Silicon Motion Announces Results for the Period Ended December 31, 2015

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.

Other non-recurring items:

  • 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, non-recurring and unplanned activity and therefore exclude this charge when presenting non-GAAP financial measures.
  • Acquisition costs 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 in calculating our non-GAAP operating expenses and net income.
 
Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
 
  For the Three Months Ended
  Dec. 31,  
2014
Sep. 30,  
2015
Dec. 31,  
2015
  ($)   ($)   ($)
Net Sales 80,503  95,397  98,041 
Cost of sales 38,306  46,285  49,028 
Gross profit 42,197  49,112  49,013 
Operating expenses   
Research & development 17,528  19,628  19,281 
Sales & marketing 4,434  5,545  6,136 
General & administrative 3,410  3,994  5,008 
Amortization of  intangibles assets -  526  526 
Operating income 16,825     19,419     18,062  
Non-operating income (expense)      
                   
Gain on sale of investments   1     -     1  
Interest income, net   613     506     455  
Foreign exchange gain (loss), net   (451 )   220     (523 )
Others, net   (4 )   4     -  
Subtotal   159     730     (67 )
Income before income tax   16,984     20,149     17,995  
Income tax expense   4,911     6,969     4,583  
Net income    12,073     13,180     13,412  
       
Basic earnings per ADS $ 0.36   $ 0.38   $ 0.38  
Diluted earnings per ADS $ 0.35   $ 0.38   $ 0.38  
Margin Analysis:      
Gross margin   52.4 %   51.5 %   50.0 %
Operating margin   20.9 %   20.4 %   18.4 %
Net margin   15.0 %   13.8 %   13.7 %
Additional Data:      
Weighted avg. ADS equivalents 2   33,892     34,726     34,875  
Diluted ADS equivalents   34,471     34,941     35,288  
       

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