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Silicon Motion Announces Results for the Period Ended September 30, 2017
  3Q 2017 GAAP 3Q 2017 Non-GAAP
• Net sales $127.2 million (-4% Q/Q, -20% Y/Y) $127.2 million (-4% Q/Q, -20% Y/Y)
• Gross margin   46.0%     46.0%  
• Operating margin   17.0%     20.0%  
• Earnings per diluted ADS   $0.49     $0.57  

Business Highlights

  • Embedded Storage1 sales decreased approximately 5% Q/Q and accounted for about 80% of total sales, similar to the previous quarter
  • Client SSD controller sales decreased approximately 10% Q/Q
  • eMMC controller sales decreased approximately 20% Q/Q
  • SSD solutions sales increased approximately 50% Q/Q
  • Began shipping our SATA3 SSD controller to Micron for the Crucial BX300 SSD
  • Began commercial sales of our 2nd generation PCIe NVMe client SSD controllers

TAIPEI, Taiwan and MILPITAS, Calif., Oct. 27, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended September 30, 2017.  For the third quarter, net sales decreased 4% sequentially to $127.2 million from $132.7 million in the second quarter. Net income (GAAP) decreased to $17.6 million or $0.49 per diluted ADS (GAAP) from a net income (GAAP) of $24.0 million or $0.67 per diluted ADS (GAAP) in the second quarter.

For the third quarter, net income (non-GAAP) decreased to $20.3 million or $0.57 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $25.4 million or $0.71 per diluted ADS (non-GAAP) in the second quarter.

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

Third Quarter 2017 Review
“This quarter, NAND flash industry supply increased materially, which enabled us to significantly increase procurement of NAND for both our differentiated Ferri and Shannon SSD solutions,” said Wallace Kou, President and CEO of Silicon Motion. “Despite supply improvements, NAND prices remained elevated and high prices, as expected, continued to temporarily affect broader adoption of client SSDs.  Our eMMC controller sales declined as previously communicated, the result of our NAND flash partner re-balancing their limited NAND supply away from mobile phones and towards other applications.”

Sales

(in millions, except percentages) 3Q 2017 2Q 2017 3Q 2016
  Sales Mix Sales Mix Sales Mix
Mobile Storage*
$117.2
92% $121.6
92% $146.9
93%
Q/Q -4%   4%   13%  
Y/Y -20%     -6%     82%    
Mobile Communications** $8.7 7% $10.0 7% $10.1 6%
Others $1.3 1% $1.2 1% $1.6 1%
Total revenue
$127.2
100% $132.7
100% $158.6
100%
Q/Q -4%   4%   13%  
Y/Y -20%     -6%     66%    

* 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
  3Q 2017 2Q 2017 3Q 2016 3Q 2017 2Q 2017 3Q 2016
Revenue $127.2   $132.7   $158.6   $127.2   $132.7   $158.6  
Gross profit   $58.5     $64.6     $77.4     $58.5     $64.6     $77.6  
Percent of revenue   46.0%     48.7%     48.8%     46.0%     48.7%     48.9%  
Operating expenses $36.9   $34.3   $38.9   $33.1   $32.8   $32.0  
Operating income   $21.6     $30.3     $38.5     $25.4     $31.8     $45.5  
Percent of revenue   17.0%     22.8%     24.3%     20.0%     23.9%     28.7%  
Earnings per diluted ADS $0.49   $0.67   $0.92   $0.57   $0.71   $1.07  

Other Financial Information

(in millions) 3Q 2017 2Q 2017 3Q 2016
Cash and cash equivalents, and short-term investments $332.8 $306.0 $269.2
Bank loans   -- $25.0 $35.0
Capital expenditures $3.0 $2.1 $2.8
Dividend payments $7.1 $7.1 $5.3
Loan repayments $25.0   --   --

During the third quarter, we had $3.0 million of capital expenditures for the routine purchase of software and design tools.  We paid $2.9 million for the acquisition of Bigtera, a software defined storage company.

Our third quarter cash flows were as follows:

3 months ended Sep. 30, 2017
  (In $ millions)  
Net income (GAAP) 17.6  
Depreciation & amortization 3.2  
Changes in operating assets and liabilities 13.8  
Others 2.9  
Net cash provided by operating activities 37.5  
Acquisition of property and equipment (3.0)  
Acquisition of Bigtera (2.9)  
Net cash used in investing activities (5.9)  
Dividend (7.1)  
Loans (25.0)  
Net cash used in financing activities (32.1)  
Effects of changes in foreign currency exchange rates on cash 0.1  
Net decrease in cash, cash equivalents and restricted cash (0.4)  
     

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 August 17, 2017, we paid $7.1 million to shareholders as the fourth installment of our annual dividend.   On October 24, 2017, 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.  The first installment of our new annual dividend will be paid on November 23, 2017.

On August 1, 2017, 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.  In the third quarter, the Company did not repurchase any shares.

Business Outlook
“We expect our business to gradually rebound in the fourth quarter, and rebound further next year due to increasing availability of 64L 3D NAND and more competitive NAND pricing,” said Wallace Kou, President and CEO of Silicon Motion. “In the fourth quarter, we expect our Ferri and Shannon SSD solutions customers to take advantage of improving supply of NAND flash to procure more than originally forecasted.  We expect our client SSD controller sales to increase strongly in the fourth quarter as our pipeline of 2nd generation PCIe NVMe client SSD controllers start entering production.”

 For the fourth quarter of 2017, management expects:

  GAAP Non-GAAP Adjustment Non-GAAP
Revenue $130m to $136m
-- $130m to $136m
  2% to 7% Q/Q   2% to 7% Q/Q
Gross margin 45.4% to 47.4% Approximately $0.2m* 45.5% to 47.5%
Operating margin 13.2% to 15.5%** Approximately $8.7m to 8.8m*** 20.0% to 22.0%

* Projected gross margin (non-GAAP) excludes $0.2 million of stock-based compensation.
** Projected operating margin (GAAP) excludes potential impairment charges relating to FCI, which came to our attention after the end of the third quarter and which we are currently in the process of evaluating.  The total carrying cost of FCI at the end of the third quarter 2017 is $35.5 million.
*** Projected operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, and $8.2 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 27, 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: 9227 0229

  REPLAY NUMBERS (for 7 days):
  USA (Toll Free): 1 855 452 5696
  USA (Toll): 1 646 254 3697
  Participant Passcode: 9227 0229
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.

 
Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
 
  For the Three Months Ended
    Sep. 30,  2016  
($)
    Jun. 30, 2017
($)
    Sep. 30, 2017
($)
 
Net Sales   158,580     132,732     127,216  
Cost of sales   81,175     68,121     68,746  
Gross profit   77,405     64,611     58,470  
Operating expenses                  
  Research & development   25,934     24,476     25,293  
  Sales & marketing   7,548     5,588     7,157  
  General & administrative   4,878     3,750     3,917  
 Amortization of  intangibles assets   526     526     526  
Operating income   38,519     30,271     21,577  
Non-operating income (expense)                  
  Interest income, net   541     958     993  
  Foreign exchange gain (loss), net   (375)     (65)     701  
  Others, net   28     (7)     32  
  Subtotal   194     886     1,726  
Income before income tax   38,713     31,157     23,303  
Income tax expense   5,991     7,124     5,709  
Net income   32,722     24,033     17,594  
                   
Earnings per basic ADS $0.93   $0.67   $0.49  
Earnings per diluted ADS $0.92   $0.67   $0.49  
                   
Margin Analysis:                  
Gross margin   48.8%     48.7%     46.0%  
Operating margin   24.3%     22.8%     17.0%  
Net margin   20.6%     18.1%     13.8%  
                   
Additional Data:                  
Weighted avg. ADS equivalents2   35,308     35,741     35,766  
Diluted ADS equivalents   35,539     35,801     35,828  

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
 
    Sep. 30,  2016
($)
  Jun. 30, 2017
($)
  Sep. 30, 2017
($)
 
Gross profit (GAAP)     77,405     64,611     58,470  
Gross margin (GAAP)     48.8%     48.7%     46.0%  
Stock-based compensation expense (A)     156     2     58  
Gross profit (non-GAAP)     77,561     64,613     58,528  
Gross margin (non-GAAP)     48.9%     48.7%     46.0%  
                     
Operating expenses (GAAP)     38,886     34,340     36,893  
Stock-based compensation expense (A)     (6,320)     (982)     (3,263)  
Amortization of intangible assets     (526)     (526)     (526)  
Litigation expense     (1)     -     -  
Operating expenses (non-GAAP)     32,039     32,832     33,104  
                     
Operating profit (GAAP)     38,519     30,271     21,577  
Operating margin (GAAP)     24.3%     22.8%     17.0%  
Total adjustments to operating profit     7,003     1,510     3,847  
Operating profit (non-GAAP)     45,522     31,781     25,424  
Operating margin (non-GAAP)     28.7%     23.9%     20.0%  
                     
Non-operating income (expense) (GAAP)     194     886     1,726  
Foreign exchange loss (gain), net     375     65     (701)  
Non-operating income (expense) (non-GAAP)     569     951     1,025  
                     
Net income (GAAP)     32,722     24,033     17,594  
Total pre-tax impact of non-GAAP adjustments     7,378     1,575     3,146  
Income tax impact of non-GAAP
adjustments
    (1,768)     (173)     (393)  
Net income (non-GAAP)     38,332     25,435     20,347  
                     
Earnings per diluted ADS (GAAP)   $0.92   $0.67   $0.49  
Earnings per diluted ADS (non-GAAP)   $1.07   $0.71   $0.57  
                     
Shares used in computing earnings per diluted ADS (GAAP)     35,539     35,801     35,828  
  Non-GAAP Adjustments     244     51     129  
Shares used in computing earnings per diluted ADS (non-GAAP)     35,783     35,852     35,957  
                     
(A)  Excludes stock-based compensation as follows:                    
Cost of Sales     156     2     58  
Research & development     4,009     315     1,960  
Sales & marketing     1,038     596     767  
General & administrative     1,273     71     536  


Silicon Motion Technology Corporation    
Consolidated Statements of Income    
(in thousands, except percentages, and per ADS data, unaudited)    
     
  For the Nine Months Ended
   
  Sep. 30, 2016
($)
  Sep. 30, 2017
($)
   
Net Sales   411,948     387,239    
Cost of sales   209,461     199,332    
Gross profit   202,487     187,907    
Operating expenses              
Research & development   66,367     74,107    
Sales & marketing   20,114     18,504    
General & administrative   12,024     11,887    
Amortization of  intangibles assets   1,577     1,577    
Operating income   102,405     81,832    
               
Non-operating expense (income)              
Interest income, net   1,407     2,710    
Foreign exchange gain (loss), net   (803)     289    
Others, net   48     14    
Subtotal   652     3,013    
Income before income tax   103,057     84,845    
Income tax expense   18,274     19,707    
Net income   84,783     65,138    
               
Earnings per basic ADS $2.41   $1.83    
Earnings per diluted ADS $2.39   $1.82    
               
Margin Analysis:              
Gross margin   49.2%     48.5%    
Operating margin   24.9%     21.1%    
Net margin   20.6%     16.8%    
               
Additional Data:              
Weighted avg. ADS equivalents   35,198     35,651    
Diluted ADS equivalents   35,476     35,867    


Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
 
    For the Nine Months Ended
 
    Sep. 30, 2016
($)
  Sep. 30, 2017
($)
 
Gross profit (GAAP)     202,487     187,907  
Gross margin (GAAP)     49.2%     48.5%  
Stock-based compensation expense(A)     201     127  
Gross profit (non-GAAP)     202,688     188,034  
Gross margin (non-GAAP)     49.2%     48.6%  
       
Operating expenses (GAAP)     100,082     106,075  
Stock-based compensation expense (A)     (8,736)     (7,313)  
Amortization of intangible assets     (1,577)     (1,577)  
Litigation expense     (51)     -  
Operating expenses (non-GAAP)     89,718     97,185  
       
Operating profit (GAAP)     102,405     81,832  
Operating margin (GAAP)     24.9%     21.1%  
Total adjustments to operating profit     10,565     9,017  
Operating profit (non-GAAP)     112,970     90,849  
Operating margin (non-GAAP)     27.4%     23.5%  
       
Non-operating income (expense) (GAAP)     652     3,013  
Foreign exchange loss (gain), net     803     (289)  
Non-operating income (expense) (non-GAAP)     1,455     2,724  
       
Net income (GAAP)     84,783     65,138  
Total pre-tax impact of non-GAAP
adjustments
    11,368     8,728  
Income tax impact of non-GAAP
adjustments
    (2,810)     (986)  
Net income (non-GAAP)     93,341     72,880  
       
Earnings per diluted ADS (GAAP)   $2.39   $1.82  
Earnings per diluted ADS (non-GAAP)   $2.62   $2.03  
       
Shares used in computing earnings per diluted ADS (GAAP)     35,476     35,867  
Non-GAAP Adjustments     140     86  
Shares used in computing earnings per diluted ADS (non-GAAP)     35,616     35,953  
       
(A)  Excludes stock-based compensation as follows:      
Cost of Sales     201     127  
Research & development     5,453     4,125  
Sales & marketing     1,646     1,972  
General & administrative     1,637     1,216  
       


Silicon Motion Technology Corporation
Consolidated Balance Sheet 
(In thousands, unaudited)
 
  Sep. 30,
2016
 ($)
  Jun . 30,
2017
 ($)
  Sep. 30,
2017
 ($)
Cash and cash equivalents 260,468   303,612   327,811
Short-term investments 8,683   2,354   4,984
Accounts receivable (net) 61,800   76,644   68,652
Inventories 79,728   81,767   78,594
Refundable deposits – current 44,289   44,119   19,542
Prepaid expenses and other current
assets
6,392   11,278   11,204
Total current assets 461,360   519,774   510,787
Long-term investments 133   120   120
Property and equipment (net) 48,726   48,910   48,552
Goodwill and intangible assets (net) 74,423   72,840   77,691
Other assets 11,033   5,593   5,914
Total assets 595,675   647,237   643,064
           
Accounts payable 38,207   32,949   36,518
Loans 35,000   25,000   -
Income tax payable 22,148   21,355   22,360
Accrued expenses and other current liabilities 73,308   50,750   44,637
Total current liabilities 168,663   130,054   103,515
Other liabilities 16,766   21,354   22,313
Total liabilities 185,429   151,408   125,828
Shareholders’ equity 410,246   495,829   517,236
Total liabilities & shareholders’ equity 595,675   647,237   643,064
           

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 fourth  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 fourth 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; 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; 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; any potential impairment recognized in our fourth quarter of 2017 relating to FCI; 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

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

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

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Silicon Motion Technology Corporation