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

Financial Highlights

 2Q 2017 GAAP
 2Q 2017 Non-GAAP
• Net sales$132.7 million (4% Q/Q, -6% Y/Y) $132.7 million (4% Q/Q, -6% Y/Y)
• Gross margin 48.7%  48.7%
• Operating margin 22.8%  23.9%
• Earnings per diluted ADS$0.67  $0.71 

Business Highlights

1 Embedded Storage comprises primarily eMMC and client SSD controllers and enterprise and industrial SSD solutions.

TAIPEI, Taiwan and MILPITAS, Calif., Aug. 01, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended June 30, 2017.  For the second quarter, net sales increased 4% sequentially to $132.7 million from $127.3 million in the first quarter. Net income (GAAP) increased to $24.0 million or $0.67 per diluted ADS (GAAP) from a net income (GAAP) of $23.5 million or $0.65 per diluted ADS (GAAP) in the first quarter.

For the second quarter, net income (non-GAAP) increased to $25.6 million or $0.71 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $25.1 million or $0.70 per diluted ADS (non-GAAP) in the first quarter.

Second Quarter 2017 Review
“While NAND flash supply continued to improve modestly this quarter, supply remained very tight and was prioritized in favor of enterprise applications,” said Wallace Kou, President and CEO of Silicon Motion. “Separately, our eMMC NAND flash partner during the quarter was prebuilding inventory as part of their internal planning decisions.  As a result, our SSD solutions and eMMC controllers grew this quarter, while our client SSD controllers declined.”

Sales

(in millions, except percentages)2Q 20171Q 20172Q 2016
SalesMixSalesMixSalesMix
Mobile Storage*
   Q/Q
   Y/Y
$121.6
4%
-6%
92%$116.5
-11%
12%
92%$129.5
25%
83%
92%
Mobile Communications**$10.07%$9.37%$9.77%
Others$1.21%$1.51%$1.51%
Total revenue
   Q/Q
   Y/Y
$132.7
4%
-6%
100%$127.3
-12%
13%
100%$140.7
25%
61%
100%

* 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
2Q 20171Q 20172Q 20162Q 20171Q 20172Q 2016
Revenue$132.7 $127.3 $140.7 $132.7 $127.3 $140.7 
Gross profit
   Percent of revenue
 $64.6
48.7

%
 $64.8
50.9

%
 $68.1
48.4

%
 $64.6
48.7

%
 $64.9
51.0

%
 $68.1
48.4

%
Operating expenses$34.3 $34.8 $31.9 $32.8 $31.2 $30.9 
Operating income
   Percent of revenue
 $30.3
22.8

%
 $30.0
23.6

%
 $36.2
25.7

%
 $31.8
23.9

%
 $33.6
26.4

%
 $37.2
26.5

%
Earnings per diluted ADS$0.67 $0.65 $0.82 $0.71 $0.70 $0.86 

Other Financial Information

(in millions)2Q 20171Q 20172Q 2016
Cash and cash equivalents, and short-term investments$306.0$304.4$219.1
Bank loans$25.0$25.0 --
Capital expenditures$2.1$3.1$4.9
Dividend payments$7.1$7.1$5.3
Loan repayments -- -- --

During the second quarter, we had $2.1 million of capital expenditures for the routine purchase of software and design tools.

Our second quarter cash flows were as follows:

3 months ended Jun. 30, 2017
 (In $ millions)
Net income (GAAP)24.0 
Depreciation & amortization3.0 
Changes in operating assets and liabilities(17.9)
Others1.2 
Net cash provided by operating activities10.3 
Acquisition of property and equipment(2.1)
Net cash used in investing activities(2.1)
Dividend(7.1)
Others- 
Net cash used in financing activities(7.1)
Effects of changes in foreign currency exchange rates on cash(0.1)
Net increase in cash, cash equivalents and restricted cash1.0 
   

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 May 18, 2017, we paid $7.1 million to shareholders as the third installment of our annual dividend.

In addition, today, 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.   

Business Outlook
“We are now seeing material amounts of new 64L 3D NAND flash coming to market, with most still being directed towards the enterprise SSD market, which we believe will benefit our SSD solutions business,” said Wallace Kou, President and CEO of Silicon Motion.  “Since NAND availability remains very tight, NAND pricing continues to be high, which will temporarily affect our SSD solutions and overall gross margins.  Separately, based on what we are seeing from our customers’ rolling forecasts, we anticipate that our client SSD controller sales will rebound meaningfully in the fourth quarter.  We believe our business will improve as NAND supply improvements accelerate over the next few quarters.”

For the third quarter of 2017, management expects:

 GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$122m to $129m
-8% to -3% Q/Q
--$122m to 129m
-8% to -3% Q/Q
Gross margin44.9% to 46.9%Approximately $0.1m*45.0% to 47.0%
Operating margin14.9% to 17.1%Approximately $4.9m to 5.0m**19.0 to 21.0%

* Gross margin (non-GAAP) excludes $0.1 million of stock-based compensation.
** Operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, and $4.4 million to $4.5 million of stock-based compensation.

For the full year 2017, management expects:

 GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$512m to $528m
-8% to -5% Y/Y
--$512m to $528m
-8% to -5% Y/Y
Gross margin47.4% to 48.9%Approximately $0.3m*47.5% to 49.0%
Operating margin18.6% to 20.7%Approximately $16.8m to 17.8m**22.0% to 24.0%

* Gross margin (non-GAAP) excludes $0.3 million of stock-based compensation.
** Operating margin (non-GAAP) excludes $2.1 million of amortization of intangible assets, $0.3 million of litigation expense, and $14.4 million to $15.4 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 August 1st, 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: 4923 5521

REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697
Participant Passcode: 4923 5521

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 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
 Jun. 30,  2016
($)
 Mar. 31, 2017
($)
 Jun. 30, 2017
($)
Net Sales 140,686   127,292   132,732 
Cost of sales 72,565   62,466   68,121 
Gross profit 68,121   64,826   64,611 
Operating expenses   
Research & development 21,234   24,338   24,476 
Sales & marketing 6,351   5,758   5,588 
General & administrative 3,797   4,220   3,750 
Amortization of  intangibles assets 526   526   526 
Operating income 36,213   29,984   30,271 
Non-operating income (expense)   
Interest income, net 441   759   958 
Foreign exchange gain (loss), net (488)  (347)  (73)
Others, net 20   (11)  1 
Subtotal (27)  401   886 
Income before income tax 36,186   30,385   31,157 
Income tax expense 7,139   6,874   7,124 
Net income 29,047   23,511   24,033 
            
Earnings per basic ADS$0.82  $0.66  $0.67 
Earnings per diluted ADS$0.82  $0.65  $0.67 
    
Margin Analysis:   
Gross margin 48.4%  50.9%  48.7%
Operating margin 25.7%  23.6%  22.8%
Net margin 20.6%  18.5%  18.1%
    
Additional Data:   
Weighted avg. ADS equivalents2 35,273   35,446   35,741 
Diluted ADS equivalents 35,476   35,972   35,801 
    

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,
2016
($)
 Mar. 31,
2017
($)
 Jun. 30,
2017
($)
Gross profit (GAAP) 68,121   64,826   64,611 
Gross margin (GAAP) 48.4%  50.9%  48.7%
Stock-based compensation expense (A) 2   67   2 
Gross profit (non-GAAP) 68,123   64,893   64,613 
Gross margin (non-GAAP) 48.4%  51.0%  48.7%
    
Operating expenses (GAAP) 31,908   34,842   34,340 
Stock-based compensation expense (A) (470)  (3,068)  (982)
Amortization of intangible assets (526)  (526)  (526)
Litigation expense (9)  -   - 
Operating expenses (non-GAAP) 30,903   31,248   32,832 
    
Operating profit (GAAP) 36,213   29,984   30,271 
Operating margin (GAAP) 25.7%  23.6%  22.8%
Total adjustments to operating profit 1,007   3,661   1,510 
Operating profit (non-GAAP) 37,220   33,645   31,781 
Operating margin (non-GAAP) 26.5%  26.4%  23.9%
    
Non-operating income (expense) (GAAP) (27)  401   886 
Foreign exchange loss (gain), net 488   347   73 
Non-operating income (expense) (non-GAAP) 461   748   959 
    
Net income (GAAP) 29,047   23,511   24,033 
Total pre-tax impact of non-GAAP adjustments 1,495   4,008   1,583 
Income tax impact of non-GAAP
adjustments
 162   (2,386)  (33)
Net income (non-GAAP) 30,704   25,133   25,583 
    
Earnings per diluted ADS (GAAP)$0.82  $0.65  $0.67 
Earnings per diluted ADS (non-GAAP)$0.86  $0.70  $0.71 
    
Shares used in computing earnings per diluted ADS (GAAP) 35,476   35,972   35,801 
Non-GAAP Adjustments 63   79   51 
Shares used in computing earnings per diluted ADS (non-GAAP) 35,539   36,051   35,852 
    
(A)  Excludes stock-based compensation as follows:   
Cost of Sales 2   67   2 
Research & development 278   1,850   315 
Sales & marketing 159   609   596 
General & administrative 33   609   71 
            


Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
  
 For the Six Months Ended
 Jun. 30, 2016
($)
 Jun. 30,2017
(
$)
Net Sales 253,368   260,023 
Cost of sales 128,286   130,586 
Gross profit 125,082   129,437 
Operating expenses       
Research & development 40,432   48,814 
Sales & marketing 12,566   11,346 
General & administrative 7,146   7,970 
Amortization of  intangibles assets 1,052   1,052 
Operating income 63,886   60,255 
        
Non-operating expense (income)       
Interest income, net 866   1,717 
Foreign exchange gain (loss), net (428)  (420)
Others, net 20   (10)
Subtotal 458   1,287 
Income before income tax 64,344   61,542 
Income tax expense 12,283   13,998 
Net income 52,061   47,544 
        
Earnings per basic ADS$1.48  $1.34 
Earnings per diluted ADS$1.47  $1.32 
        
Margin Analysis:       
Gross margin 49.4%  49.8%
Operating margin 25.2%  23.2%
Net margin 20.6%  18.3%
        
Additional Data:       
Weighted avg. ADS equivalents 35,143   35,594 
Diluted ADS equivalents 35,444   35,887 
        

 

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, 2016
($)
 Jun. 30, 2017
($)
Gross profit (GAAP) 125,082   129,437 
Gross margin (GAAP) 49.4%  49.8%
Stock-based compensation expense(A) 45   69 
Gross profit (non-GAAP) 125,127   129,506 
Gross margin (non-GAAP) 49.4%  49.8%
   
Operating expenses (GAAP) 61,196   69,182 
Stock-based compensation expense (A) (2,416)  (4,050)
Amortization of intangible assets (1,052)  (1,052)
Litigation expense (49)  - 
Operating expenses (non-GAAP) 57,679   64,080 
   
Operating profit (GAAP) 63,886   60,255 
Operating margin (GAAP) 25.2%  23.2%
Total adjustments to operating profit 3,562   5,171 
Operating profit (non-GAAP) 67,448   65,426 
Operating margin (non-GAAP) 26.6%  25.2%
   
Non-operating income (expense) (GAAP) 458   1,287 
Foreign exchange loss (gain), net 428   420 
Non-operating income (expense) (non-GAAP) 886   1,707 
   
Net income (GAAP) 52,061   47,544 
Total pre-tax impact of non-GAAP
adjustments
 3,990   5,591 
Income tax impact of non-GAAP
adjustments
 (1,042)  (2,419)
Net income (non-GAAP) 55,009   50,716 
   
Earnings per diluted ADS (GAAP)$1.47  $1.32 
Earnings per diluted ADS (non-GAAP)$1.55  $1.41 
   
Shares used in computing earnings per diluted ADS (GAAP) 35,444   35,887 
Non-GAAP Adjustments 89   65 
Shares used in computing earnings per diluted ADS (non-GAAP) 35,533   35,952 
   
(A)  Excludes stock-based compensation as follows:  
Cost of Sales 45   69 
Research & development 1,443   2,165 
Sales & marketing 609   1,205 
General & administrative 364   680 
   
   

 

Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
      
 Jun. 30,
2016
 ($)
 Mar. 31,
2017
 ($)
 Jun. 30,
2017
 ($)
Cash and cash equivalents203,420  302,462  303,612 
Short-term investments15,691 1,900 2,354
Accounts receivable (net)71,931 60,456 76,644
Inventories81,542 75,934 81,767
Refundable deposits – current19,149 44,269 44,119
Prepaid expenses and other current
assets
5,417 10,279 11,278
Total current assets397,150 495,300 519,774
Long-term investments133 120 120
Property and equipment (net)48,336 48,292 48,910
Goodwill and intangible assets (net)74,942 73,369 72,840
Other assets8,501 5,708 5,593
Total assets529,062 622,789 647,237
      
Accounts payable48,315 30,860 32,949
Loans- 25,000 25,000
Income tax payable16,362 24,909 21,355
Accrued expenses and other current liabilities49,359 52,937 50,750
Total current liabilities114,036 133,706 130,054
Other liabilities16,264 18,187 21,354
Total liabilities130,300 151,893 151,408
Shareholders’ equity398,762 470,896 495,829
Total liabilities & shareholders’ equity529,062 622,789 647,237
      

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 third  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 third 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; 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; 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; 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

Investor Contact:
Selina Hsieh
Investor Relations
E-mail: ir@siliconmotion.com

Media Contact:
Sara Hsu
Project Manager
E-mail: sara.hsu@siliconmotion.com

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