Impairment loss of goodwill  (10,337)  -   (625)
Litigation expense  -   (8)  (7)
Operating expenses (non-GAAP)  30,589   33,121   31,368 
             
Operating profit (GAAP)  13,518   32,237   17,225 
Operating margin (GAAP)  9.9%  23.3%  14.0%
Total adjustments to operating profit  19,347   5,297   13,751 
Operating profit (non-GAAP)  32,865   37,534   30,976 
Operating margin (non-GAAP)  24.1%  27.1%  25.1%
             
Non-operating income (expense) (GAAP)  638   805   336 
Foreign exchange loss (gain), net  447   749   9 
Loss (gain) on equity-method investment  -   98   169 
Impairment loss of long-term investment  120   -   1,242 
Non-operating income (expense) (non-GAAP)  1,205   1,652   1,756 
             
Net income (GAAP)  9,818   29,184   17,301 
Total pre-tax impact of non-GAAP adjustments  19,914   6,144   15,171 
Income tax impact of non-GAAP adjustments  (1,320)  (825)  (2,273)
Net income (non-GAAP)  28,412   34,503   30,199 
             
Earnings per diluted ADS (GAAP) $0.27  $0.81  $0.48 
Earnings per diluted ADS (non-GAAP) $0.79  $0.95  $0.83 
       
Shares used in computing earnings per diluted ADS (GAAP)  36,005   36,171   36,070 
Non-GAAP Adjustments  169   147   293 
Shares used in computing earnings per diluted ADS (non-GAAP)  36,174   36,318   36,363 
             
(A)  Excludes stock-based compensation as follows:            
Cost of Sales  167   80   246 
Research & development  5,131   2,804   8,380 
Sales & marketing  1,194   897   1,418 
General & administrative  1,562   767   2,334 
             
             

Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)

 For the Year Ended
 Dec. 31, 2017
 Dec. 31,2018
 ($)
 ($)
Net Sales 523,404   530,348 
Cost of sales 272,210   269,541 
Gross profit 251,194   260,807 
Operating expenses       
Research & development 102,053   102,028 
Sales & marketing 25,868   29,279 
General & administrative 16,933   17,633 
Amortization of  intangibles assets 2,534   2,964 
Impairment loss of goodwill 10,337   625 
Gain from disposal of other assets (1,880)  - 
Operating income 95,349   108,278 
        
Non-operating expense (income)       
Interest income, net 3,845   5,923 
Foreign exchange gain (loss), net (157)  (615)
Gain (loss) on equity-method investment -   (473)
Impairment of long-term investments (120)  (1,242)
Others, net 84   193 
Subtotal 3,652   3,786 
Income before income tax 99,001   112,064 
Income tax expense 24,046   11,791 
Net income 74,955   100,273 
        
Earnings per basic ADS$2.10  $2.78 
Earnings per diluted ADS$2.09  $2.78 
        
Margin Analysis:       
Gross margin 48.0%  49.2%
Operating margin 18.2%  20.4%
Net margin 14.3%  18.9%
        
Additional Data:       
Weighted avg. ADS equivalents 35,684   36,031 
Diluted ADS equivalents 35,902   36,128 
        
        

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, 2017 Dec. 31, 2018
 ($) ($)
Gross profit (GAAP)  251,194   260,807 
Gross margin (GAAP)  48.0%  49.2%
Stock-based compensation expense(A)  293   390 
Gross profit (non-GAAP)  251,487   261,197 
Gross margin (non-GAAP)  48.0%  49.3%
         
Operating expenses (GAAP)  155,845   152,529 
Stock-based compensation expense (A)  (15,200)  (20,388)
Amortization of intangible assets  (2,534)  (2,964)
Impairment loss of goodwill  (10,337)  (625)
Litigation expense  -   (37)
Operating expenses (non-GAAP)  127,774   128,515 
         
Operating profit (GAAP)  95,349   108,278 
Operating margin (GAAP)  18.2%  20.4%
Total adjustments to operating profit  28,364   24,404 
Operating profit (non-GAAP)  123,713   132,682 
Operating margin (non-GAAP)  23.6%  25.0%
         
Non-operating income (expense) (GAAP)  3,652   3,786 
Foreign exchange loss (gain), net  157   615 
Loss (gain) on equity-method investment  120   1,242 
Investment loss-equity method  -   473 
Non-operating income (expense) (non-GAAP)  3,929   6,116 
         
Net income (GAAP)  74,955   100,273 
Total pre-tax impact of non-GAAP adjustments  28,641   26,734 
Income tax impact of non-GAAP adjustments  (2,306)  (3,480)
Net income (non-GAAP)  101,290   123,527 
         
Earnings per diluted ADS (GAAP) $2.09  $2.78 
Earnings per diluted ADS (non-GAAP) $2.81  $3.41 
         
Shares used in computing earnings per diluted ADS (GAAP)  35,902   36,128 
Non-GAAP Adjustments  107   133 
Shares used in computing earnings per diluted ADS (non-GAAP)  36,009   36,261 
         
(A)  Excludes stock-based compensation as follows:        
Cost of Sales  293   390 
Research & development  9,255   13,277 
Sales & marketing  3,166   3,407 
General & administrative  2,779   3,704 
         
         
         

Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)

  Dec. 31, Sep. 30, Dec. 31,
  2017 2018 2018
   ($)  ($)  ($)
Cash and cash equivalents 359,453 303,329 284,989
Short-term investments 6,941 4,919 3,609
Accounts receivable (net) 79,135 84,273 89,670
Inventories 94,186 91,117 81,518
Refundable deposits – current 19,515 19,341 19,157
Prepaid expenses and other current      
assets 9,567 7,588 17,454
Total current assets 568,797 510,567 496,397
Long-term investments - 4,412 3,000
Property and equipment (net) 51,370 110,953 101,410
Goodwill and intangible assets (net) 66,393 64,163 62,796
Other assets 7,172 7,023 9,120
Total assets 693,732 697,118 672,723
       
Accounts payable 56,423 30,986 27,657
Loans 25,000 3,900 -
Income tax payable 11,492 6,808 4,162
Accrued expenses and other current liabilities 84,329 44,728 79,739
Total current liabilities 177,244 86,422 111,558
Other liabilities 22,437 27,635 26,686
Total liabilities 199,681 114,057 138,244
Shareholders’ equity 494,051 583,061 534,479
Total liabilities & shareholders’ equity 693,732 697,118 672,723
       

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 our controllers are widely used in embedded storage products such as SSDs and eMMCs+UFS, which are found in smartphones, PCs, commercial and industrial applications. We ship over 750 million NAND controllers annually and have shipped over five billion NAND controllers in the last ten years, more than any other company in the world. We also supply specialized high-performance hyperscale data center 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 2019 and full year 2019 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 first quarter of 2019 and full year 2019. Forward-looking statements also include, without limitation, statements regarding trends in the semiconductor or consumer electronics markets 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; the effects on our business and our customer’s business taking into account the ongoing US-China tariffs and trade disputes; 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; 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; any potential impairment charges that may be incurred related to businesses previously acquired or divested in the future; 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 30, 2018. 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:  Email Contact
Investor Contact:
Selina Hsieh
Investor Relations
E-mail:  Email Contact
  
Media Contact:
Sara Hsu
Project Manager
E-mail:  Email Contact
 

______________________________________________________
1 Embedded Storage comprises primarily eMMC+UFS and SSD controllers and data center and industrial SSD solutions.
2 Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents four ordinary shares.

 

 

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