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Press Release
 
January 24, 2017
 

Silicon Motion Announces Results for the Period Ended December 31, 2016

Financial Highlights

   4Q 2016 GAAP
 4Q 2016 Non-GAAP
* Net sales  $144.2 million (-9% Q/Q, +47% Y/Y) $144.2 million (-9% Q/Q, +47% Y/Y)
* Gross margin   50.0%
  50.2%
* Operating margin   24.2%
  30.4%
* Earnings per diluted ADS   $0.73 
  $0.95
         
   Full Year 2016 GAAP  Full Year 2016 Non-GAAP 
    
* Net sales  $556.1 million (+54% Y/Y) $556.1 million (+54% Y/Y)      
* Gross margin   49.4%
  49.4% 
* Operating margin   24.7%
  28.2% 
* Earnings per diluted ADS   $3.12
  $3.64 
        

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 increased over 5% Q/Q
  • eMMC controller sales decreased over 5% Q/Q
  • SSD solutions sales decreased over 40% Q/Q
  • Our flash partner began sampling with leading smartphone OEMs their UFS embedded memory with our controller
  • Introduced our Shannon Systems ultra-high performance 12.8TB PCIe SSD with 3D NAND  for Chinese hyperscalers

TAIPEI, Taiwan and MILPITAS, Calif., Jan. 24, 2017 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended December 31, 2016.  For the fourth quarter, net sales decreased 9% sequentially to $144.2 million from $158.6 million in the third quarter. Net income (GAAP) decreased to $26.2 million or $0.73 per diluted ADS (GAAP) from a net income (GAAP) of $32.7 million or $0.92 per diluted ADS (GAAP) in the third quarter.

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

For the fourth quarter, net income (non-GAAP) decreased to $33.9 million or $0.95 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $38.3 million or $1.07 per diluted ADS (non-GAAP) in the third quarter.

Fourth Quarter 2016 Review
“Due to continuing strength of our SSD controller business, representing our ninth consecutive quarter of SSD controller growth, we achieved fourth quarter sales that were on the high-end of our expectations,” said Wallace Kou, President and CEO of Silicon Motion. “Strength from our SSD controllers was however  offset by seasonally weak eMMC controller sales and SSD Solutions project transitions.”

Sales

(in millions, except percentages)4Q 20163Q 20164Q 2015
 SalesMixSalesMixSalesMix
Mobile Storage*
$
130.3
 90%
$
146.9
 93%
$
87.5
 89%
Q/Q -11%   13%   8%  
Y/Y 49%   82%   34%  
Mobile Communications**$12.5 9%$10.1 6%$8.8 9%
Others$1.4 1%$1.6 1%$1.7 2%
Total revenue
$
144.2
 100
%
$
158.6
 100
%
$
98.0
 100%
Q/Q -9%   13%   3%  
Y/Y 47%   66%   22%  

* 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)GAAPNon-GAAP
4Q 20163Q 20164Q 20154Q 20163Q 20164Q 2015
Revenue$ 144.2 $ 158.6 $ 98.0 $ 144.2 $ 158.6 $ 98.0 
Gross profit$ 72.1 $ 77.4 $ 49.0 $ 72.3 $ 77.6 $ 49.1 
Percent of revenue  50.0%  48.8%  50.0%  50.2%  48.9%  50.1%
Operating expenses$ 37.3 $ 38.9 $ 31.0 $ 28.5 $ 32.0 $ 25.3 
Operating income$ 34.9 $ 38.5 $ 18.1 $ 43.8 $ 45.5 $ 23.9 
Percent of revenue  24.2%  24.3%  18.4%  30.4%  28.7%  24.4%
Earnings per diluted ADS$ 0.73 $ 0.92 $ 0.38 $ 0.95 $ 1.07 $ 0.55 

Other Financial Information

(in millions)4Q 20163Q 20164Q 2015
Cash and cash equivalents, and short-term investments$277.8$269.2$185.2
Bank loans$25.0$35.0 --
Capital expenditures$2.5$2.8$14.4
Dividend payments$7.1$5.3$5.2
Loan repayments$10.0 -- --

During the fourth quarter, we had $2.1 million of capital expenditures for the routine purchase of software and design tools. In this quarter, after loan repayments of $10.0 million, we had $25.0 million of bank loans outstanding.

Our fourth quarter cash flows were as follows:

3 months ended December 31, 2016
  (In $ millions)
Net income (GAAP) 26.2 
Depreciation & amortization 2.7 
Changes in operating assets and liabilities (3.1
Others 9.0 
Net cash provided by operating activities 34.8 
Acquisition of property and equipment (2.5
Changes in restricted assets 0.1 
Net cash used in investing activities (2.4)
    
Dividend (7.1)
Loans (10.0)
Net cash used in financing activities (17.1)
Effects of changes in foreign currency exchange rates on cash (1.3)
Net increase in cash and cash equivalents 14.0 
   

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 November 17, 2016, we paid $7.1 million to shareholders as the first installment of our annual dividend. 

Business Outlook
“For full year 2017, we expect sales of our client SSD controllers to continue growing strongly, but NAND flash availability will affect our SSD Solutions,” said Wallace Kou, President and CEO of Silicon Motion. “NAND flash tightness will start affecting our SSD Solutions beginning in the first quarter.  Additionally in the first quarter, our client SSD controllers will decline seasonally, with growth restarting in the following quarter.”

For the first quarter of 2017, management expects:

 GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$121m to $128m--$121m to $128m
 -16% to -11% Q/Q -16% to -11% Q/Q
 +7% to +14% Y/Y +7% to +14% Y/Y
Gross margin48% to 50%Approximately $0.1m*48% to 50%
Operating margin20% to 22%Approximately $3.7m to 4.2m**23% to 25%

* Gross margin (non-GAAP) excludes $0.1 million of stock-based compensation.

** Operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets, and $3.2 million to $3.7 million of stock-based compensation.

For the full year 2017, management expects:

 GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$556m to $612m--$556m to $612m
 0% to +10% Y/Y 0% to +10% Y/Y
Gross margin49% to 51%Approximately $0.5m*49% to 51%
Operating margin24.4% to 26.4%Approximately $17.2m to 19.2m**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, $0.6 million of litigation expense, and $14.5 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 January 24, 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: 4750 3600

    REPLAY NUMBERS (for 7 days):
    USA (Toll Free): 1 855 452 5696     
    USA (Toll): 1 646 254 3697    
    Participant Passcode: 4750 3600
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 and 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.

Acquisition-related expenses consist of direct costs of acquisitions, such as transaction fees, which vary significantly and are unique to each acquisition. The Company does not acquire businesses on a predictable cycle, so we have excluded the effect of these costs when presenting our 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
  Dec. 31,  2015 
($)
 Sep. 30,  2016 
($)
 Dec. 31, 2016 
($)
Net Sales  98,041   158,580   144,198 
Cost of sales  49,028   81,175   72,080 
Gross profit  49,013   77,405   72,118 
     
Operating expenses    
Research & development  19,281   25,934   26,038 
Sales & marketing  6,136   7,548   5,651 
General & administrative  5,008   4,878   5,048 
Amortization of  intangibles assets  526   526   526 
Operating income  18,062   38,519   34,855 
Non-operating income (expense)            
             
Gain on sale of investments  1   -   - 
Interest income, net  455   541   623 
Foreign exchange gain (loss), net  (523)  (375)  112 
Impairment of long-term investments  -   -   (13)
Others, net  -   28   (4)
Subtotal  (67)  194   718 
Income before income tax  17,995   38,713   35,573 
Income tax expense  4,614   5,991   9,416 
Net income  13,381   32,722   26,157 
             
Earnings per basic ADS $0.38  $0.93  $0.74 
Earnings per diluted ADS $0.38  $0.92  $0.73 
             
Margin Analysis:            
Gross margin  50.0%  48.8%  50.0%
Operating margin  18.4%  24.3%  24.2%
Net margin  13.6%  20.6%  18.1%
     
Additional Data:    
Weighted avg. ADS equivalents2  34,875   35,308   35,324 
Diluted ADS equivalents  35,288   35,539   35,623 
     

 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
  Dec. 31,
2015
 ($)
 Sep. 30, 
2016

($)
 Dec. 31, 
2016

($)
Gross profit (GAAP)  49,013   77,405   72,118 
  Gross margin (GAAP)  50.0%  48.8%  50.0%
             
Stock-based compensation expense(A)  132   156   199 
             
Gross profit (non-GAAP)  49,145   77,561   72,317 
  Gross margin (non-GAAP)  50.1%  48.9%  50.2%
     
Operating expenses (GAAP)  30,951   38,886   37,263 
Stock-based compensation expense (A)  (5,091)  (6,320)  (8,228)
Amortization of intangible assets  (526)  (526)  (526)
Litigation expense  (36)  (1)  (2)
Acquisition-related expense  (38)  -   - 
Operating expenses (non-GAAP)  25,260   32,039   28,507 
     
Operating profit (GAAP)  18,062   38,519   34,855 
  Operating margin (GAAP)  18.4%  24.3%  24.2%
Total adjustments to operating profit  5,823   7,003   8,955 
Operating profit (non-GAAP)  23,885   45,522   43,810 
  Operating margin (non-GAAP)  24.4%  28.7%  30.4%
     
Non-operating income (expense) (GAAP)  (67)  194   718 
Foreign exchange loss (gain), net  523   375   (112)
Impairment of long-term investments  -   -   13 
Non-operating income (expense) (non-GAAP)  456   569   619 
     
Net income (GAAP)  13,381   32,722   26,157 
Total pre-tax impact of non-GAAP adjustments  6,346   7,378   8,856 
Income tax impact of non-GAAP adjustments  (76)  (1,768)  (1,147)
Net income (non-GAAP)  19,651   38,332   33,866 
     
Earnings per diluted ADS (GAAP) $0.38  $0.92  $0.73 
Earnings per diluted ADS (non-GAAP) $0.55  $1.07  $0.95 
     
Shares used in computing earnings per diluted ADS (GAAP)  35,288   35,539   35,623 
Non-GAAP Adjustments  205   244   201 
Shares used in computing earnings per diluted ADS (non-GAAP)  35,493   35,783   35,824 
     
(A)  Excludes stock-based compensation as follows:    
             
Cost of Sales  132   156   199 
Research & development  3,323   4,009   5,076 
Sales & marketing  859   1,038   1,476 
General & administrative  909   1,273   1,676 
             


Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
  
  For the Year Ended
  Dec. 31, 2015 
($)
 Dec. 31, 2016 
($)
Net Sales  361,297   556,146 
Cost of sales  176,765   281,541 
Gross profit  184,532   274,605 
Operating expenses        
Research & development  71,161   92,405 
Sales & marketing  20,173   25,765 
General & administrative  15,714   17,072 
Amortization of  intangibles assets  1,051   2,103 
Operating income  76,433   137,260 
         
Non-operating expense (income)        
Gain on sale of investments  3   2 
Interest income, net  1,978   2,031 
Foreign exchange gain (loss), net  76   (692)
Impairment of long-term investments  -   (13)
Others, net  10   42 
Subtotal  2,067   1,370 
Income before income tax  78,500   138,630 
Income tax expense  18,249   27,690 
Net income  60,251   110,940 
         
Earnings per basic ADS $1.75  $3.15 
Earnings per diluted ADS $1.73  $3.12 
         
Margin Analysis:        
Gross margin  51.1%  49.4%
Operating margin  21.2%  24.7%
Net margin  16.7%  20.0%
         
Additional Data:        
Weighted avg. ADS equivalents  34,525   35,230 
Diluted ADS equivalents  34,909   35,513 
         


Silicon Motion Technology Corporation
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except percentages and per ADS data, unaudited)
 
  For the Year Ended
  Dec. 31, 2015
($)
 Dec. 31, 2016
($)
Gross profit (GAAP)  184,532   274,605 
  Gross margin (GAAP)  51.1%  49.4%
         
Stock-based compensation expense(A)  262   400 
         
Gross profit (non-GAAP)  184,794   275,005 
  Gross margin (non-GAAP)  51.2%  49.4%
    
Operating expenses (GAAP)  108,099   137,345 
Stock-based compensation expense (A)  (10,157)  (16,964)
Amortization of intangible assets  (1,051)  (2,103)
Litigation expense  (128)  (52)
Acquisition-related expense  (358)  - 
Operating expenses (non-GAAP)  96,405   118,226 
    
Operating profit (GAAP)  76,433   137,260 
  Operating margin (GAAP)  21.2%  24.7%
Total adjustments to operating profit  11,956   19,519 
Operating profit (non-GAAP)  88,389   156,779 
  Operating margin (non-GAAP)  24.5%  28.2%
    
Non-operating income (expense) (GAAP)  2,067   1,370 
Foreign exchange loss (gain), net  (76)  692 
Impairment of long-term investments  -   13 
Non-operating income (expense) (non-GAAP)  1,991   2,075 
    
Net income (GAAP)  60,251   110,940 
Total pre-tax impact of non-GAAP adjustments  11,880   20,224 
Income tax impact of non-GAAP adjustments  1,908   (1,171)
Net income (non-GAAP)  74,039   129,993 
    
Earnings per diluted ADS (GAAP) $1.73  $3.12 
Earnings per diluted ADS (non-GAAP) $2.11  $3.64 
    
Shares used in computing earnings per diluted ADS (GAAP)  34,909   35,513 
Non-GAAP Adjustments  158   155 
Shares used in computing earnings per diluted ADS (non-GAAP)  35,067   35,668 
    
(A)  Excludes stock-based compensation as follows:   
         
Cost of Sales  262   400 
Research & development  6,565   10,529 
Sales & marketing  1,790   3,122 
General & administrative  1,802   3,313 
         


Silicon Motion Technology Corporation
Consolidated Balance Sheet
(In thousands, unaudited)
       
  Dec. 31,
2015
 ($)
 Sep. 30,
2016
 ($)
 Dec. 31,
2016
 ($)
Cash and cash equivalents 180,519 260,468 274,483
Short-term investments 4,681 8,683 3,302
Accounts receivable (net) 58,963 61,800 73,599
Inventories 47,110 79,728 71,873
Refundable deposits – current 19,328 44,289 44,393
Prepaid expenses and other current assets 4,575 6,392 9,236
Total current assets 315,176 461,360 476,886
Long-term investments 133 133 120
Property and equipment (net) 50,469 48,726 47,892
Goodwill and intangible assets (net) 75,990 74,423 73,883
Other assets 3,860 11,033 7,231
Total assets 445,628 595,675 606,012
       
Accounts payable 22,541 38,207 31,739
Loans - 35,000 25,000
Income tax payable 13,395 22,148 20,271
Accrued expenses and other current liabilities 52,351 73,308 68,960
Total current liabilities 88,287 168,663 145,970
Other liabilities 12,843 16,766 17,319
Total liabilities 101,130 185,429 163,289
Shareholders’ equity 344,498 410,246 442,723
Total liabilities & shareholders’ equity 445,628 595,675 606,012
       

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 first quarter of 2017 and full year 2017 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 first 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, including our recently announced increase to our annual dividend, 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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