Plans for Wholly Owned Subsidiaries for 60GHz
Wireless and Services Businesses
Silicon Image, Inc. (NASDAQ:SIMG), a leading provider of
multimedia connectivity solutions and services, today reported
financial results for its third quarter ended September 30,
2014.
Revenue for the third quarter of 2014 was $70.3 million,
compared with $59.5 million in the second quarter of 2014 and $79.3
million in the third quarter of 2013.
“In the quarter, we saw continued strength in our CE business
with year-to-date performance up 38 percent over the same period
last year. We saw a slight recovery in our Mobile business;
however, we continue to see weakness in the mobile market as
smartphone sales become more competitive among top tier and
mid-range vendors,” said Camillo Martino, chief executive officer
of Silicon Image, Inc. “Today we are also announcing plans to
create two new subsidiaries to help unlock the value of some of our
core assets.”
GAAP net income for the third quarter of 2014 was $10.3 million,
or $0.13 per diluted share, compared with a GAAP net income of $1.1
million, or $0.01 per diluted share, for the second quarter of 2014
and a GAAP net income of $9.0 million, or $0.11 per diluted share,
for the third quarter of 2013.
Non-GAAP net income for the third quarter of 2014 was $8.8
million, or $0.11 per diluted share, compared with a non-GAAP net
income of $3.4 million, or $0.04 per diluted share, for the second
quarter of 2014, and a non-GAAP net income of $9.2 million, or
$0.12 per diluted share, for the third quarter of 2013. Non-GAAP
net income for these periods excludes stock-based compensation
expense, amortization of intangible assets, business acquisition
related expenses, gain from business acquisition, gain from sale of
a privately held company investment, other income from prepaid
royalty settlement, other than temporary impairment of a
privately-held company investment, proceeds from a legal
settlement, recovery related to previously written-down inventory,
restructuring charges and impairment of intangible assets.
A reconciliation of GAAP and non-GAAP items is provided in a
table following the Condensed Consolidated Statements of
Operations.
Wholly Owned Subsidiaries
Silicon Image today also announces plans to create two wholly
owned subsidiaries: one to consolidate all of its 60GHz wireless
assets and IP, and the other for its services business. These
actions will better facilitate strategic partnerships with 3rd
parties, more rapidly grow the respective eco-systems, and provide
more transparency starting in 2015.
Fourth Quarter Outlook
The following are Silicon Image’s financial performance
estimates for the fourth quarter of 2014:
Revenue:
$61 million to $66 million Gross Margin: approximately 64%
Non-GAAP Operating Expenses: approximately $35 million Non-GAAP
EPS: $0.05 to $0.08 Diluted Shares Outstanding: approximately 79.2
million
Use of Non-GAAP Financial Information
Silicon Image presents and discusses gross margin, operating
expenses, net income (loss) and basic and diluted net income (loss)
per share in accordance with Generally Accepted Accounting
Principles (GAAP), and on a non-GAAP basis for informational
purposes only. Silicon Image believes that non-GAAP reporting,
giving effect to the adjustments shown in the attached
reconciliation, provides meaningful information and therefore uses
non-GAAP reporting to supplement its GAAP reporting and internally
in evaluating operations, managing and monitoring performance, and
determining bonus compensation. Further, Silicon Image uses
non-GAAP information as certain non-cash charges such as
stock-based compensation expense, amortization of intangible
assets, gain from business acquisition, other income from prepaid
royalty settlement, other than temporary impairment of a
privately-held company investment, recovery related to previously
written-down inventory, restructuring charges and impairment of
intangible assets which do not reflect the cash operating results
of the business. Silicon image also excludes certain items that are
unusual and one-time events such as business acquisition related
expenses, gain from sale of a privately held company investment and
proceeds from a legal settlement. Silicon Image has chosen to
provide this supplemental information to investors, analysts and
other interested parties to enable them to perform additional
analyses of its operating results and to illustrate the results of
operations giving effect to such non-GAAP adjustments. The non-GAAP
financial information presented herein should be considered
supplemental to, and not as a substitute for, or superior to,
financial measures calculated in accordance with GAAP.
Conference Call
Silicon Image will host an investor conference call today to
discuss its third quarter of 2014 results at 2:00 p.m. Pacific Time
and will webcast the event. To access the conference call, dial
888-428-9490 or 719-325-2455 and enter pass code 8005803. The
webcast and replay will be accessible on Silicon Image's investor
relations website at http://www.SiliconImage.com. A replay of the
conference call will be available within two hours of the
conclusion of the conference call through November 13, 2014. To
access the replay, please dial 888-203-1112 or 719-457-0820 and
enter pass code 8005803.
About Silicon Image, Inc.
Silicon Image (NASDAQ: SIMG) is a leading provider of multimedia
connectivity solutions and services for mobile, consumer
electronics and PC markets. Silicon Image’s semiconductor and
intellectual property products feature wireless and wired
technologies that deliver connectivity across a wide array of
devices in the home, office and on the go. Silicon Image has driven
the creation of the industry standards HDMI®, DVI™, MHL® and
WirelessHD®, and offers manufacturers comprehensive standards
interoperability and compliance testing services via its
wholly-owned subsidiary, Simplay Labs. For more information, visit
http://www.siliconimage.com/.
Silicon Image and the Silicon Image logo are
trademarks, registered trademarks or service marks of Silicon
Image, Inc. in the United States and/or other
countries. All other trademarks and registered trademarks are
the property of their respective owners in the United States
and/or other countries.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of federal securities laws and regulations. These
forward-looking statements include, but are not limited to,
statements related to Silicon Image's future operating results,
including revenue, gross margin, operating expenses, tax rates,
company growth, progress and stock repurchases. These
forward-looking statements involve risks and uncertainties,
including the risks of uncertain economic conditions, competition
in our markets, Silicon Image's ability to deliver financial
performance in-line with its stated goals and other risks and
uncertainties described from time to time in Silicon Image's
filings with the U.S. Securities and Exchange Commission (SEC).
These risks and uncertainties could cause the actual results to
differ materially from those anticipated by these forward-looking
statements. In addition, see the Risk Factors section of the most
recent Form 10-K and 10-Q filed by Silicon Image with the SEC.
These forward-looking statements are made on the date of this press
release, and Silicon Image assumes no obligation to update any such
forward-looking information.
SILICON IMAGE, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except per share
amounts) Unaudited
Three Months Ended
Nine Months Ended
September 30,
June 30, September 30,
September 30,
September 30,
2014
2014 2013
2014
2013 Revenue: Product
$ 56,003 $
50,938 $ 66,337
$ 153,707 $ 180,359 Licensing
14,325 8,598 12,974
37,718 34,670
Total revenue
70,328 59,536
79,311
191,425 215,029
Cost of revenue and operating expenses: Cost of product
revenue (1)(2)
27,760 24,814 33,222
77,369 90,043
Cost of licensing revenue
10 - 185
30 614 Research
and development (3)
17,772 17,416 18,424
52,145
57,207 Selling, general and administrative (4)
15,101 15,166
16,191
47,132 48,690 Amortization and impairment of
acquisition-related intangible assets
1,168 510 405
1,886 886 Restructuring expense (recoveries) (5)
(463 ) 113 483
(221 ) 476
Total cost of revenue and operating
expenses
61,348 58,019
68,910
178,341 197,916
Income from operations
8,980 1,517 10,401
13,084
17,113 Gain from sale of a privately held company investment
4,071 - -
4,071 - Proceeds from a legal settlement
- - -
- 1,275 Other than temporary impairment of a
privately held company investment
- - -
- (1,500 )
Interest income and other, net
260
1,043 168
1,321
1,059 Income before provision for income taxes and
equity in net loss of an unconsolidated affiliate
13,311
2,560 10,569
18,476 17,947 Income tax expense
3,013
1,487 1,488
7,054 5,118 Equity in net loss of an
unconsolidated affiliate
- - 116
150 375 Net income
$
10,298 $ 1,073 $ 8,965
$
11,272 $ 12,454 Net income per
share – basic
$ 0.13 $ 0.01 $ 0.12
$
0.14 $ 0.16 Net income per share – diluted
$
0.13 $ 0.01 $ 0.11
$ 0.14 $ 0.16 Weighted
average shares – basic
78,297 78,150 77,530
78,103
77,399 Weighted average shares – diluted
79,670 79,988
78,995
79,996 78,783 (1) Includes amortization of
acquisition-related intangible assets
$ 225 $ 225 $
250
$ 675 $ 500 (2) Includes stock-based compensation
expense
$ 154 $ 148 $ 163
$ 475 $ 451
(3) Includes stock-based compensation expense
$ 845 $
792 $ 879
$ 2,550 $ 2,724 (4) Includes stock-based
compensation expense
$ 1,355 $ 1,344 $ 1,440
$
4,650 $ 4,649 (5) Includes stock-based compensation expense
$ 52 $ 44 $ -
$ 126 $ -
SILICON IMAGE, INC. GAAP NET INCOME TO NON-GAAP NET
INCOME RECONCILIATION (In thousands, except per share amounts)
Unaudited
Three Months Ended
Nine Months Ended September 30, June
30, September 30, September 30,
September 30, 2014 2014
2013 2014 2013 GAAP net income
$
10,298 $ 1,073 $ 8,965
$ 11,272 $ 12,454
Non-GAAP adjustments: Stock-based compensation expense (1)
2,406 2,328 2,482
7,801 7,824 Amortization of
intangible assets (2)
917 735 480
2,085 1,461
Amortization of intangible assets of an unconsolidated affiliate
(2)
- - 52
40 128 Strategic initiative and
acquisition related expenses (2)
- 138 -
138 - Gain
from business acquisition (2)
- (361 ) -
(361
) - Gain from sale of a privately held company investment
(2)
(4,071 ) - -
(4,071 ) - Other than
temporary impairment of a privately held company investment (3)
- - -
- 1,500 Other income from prepaid royalty
settlement (3)
- (639 ) -
(639 ) - Proceeds
from a legal settlement (3)
- - -
- (1,275 ) Recovery
related to previously written-down inventory (3)
- - (960 )
- (960 ) Restructuring expense (recoveries) (3)
(515
) 69 483
(347 ) 476 Impairment of intangible
assets (3)
476 -
175
476 175
Non-GAAP net income before tax adjustments
9,511 3,343
11,677
16,394 21,783 Tax adjustments (4)
(744
) 38 (2,462 )
20 (2,953 ) Non-GAAP net income
$ 8,767 $ 3,381 $ 9,215
$ 16,414 $ 18,830
Non-GAAP net income per share — basic
$ 0.11 $ 0.04 $
0.12
$ 0.21 $ 0.24 Non-GAAP net income per share —
diluted
$ 0.11 $ 0.04 $ 0.12
$ 0.21 $
0.24 Weighted average shares — basic
78,297 78,150 77,530
78,103 77,399 Weighted average shares — diluted
79,670 79,988 78,995
79,996 78,783 Stock-based
compensation expense is composed of the following: Cost of revenue
$ 154 $ 148 $ 163
$ 475 $ 451 Research
and development
845 792 879
2,550 2,724 Selling,
general and administrative
1,355 1,344 1,440
4,650
4,649 Restructuring expense
52
44 -
126
-
Total
$ 2,406 $ 2,328 $ 2,482
$ 7,801 $ 7,824
Discussion of Non-GAAP Financial Measures
(1) Stock-Based Compensation Related Items:
Stock-based compensation expense relates primarily to equity
awards, such as stock options and restricted stock units.
Stock-based compensation is a non-cash expense that varies in
amount from period to period and is dependent on market forces that
are often beyond our control. As such, management excludes this
item from our internal operating forecasts and models. Management
believes that non-GAAP measures adjusted for stock-based
compensation expense provide investors with a basis to measure our
core performance against the performance of other companies without
the variability created by stock-based compensation expense as a
result of the variety of equity awards used by companies and the
varying methodologies and subjective assumptions used in
determining such non-cash expense. (2) Strategic Initiative
and Acquisition Related Items: We exclude certain expense items
resulting from our strategic initiative and acquisitions including
the following, when applicable: (i) amortization of purchased
intangible assets associated with our acquisitions; or relating to
our unconsolidated affiliate, (ii) strategic initiative and
acquisition-related charges, (iii) gain from business acquisition
and (iv) gain from sale of a privately held company investment. The
amortization of purchased intangible assets associated with our
acquisitions results in our recording expenses in our GAAP
financial statements that were already expensed by the acquired
company before the acquisition and for which we have not expended
cash. Moreover, had we internally developed the products acquired,
the amortization of intangible assets, and the expenses of
uncompleted research and development would have been expensed in
prior periods. Accordingly, we analyze the performance of our
operations in each period without regard to such expenses. In
addition, our strategic initiatives and acquisitions result in
non-continuing operating expenses, which would not otherwise have
been incurred by us in the normal course of our business
operations. In the second quarter of fiscal 2014, we finalized the
acquisition of the remaining ownership interest in UpdateLogic,
Inc., resulting in acquisition-related charges and gain from
business acquisition. In the third quarter of fiscal 2014, we
finalized the sale of our minority interest in a privately held
company to another entity resulting in a gain. We do not expect
expenses of similar nature to be paid or gain of similar nature to
be received in our normal course of business and consider it
infrequent and non-recurring. We believe that providing non-GAAP
information for strategic initiatives and acquisition-related
expense items, gain from business acquisition and gain from sale of
a privately held company investment in addition to the
corresponding GAAP information allows the users of our financial
statements to better review and understand the historic and current
results of our continuing operations, and also facilitates
comparisons to less acquisitive peer companies. (3) Other
Items: We exclude certain other items that are the result of either
unique or unplanned events including the following, when
applicable: (i) other than temporary impairment of a privately held
company investment, (ii) other income from prepaid royalty
settlement, (iii) proceeds from a legal settlement, (iv) recovery
related to previously written-down inventory, (v) restructuring and
related costs and (vi) impairment of intangible assets. It is
difficult to estimate the amount or timing of these items in
advance. Other than temporary impairment of a privately held
company investment was recorded due to the conclusion that the
possibility is remote that we will exercise our warrants to
purchase the entity’s preferred stock or that we will realize any
other value from these investments. Other income from prepaid
royalty settlement relates to the termination of an HDMI rebate
agreement with one of the HDMI adopters. Proceeds from a legal
settlement relates to our acquisition of SiBEAM, Inc. on May 16,
2011. We do not expect other income or proceeds of similar nature
to be recognized or received in our normal course of business and
consider it infrequent and non-recurring. We entered into a
settlement with a vendor and received a recovery related to
previously written-down inventory. Restructuring charges result
from events which arise from unforeseen circumstances, which often
occur outside of the ordinary course of continuing operations. We
recognized impairment of an intangible asset because the sum of its
estimated future undiscounted cash flows used to test for
recoverability is less than its carrying value. Although these
events are reflected in our GAAP financials, these unique
transactions may limit the comparability of our on-going operations
with prior and future periods. As such, we believe that these
expenses do not accurately reflect the underlying performance of
our continuing operations for the period in which they are
incurred. We assess our operating performance both with these
amounts included and excluded, and by providing this information,
we believe the users of our financial statements are better able to
understand the financial results of what we consider our continuing
operations. (4) Tax adjustments: For the three and nine
months ended September 30, 2014 and September 30, 2013 and the
three months ended June 30, 2014, our non-GAAP tax rate was
approximately 30% of non-GAAP pre-tax income. Non-GAAP tax rate is
primarily based on net expected cash flow for income taxes.
SILICON IMAGE, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (In thousands) Unaudited
September 30, 2014 December 31, 2013
ASSETS Current Assets: Cash and cash equivalents
$
102,542 $ 82,220 Short-term investments
45,938 56,003
Accounts receivable, net
34,016 34,729 Inventories
18,912 11,727 Prepaid expenses and other current assets
4,703 7,733 Deferred income taxes
459
191 Total current assets
206,570 192,603 Property and
equipment, net
15,257 14,676 Deferred income taxes,
non-current
- 4,368 Intangible assets, net
16,543
10,348 Goodwill
30,333 21,646 Other assets
3,026 8,498 Total assets
$ 271,729 $
252,139
LIABILITIES AND STOCKHOLDERS' EQUITY Current
Liabilities: Accounts payable
$ 9,282 $ 12,894
Accrued and other current liabilities
27,823 20,622 Deferred
margin on sales to distributors
10,099 9,634 Deferred
license revenue
2,716 2,742
Total current liabilities
49,920 45,892 Other long-term liabilities
14,740 16,522 Total liabilities
64,660 62,414
Stockholders’ equity
207,069 189,725 Total
liabilities and stockholders’ equity
$ 271,729 $
252,139
SILICON IMAGE, INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Unaudited
Nine Months Ended September 30, 2014
2013 Cash flows from operating activities:
Net income
$ 11,272 $ 12,454 Adjustments to
reconcile net income to cash provided by operating activities:
Depreciation
4,592 4,699 Stock-based compensation expense
7,801 7,824 Amortization of investment premium
678
805 Tax benefits from employee stock-based transactions
148
345 Other than temporary impairment of a privately held company
investment
- 1,500 Amortization and impairment of intangible
assets
3,506 2,354 Non-operating proceeds from a legal
settlement
- (1,275 ) Gain from business acquisition
(361 ) - Deferred income taxes
(268 ) -
Excess tax benefits from employee stock-based transactions
(148 ) (345 ) Realized gain on sale of short-term
investments
- (144 ) Equity in net loss of unconsolidated
affiliate
150 375 Others
115 553 Changes in assets
and liabilities, net of effect of an acquisition: Accounts
receivable
1,025 (4,126 ) Inventories
(7,185 )
(2,733 ) Prepaid expenses and other assets
(964 )
(189 ) Accounts payable
(3,292 ) 8,168 Accrued and
other liabilities
7,708 853 Deferred margin on sales to
distributors
465 436 Deferred license revenue
(1,006 ) (95 )
Cash provided by operating activities
24,236 31,459
Cash
flows from investing activities: Proceeds from sales of
short-term investments
20,767 56,829 Purchases of short-term
investments
(11,420 ) (33,770 ) Cash used in business
acquisition, net of cash acquired
(13,464 ) -
Purchases of property and equipment
(5,564 ) (4,075 )
Proceeds from sale of a privately held company investment
7,571 - Proceeds from a legal settlement
- 1,275
Investment in a privately held company
- (1,500 ) Cash paid
for assets purchased from a privately held company
- (300 )
Purchase of intellectual properties
(115 ) (1,891 )
Other
- 103 Cash provided
by (used in) investing activities
(2,225 )
16,671
Cash flows from financing
activities: Proceeds from employee stock program
5,546
5,375 Excess tax benefits from employee stock-based transactions
148 345 Repurchase of restricted stock units for income tax
withholding
(1,568 ) (1,905 ) Payment to acquire
treasure shares
(5,793 ) (1,383 ) Cash paid to settle
contingent consideration liabilities
(27 )
(81 ) Cash provided by (used in) financing activities
(1,694 ) 2,351 Effect of
exchange rate changes on cash and cash equivalents
5
(267 ) Net increase in cash and cash
equivalents
20,322 50,214 Cash and cash equivalents —
beginning of period
82,220
29,069 Cash and cash equivalents — end of period
$
102,542 $ 79,283
Supplemental cash
flow information: Cash payment for income taxes
$
(5,105 ) $ (4,681 ) Restricted stock units vested
$ 4,563 $ 5,401 Property and equipment and other
assets purchased but not paid for
$ 478 $ 416
Unrealized loss on short-term investments
$ (4
) $ (413 )
Silicon Image, Inc.MEDIA CONTACT:Sherrie Gutierrez,
408-616-4017Sherrie.Gutierrez@siliconimage.comorINVESTOR
RELATIONS CONTACT:Alex Chervet,
408-616-4153Alex.Chervet@siliconimage.com
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