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Press Release
 
April 28, 2017
 

Silicon Motion Announces Results for the Period Ended March 31, 2017

Financial Highlights

        1Q 2017 GAAP 1Q 2017 Non-GAAP
* Net sales       $127.3 million (-12% Q/Q, +13% Y/Y)   $127.3 million (-12% Q/Q, +13% Y/Y)
* Gross margin           50.9 %     51.0 %
* Operating margin           23.6 %     26.4 %
* Earnings per diluted ADS       $   0.65      $ 0.70  

Business Highlights

  • Embedded Storage1 sales decreased approximately 10% Q/Q and accounted for about 80% of total sales, similar to the previous quarter
  • Client SSD controller sales decreased approximately 20% Q/Q
  • eMMC controller sales was approximately flat Q/Q
  • SSD solutions sales decreased approximately 10% Q/Q
  • Secured first design-in with a leading handset OEM for our UFS controller solution

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

TAIPEI, Taiwan and MILPITAS, Calif., April 28, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended March 31, 2017.  For the first quarter, net sales decreased 12% sequentially to $127.3 million from $144.2 million in the fourth quarter. Net income (GAAP) decreased to $23.5 million or $0.65 per diluted ADS (GAAP) from a net income (GAAP) of $26.2 million or $0.73 per diluted ADS (GAAP) in the fourth quarter.

For the first quarter, net income (non-GAAP) decreased to $25.1 million or $0.70 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $33.9 million or $0.95 per diluted ADS (non-GAAP) in the fourth quarter.

First Quarter 2017 Review
“As expected, our sales in the first quarter was affected by seasonal weakness and ongoing tightness in NAND flash availability,” said Wallace Kou, President and CEO of Silicon Motion. “Sales of our client SSD controllers were seasonally weak, our eMMC controllers were seasonally flat and our SSD solutions declined due to NAND flash shortage.”

Sales

(in millions, except percentages) 1Q 2017 4Q 2016 1Q 2016
Sales Mix Sales Mix Sales Mix
Mobile Storage*
    Q/Q
    Y/Y
$116.5
-11%
12%
92 %
$130.3
-11%
49%
90 %
$104.0
19%
63%
92 %
Mobile Communications** $ 9.3 7 % $ 12.5 9 % $ 7.0 6 %
Others $ 1.5 1 % $ 1.4 1 % $ 1.7 2 %
Total revenue
    Q/Q
    Y/Y
$127.3
-12%
13%
100 %
$144.2
-9%
47%
100 %
$112.7
15%
40%
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) GAAP Non-GAAP
1Q 2017 4Q 2016 1Q 2016 1Q 2017 4Q 2016 1Q 2016
Revenue $ 127.3   $ 144.2   $ 112.7   $ 127.3   $ 144.2   $ 112.7  
Gross profit
   Percent of revenue
  $64.8
50.9


%
  $72.1
50.0


%
  $57.0
50.6


%
  $64.9
51.0


%
  $72.3
50.2


%
  $57.0
50.6


%
Operating expenses $ 34.8   $ 37.3   $ 29.3   $ 31.2   $ 28.5   $ 26.8  
Operating income
   Percent of revenue
  $30.0
23.6


%
  $34.9
24.2


%
  $27.7
24.6


%
  $33.6
26.4


%
  $43.8
30.4


%
  $30.2
26.8


%
Earnings per diluted ADS $ 0.65   $ 0.73   $ 0.65   $ 0.70   $ 0.95   $ 0.68  

Other Financial Information

(in millions) 1Q 2017 4Q 2016 1Q 2016
Cash and cash equivalents, and short-term investments $ 304.4 $ 277.8 $ 191.0
Bank loans $ 25.0 $ 25.0   --
Capital expenditures $ 3.1 $ 2.5 $ 2.0
Dividend payments $ 7.1 $ 7.1 $ 5.3
Loan repayments   -- $ 10.0   --

During the first quarter, we had $3.1 million of capital expenditures for the routine purchase of software and design tools.

Our first quarter cash flows were as follows:

3 months ended Mar. 31, 2017
  (In $ millions)  
Net income (GAAP) 23.5  
Depreciation & amortization 2.5  
Changes in operating assets and liabilities 5.4  
Others 5.5  
Net cash provided by operating activities 36.9  
Acquisition of property and equipment (3.1 )
Net cash used in investing activities (3.1)  
Dividend (7.1)  
Others 0.4  
Net cash used in financing activities (6.7)  
Effects of changes in foreign currency exchange rates on cash 0.9  
Net increase in cash and cash equivalents 28.0  

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 February 23, 2017, we paid $7.1 million to shareholders as the second installment of our annual dividend. 

Business Outlook
“We expect our sales to begin to pick up in the second quarter, with anticipated growth from our embedded storage products,“ said Wallace Kou, President and CEO of Silicon Motion. “We continue to believe NAND flash supply will increase more meaningfully in the second half of this year and our business will rebound accordingly.”

For the second quarter of 2017, management expects:

  GAAP Non-GAAP Adjustment Non-GAAP
Revenue $134m to $140m
5% to 10% Q/Q
-- $134m to $140m
5% to 10% Q/Q
Gross margin 48.5% to 50.5% -- 48.5% to 50.5%
Operating margin 24.6% to 26.7% Approximately $1.1m to 1.2m* 25.5 to 27.5%

*Operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, and $0.6 million to $0.7 million of stock-based compensation.

For the full year 2017, management expects:

  GAAP Non-GAAP Adjustment Non-GAAP
Revenue $556m to $612m
0% to +10% Y/Y
-- $556m to $612m
0% to +10% Y/Y
Gross margin 49% to 51% Approximately $0.5m* 49% to 51%
Operating margin 24.3% to 26.4% Approximately $17.9m to 18.9m** 27.5% to 29.5%

* Gross margin (non-GAAP) excludes $0.5 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 $15.5 million to $16.5 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 April 28, 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: 188 6995

REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697   
Participant Passcode: 188 6995

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 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 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.

Impairment of long-term investments relates to the other-than-temporary, non-operating write down of the Company's minority stake investments. We do not consider these investments, which were made before 2007, to be strategic and exclude the performance of these investments when evaluating our ongoing performance and forecasting our earnings trends, and therefore excluding losses (and gains) from the investments 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
  Mar. 31,  2016  ($) Dec. 31, 2016  ($) Mar. 31, 2017  ($)
Net Sales   112,682     144,198     127,292  
Cost of sales   55,721     72,080     62,466  
Gross profit   56,961     72,118     64,826  
Operating expenses      
Research & development   19,198     26,038     24,338  
Sales & marketing   6,215     5,651     5,758  
General & administrative   3,349     5,048     4,220  
Amortization of  intangibles assets   526     526     526  
Operating income   27,673     34,855     29,984  
Non-operating income (expense)      
Interest income, net   425     623     759  
Foreign exchange gain (loss), net   60     112     (347 )
Impairment of long-term investments   -     (13 )   -  
Others, net   -     (4 )   (11 )
Subtotal   485     718     401  
Income before income tax   28,158     35,573     30,385  
Income tax expense   5,144     9,416     6,874  
Net income   23,014     26,157     23,511  
       
Earnings per basic ADS $ 0.66   $ 0.74   $ 0.66  
Earnings per diluted ADS $ 0.65   $ 0.73   $ 0.65  
       
Margin Analysis:      
Gross margin   50.6 %   50.0 %   50.9 %
Operating margin   24.6 %   24.2 %   23.6 %
Net margin   20.4 %   18.1 %   18.5 %
       
Additional Data:      
Weighted avg. ADS equivalents2   35,014     35,324     35,446  
Diluted ADS equivalents   35,412     35,623     35,972  
       

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
    Mar. 31,  2016  ($) Dec. 31,  2016 ($) Mar. 31, 2017  ($)
Gross profit (GAAP)     56,961     72,118     64,826  
Gross margin (GAAP)     50.6 %   50.0 %   50.9 %
Stock-based compensation expense (A)     43     199     67  
Gross profit (non-GAAP)     57,004     72,317     64,893  
Gross margin (non-GAAP)     50.6 %   50.2 %   51.0 %
         
Operating expenses (GAAP)     29,288     37,263     34,842  
Stock-based compensation expense (A)     (1,946 )   (8,228 )   (3,068 )
Amortization of intangible assets     (526 )   (526 )   (526 )
Litigation expense     (39 )   (2 )   -  
Operating expenses (non-GAAP)     26,777     28,507     31,248  
         
Operating profit (GAAP)     27,673     34,855     29,984  
Operating margin (GAAP)     24.6 %   24.2 %   23.6 %
Total adjustments to operating profit     2,554     8,955     3,661  
Operating profit (non-GAAP)     30,227     43,810     33,645  
Operating margin (non-GAAP)     26.8 %   30.4 %   26.4 %
         
Non-operating income (expense) (GAAP)     485     718     401  
Foreign exchange loss (gain), net     (60 )   (112 )   347  
Impairment of long-term investments     -     13     -  
Non-operating income (expense) (non-GAAP)     425     619     748  
         
Net income (GAAP)     23,014     26,157     23,511  
Total pre-tax impact of non-GAAP adjustments     2,494     8,856     4,008  
Income tax impact of non-GAAP
adjustments
    (1,204 )   (1,147 )   (2,386 )
Net income (non-GAAP)     24,305     33,866     25,133  
         
Earnings per diluted ADS (GAAP)   $ 0.65   $ 0.73   $ 0.65  
Earnings per diluted ADS (non-GAAP)   $ 0.68   $ 0.95   $ 0.70  
         
Shares used in computing earnings per diluted ADS (GAAP)     35,412     35,623     35,972  
Non-GAAP Adjustments     115     201     79  
Shares used in computing earnings per diluted ADS (non-GAAP)     35,527     35,824     36,051  
         
(A)  Excludes stock-based compensation as follows:        
Cost of Sales     43     199     67  
Research & development     1,165     5,076     1,850  
Sales & marketing     450     1,476     609  
General & administrative     331     1,676     609  


Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
       
  Mar. 31,
2016
 ($)
Dec. 31,
2016
 ($)
Mar. 31,
2017
 ($)
Cash and cash equivalents 186,189  274,483  302,462 
Short-term investments 4,818 3,302 1,900
Accounts receivable (net) 77,277  73,599  60,456 
Inventories 72,774 71,887 75,934
Refundable deposits – current 19,302  44,393  44,269 
Prepaid expenses and other current
assets
4,587 9,236 10,279
Total current assets 364,947 476,900 495,300
Long-term investments 133 120 120
Property and equipment (net) 49,598 47,892 48,292
Goodwill and intangible assets (net) 75,469 73,883 73,369
Other assets 4,743 7,231 5,708
Total assets 494,890 606,026 622,789
       
Accounts payable 46,851 31,739 30,860
Loans - 25,000 25,000
Income tax payable 16,728 20,271 24,909
Accrued expenses and other current liabilities 48,240 68,976 52,937
Total current liabilities 111,819 145,986 133,706
Other liabilities 13,314 17,277 18,187
Total liabilities 125,133 163,263 151,893
Shareholders’ equity 369,757 442,763 470,896
Total liabilities & shareholders’ equity 494,890 606,026 622,789

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 second  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 second 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; 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
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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