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

Financial Highlights

Business Highlights

TAIPEI, Taiwan and MILPITAS, Calif., July 22, 2016 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended June 30, 2016.  For the second quarter, net sales increased sequentially to $140.7 million from $112.7 million in the first quarter. Net income (non-GAAP) increased to $30.7 million or $0.86 per diluted ADS from a net income (non-GAAP) of $24.3 million or $0.68 per diluted ADS in the first quarter.

GAAP net income for the second quarter increased to $29.0 million or $0.82 per diluted ADS from a GAAP net income of $23.0 million or $0.65 per diluted ADS in the first quarter.

1 Non-GAAP measures represent GAAP measures excluding the impact of stock-based compensation, amortization of intangibles assets, foreign exchange gain (loss), and other non-recurring items.  For reconciliation of non-GAAP to GAAP results and further discussion, see accompanying financial tables and the note “Discussion of Non-GAAP Financial Measures” at the end of this press release.

Second Quarter 2016 Review
“Second quarter sales exceeded our original plan with stronger than expected demand coming from all segments of our business,” said Wallace Kou, President and CEO of Silicon Motion. “Client SSDs were by far our biggest growth driver, led by sales to our three NAND flash partners.  Sales to these three customers increased over 50% sequentially.  Sales of our eMMC and Shannon and Ferri specialized SSD Solutions also exceeded expectations.”

Sales

(in millions, except percentages)2Q 20161Q 20162Q 2015
 SalesMixSalesMixSalesMix
Mobile Storage*$129.5  92%$104.0  92%$70.8  81%
Q/Q 25%  19%  11% 
Y/Y 83%  63%  20% 
Mobile Communications**$9.7  7%$7.0  6%$14.4  17%
Others$1.5  1%$1.7  2%$2.0  2%
Total Revenue$140.7  100%$112.7  100%$87.2  100%
Q/Q 25%  15%  8% 
Y/Y 61%  40%  26% 
             

* Mobile Storage products include Embedded Storage products (eMMC and SSD controllers and 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)Non-GAAPGAAP
 2Q 20161Q 20162Q 20152Q 20161Q 20162Q 2015
Revenue$140.7 $112.7 $87.2 $140.7 $112.7 $87.2 
Gross profit$68.1 $57.0 $44.5 $68.1 $57.0 $44.5 
Percent of revenue 48.4% 50.6% 51.0% 48.4% 50.6% 51.0%
Operating expenses$30.9 $26.8 $22.9 $31.9 $29.3 $23.4 
Operating income$37.2 $30.2 $21.6 $36.2 $27.7 $21.1 
Percent of revenue 26.5% 26.8% 24.8% 25.7% 24.6% 24.2%
Earnings per ADS (diluted)$0.86 $0.68 $0.51 $0.82 $0.65 $0.53 
                   

Other Financial Information

(in millions)2Q 20161Q 20162Q 2015
Cash and cash equivalents, and short-term investments$219.1 $191.0 $201.6 
Capital Expenditures$4.9 $2.0 $2.9 
Dividend payments$5.3 $5.3 $5.1 
          

During the second quarter, we had $4.9 million of capital expenditures, with $2.0 million spent on the purchase of additional operating facilities and $2.9 million for the routine purchase of software and design tools.

Our second quarter cash flows were as follows:

3 months ended June 30, 2016
 
 (In $ millions)
 
Net income 29.0 
Depreciation & amortization 2.7 
Changes in operating assets and liabilities (4.7) 
Others 0.2 
Net cash provided by operating activities 27.2 
Acquisition of property and equipment (4.9)
Others 0.2 
Net cash used in investing activities (4.7)
Dividend (5.3)
Others - 
Net cash used in financing activities (5.3)
Effects of changes in foreign currency exchange rates on cash - 
Net increase in cash and cash equivalents 17.2 
    

Returning Value to Shareholders
On November 2, 2015, the Board of Directors of the Company declared a $0.60 per ADS annual dividend to be paid in quarterly installments of $0.15 per ADS.  On May 9, 2016, the third installment was paid and we recorded $5.3 million as dividend payments to our shareholders. 

Business Outlook
“We expect our strong sales momentum to continue into the third quarter,” said Wallace Kou, President and CEO of Silicon Motion. “This year, our client SSD controller sales are expected to increase by up to 150% and eMMC controller market share is expected to increase meaningfully.  Our one-time SSD Solutions project in the second quarter was recently enlarged and we now expect it will expand further in the third quarter, which will temporarily decrease our overall gross margin for another quarter.  This year, as a result of stronger sales, we anticipate better operating leverage and expect our operating margin to expand meaningfully.”

For the third quarter of 2016, management expects:

For the full-year 2016, management expects:

Conference Call & Webcast:
The Company’s management team will conduct a conference call at 8:00 am Eastern Time on July 22, 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: 4531 8340

    REPLAY NUMBERS (for 7 days):
    USA (Toll Free): 1 855 452 5696
    USA (Toll): 1 646 254 3697
    Participant Passcode: 4531 8340

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 non-GAAP cost of sales, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per diluted ADS. 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 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:

 
Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
 
 For the Three Months Ended
 
 Jun. 30,  2015 
($)
 Mar. 31, 2016 
($)
 Jun. 30, 2016 
($)
 
          
Net Sales 87,213  112,682  140,686 
Cost of sales 42,729  55,721  72,565 
Gross profit 44,484  56,961  68,121 
Operating expenses         
Research & development 15,893  19,198  21,234 
Sales & marketing 4,183  6,215  6,351 
General & administrative 3,276  3,349  3,797 
Amortization of  intangibles assets -  526  526 
Operating income 21,132  27,673  36,213 
Non-operating income (expense)         
          
Gain on sale of investments 1  -  1 
Interest income, net 503  425  441 
Foreign exchange gain (loss), net 229  60  (488)
Others, net 8  -  19 
Subtotal 741  485  (27)
Income before income tax 21,873  28,158  36,186 
Income tax expense 3,648  5,144  7,139 
Net income  18,225  23,014  29,047 
          
Basic earnings per ADS$0.53 $0.66 $0.82 
Diluted earnings per ADS$0.53 $0.65 $0.82 
    
Margin Analysis:   
Gross margin 51.0% 50.6% 48.4%
Operating margin 24.2% 24.6% 25.7%
Net margin 20.9% 20.4% 20.6%
    
Additional Data:   
Weighted avg. ADS equivalents2 34,431  35,014  35,273 
Diluted ADS equivalents 34,654  35,412  35,476 
    

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
  
   Jun. 30, 
2015 
($)
 Mar. 31, 
2016 
($)
 Jun. 30, 
2016 
($)
  
            
GAAP net income   18,225  23, 014  29,047  
Stock-based compensation:           
Cost of sales  2  43  2  
Research and development  176  1,174  279  
Sales and marketing  78  454  159  
General and administrative  24  334  33  
Total stock-based compensation  280  2,005  473  
            
Non-recurring items:           
Litigation expenses  44  30  8  
Acquisition costs  192  -  -  
Amortization of  intangibles assets  -  526  526  
Foreign exchange loss (gain),net  (972) (1,270) 650  
Non-GAAP net income  17,769  24,305  30,704  
            
Shares used in computing non-GAAP diluted earnings per ADS  34,686  35,527  35,539  
      
Non-GAAP diluted earnings per ADS $0.51 $0.68 $0.86  
      
Non-GAAP gross margin  51.0% 50.6% 48.4% 
Non-GAAP operating margin  24.8% 26.8% 26.5% 
  


Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
 
 For the Six Months Ended
  
 Jun. 30,
 2015
($)
 Jun. 30,
 2016
($)
  
Net Sales 167,859  253,368  
Cost of sales 81,452  128,286  
Gross profit 86,407  125,082  
Operating expenses       
Research & development 32,248  40,432  
Sales & marketing 8,492  12,566  
General & administrative 6,716  7,146  
Amortization of  intangibles assets -  1,052  
Operating income 38,951  63,886  
        
Non-operating expense (income)       
Gain on sale of investments 2  1  
Interest income, net 1,017  866  
Foreign exchange gain (loss), net 379  (428) 
Others, net 4  19  
Subtotal 1,402  458  
Income before income tax 40,353  64,344  
Income tax expense 6,666  12,283  
Net income 33,687  52,061  
        
Basic earnings per ADS$0.98 $1.48  
Diluted earnings per ADS$0.97 $1.47  
        
Margin Analysis:       
Gross margin 51.5% 49.4% 
Operating margin 23.2% 25.2% 
Net margin 20.1% 20.6% 
    
Additional Data:   
Weighted avg. ADS equivalents 34,249  35,143  
Diluted ADS equivalents 34,703  35,444  


Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
    
  For the Six Months Ended
 
  Jun. 30, 
2015
($)
 Jun. 30,
2016
($)
 
GAAP net income  33,687  52,061 
Stock-based compensation:   
Cost of sales  40  45 
Research and development  1,154  1,453 
Sales and marketing  341  613 
General and administrative  283  367 
Total stock-based compensation  1,818  2,478 
        
Non-recurring items:       
Litigation expenses  52  38 
Acquisition costs  326  - 
Amortization of  intangibles assets  -  1,052 
Foreign exchange loss (gain), net  (1,545) (620)
        
Non-GAAP net income  34,338  55,009 
        
Shares used in computing non-GAAP diluted earnings per ADS  34,752  35,533 
    
Non-GAAP diluted earnings per ADS $0.99 $1.55 
    
Non-GAAP gross margin  51.5% 49.4%
Non-GAAP operating margin  24.5% 26.6%
    

 

Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
 
 Jun. 30,
2015
 ($)		 Mar. 31,
2016
 ($)		 Jun. 30,
2016
 ($)
Cash and cash equivalents200,910 186,189 203,420
Short-term investments723 4,818 15,691
Accounts receivable (net)49,992 77,277 71,931
Inventories50,299 72,774 81,542
Refundable deposits - current19,275 19,302 19,149
Prepaid expenses and other current assets  10,784   4,587   5,417
Total current assets331,983 364,947 397,150
Long-term investments133 133 133
Property and equipment (net)36,640 49,598 48,336
Goodwill and intangible assets(net)35,463 75,469 74,942
Other assets5,573 4,743 8,501
Total assets409,792 494,890 529,062
      
Accounts payable26,373 46,851 48,315
Income tax payable17,215 16,728 16,362
Accrued expenses and other current liabilities28,479 48,240 49,359
Total current liabilities72,067 111,819 114,036
Other liabilities8,581 13,314 16,264
Total liabilities80,648 125,133 130,300
Shareholders’ equity329,144 369,757 398,762
Total liabilities & shareholders’ equity409,792 494,890 529,062
      

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 have shipped over five billion NAND controllers, 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 third 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 second 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 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

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