Silicon Image Announces Second Quarter 2013 Earnings

  Silicon Image Announces Second Quarter 2013 Earnings

                Solid Year-On-Year Growth on Mobile Business;
       Board Authorizes Additional $50 Million Share Repurchase Program

Business Wire

SUNNYVALE, Calif. -- July 30, 2013

Silicon Image, Inc. (NASDAQ: SIMG), a leading provider of HD connectivity
solutions, today reported financial results for its second quarter ended June
30, 2013.

Revenue for the second quarter of 2013 was $73.7 million, approximately a 19%
increase from $62.0 million in the first quarter of 2013 and a 15% increase
from revenue of $63.8 million in the second quarter of 2012.

“The strong financial results in the quarter demonstrate continued execution
on our strategic plan,” said Camillo Martino, chief executive officer of
Silicon Image, Inc. “During the quarter we saw continuing adoption of our MHL
connectivity solutions in mobile devices, our CE business stabilized with
MHL’s advance into DTV and home theater markets, and we made solid progress in
realizing the goals we set for our 60GHz wireless technology.”

GAAP net income for the second quarter of 2013 was $4.3 million, or $0.05 per
diluted share, compared with a net loss of $0.6 million, or $0.01 per share,
for the first quarter of 2013 and a net loss of $0.9 million, or $0.01 per
share, for the second quarter of 2012.

Non-GAAP net income for the second quarter of 2013 was $6.5 million, or $0.08
per diluted share, compared with a non-GAAP net income of $3.2 million, or
$0.04 per diluted share, for the first quarter of 2013 and a non-GAAP net
income of $4.3 million, or $0.05 per diluted share, for the second quarter of
2012. Non-GAAP net income for these periods excludes stock-based compensation
expense, other than temporary impairment of a privately held company
investment, proceeds from legal settlement, amortization of intangible assets,
business acquisition related expenses and restructuring charges.

A reconciliation of GAAP and non-GAAP items is provided in a table following
the Condensed Consolidated Statements of Operations.

Pursuant to the accelerated share repurchase (ASR) agreement entered in
November 2012, Silicon Image paid $30.0 million and received a total of
6,122,845 shares of its common stock by June 14, 2013, the date of the
maturity of the ASR agreement. The company’s cash and short-term investments
balance as of June 30, 2013 was $132.2 million.

Silicon Image announced that its Board of Directors has authorized a new share
repurchase plan as a follow-on to its current plan which currently has $10.3
million remaining for repurchase. At the conclusion of the company’s existing
plan, the company will commence a new share repurchase plan whereby the
company will be authorized to repurchase its common stock up to an aggregate
purchase of $50 million. The repurchases may occur from time to time in the
open market or in privately negotiated transactions; provided that the
repurchases are made in accordance with the terms of Rule 10b-18 under the
Securities Exchange Act of 1934, as amended. The timing and amount of any
repurchase of shares will be determined by the company, based on its
evaluation of market conditions, cash on hand and other factors, and may be
made under a plan that complies with Rule 10b5-1 of the Securities and
Exchange Act of 1934, as amended.

The authorization for the new share repurchase plan will remain in effect
until the authorized aggregate amount is expended or the authorization is
modified by the Company’s Board of Directors. The plan may be used as a means
to offset dilution or on an opportunistic basis. The new share repurchase plan
does not obligate the company to acquire any particular amount of stock and
purchases under the program may be commenced or suspended at any time, or from
time to time, without prior notice. Further the stock repurchase program may
be modified, extended or terminated by the Board at any time.

"We continue to be well positioned in our markets and our additional $50
million repurchase plan will allow us to continue to invest in Silicon Image.
Further, it demonstrates our commitment to our shareholders and our confidence
in our business going forward," said Mr. Martino.

The following are Silicon Image’s financial performance estimates for the
third quarter of 2013:

Revenue:                      $78 million to $81 million
Gross Margin:                  approximately 56-57%
GAAP operating expenses:       approximately $38 million
Non-GAAP operating expenses:   approximately $35 million
Diluted shares outstanding:    approximately 78.5 million
Non-GAAP tax rate:             approximately 30% of non-GAAP pre-tax income
                               

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 amortization of intangibles, stock based
compensation, other than temporary impairment of a privately held company
investment, proceeds from legal settlement, business acquisition related
expenses and restructuring charges do not reflect the cash operating results
of the business. 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
second quarter of 2013 results at 2:00 p.m. Pacific Time and will webcast the
event. To access the conference call, dial 877-941-1427 or 480-629-9664 and
enter pass code 4627225. The webcast and replay will be accessible on Silicon
Image's investor relations website at http://ir.siliconimage.com. A replay of
the conference call will be available within two hours of the conclusion of
the conference call through August 14, 2013. To access the replay, please dial
800-406-7325 or 303-590-3030 and enter pass code 4627225.

About Silicon Image, Inc.

SiliconImage is a leading provider of connectivity solutions that enable the
reliabledistribution and presentation of high-definition content for mobile,
consumer electronics, and PC markets. The companydelivers its technology via
semiconductor and intellectual property productsthat are compliant with
global industry standards and feature market leadingSilicon Image innovations
such as InstaPort™ and InstaPrevue™. Silicon Image's products are deployed by
the world's leading electronics manufacturers in devices such as mobile
phones, tablets, DTVs, Blu-ray Disc™ players, audio-video receivers, digital
cameras, as well as desktop and notebook PCs. Silicon Image has driven the
creation of the highly successful HDMI® and DVI™industry standards, the
latest standard for mobile devices - MHL®, and theleading 60GHz wireless HD
video standard - WirelessHD®. Via its wholly-ownedsubsidiary, Simplay Labs,
Silicon Image offers manufacturers comprehensivestandards interoperability
and compliance testing services. For moreinformation, visit us
athttp://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              Six Months Ended
                          June 30,    March     June      June 30,   June 30,
                          2013       31,      30,       2013      2012
                                      2013      2012
Revenue:
Product                   $ 63,681    $         $         $          $ 94,482
                                      50,341    51,458    114,022
Licensing                 9,998      11,698   12,380    21,696    24,359
Total revenue             73,679     62,039   63,838    135,718   118,841
Cost of revenue and
operating expenses:
Cost of product revenue   31,023      25,798    25,851    56,821     48,950
(1)
Cost of licensing         162         267       182       429        307
revenue
Research and              20,225      18,558    20,512    38,783     42,219
development (2)
Selling, general and      16,097      16,402    14,196    32,499     30,333
administrative (3)
Amortization of
acquisition-related       230         251       496       481        992
intangible assets
Restructuring expense     -          (7)      86        (7)       91
Total cost of revenue     67,737     61,269   61,323    129,006   122,892
and operating expenses
Income (loss) from        5,942       770       2,515     6,712      (4,051)
operations
Proceeds from legal       1,275       -         -         1,275      -
settlement
Other than temporary
impairment of a           (1,500)     -         -         (1,500)    -
privately-held company
investment
Interest income and       500        391      245       891       783
other, net
Income (loss) before
provision for income
taxes and equity in net   6,217       1,161     2,760     7,378      (3,268)
loss of an
unconsolidated
affiliate
Income tax expense        1,888       1,742     3,109     3,630      6,057
Equity in net loss of
an unconsolidated         -          -        594       -         1,194
affiliate
Net income (loss)         $ 4,329    $ (581)  $ (943)   $ 3,748   $
                                                                     (10,519)
Net income (loss) per     $ 0.06      $         $         $ 0.05     $ (0.13)
share – basic                         (0.01)    (0.01)
Net income (loss) per     $ 0.05      $         $         $ 0.05     $ (0.13)
share – diluted                       (0.01)    (0.01)
Weighted average shares   77,245      77,421    82,719    76,934     82,720
– basic
Weighted average shares   78,713      77,421    82,719    78,353     82,720
– diluted

(1) Includes
stock-based               $ 153       $ 135     $ 104     $ 288      $ 322
compensation expense
(2) Includes
stock-based               $ 827       $ 1,018   $ 742     $ 1,845    $ 1,902
compensation expense
(3) Includes
stock-based               $ 1,438     $ 1,771   $ 862     $ 3,209    $ 2,772
compensation expense
                                                                     

                      
SILICON IMAGE, INC.
GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME RECONCILIATION
(In thousands, except per share amounts)
Unaudited
                                                               
                        Three Months Ended               Six Months Ended
                        June 30,  March     June 30,   June 30,  June 30,
                        2013       31, 2013   2012       2013       2012
GAAP net income         $ 4,329    $ (581)    $ (943)    $ 3,748    $ (10,519)
(loss)
Non-GAAP adjustments:
Stock-based
compensation expense    2,418      2,924      1,708      5,342      4,996
(1)
Other than temporary
impairment of a
privately-held          1,500      -          -          1,500      -
company investment
(3)
Proceeds from legal     (1,275)    -          -          (1,275)    -
settlement (3)
Amortization of         480        501        496       981        992
intangible assets (2)
Amortization of
intangible assets of    -          -          134        -          268
an unconsolidated
affiliate (2)
Business strategic
initiative and          -          -          1,528      -          3,056
acquisition related
expenses (2)
Restructuring expense   -         (7)       86         (7)       91
(3)
Non-GAAP net income
(loss) before tax       7,452      2,837      3,009      10,289     (1,116)
adjustments
Tax adjustments (4)     (914)     368       1,274      (546)     4,575
Non-GAAP net income     $ 6,538   $ 3,205   $ 4,283    $ 9,743   $ 3,459
                                                                    
Non-GAAP net income
(loss) per share —      $ 0.08     $ 0.04     $ 0.05     $ 0.13     $ 0.04
basic
Non-GAAP net income
(loss) per share —      $ 0.08     $ 0.04     $ 0.05     $ 0.12     $ 0.04
diluted
Weighted average        77,245     77,421     82,719     76,934     82,720
shares — basic
Weighted average        78,713     78,433     83,444     78,353     83,643
shares — diluted
                                                                    
Stock-based
compensation expense
is composed of the
following:
Cost of revenue         $ 153      $ 135      $ 104      $ 288      $ 322
Research and            827        1,018      742        1,845      1,902
development
Selling, general and    1,438     1,771     862        3,209     2,772
administrative
Total                   $ 2,418   $ 2,924   $ 1,708    $ 5,342   $ 4,996
                                                                    

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 provide investors with a basis to
measure our core performance against the performance of other companies
without the variability created by stock-based compensation 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) Business Strategic Initiative and Acquisition Related Items: We exclude
certain expense items resulting from our business strategic initiative and
acquisitions including the following, when applicable:(i) amortization of
purchased intangible assets associated with our acquisitions; or relating to
our unconsolidated affiliates and (ii) business strategic initiative and
acquisition-related charges. 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
business 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. During January 2012, we established
a research and development center in Hyderabad, India, whereby we hired 75
employees from our subcontractor and had to incur a onetime fee of
approximately $3.056 million towards acquiring these employees. We amortized
this fee over the first two quarters of 2012 amounting to $1,528 million per
quarter. We do not expect a fee of similar nature to be paid in our normal
course of business and consider it infrequent and non-recurring. We believe
that providing non-GAAP information for business strategic initiative and
acquisition-related expense items 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)
proceeds from legal settlement and (iii) restructuring and related costs. It
is difficult to estimate the amount or timing of these items in advance. Other
than temporary impairment of a privately held company investment 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. Proceeds from legal settlement relates to our
acquisition of SiBEAM, Inc on May 16, 2011. We do not expect the payment of
similar nature to be received in our normal course of business and consider it
infrequent and non-recurring. Restructuring charges result from events which
arise from unforeseen circumstances, which often occur outside of the ordinary
course of continuing operations. 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 six months ended June 20, 2013 and June
30, 2012 and the three months ended March 31, 2013, 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
                                                          
                                                             
                                             June 30, 2013   December 31, 2012
ASSETS
Current Assets:
Cash and cash equivalents                    $ 75,946        $ 29,069
Short-term investments                       56,229          78,398
Accounts receivable, net                     27,228          37,936
Inventories                                  16,002          11,268
Prepaid expenses and other current assets    6,370           8,105
Deferred income taxes                        1,039           841
Total current assets                         182,814         165,617
Property and equipment, net                  14,231          14,840
Deferred income taxes, non-current           4,144           4,144
Intangible assets, net                       12,338          11,452
Goodwill                                     21,646          21,646
Other assets                                 7,549           9,043
Total assets                                 $ 242,722       $ 226,742
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable                             $ 15,383        $ 10,690
Accrued and other current liabilities        16,470          19,600
Deferred margin on sales to distributors     13,407          10,340
Deferred license revenue                     2,183           2,185
Total current liabilities                    47,443          42,815
Other long-term liabilities                  17,553          16,827
Total liabilities                            64,996          59,642
Stockholders’ equity                         177,726         167,100
Total liabilities and stockholders’ equity   $ 242,722       $ 226,742
                                                             


SILICON IMAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
                                                               
                                                     Six Months Ended June 30,
                                                     2013         2012
Cash flows from operating activities:
Net income (loss)                                    $ 3,748       $ (10,519)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation                                         3,127         3,060
Stock-based compensation expense                     5,342         4,996
Amortization of investment premium                   578           1,062
Tax benefits from employee stock-based               182           472
transactions
Amortization of intangible assets                    1,384         992
Excess tax benefits from employee stock-based        (182)         (472)
transactions
Non-operating proceeds from legal settlement         (1,275)       -
Other than temporary impairment of a                 1,500         -
privately-held company investment
Equity in net loss of unconsolidated affiliate       -             1,194
Others                                               140           473
Changes in assets and liabilities:
Accounts receivable                                  10,421        (9,805)
Inventories                                          (4,734)       (6,985)
Prepaid expenses and other assets                    1,418         3,114
Accounts payable                                     4,536         7,085
Accrued and other liabilities                        (2,316)       (2,343)
Deferred margin on sales to distributors             3,067         6,904
Deferred license revenue                             41           (6)
Cash provided by (used in) operating activities      26,977       (778)
Cash flows from investing activities:
Proceeds from sales of short-term investments        48,330        46,167
Purchases of short-term investments                  (26,588)      (38,978)
Purchases of property and equipment                  (2,466)       (3,950)
Proceeds from legal settlement                       1,275         -
Investment in privately-held companies               (500)         (4,000)
Cash paid for assets purchased from a                (300)         -
privately-held company
Purchase of intellectual properties                  (1,513)      (732)
Cash provided by (used in) investing activities      18,238       (1,493)
Cash flows from financing activities:
Proceeds from employee stock program                 3,090         2,855
Excess tax benefits from employee stock-based        182           472
transactions
Repurchases of restricted stock units for income     (1,332)       (1,916)
tax withholding
Repurchases of common stock                          -             (5,118)
Other                                                (45)         -
Cash provided by (used in) financing activities      1,895        (3,707)
Effect of exchange rate changes on cash and cash     (233)        (36)
equivalents
Net increase (decrease) in cash and cash             46,877        (6,014)
equivalents
Cash and cash equivalents — beginning of period      29,069       37,125
Cash and cash equivalents — end of period            $ 75,946     $ 31,111
Supplemental cash flow information:
Cash payment for income taxes                        $ (2,705)     $ (2,944)
Restricted stock units vested                        $ 3,902       $ 5,558
Property and equipment and other assets purchased    $ 688         $ 906
but not paid for
Unrealized gain (loss) on available-for-sale         $ (435)       $ 66
securities
                                                                   

Contact:

MEDIA CONTACT:
Silicon Image, Inc.
Gabriele Collier, 408-616-4088
gcollier@siliconimage.com
or
INVESTOR CONTACT:
Investor Relations – The Blueshirt Group
Mike Bishop, 415-217-4968
mike@blueshirtgroup.com
 
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