Revenue for the fourth quarter ended Dec. 31, 2007 was $85.3 million, compared to $86.3 million for the third quarter ended Sept. 30, 2007 and $87.0 million for the fourth quarter of 2006. Revenue for the fourth quarter of 2007 included $6.7 million of product revenue from distributor sales during the month of December. Historically, the company has deferred the recognition of sell-through revenue from distributor sales during the third month of a quarter until the following quarter because of the lack of information sufficient to recognize such revenue. As a result of improved business processes, the company has been able to eliminate this delay in revenue recognition beginning with the fourth quarter of 2007. Therefore, 2007 fourth quarter revenue includes an additional month of product revenue from distributor sales in December. Fourth quarter 2006 revenue includes $10.6 million related to royalties earned prior to the fourth quarter of 2006 associated with the Settlement and License Agreement with Genesis Microchip, Inc.
Revenue for 2007 totaled $320.5 million, compared with $295.0 million for 2006.
GAAP net income for the fourth quarter of 2007 was $7.6 million, or $0.09 per diluted share, compared to $4.1 million, or $0.05 per diluted share, for the third quarter and $26.3 million, or $0.29 per diluted share, for the fourth quarter of 2006.
Non-GAAP net income for the fourth quarter of 2007 was $9.5 million, or $0.11 per diluted share, compared to $8.3 million, or $0.10 per diluted share, for the third quarter and $18.3 million, or $0.21 per diluted share, for the fourth quarter of 2006. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, impact of the one-time change in distributor sell-through revenue in 2007 and certain items related to the Settlement and License Agreement with Genesis Microchip, Inc. in 2006.
GAAP net income for 2007 was $19.0 million, or $0.22 per diluted share, compared to $42.5 million, or $0.49 per diluted share for 2006. For 2007, the company incurred income tax expenses of $20.5 million compared to $14.0 million in 2006. This increase in income tax expenses reduced earnings per diluted share by $0.07 in 2007. The remaining difference between 2007 and 2006 diluted earning per share essentially relates to higher research and development expense from the acquisition of sci-worx completed in Jan. 2007.
2007 non-GAAP net income was $32.7 million, or $0.37 per diluted share, compared to $68.9 million, or $0.79 per diluted share, for 2006. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, and the impact of the one-time change in distributor sell-through revenue in 2007 and certain items related to the Settlement and License Agreement with Genesis Microchip, Inc., in 2006.
A reconciliation of GAAP and non-GAAP items is provided in a table immediately following the Condensed Consolidated Statement of Income.
Silicon Image also announced that its Board of Directors has authorized the company to move forward with an accelerated stock repurchase program for the repurchase of $62 million of the company's common stock. Upon completion of the accelerated stock repurchase program, the company expects to conclude its previously announced $100 million stock repurchase program which was authorized in February 2007. The company expects to enter into an agreement effectuating this accelerated stock repurchase program by Feb. 15, 2008.
The company also announced that its Board of Directors has authorized a new stock repurchase program for the repurchase, in the open market from time to time as business conditions warrant, of up to $100 million of the company's common stock over a three-year period commencing upon the completion of the aforementioned accelerated stock repurchase program. Purchases under this program may be increased, decreased or discontinued at any time without prior notice.
"We completed 2007 with 24 percent revenue growth in our consumer electronics business, our largest business line, and achieved a 57 percent gross margin overall which is consistent with our long term model of 55 to 57 percent," said Steve Tirado, Silicon Image's president and chief executive officer. "As we move forward into 2008, which is a product transition year for Silicon Image, we expect gross margin to stay within our long term model. We are focused on new product design wins with major customers interested in the recently announced MHL or Mobile High Definition Link and our first generation Personal Entertainment Network products. These efforts are expected to produce revenue growth in 2009."
Financial Outlook
Based upon Silicon Image's current visibility into the seasonally soft first quarter, the following is the financial outlook for Q1, 2008:
-- Revenue $61 million - $63 million
-- Gross margin 55% - 57%
-- GAAP operating expenses $41 million - $42 million
-- Non-GAAP operating expenses $34 million - $35 million
-- Tax rate 42% - 44%
Given that 2008 is a product transition year for Silicon Image, the following is the full year financial outlook for 2008:
-- Revenue $270 million - $290 million
-- Gross margin 55% - 57%
-- GAAP operating expenses $166 million - $168 million
-- Non-GAAP operating expenses $138 million - $140 million
-- Tax rate 42% - 44%
Use of Non-GAAP Financial Information
Silicon Image presents and discusses gross margins, operating expenses, net income and basic and diluted net income per share in accordance with Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis for informational purposes only. Silicon Image believes that non-GAAP reporting, giving effect to the adjustments shown in the attached reconciliation, provides meaningful information and therefore uses non-GAAP reporting to supplement its GAAP reporting and internally in evaluating operations, managing and monitoring performance, and determining bonus compensation. Further, Silicon Image uses non-GAAP information as certain non-cash charges such as amortization of intangibles and stock based compensation do not reflect the cash operating results of the business. Silicon Image has chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of its operating results and to illustrate the results of operations giving effect to such non-GAAP adjustments. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
Conference Call
Silicon Image will release its fourth quarter and full-year financial results for 2007 after the market closes on Feb. 7, 2008. The company will host an investor conference call and web cast that event at 2:00 p.m. Pacific Time on the same day. To access the conference call, dial 719-325-4796 and enter pass code 7119394. The webcast will be accessible on Silicon Image's investor relations website at http://www.siliconimage.com. A replay of the conference call will be available until midnight Pacific Time, Feb. 21, 2008. To access the replay, dial 719- 457-0820 or 888-203-1112, and enter pass code 7119394.
About Silicon Image, Inc.
Silicon Image, Inc. is a global leader in driving the architecture and semiconductor implementation for the secure storage, distribution and presentation of high-definition content in the consumer electronics, personal computing, and mobile device markets. With a rich history of technology innovation that includes creating industry standards such as SATA, DVI and HDMI, Silicon Image partners with the world's leading entertainment creators and electronics manufacturers to deliver digital HD content to consumers anytime, anywhere, on any device. Silicon Image is also a leading provider of semiconductor intellectual property solutions for high-definition multimedia and data storage applications. Additionally, Simplay Labs, LLC, a wholly-owned subsidiary of Silicon Image, offers robust testing tools, technologies, support services, consulting and product certification to electronics manufacturers to maximize performance, interoperability and ensure the highest-quality HD experience to consumers. With engineering, sales and customer support facilities located throughout North America, Asia and Europe, Silicon Image (NASDAQ: SIMG) is globally headquartered in Sunnyvale, California. For more information, please visit http://www.SiliconImage.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements include, but are not limited to, statements related to improvements in Silicon Image's business processes, Silicon Image's future operating results, including revenue, gross margins, operating expenses and tax rates in the first quarter and full fiscal year 2008, customer design wins and future growth opportunities, the implementation of the company's accelerated stock repurchase program within the time frame indicated and the effectuation of the company's new stock repurchase program. These forward-looking statements involve risks and uncertainties, including the company's ability to maintain its improved business processes, the company ability to enter into an agreement with a counterparty to implement its accelerated stock repurchase program, the company's ability to generate sufficient resources to effectuate its new stock repurchase program and other risks and uncertainties described from time to time in Silicon Image's filings with the Securities and Exchange Commission (SEC). These risks and uncertainties could cause the actual results to differ materially from those anticipated by these forward-looking statements. In addition, see the Risk Factors section of the most recent Form 10-K or Form 10-Q filed by Silicon Image with the SEC. Silicon Image assumes no obligation to update any forward-looking information contained in this press release.
NOTE: Silicon Image and Simplay HD are trademarks, registered trademarks or service marks of Silicon Image, Inc. in the United States and other countries. HDMI(TM) and High-Definition Multimedia Interface are trademarks or registered trademarks of HDMI Licensing, LLC in the United States and other countries, and are used under license from HDMI Licensing, LLC. All other trademarks and registered trademarks are the property of their respective owners.
SILICON IMAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except
per share amounts)
(unaudited)
Three Months Ended Twelve Months Ended
December September December December 31,
31, 2007 30, 2007 31, 2006 2007 2006
Revenue:
Product $73,986 $74,173 $66,278 $269,700 $250,374
Development, licensing
and royalties 11,345 12,109 20,675 50,803 44,584
Total revenue 85,331 86,282 86,953 320,503 294,958
Cost of revenue and
operating expenses:
Cost of revenue (1) 35,247 37,500 33,393 140,443 121,247
Research and
development (2) 21,285 20,489 15,987 77,994 63,598
Selling, general and
administrative (3) 19,240 16,827 18,226 70,340 67,597
Amortization of
intangible assets 1,857 540 78 3,549 508
Reimbursement of patent
assertion costs, net - - (5,369) 22 (5,244)
Total cost of revenue
and operating
expenses 77,629 75,356 62,315 292,348 247,706
Income from operations 7,702 10,926 24,638 28,155 47,252
Interest income and
other, net 2,779 2,302 3,024 11,397 9,205
Income before provision
for income taxes 10,481 13,228 27,662 39,552 56,457
Provision for income taxes 2,872 9,118 1,389 20,545 13,992
Net income $7,609 $4,110 $26,273 $19,007 $42,465
Net income per share -
basic $0.09 $0.05 $0.31 $0.22 $0.51
Net income per share -
diluted $0.09 $0.05 $0.29 $0.22 $0.49
Weighted average shares -
basic 84,218 84,489 85,618 85,557 82,787
Weighted average shares -
diluted 85,228 85,937 89,113 87,388 86,791
(1) Includes stock
compensation expense $387 $421 $473 $1,597 $2,427
(2) Includes stock
compensation expense 1,866 2,181 1,715 8,411 11,108
(3) Includes stock
compensation expense 2,646 2,731 2,583 9,442 13,696
SILICON IMAGE, INC.
GAAP NET INCOME TO NON-GAAP NET INCOME RECONCILIATION
Three Months Ended Twelve Months
December September December Ended
(In thousands, except 31, 30, 31, December 31,
per share amounts) 2007 2007 2006 2007 2006
(unaudited)
GAAP Net income $7,609 $4,110 $26,273 $19,007 $42,465
Non-GAAP adjustments:
Stock-based compensation
expense (1) 4,899 5,333 4,771 19,450 27,231
Amortization of intangible
assets (2) 1,857 540 78 3,549 508
Adjustments related to
Genesis Settlement (3) - - (13,831) - (11,113)
Adjustments related to
change in recognition of
distributor revenue (4) (4,105) - - (4,105) -
Non-GAAP Net income before
tax adjustments 10,260 9,983 17,291 37,901 59,091
Income tax effects on
above adjustments (713) (1,712) (3,469) (5,232) (6,356)
Tax benefit from employee
stock transactions (5) - - 4,467 - 16,181
Non-GAAP net income $9,547 $8,271 $18,289 $32,669 $68,916
Non-GAAP net income per
share - basic $0.11 $0.10 $0.21 $0.38 $0.83
Non-GAAP net income per
share - diluted $0.11 $0.10 $0.21 $0.37 $0.79
Weighted average shares -
basic 84,218 84,489 85,618 85,557 82,787
Weighted average shares -
diluted 85,228 85,937 89,113 87,388 86,791
(1) For the three months ended December 31, 2006, September 30, 2007 and
December 31, 2007, and for the twelve months ended December 31, 2006
and 2007, these adjustments represent the non-cash amortization of
stock-based compensation associated with SFAS No. 123 (R) Share-based
Payment.
Cost of Revenue $387 $421 $473 $1,597 $2,427
Research and Development 1,866 2,181 1,715 8,411 11,108
Selling General and
Administrative 2,646 2,731 2,583 9,442 13,696
Total $4,899 $5,333 $4,771 $19,450 $27,231
(2) This adjustment represents expenses for the amortization of
intangible assets recorded in connection with our acquisitions. These
on-going expenses pertain to intangible assets that are not expected
to be replaced when fully amortized, as might a depreciable tangible
asset.
(3) This adjustment represents the reversal of royalty revenue and
reversal of contra expense for reimbursement of litigation expenses
for the quarter ended December 31, 2006.
(4) This adjustment represents the change in recognition of distributor
revenue and related standard cost of sales.
(5) This adjustment represents the non-cash tax benefits from employee
stock transactions and other discrete items included in the tax
provision and recorded to additional paid in capital.
SILICON IMAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Unaudited December 31,
2007 2006
Assets
Current Assets:
Cash and cash equivalents $137,822 $81,921
Short-term investments 111,889 168,724
Accounts receivable, net 21,254 39,931
Inventories 20,198 28,287
Prepaid expenses and other current assets 14,149 4,895
Deferred income taxes 3,567 12,793
Total current assets 308,879 336,551
Property and equipment, net 24,191 18,431
Goodwill 19,210 13,021
Intangible assets, net 39,269 78
Deferred income taxes, non-current 19,978 10,580
Other assets 1,421 1,570
Total assets $412,948 $380,231
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $17,892 $14,187
Accrued liabilities and other current
liabilities 36,996 37,308
Deferred license revenue 3,860 5,264
Deferred margin on sales to
distributors 26,443 17,712
Current liabilities 85,191 74,471
Other long-term liabilities 13,910 538
Total liabilities 99,101 75,009
Stockholders' Equity:
Total stockholders' equity 313,847 305,222
Total liabilities and
stockholders' equity $412,948 $380,231
Web site: http://www.siliconimage.com/