This quarter, we received $35.0 million in bank financing secured by a $25.0 million restricted deposit. These loans are for accelerating the unwinding of intercompany transactions. We expect to repay the loans within 12 months from our operating cash flow.
Our third quarter cash flows were as follows:
| 3 months ended September 30, 2016 | |||
| (In $ millions) | |||
| Net income (GAAP) | 32.7 | ||
| Depreciation & amortization | 2.4 | ||
| Changes in operating assets and liabilities | 15.1 | ||
| Others | 4.7 | ||
| Net cash provided by operating activities | 54.9 | ||
| Acquisition of property and equipment | (2.8 | ) | |
| Changes in restricted assets | (25.2 | ) | |
| Net cash used in investing activities | (28.0 | ) | |
| Dividend | (5.3 | ) | |
| Loans | 35.0 | ||
| Net cash provided by financing activities | 29.7 | ||
| Effects of changes in foreign currency exchange rates on cash | 0.5 | ||
| Net increase in cash and cash equivalents | 57.1 | ||
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. Because of our strong business outlook and improvements in free cash flow, our Board raised our annual dividend from last year’s $0.60 per ADS.
On August 5, 2016, we paid $5.3 million to shareholders as the fourth installment of our previously announced annual dividend, which was declared on November 2, 2015.
Business Outlook
“We expect our revenue to decline in the fourth quarter. Our client SSD controller sales should grow further, but will likely be offset by declining sales of card and USB flash drive controllers due to tightness in flash availability and SSD solutions due to project timing,” said Wallace Kou, President and CEO of Silicon Motion. “Year-over-year, our fourth quarter revenue should grow in the range of 39% to 47%, a solid finish for an outstanding year. We will be exiting the year with a solid pipeline of projects relating to our client SSD controllers, eMMC and UFS controllers and SSD solutions, which we believe will position us for further growth in 2017.”
For the fourth quarter of 2016, management expects:
| GAAP | Non-GAAP Adjustment | Non-GAAP | |
| Revenue | $136.4m to $144.3m
-14% to -9% Q/Q | -- | $136.4m to $144.3m
-14% to -9% Q/Q |
| Gross margin | 48.5% to 50.5% | Approximately $0.2m* | 48.5% to 50.5% |
| Operating margin | 19% to 21% | Approximately $8.7m to 9.1m** | 25% to 27% |
* Gross margin (non-GAAP) excludes $0.2 million of stock-based compensation.
** Operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, $0.3 million of restructuring expenses, and $7.9 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 28, 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: 9414 5523
REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697
Participant Passcode: 9414 5523
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:
