January 29, 2019 at 6:00 PM EST
BACK
Silicon Motion Announces Results for the Period Ended December 31, 2018
Financial Highlights | |||
4Q 2018 GAAP | 4Q 2018 Non-GAAP | ||
• Net sales | $123.4 million (-11% Q/Q, -9% Y/Y) | $123.4 million (-11% Q/Q, -9% Y/Y) | |
• Gross margin | 50.3% | 50.5% | |
• Operating margin | 14.0% | 25.1% | |
• Earnings per diluted ADS | $0.48 | $0.83 | |
Full Year 2018 GAAP | Full Year 2018 Non-GAAP | ||
• Net sales | $530.3 million (+1% Y/Y) | $530.3 million (+1% Y/Y) | |
• Gross margin | 49.2% | 49.3% | |
• Operating margin | 20.4% | 25.0% | |
• Earnings per diluted ADS | $2.78 | $3.41 | |
Business Highlights
- Embedded Storage1 sales declined almost 15% Q/Q and accounted for approximately 80% of total sales
- SSD controller sales decreased about 20% Q/Q
- eMMC+UFS controller sales decreased about 15% Q/Q
- SSD solutions sales increased about 5% Q/Q
- Began shipping our SSD controllers to a US NAND partner for one of the world’s first 96-layer TLC-based SSD
For the fourth quarter, net income (non-GAAP) decreased to
Fourth Quarter 2018 Review
“Our fourth quarter sales declined as expected, near the midpoint of guidance,” said
Sales | |||||||||
(in millions, except percentages) | 4Q 2018 | 3Q 2018 | 4Q 2017 | ||||||
Sales | Mix | Sales | Mix | Sales | Mix | ||||
Mobile Storage* | $113.4 | 92% | $129.8 | 94% | $125.3 | 92% | |||
Q/Q | -13 | % | +0% | +7% | |||||
Y/Y | -10 | % | +11% | -4% | |||||
Mobile Communications** | $7.2 | 6% | $7.0 | 5% | $9.4 | 7% | |||
Others | $2.8 | 2% | $1.7 | 1% | $1.5 | 1% | |||
Total revenue | $123.4 | 100% | $138.6 | 100% | $136.2 | 100% | |||
Q/Q | -11 | % | +0% | +7% | |||||
Y/Y | -9 | % | +9% | -6% |
* 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)
**
Key Financial Results | ||||||
(in millions, except percentages and per ADS amounts) |
GAAP | Non-GAAP | ||||
4Q 2018 | 3Q 2018 | 4Q 2017 | 4Q 2018 | 3Q 2018 | 4Q 2017 | |
Revenue | $123.4 | $138.6 | $136.2 | $123.4 | $138.6 | $136.2 |
Gross profit | $62.1 | $70.6 | $63.3 | $62.3 | $70.7 | $63.5 |
Percent of revenue | 50.3% | 50.9% | 46.5% | 50.5% | 51.0% | 46.6% |
Operating expenses | $44.9 | $38.3 | $49.8 | $31.4 | $33.1 | $30.6 |
Operating income | $17.2 | $32.2 | $13.5 | $31.0 | $37.5 | $32.9 |
Percent of revenue | 14.0% | 23.3% | 9.9% | 25.1% | 27.1% | 24.1% |
Earnings per diluted ADS | $0.48 | $0.81 | $0.27 | $0.83 | $0.95 | $0.79 |
Other Financial Information | |||
(in millions) | 4Q 2018 | 3Q 2018 | 4Q 2017 |
Cash and cash equivalents, and short-term investments | $288.6 | $308.2 | $366.4 |
Bank loans | -- | $3.9 | $25.0 |
Loan repayments | $3.9 | $8.1 | -- |
Capital expenditures | $5.0 | $62.9 | $3.5 |
Dividend payments | $10.8 | $10.8 | $10.7 |
Share repurchase | $33.6 | -- | -- |
During the fourth quarter, we had
Our fourth quarter cash flows were as follows:
3 months ended Dec. 31, 2018 | ||
(In $ millions) | ||
Net income (GAAP) | 17.3 | |
Depreciation & amortization | 3.8 | |
Impairment loss of goodwill | 0.6 | |
Impairment loss of long term investment | 1.2 | |
Changes in operating assets and liabilities | 1.3 | |
Others | 10.6 | |
Net cash provided by operating activities | 34.8 | |
Acquisition of property and equipment | (5.0) | |
Net cash used in investing activities | (5.0) | |
Dividend | (10.8) | |
Share repurchase | (33.6) | |
Loans | (3.9) | |
Net cash used in financing activities | (48.3) | |
Effects of changes in foreign currency exchange rates on cash | - | |
Net decrease in cash, cash equivalents and restricted cash | (18.5) | |
Returning Value to Shareholders
On
On
Business Outlook
“We expect NAND prices to continue falling through 2019, which will drive meaningful increase in client SSD adoption in PCs starting in the middle of this year,” said
For the first quarter of 2019, management expects: | |||
GAAP | Non-GAAP Adjustment | Non-GAAP | |
Revenue | $97.5m to $103.6m -21% to -16% Q/Q |
-- | $97.5m to $103.6m -21% to -16% Q/Q |
Gross margin | 46.9% to 49.9% | Approximately $0.1m* | 47.0% to 50.0% |
Operating margin | 6.8% to 11.2% | Approximately $5.0m to $5.1m** | 12.0% to 16.0% |
* Projected gross margin (non-GAAP) excludes
** Projected operating margin (non-GAAP) excludes
For full-year 2019, management expects GAAP and Non-GAAP Revenue to 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
Speakers:
Riyadh Lai, CFO
CONFERENCE CALL ACCESS NUMBERS:
Participant Passcode: 4485756
REPLAY NUMBERS (for 7 days):
Participant Passcode: 4485756
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 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.
Impairment of goodwill evaluates the recoverability of goodwill 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$. We do not use financial instruments to manage the impact on our operations from changes in foreign exchange rates, and because our operations are subject to fluctuations in foreign exchange rates, we therefore exclude foreign exchange gains and losses when presenting non-GAAP financial measures.
Gain and loss on equity-method investment consists of gain and/or loss related to our investment in a privately-held company, which varies depending on the operational and financial performance of the company in which we invested. We believe that providing non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations.
Impairment of long-term investments relates to the other-than-temporary, non-operating write down of the Company's minority stake investments. We do not consider these investments to be strategic and exclude the performance of these investments when evaluating our ongoing performance and forecasting our earnings trends, and therefore excluding losses (and gains) from the investments when presenting non-GAAP financial measures.
Consolidated Statements of Income
(in thousands, except percentages and per ADS data, unaudited)
For the Three Months Ended | |||||||||||
Dec. 31, 2017 | Sep. 30, 2018 | Dec. 31, 2018 | |||||||||
($) | ($) | ($) | |||||||||
Net Sales | 136,165 | 138,562 | 123,386 | ||||||||
Cost of sales | 72,878 | 67,988 | 61,288 | ||||||||
Gross profit | 63,287 | 70,574 | 62,098 | ||||||||
Operating expenses | |||||||||||
Research & development | 27,946 | 25,506 | 30,675 | ||||||||
Sales & marketing | 7,364 | 7,735 | 7,435 | ||||||||
General & administrative | 5,046 | 4,355 | 5,397 | ||||||||
Amortization of intangibles assets | 956 | 741 | 741 | ||||||||
Impairment loss of goodwill | 10,337 | - | 625 | ||||||||
Gain from disposal of other assets | (1,880 | ) | - | - | |||||||
Operating income | 13,518 | 32,237 | 17,225 | ||||||||
Non-operating income (expense) | |||||||||||
Interest income, net | 1,135 | 1,597 | 1,718 | ||||||||
Foreign exchange gain (loss), net | (447 | ) | (749 | ) | (9 | ) | |||||
Gain (loss) on equity-method investment | - | (98 | ) | (169 | ) | ||||||
Impairment of long-term investments | (120 | ) | - | (1,242 | ) | ||||||
Others, net | 70 | 55 | 38 | ||||||||
Subtotal | 638 | 805 | 336 | ||||||||
Income before income tax | 14,156 | 33,042 | 17,561 | ||||||||
Income tax expense | 4,338 | 3,858 | 260 | ||||||||
Net income | 9,818 | 29,184 | 17,301 | ||||||||
Earnings per basic ADS | $0.27 | $0.81 | $0.48 | ||||||||
Earnings per diluted ADS | $0.27 | $0.81 | $0.48 | ||||||||
Margin Analysis: | |||||||||||
Gross margin | 46.5 | % | 50.9 | % | 50.3 | % | |||||
Operating margin | 9.9 | % | 23.3 | % | 14.0 | % | |||||
Net margin | 7.2 | % | 21.1 | % | 14.0 | % | |||||
Additional Data: | |||||||||||
Weighted avg. ADS equivalents2 | 35,785 | 36,136 | 35,974 | ||||||||
Diluted ADS equivalents | 36,005 | 36,171 | 36,070 | ||||||||
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
For the Three Months Ended | ||||||||||||
Dec. 31, 2017 | Sep. 30, 2018 | Dec. 31, 2018 | ||||||||||
($) | ($) | ($) | ||||||||||
Gross profit (GAAP) | 63,287 | 70,574 | 62,098 | |||||||||
Gross margin (GAAP) | 46.5 | % | 50.9 | % | 50.3 | % | ||||||
Stock-based compensation expense (A) | 167 | 80 | 246 | |||||||||
Gross profit (non-GAAP) | 63,454 | 70,654 | 62,344 | |||||||||
Gross margin (non-GAAP) | 46.6 | % | 51.0 | % | 50.5 | % | ||||||
Operating expenses (GAAP) | 49,769 | 38,337 | 44,873 | |||||||||
Stock-based compensation expense (A) | (7,887 | ) | (4,468 | ) | (12,132 | ) | ||||||
Amortization of intangible assets | (956 | ) | (741 | ) | (741 | ) | ||||||
Impairment loss of goodwill | (10,337 | ) | - | (625 | ) | |||||||
Litigation expense | - | (8 | ) | (7 | ) | |||||||
Operating expenses (non-GAAP) | 30,589 | 33,121 | 31,368 | |||||||||
Operating profit (GAAP) | 13,518 | 32,237 | 17,225 | |||||||||
Operating margin (GAAP) | 9.9 | % | 23.3 | % | 14.0 | % | ||||||
Total adjustments to operating profit | 19,347 | 5,297 | 13,751 | |||||||||
Operating profit (non-GAAP) | 32,865 | 37,534 | 30,976 | |||||||||
Operating margin (non-GAAP) | 24.1 | % | 27.1 | % | 25.1 | % | ||||||
Non-operating income (expense) (GAAP) | 638 | 805 | 336 | |||||||||
Foreign exchange loss (gain), net | 447 | 749 | 9 | |||||||||
Loss (gain) on equity-method investment | - | 98 | 169 | |||||||||
Impairment loss of long-term investment | 120 | - | 1,242 | |||||||||
Non-operating income (expense) (non-GAAP) | 1,205 | 1,652 | 1,756 | |||||||||
Net income (GAAP) | 9,818 | 29,184 | 17,301 | |||||||||
Total pre-tax impact of non-GAAP adjustments | 19,914 | 6,144 | 15,171 | |||||||||
Income tax impact of non-GAAP adjustments | (1,320 | ) | (825 | ) | (2,273 | ) | ||||||
Net income (non-GAAP) | 28,412 | 34,503 | 30,199 | |||||||||
Earnings per diluted ADS (GAAP) | $0.27 | $0.81 | $0.48 | |||||||||
Earnings per diluted ADS (non-GAAP) | $0.79 | $0.95 | $0.83 | |||||||||
Shares used in computing earnings per diluted ADS (GAAP) | 36,005 | 36,171 | 36,070 | |||||||||
Non-GAAP Adjustments | 169 | 147 | 293 | |||||||||
Shares used in computing earnings per diluted ADS (non-GAAP) | 36,174 | 36,318 | 36,363 | |||||||||
(A) Excludes stock-based compensation as follows: | ||||||||||||
Cost of Sales | 167 | 80 | 246 | |||||||||
Research & development | 5,131 | 2,804 | 8,380 | |||||||||
Sales & marketing | 1,194 | 897 | 1,418 | |||||||||
General & administrative | 1,562 | 767 | 2,334 | |||||||||
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
For the Year Ended | |||||||
Dec. 31, 2017 | Dec. 31,2018 | ||||||
($) | ($) | ||||||
Net Sales | 523,404 | 530,348 | |||||
Cost of sales | 272,210 | 269,541 | |||||
Gross profit | 251,194 | 260,807 | |||||
Operating expenses | |||||||
Research & development | 102,053 | 102,028 | |||||
Sales & marketing | 25,868 | 29,279 | |||||
General & administrative | 16,933 | 17,633 | |||||
Amortization of intangibles assets | 2,534 | 2,964 | |||||
Impairment loss of goodwill | 10,337 | 625 | |||||
Gain from disposal of other assets | (1,880 | ) | - | ||||
Operating income | 95,349 | 108,278 | |||||
Non-operating expense (income) | |||||||
Interest income, net | 3,845 | 5,923 | |||||
Foreign exchange gain (loss), net | (157 | ) | (615 | ) | |||
Gain (loss) on equity-method investment | - | (473 | ) | ||||
Impairment of long-term investments | (120 | ) | (1,242 | ) | |||
Others, net | 84 | 193 | |||||
Subtotal | 3,652 | 3,786 | |||||
Income before income tax | 99,001 | 112,064 | |||||
Income tax expense | 24,046 | 11,791 | |||||
Net income | 74,955 | 100,273 | |||||
Earnings per basic ADS | $2.10 | $2.78 | |||||
Earnings per diluted ADS | $2.09 | $2.78 | |||||
Margin Analysis: | |||||||
Gross margin | 48.0 | % | 49.2 | % | |||
Operating margin | 18.2 | % | 20.4 | % | |||
Net margin | 14.3 | % | 18.9 | % | |||
Additional Data: | |||||||
Weighted avg. ADS equivalents | 35,684 | 36,031 | |||||
Diluted ADS equivalents | 35,902 | 36,128 | |||||
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
For the Year Ended | ||||||||
Dec. 31, 2017 | Dec. 31, 2018 | |||||||
($) | ($) | |||||||
Gross profit (GAAP) | 251,194 | 260,807 | ||||||
Gross margin (GAAP) | 48.0 | % | 49.2 | % | ||||
Stock-based compensation expense(A) | 293 | 390 | ||||||
Gross profit (non-GAAP) | 251,487 | 261,197 | ||||||
Gross margin (non-GAAP) | 48.0 | % | 49.3 | % | ||||
Operating expenses (GAAP) | 155,845 | 152,529 | ||||||
Stock-based compensation expense (A) | (15,200 | ) | (20,388 | ) | ||||
Amortization of intangible assets | (2,534 | ) | (2,964 | ) | ||||
Impairment loss of goodwill | (10,337 | ) | (625 | ) | ||||
Litigation expense | - | (37 | ) | |||||
Operating expenses (non-GAAP) | 127,774 | 128,515 | ||||||
Operating profit (GAAP) | 95,349 | 108,278 | ||||||
Operating margin (GAAP) | 18.2 | % | 20.4 | % | ||||
Total adjustments to operating profit | 28,364 | 24,404 | ||||||
Operating profit (non-GAAP) | 123,713 | 132,682 | ||||||
Operating margin (non-GAAP) | 23.6 | % | 25.0 | % | ||||
Non-operating income (expense) (GAAP) | 3,652 | 3,786 | ||||||
Foreign exchange loss (gain), net | 157 | 615 | ||||||
Loss (gain) on equity-method investment | 120 | 1,242 | ||||||
Investment loss-equity method | - | 473 | ||||||
Non-operating income (expense) (non-GAAP) | 3,929 | 6,116 | ||||||
Net income (GAAP) | 74,955 | 100,273 | ||||||
Total pre-tax impact of non-GAAP adjustments | 28,641 | 26,734 | ||||||
Income tax impact of non-GAAP adjustments | (2,306 | ) | (3,480 | ) | ||||
Net income (non-GAAP) | 101,290 | 123,527 | ||||||
Earnings per diluted ADS (GAAP) | $2.09 | $2.78 | ||||||
Earnings per diluted ADS (non-GAAP) | $2.81 | $3.41 | ||||||
Shares used in computing earnings per diluted ADS (GAAP) | 35,902 | 36,128 | ||||||
Non-GAAP Adjustments | 107 | 133 | ||||||
Shares used in computing earnings per diluted ADS (non-GAAP) | 36,009 | 36,261 | ||||||
(A) Excludes stock-based compensation as follows: | ||||||||
Cost of Sales | 293 | 390 | ||||||
Research & development | 9,255 | 13,277 | ||||||
Sales & marketing | 3,166 | 3,407 | ||||||
General & administrative | 2,779 | 3,704 | ||||||
Consolidated Balance Sheet
(In thousands, unaudited)
Dec. 31, | Sep. 30, | Dec. 31, | ||||
2017 | 2018 | 2018 | ||||
($) | ($) | ($) | ||||
Cash and cash equivalents | 359,453 | 303,329 | 284,989 | |||
Short-term investments | 6,941 | 4,919 | 3,609 | |||
Accounts receivable (net) | 79,135 | 84,273 | 89,670 | |||
Inventories | 94,186 | 91,117 | 81,518 | |||
Refundable deposits – current | 19,515 | 19,341 | 19,157 | |||
Prepaid expenses and other current | ||||||
assets | 9,567 | 7,588 | 17,454 | |||
Total current assets | 568,797 | 510,567 | 496,397 | |||
Long-term investments | - | 4,412 | 3,000 | |||
Property and equipment (net) | 51,370 | 110,953 | 101,410 | |||
Goodwill and intangible assets (net) | 66,393 | 64,163 | 62,796 | |||
Other assets | 7,172 | 7,023 | 9,120 | |||
Total assets | 693,732 | 697,118 | 672,723 | |||
Accounts payable | 56,423 | 30,986 | 27,657 | |||
Loans | 25,000 | 3,900 | - | |||
Income tax payable | 11,492 | 6,808 | 4,162 | |||
Accrued expenses and other current liabilities | 84,329 | 44,728 | 79,739 | |||
Total current liabilities | 177,244 | 86,422 | 111,558 | |||
Other liabilities | 22,437 | 27,635 | 26,686 | |||
Total liabilities | 199,681 | 114,057 | 138,244 | |||
Shareholders’ equity | 494,051 | 583,061 | 534,479 | |||
Total liabilities & shareholders’ equity | 693,732 | 697,118 | 672,723 | |||
About
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 eMMCs+UFS, which are found in smartphones, PCs, commercial and industrial applications. We ship over 750 million NAND controllers annually and have shipped over five billion NAND controllers in the last ten years, more than any other company in the world. We also supply specialized 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
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 first 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
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 |
______________________________________________________
1 Embedded Storage comprises primarily eMMC+UFS and SSD controllers and data center and industrial SSD solutions.
2 Assumes all outstanding ordinary shares are represented by ADSs. Each ADS represents four ordinary shares.