Silicon Motion Announces Results for the Period Ended March 31, 2018

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Financial HighlightsBusiness HighlightsEmbedded Storage1 sales decreased approximately 1% Q/Q and accounted for about 85% of total sales, an increase compared to about 80% in the previous quarterClient SSD controller sales increased 10% Q/QeMMC controller sales increased 15% Q/QSSD solutions sales decreased over 25% Q/QClient SSD controller projects with NAND flash vendors increased over 80% Y/YBegan sampling Open-Channel NVMe SSD controller for data centers with a second hyperscalerTAIPEI, Taiwan and MILPITAS, Calif., April 27, 2018 — Silicon Motion Technology Corporation (NasdaqGS: SIMO) (“Silicon Motion” or the “Company”) today announced its financial results for the quarter ended March 31, 2018.  For the first quarter, net sales decreased 4% sequentially to $130.3 million from $136.2 million in the fourth quarter 2017. Net income (GAAP) increased to $23.1 million or $0.64 per diluted ADS (GAAP) from a net income (GAAP) of $9.8 million or $0.27 per diluted ADS (GAAP) in the fourth quarter 2017.For the first quarter, net income (non-GAAP) decreased to $25.6 million or $0.71 per diluted ADS (non-GAAP) from a net income (non-GAAP) of $28.4 million or $0.79 per diluted ADS (non-GAAP) in the fourth quarter 2017._____________________________
1 Embedded Storage comprises primarily eMMC and SSD controllers and data center and industrial SSD solutions.
First Quarter 2018 Review
“In the first quarter, sales of our client SSD controllers continued to grow sequentially, and importantly also grew year-over-year,” said Wallace Kou, President and CEO of Silicon Motion.  “In addition, our eMMC controller sales grew as our NAND flash partner rebuilt inventory while our Ferri and Shannon SSD solutions sales declined seasonally.”
Sales* Mobile Storage products include Embedded Storage products (eMMC 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 ResultsOther Financial InformationDuring the first quarter, we had $3.6 million of capital expenditures for the routine purchase of software, design tools and other items. Our first quarter cash flows were as follows: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 February 27, 2018, we paid $10.8 million to shareholders as the second installment of our annual dividend.  
On August 1, 2017, 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 12 month period.  In the first quarter, the Company did not repurchase any of its ADS.Business Outlook
“We believe our business outlook is increasingly more favorable, especially for our client SSD controller sales,” said Wallace Kou, President and CEO of Silicon Motion. “We currently have over 80% more client SSD controller projects with our NAND flash partners than at this time a year ago and currently anticipate our SSD controller sales to grow at least 20% for the full year.”
For the second quarter of 2018, management expects:* Projected operating margin (non-GAAP) excludes $0.7 million of amortization of intangible assets and $0.6 million to $0.7 million of stock-based compensation.For the full-year 2018, management reiterates:* Projected gross margin (non-GAAP) excludes $0.5 million of stock-based compensation.
** Projected operating margin (non-GAAP) excludes $3.0 million of amortization of intangible assets and $14.8 million to $16.8 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 April 27, 2018. 
    Wallace Kou, President & CEO
    Riyadh Lai, CFO
    Jason Tsai, Senior Director of Investor Relations and Strategy
    USA (Toll Free): 1 866 519 4004
    USA (Toll): 1 845 675 0437   
    Taiwan (Toll Free): 0080 112 6920
    Participant Passcode: 3095198
    REPLAY NUMBERS (for 7 days):
    USA (Toll Free): 1 855 452 5696
    USA (Toll): 1 646 254 3697
    Participant Passcode: 3095198
A webcast of the call will be available on the Company's website at 
Discussion of Non-GAAP Financial MeasuresTo 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; andan 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 relates to a non-cash write-down when circumstances indicate the carrying value may not be recoverable and because impairments are inconsistent in amount and frequency, the Company excludes them for purposes of calculating non-GAAP 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.

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