Silicon Motion Announces Results for the Period Ended September 30, 2018
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Silicon Motion Announces Results for the Period Ended September 30, 2018

Financial Highlights

 3Q 2018 GAAP3Q 2018 Non-GAAP
  • Net sales
$138.6 million (+0% Q/Q, +9% Y/Y)$138.6 million (+0% Q/Q, +9% Y/Y)
  • Gross margin
50.9%51.0%
  • Operating margin
23.3%27.1%
  • Earnings per diluted ADS
$0.81$0.95

Business Highlights

TAIPEI, Taiwan and MILPITAS, Calif., Oct. 31, 2018 (GLOBE NEWSWIRE) -- Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended September 30, 2018.  For the third quarter, net sales increased sequentially to $138.6 million from $138.1 million in the second quarter 2018. Net income (GAAP) decreased to $29.2 million or $0.81 per diluted ADS (GAAP) from a net income (GAAP) of $30.7 million or $0.85 per diluted ADS (GAAP) in the second quarter 2018.

For the third quarter, net income (non-GAAP) increased to $34.5 million or $0.95 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $33.2 million or $0.92 per diluted ADS (non-GAAP) in the second quarter 2018.

Third Quarter 2018 Review
“Our third quarter client SSD controller sales grew strongly as declining NAND pricing reduced the cost of SSD, which accelerated SSD adoption in PCs,” said Wallace Kou, President and CEO of Silicon Motion.   “In the quarter, two US NAND flash makers began shipping the world’s first client SSDs with their 4-bits per cell QLC 3D NAND using our controllers.  We believe these lower cost, high performance PCIe NVMe SSDs will help drive further displacement of HDDs in PCs and other client devices.  Separately and as expected, our SSD solutions declined in the third quarter due to timing of a technology transition at our major hyperscale customer.  Our eMMC+UFS controller sales were soft primarily due to smartphone market weakness.” 

Sales

(in millions, except percentages)3Q 20182Q 20183Q 2017
SalesMixSalesMixSalesMix
Mobile Storage*
   Q/Q
   Y/Y
$129.8
+0%
+11%
94%


$129.4
+7%
+6%
94%


$117.3
-4%
-20%
92%


Mobile Communications**$7.05%$7.55%$8.77%
Others$1.71%$1.11%$1.31%
Total revenue
   Q/Q
   Y/Y
$138.6
+0%
+9%
100%


$138.1
+6%
+4%
100%


$127.2
-4%
-20%
100%


* 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

Key Financial Results

(in millions, except percentages and per ADS amounts)GAAPNon-GAAP
3Q 20182Q 20183Q 20173Q 20182Q 20183Q 2017
Revenue$138.6$138.1$127.2$138.6$138.1$127.2
Gross profit
   Percent of revenue
$70.6
50.9%
$65.6
47.5%
$58.5
46.0%
$70.7
51.0%
$65.6
47.5%
$58.5
46.0%
Operating expenses$38.3$31.6$36.9$33.1$30.2$33.1
Operating income
   Percent of revenue
$32.2
23.3%
$34.0
24.6%
$21.6
17.0%
$37.5
27.1%
$35.4
25.7%
$25.4
20.0%
Earnings per diluted ADS$0.81$0.85$0.49$0.95$0.92$0.57

Other Financial Information

(in millions)3Q 20182Q 20183Q 2017
Cash and cash equivalents, and short-term investments$308.2$364.2$332.8
Bank loans$3.9$12.0--
Capital expenditures$62.9$3.2$3.0
Dividend payments$10.8$10.8$7.1
Loan repayments$8.1$8.7$25.0

During the third quarter, we had $62.9 million of capital expenditures, with $58.9 million spent on the purchase of land for our office building in Hsinchu, Taiwan and $4.0 million for the routine purchase of software, design tools and other items. 

Our third quarter cash flows were as follows:

3 months ended September 30, 2018
 (In $ millions)
Net income (GAAP)29.2 
Depreciation & amortization3.8 
Changes in operating assets and liabilities(7.9)
Others4.4 
Net cash provided by operating activities29.5 
Acquisition of property and equipment(62.9)
Net cash used in investing activities(62.9)
Dividend

(10.8


)
Loans(8.1)
Net cash used in financing activities(18.9)
Effects of changes in foreign currency exchange rates on cash(0.5)
Net decrease in cash, cash equivalents and restricted cash(52.8)
   

Returning Value to Shareholders
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. On August 22, 2018, we paid $10.8 million to shareholders as the fourth installment of our annual dividend. On October 26, 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. The first installment of our new annual dividend will be paid on November 23, 2018.

Business Outlook
“Our client SSD controller sales momentum continues to improve as the cost of NAND has been falling and SSDs are becoming increasingly affordable,” said Wallace Kou, President and CEO of Silicon Motion.  “Full-year sales of our client SSD controllers are now tracking towards a 35% growth rate.  We believe this positive trend will extend further next year.  However, both our SSD solutions and eMMC+UFS controller sales are tracking below prior expectation due to product transition timing and weaker end-market demand. Nevertheless, in spite of weaker than expected sales for the full year, we anticipate that our full-year margins will be better than expected because of stronger SSD controller sales and believe our earnings growth remains strong.”

For the fourth quarter of 2018, management expects:

 GAAPNon-GAAP AdjustmentNon-GAAP
Revenue$120.5m to $127.5m
-13% to -8% Q/Q
--$120.5m to $127.5m
-13% to -8% Q/Q
Gross margin49.8% to 51.8%Approximately $0.2m*50.0% to 52.0%
Operating margin13.6% to 17.0%Approximately $12.7m to $13.7m**25.0% to 27.0%

* Projected gross margin (non-GAAP) excludes $0.2 million of stock-based compensation.
* *Projected operating margin (non-GAAP) excludes $0.7 million of amortization of intangible assets and $12 million to $13 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 31, 2018. 
    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): 080 909 1568
    Participant Passcode: 2481599

    REPLAY NUMBERS (for 7 days):
    USA (Toll Free): 1 855 452 5696
    USA (Toll): 1 646 254 3697
    Participant Passcode: 2481599
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 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.

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
 Sep. 30,  2017
($)
Jun. 30, 2018
($)
Sep. 30, 2018
($)
Net Sales 127,216  138,055  138,562 
Cost of sales 68,746  72,474  67,988 
Gross profit 58,470  65,581  70,574 
Operating expenses   
Research & development 25,293  20,014  25,506 
Sales & marketing 7,157  7,144  7,735 
General & administrative 3,917  3,718  4,355 
Amortization of  intangibles assets 526  741  741 
Operating income 21,577  33,964  32,237 
    
Non-operating income (expense)   
Interest income, net 993  1,394  1,597 
Foreign exchange gain (loss), net 701  (933) (749)
Gain (loss) on equity-method investment -  (205) (98)
Others, net 32  42  55 
Subtotal 1,726  298  805 
Income before income tax 23,303  34,262  33,042 
Income tax expense 5,709  3,534  3,858 
Net income 17,594  30,728  29,184 
          
    
Earnings per basic ADS$0.49 $0.85 $0.81 
Earnings per diluted ADS$0.49 $0.85 $0.81 
    
Margin Analysis:   
Gross margin 46.0% 47.5% 50.9%
Operating margin 17.0% 24.6% 23.3%
Net margin 13.8% 22.3% 21.1%
    
Additional Data:   
Weighted avg. ADS equivalents2 35,766  36,113  36,136 
Diluted ADS equivalents 35,828  36,151  36,171 
    


 
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,  2017
($)
Jun. 30, 2018
($)
Sep. 30, 2018
($)
Gross profit (GAAP)58,470 65,581 70,574 
Gross margin (GAAP)46.0%47.5%50.9%
Stock-based compensation expense (A)58 5 80 
Gross profit (non-GAAP)58,528 65,586 70,654 
Gross margin (non-GAAP)46.0%47.5%51.0%
    
Operating expenses (GAAP)36,893 31,617 38,337 
Stock-based compensation expense (A)(3,263)(712)(4,468)
Amortization of intangible assets(526)(741)(741)
Litigation expense- (8)(8)
Operating expenses (non-GAAP)33,104 30,156 33,121 
    
Operating profit (GAAP)21,577 33,964 32,237 
Operating margin (GAAP)17.0%24.6%23.3%
Total adjustments to operating profit3,847 1,466 5,297 
Operating profit (non-GAAP)25,424 35,430 37,534 
Operating margin (non-GAAP)20.0%25.7%27.1%
    
Non-operating income (expense) (GAAP)1,726 298 805 
Foreign exchange loss (gain), net(701)933 749 
Loss (gain) on equity-method investment- 205 98 
Non-operating income (expense) (non-GAAP)1,025 1,436 1,652 
    
Net income (GAAP)17,594 30,728 29,184 
Total pre-tax impact of non-GAAP adjustments3,146 2,604 6,144 
Income tax impact of non-GAAP adjustments(393)(138)(825)
Net income (non-GAAP)20,347 33,194 34,503 
    
Earnings per diluted ADS (GAAP)$0.49 $0.85 $0.81 
Earnings per diluted ADS (non-GAAP)$0.57 $0.92 $0.95 
    
Shares used in computing earnings per diluted ADS (GAAP)35,828 36,151 36,171 
Non-GAAP Adjustments129 38 147 
Shares used in computing earnings per diluted ADS (non-GAAP)35,957 36,189 36,318 
    
(A)  Excludes stock-based compensation as follows:   
Cost of Sales58 5 80 
Research & development1,960 227 2,804 
Sales & marketing767 433 897 
General & administrative536 52 767 
       


 
Silicon Motion Technology Corporation
Consolidated Statements of Income
(in thousands, except percentages, and per ADS data, unaudited)
  
 For the Nine Months Ended
 Sep. 30, 2017
($)
Sep. 30,2018
($)
Net Sales387,239 406,962 
Cost of sales199,332 208,252 
Gross profit187,907 198,710 
Operating expenses  
Research & development74,107 71,353 
Sales & marketing18,504 21,845 
General & administrative11,887 12,236 
Amortization of  intangibles assets1,577 2,223 
Operating income81,832 91,053 
   
Non-operating expense (income)  
Interest income, net2,710 4,205 
Foreign exchange gain (loss), net289 (606)
Gain (loss) on equity-method investment- (303)
Others, net14 154 
Subtotal3,013 3,450 
Income before income tax84,845 94,503 
Income tax expense19,707 11,531 
Net income65,138 82,972 
     
   
Earnings per basic ADS$1.83 $2.30 
Earnings per diluted ADS$1.82 $2.30 
     
   
Margin Analysis:  
Gross margin48.5%48.8%
Operating margin21.1%22.4%
Net margin16.8%20.4%
   
Additional Data:  
Weighted avg. ADS equivalents35,651 36,050 
Diluted ADS equivalents35,867 36,147 
     


 
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, 2017
($)
Sep. 30, 2018
($)
Gross profit (GAAP)187,907 198,710 
Gross margin (GAAP)48.5%48.8%
Stock-based compensation expense(A)127 144 
Gross profit (non-GAAP)188,034 198,854 
Gross margin (non-GAAP)48.6%48.9%
   
Operating expenses (GAAP)106,075 107,657 
Stock-based compensation expense (A)(7,313)(8,256)
Amortization of intangible assets(1,577)(2,223)
Litigation expense- (29)
Operating expenses (non-GAAP)97,185 97,149 
   
Operating profit (GAAP)81,832 91,053 
Operating margin (GAAP)21.1%22.4%
Total adjustments to operating profit9,017 10,652 
Operating profit (non-GAAP)90,849 101,705 
Operating margin (non-GAAP)23.5%25.0%
   
Non-operating income (expense) (GAAP)3,013 3,450 
Foreign exchange loss (gain), net(289)606 
Loss (gain) on equity-method investment- 303 
Non-operating income (expense) (non-GAAP)2,724 4,359 
   
Net income (GAAP)65,138 82,972 
Total pre-tax impact of non-GAAP adjustments8,728 11,561 
Income tax impact of non-GAAP adjustments(986)(1,207)
Net income (non-GAAP)72,880 93,326 
   
Earnings per diluted ADS (GAAP)$1.82 $2.30 
Earnings per diluted ADS (non-GAAP)$2.03 $2.58 
   
Shares used in computing earnings per diluted ADS (GAAP)35,867 36,147 
Non-GAAP Adjustments86 80 
Shares used in computing earnings per diluted ADS (non-GAAP)35,953 36,227 
   
(A)  Excludes stock-based compensation as follows:  
Cost of Sales127 144 
Research & development4,125 4,898 
Sales & marketing1,972 1,988 
General & administrative1,216 1,370 
   
   
   


 
Silicon Motion Technology Corporation
Consolidated Balance Sheet
 (In thousands, unaudited)
      
 Sep. 30,
2017
 ($)
 Jun. 30,
2018
 ($)
 Sep. 30,
2018
 ($)
Cash and cash equivalents327,811 356,200 303,329
Short-term investments4,984 7,961 4,919
Accounts receivable (net)68,652 78,657 84,273
Inventories78,594 93,716 91,117
Refundable deposits – current19,542 19,337 19,341
Prepaid expenses and other current assets11,204 7,687 7,588
Total current assets510,787 563,558 510,567
Long-term investments120 4,510 4,412
Property and equipment (net)48,552 51,638 110,953
Goodwill and intangible assets (net)77,691 64,904 64,163
Other assets5,914 6,995 7,023
Total assets643,064 691,605 697,118
      
Accounts payable36,518 41,975 30,986
Loans- 12,000 3,900
Income tax payable22,360 6,736 6,808
Accrued expenses and other current liabilities44,637 53,160 44,728
Total current liabilities103,515 113,871 86,422
Other liabilities22,313 27,307 27,635
Total liabilities125,828 141,178 114,057
Shareholders’ equity517,236 550,427 583,061
Total liabilities & shareholders’ equity643,064 691,605 697,118
      

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 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 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 2018 and full year 2018 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 2018 and full year 2018. 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; 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 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.  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:  Email Contact
Investor Contact:
Selina Hsieh
Investor Relations
E-mail:  Email Contact
  
Media Contact:
Sara Hsu
Project Manager
E-mail: Email Contact
 

________________________
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.

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