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Silicon Motion Announces Results for the Period Ended March 31, 2019

Financial Highlights

     1Q 2019 GAAP  1Q 2019 Non-GAAP1
Net sales  $94.7 million (-23% Q/Q, -27% Y/Y)  $88.9 million (-23% Q/Q, -27% Y/Y)
Gross margin  50.3%  50.2%
Operating margin  8.5%  18.0%
Earnings per diluted ADS  $0.23   $0.42 

Business Highlights

  • SSD controller sales were flat Q/Q and now 55% of net sales (non-GAAP)
  • eMMC+UFS controller sales decreased by about 45% Q/Q
  • SSD solutions sales decreased by about 40% Q/Q
  • Introduced SM2271, industry’s highest capacity and performance enterprise SATA SSD controller
  • Announced sale of FCI to Dialog Semiconductor

TAIPEI, Taiwan and MILPITAS, Calif., May 03, 2019 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended March 31, 2019.  For the first quarter, net sales (GAAP) decreased sequentially to $94.7 million from $123.4 million in fourth quarter 2018. Net income (GAAP) decreased to $8.3 million or $0.23 per diluted ADS (GAAP) from net income (GAAP) of $15.1 million or $0.42 per diluted ADS (GAAP) in fourth quarter 2018.

For the first quarter, net sales (non-GAAP) decreased sequentially to $88.9 million from $115.8 million in fourth quarter 2018. Net income (non-GAAP) decreased to $15.0 million or $0.42 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $29.8 million or $0.82 per diluted ADS (non-GAAP) in fourth quarter 2018.

First Quarter 2019 Review
“Our SSD controller sales were flat sequentially and as expected,” said Wallace Kou, President and CEO of Silicon Motion. “In general, market conditions in the first quarter were challenging given the very volatile NAND flash pricing environment and weak device build activities.  Sales of our eMMC plus UFS controllers that are used primarily in smartphones fell sharply, as expected, because of Chinese market weakness while our Shannon SSD solutions for the Chinese data center market declined more than we had expected.”

Sales      
(in millions, except percentages) 1Q 2019 4Q 2018 1Q 2018
  Sales Mix Sales Mix Sales Mix
Mobile Storage* $88.0 93% $113.4 92% $121.4  93%
Q/Q -22%   -13%   -3%  
Y/Y -28%   -10%   +4%  
Mobile Communications** $5.8 6% $7.2 6% $7.9 6%
Others $0.9 1% $2.8 2% $1.1 1%
Total revenue $94.7 100% $123.4 100% $130.3 100%
Q/Q -23%   -11%   -4%  
Y/Y -27%   -9%   +2%  

* Mobile Storage products include Embedded Storage products (eMMC+UFS and SSD controllers and data center and industrial SSD solutions) and Expandable Storage products (SD memory cards and USB flash drive controllers)   
** Mobile Communications products include mobile TV SoCs, a non-GAAP discontinued operation - see “Discussion of Non-GAAP Financial Measures”

 

Key Financial Results    
(in millions, except
percentages and per ADS a
mounts)
GAAP Non-GAAP
1Q 2019 4Q 2018 1Q 2018 1Q 2019 4Q 2018 1Q 2018
Revenue $94.7 $123.4 $130.3 $88.9 $115.8 $122.5
Gross profit $47.6 $62.1 $62.6 $44.6 $58.1 $58.9
Percent of revenue 50.3% 50.3% 48.0% 50.2% 50.2% 48.1%
Operating expenses $39.5 $48.3 $37.7 $28.6 $27.5 $29.5
Operating income $8.1 $13.8 $24.9 $16.0 $30.6 $29.4
Percent of revenue 8.5% 11.2% 19.1% 18.0% 26.5% 24.0%
Earnings per diluted ADS $0.23 $0.42 $0.64 $0.42 $0.82 $0.73

 

Other Financial Information      
(in millions) 1Q 2019 4Q 2018 1Q 2018
Cash and cash equivalents, and short-term investments $281.0 $288.6 $346.1
Bank loans -- -- $20.7
Loan repayments -- $3.9 $4.3
Capital expenditures $1.2 $5.0 $3.6
Dividend payments $10.9 $10.8 $10.8
Share repurchase -- $33.6 --

During the first quarter, we had $1.2 million of capital expenditures for the routine purchase of software, design tools and other items. 

Our first quarter cash flows were as follows:

3 months ended March 31, 2019
  (In $ millions)
Net income (GAAP) 8.3
Depreciation & amortization 3.9
Changes in operating assets and liabilities (3.8)
Others 4.9
Net cash provided by operating activities 13.3
Acquisition of property and equipment (1.2)
Net cash used in investing activities (1.2)
   
Dividend (10.9)
Net cash used in financing activities 10.9)
Effects of changes in foreign currency exchange rates on cash (0.2)
Cash, cash equivalents and restricted cash that be classified as non-current assets held for sale (11.2)
Net decrease in cash, cash equivalents and restricted cash (10.2)

Returning Value to Shareholders
On October 29, 2018, the Board of Directors of the Company declared a $1.20 per ADS annual dividend to be paid in quarterly installments of $0.30 per ADS. On February 27, 2019, we paid $10.9 million to shareholders as the second installment of our annual dividend.

On November 21, 2018, the Company announced that its Board of Directors had authorized a new program for the Company to repurchase up to $200 million of its ADS over a 24 month period.  In the first quarter, we did not repurchase any of our ADSs.

Business Outlook
“We believe that our SSD controller sales will grow sharply in the second quarter,” said Wallace Kou, President and CEO of Silicon Motion.  “While our overall business visibility remains limited because of the current volatile NAND flash pricing environment, we are seeing strong near-term momentum from both our NAND flash and module maker customers.  Our pipeline of SSD controller projects continues to expand and we believe that we are very well positioned for further growth.”

For the second quarter of 2019, management expects:

  GAAP Non-GAAP Adjustment Non-GAAP
Revenue $100m to $109m -- $98m to $107m
  +6% to 15% Q/Q   +10% to 20% Q/Q
Gross margin 48.5% to 50.5% Approximately -$1.1m* 48.5% to 50.5%
Operating margin 17.1% to 20.1% Approximately $1.0m to $1.1m** 18.6% to 21.6%

* Projected gross margin (non-GAAP) excludes -$1.1 million of discontinued operation.
** Projected operating margin (non-GAAP) excludes  $0.3 million of discontinued operation, $0.3 million of amortization of intangible assets and $0.4 million to $0.5 million of stock-based compensation.

For full-year 2019, management believes it is likely that GAAP and Non-GAAP Revenue could be approximately similar to 2018 and Gross Margin and Operating Margin to be approximately similar to the prior year if product mix remains unchanged.

Conference Call & Webcast:

The Company’s management team will conduct a conference call at 8:00 am Eastern Time on May 3, 2019. 

  Speakers:
  Wallace Kou, President & CEO
  Riyadh Lai, CFO
  Chris Chaney, Director of Investor Relations & Strategy
   
  CONFERENCE CALL ACCESS NUMBERS:
  USA (Toll Free): 1 866 519 4004
  USA (Toll): 1 845 675 0437   
  Taiwan (Toll Free): 080 909 1568
  Participant Passcode: 5643719
   
  REPLAY NUMBERS (for 7 days):
  USA (Toll Free): 1 855 452 5696
  USA (Toll): 1 646 254 3697
  Participant Passcode: 5643719
   

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 discontinued operation, 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 revenue, expenses, gains and losses that we believe are not indicative of our core operating results and because they are 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.

M&A Transaction Expenses consist of direct costs of M&A, such as legal consultant fees. The Company does not have the M&A on a predictable cycle, so we excluded the effect of these costs in calculating our non-GAAP operating expenses and net income.

Discontinued operation refers to FCI, our mobile communications product-line, the sale of which was announced on March 7, 2019 and is expected to close in the second quarter of 2019.  Under GAAP, according to FASB ASU 2014-08, this disposal transaction does not meet the threshold for presenting as a discontinued operation.  We are excluding FCI from our financial results for non-GAAP as we believe this provides investors with enhanced transparency.  

Impairment of goodwill and intangible assets evaluates the recoverability of goodwill and intangible assets annually, or sooner if events or changes in circumstances indicate that the carrying amount may not be recoverable.

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.

Gain and loss on equity-method investment consists of gain and/or loss related to our investment in a privately-held company, which varies depending on the operational and financial performance of the company in which we invested. We believe that providing non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations.

 

Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)

  For the Three Months Ended
  Mar. 31, 2018
 ($)
  Dec. 31, 2018 
($)
  Mar. 31, 2019
 ($)
Net Sales   130,344       123,386       94,694  
Cost of sales   67,790       61,288       47,075  
Gross profit   62,554       62,098       47,619  
Operating expenses                      
Research & development   25,832       30,675       27,970  
Sales & marketing   6,965       7,435       6,962  
General & administrative   4,163       5,397       4,357  
Amortization of  intangibles assets   741       741       255  
Impairment loss of goodwill and intangible assets   -       4,070       -  
Operating income   24,853       13,780       8,075  
Non-operating income (expense)                      
Interest income, net   1,213       1,718       1,495  
Foreign exchange gain (loss), net   1,076       (9 )     494  
Gain (loss) on equity-method investment   -       (169 )     -  
Others, net   58       38       17  
Subtotal   2,347       1,578       2,006  
Income before income tax   27,200       15,358       10,081  
Income tax expense   4,139       260       1,810  
Net income   23,061       15,098       8,271  
                       
Earnings per basic ADS $ 0.64     $ 0.42     $ 0.23  
Earnings per diluted ADS $ 0.64     $ 0.42     $ 0.23  
                       
Margin Analysis:                      
Gross margin   48.0 %     50.3 %     50.3 %
Operating margin   19.1 %     11.2 %     8.5 %
Net margin   17.7 %     12.2 %     8.7 %
                       
Additional Data:                      
Weighted avg. ADS equivalents2   35,900       35,974       35,286  
Diluted ADS equivalents   36,119       36,070       35,473  
                       
                       

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,
2018

($)
  Dec. 31,
2018
 
($)
  Mar. 31,
2019
 
($)
Revenue (GAAP)   130,344       123,386       94,694  
Discontinued operation   (7,873 )     (7,585 )     (5,793 )
Revenue (non-GAAP)   122,471       115,801       88,901  
                       
Gross profit (GAAP)   62,554       62,098       47,619  
Gross margin (GAAP)   48.0 %     50.3 %     50.3 %
Stock-based compensation expense (A)   48       226       95  
Discontinued operation   (3,743 )     (4,225 )     (3,078 )
Gross profit (non-GAAP)   58,859       58,099       44,636  
Gross margin (non-GAAP)   48.1 %     50.2 %     50.2 %
                       
Operating expenses (GAAP)   37,701       48,318       39,544  
Stock-based compensation expense (A)   (2,867 )     (11,885 )     (4,095 )
Amortization of intangible assets   (741 )     (741 )     (255 )
Impairment loss of goodwill and intangible assets   -       (4,070 )     -  
M&A Transaction Expenses   -       -       (226 )
Litigation expense   (13 )     (7 )     2  
Discontinued operation   (4,579 )     (4,142 )     (6,357 )
Operating expenses (non-GAAP)   29,501       27,473       28,613  
                       
Operating profit (GAAP)   24,853       13,780       8,075  
Operating margin (GAAP)   19.1 %     11.2 %     8.5 %
Total adjustments to operating profit   4,505       16,846       7,948  
Operating profit (non-GAAP)   29,358       30,626       16,023  
Operating margin (non-GAAP)   24.0 %     26.5 %     18.0 %
                       
Non-operating income (expense) (GAAP)   2,347       1,578       2,006  
Foreign exchange loss (gain), net   (1,076 )     9       (494 )
Loss (gain) on equity-method investment   -       169       -  
Discontinued operation   (11 )     (6 )     (8 )
Non-operating income (expense) (non-GAAP)   1,260       1,750       1,504  
                       
Net income (GAAP)   23,061       15,098       8,271  
Total pre-tax impact of non-GAAP adjustments   3,418       17,018       7,446  
Income tax impact of non-GAAP adjustments   (237 )     (2,290 )     (674 )
Net income (non-GAAP)   26,242       29,826       15,043  
                       
Earnings per diluted ADS (GAAP) $ 0.64     $ 0.42     $ 0.23  
Earnings per diluted ADS (non-GAAP) $ 0.73     $ 0.82     $ 0.42  
                       
Shares used in computing earnings per diluted ADS (GAAP)   36,119       36,070       35,473  
Non-GAAP Adjustments   49       284       85  
Shares used in computing earnings per diluted ADS (non-GAAP)   36,168       36,354       35,558  
                       
                       
                       
(A)  Excludes stock-based compensation as follows:                      
Cost of Sales   48       226       95  
Research & development   1,753       8,239       2,696  
Sales & marketing   599       1,350       555  
General & administrative   515       2,296       844  

 

Silicon Motion Technology Corporation
Consolidated Balance Sheet
 (In thousands, unaudited)

  Mar. 31,
2018
 ($)
  Dec. 31,
2018
 ($)
  Mar. 31,
2019
 ($)
Cash and cash equivalents 341,695   284,989   277,168
Short-term investments 4,387   3,609   3,833
Accounts receivable (net) 80,933   91,763   80,591
Inventories 93,370   81,518   77,814
Refundable deposits – current 19,414   19,157   18,675
Prepaid expenses and other current assets 8,999   17,454   39,039
Total current assets 548,798   498,490   497,120
Long-term investments 1,715   4,242   4,242
Property and equipment (net) 51,587   101,410   97,970
Goodwill and intangible assets (net) 65,653   59,352   58,935
Other assets 7,283   9,120   13,491
Total assets 675,036   672,614   671,758
           
Accounts payable 31,077   27,657   28,557
Loans 20,700   -   -
Income tax payable 11,775   4,163   2,219
Accrued expenses and other current liabilities 66,371   81,831   63,858
Total current liabilities 129,923   113,651   94,634
Other liabilities 23,785   26,686   32,313
Total liabilities 153,708   140,337   126,947
Shareholders’ equity 521,328   532,277   544,811
Total liabilities & shareholders’ equity 675,036   672,614   671,758
           

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 our controllers are widely used in embedded storage products such as SSDs and eMMC+UFS devices, which are found in smartphones, PCs and commercial and industrial applications. We have shipped over six billion NAND controllers in the last ten years, more than any other company in the world.  We also supply customized high-performance hyperscale data center 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 2019 and full year 2019 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 2019 and full year 2019. Forward-looking statements also include, without limitation, statements regarding trends in the semiconductor or consumer electronics markets 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; the effects on our business and our customer’s business taking into account the ongoing US-China tariffs and trade disputes; decreases in the overall average selling prices of our products; changes in the relative sales mix of our products; 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 and any announced planned increases in such dividends; 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; any potential impairment charges that may be incurred related to businesses previously acquired or divested in the future; 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 30, 2018, and our Annual Report on 20-F for fiscal year 2018, which we expect to file no later than May 15, 2019.  We assume no obligation to update any forward-looking statements, which apply only as of the date of this press release.

Investor Contact: Investor Contact:
Christopher Chaney    Selina Hsieh
Director, Investor Relations & Strategy  Investor Relations
E-mail: CChaney@siliconmotion.com  E-mail: ir@siliconmotion.com 
   
Media Contact:  
Sara Hsu  
Project Manager  
E-mail: sara.hsu@siliconmotion.com   

____________________________________________________
1 FCI results are excluded from non-GAAP
2 Assumes all outstanding ordinary shares are represented by ADSs.  Each ADS represents four ordinary shares.

Silicon Motion Technology Corporation logo

 

Source: Silicon Motion Technology Corporation