On November 21, 2018, the Company announced that its Board of Directors had authorized a new program for the Company to repurchase up to $200 million of its ADS over a 24 month period. In the fourth quarter, the Company repurchased $34.8 million of its ADS at an average price of $34.52 per ADS.
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 Wallace Kou, President and CEO of Silicon Motion. “As one would expect, benefits from this price elasticity of demand does not happen immediately. Also, during the current transitional period of rapidly falling NAND prices, our module maker customers may be more cautious than usual in their NAND and controller procurements. NAND flash vendors have also been temporarily limiting sales and building inventory. Finally, our OEM customers are operating with worse than usual business visibility due to weakening economic conditions, compounded by the US-China tariff situation and other uncertainties.”
| 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 $0.1 million of stock-based compensation.
** Projected operating margin (non-GAAP) excludes $0.5 million of amortization of intangible assets and $4.5 million to $4.6 million of stock-based compensation.
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 8:00 am Eastern Time on January 30, 2019.
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: 4485756
REPLAY NUMBERS (for 7 days):
USA (Toll Free): 1 855 452 5696
USA (Toll): 1 646 254 3697
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.
