SIMG (MM)

Record Mobile Unit Shipments with GAAP Net Income Margin Exceeding 11%

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

Revenue for the third quarter of 2013 was $79.3 million, approximately a 7.6% increase from revenue of $73.7 million in the second quarter of 2013 and a 7.3% increase from revenue of $73.9 million in the third quarter of 2012.

“We have demonstrated strong earnings through profitable growth and solid operational execution, driven by our mobile and CE product revenue which increased 20% year to date,” said Camillo Martino, chief executive officer of Silicon Image, Inc. “The broad adoption of the MHL standard is driving growth in both our mobile and CE businesses and we are also seeing traction for products using our 60GHz technology. Additionally, we expect the recent release of MHL 3.0 and HDMI 2.0 specifications to drive renewed opportunities in our mobile and CE businesses.”

GAAP net income for the third quarter of 2013 was $9.0 million, or $0.11 per diluted share, compared with a GAAP net income of $4.2 million, or $0.05 per diluted share, for the second quarter of 2013 and a GAAP net loss of $0.4 million, or $0.00 per share, for the third quarter of 2012.

Non-GAAP net income for the third quarter of 2013 was $9.2 million, or $0.12 per diluted share, compared with a non-GAAP net income of $6.5 million, or $0.08 per diluted share, for the second quarter of 2013, and a non-GAAP net income of $8.8 million, or $0.11 per diluted share, for the third quarter of 2012. Non-GAAP net income for these periods excludes stock-based compensation expense, amortization of intangible assets, business acquisition related expenses, other than temporary impairment of a privately-held company investment, proceeds from legal settlement, restructuring charges, impairment of intangible assets and recovery related to previously written-down inventory.

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

Pursuant to the previously announced share repurchase program, Silicon Image repurchased 256,000 shares of its common stock at an average price of approximately $5.40 per share. The company’s cash and short-term investments balance as of September 30, 2013 was $134.1 million.

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

Revenue:         $60 million to $62 million Gross Margin: approximately 58-59% GAAP operating expenses: approximately $34.5 million Non-GAAP operating expenses: approximately $31.5 million Diluted shares outstanding: approximately 79 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 stock-based compensation expense, amortization of intangible assets, business acquisition related expenses, other than temporary impairment of a privately-held company investment, proceeds from legal settlement, restructuring charges, impairment of intangible assets and recovery related to previously written-down inventory 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 third quarter of 2013 results at 2:00 p.m. Pacific Time and will webcast the event. To access the conference call, dial 877-941-2068 or 480-629-9712 and enter pass code 4643817. 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 November 12, 2013. To access the replay, please dial 800-406-7325 or 303-590-3030 and enter pass code 4643817.

About Silicon Image, Inc.

Silicon Image is a leading provider of connectivity solutions that enable the reliable distribution and presentation of high-definition content for mobile, consumer electronics, and PC markets. The company delivers its technology via semiconductor and intellectual property products that are compliant with global industry standards and feature market leading Silicon 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 the leading 60GHz wireless HD video standard - WirelessHD®. Via its wholly-owned subsidiary, Simplay Labs, Silicon Image offers manufacturers comprehensive standards interoperability and compliance testing services. For more information, visit us at 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, 2013     June 30, 2013     September 30, 2012 September 30, 2013     September 30, 2012 Revenue: Product $ 66,337 $ 63,681 $ 62,197 $ 180,359 $ 156,679 Licensing   12,974       9,998         11,722     34,670         36,081   Total revenue   79,311       73,679         73,919     215,029         192,760   Cost of revenue and operating expenses: Cost of product revenue (1) 33,222 31,023 30,760 90,043 79,710 Cost of licensing revenue 185 162 99 614 406 Research and development (2) 18,424 20,225 17,848 57,207 60,067 Selling, general and administrative (3) 16,191 16,097 14,834 48,690 45,167 Amortization and impairment of acquisition-related intangible assets 405 230 496 886 1,488 Restructuring expense   483       -         73     476         164   Total cost of revenue and operating expenses   68,910       67,737         64,110     197,916         187,002   Income from operations 10,401 5,942 9,809 17,113 5,758 Proceeds from legal settlement - 1,275 - 1,275 - Other than temporary impairment of a privately-held company investment - (1,500 ) (7,467 ) (1,500 ) (7,467 ) Interest income and other, net   168       500         323     1,059         1,106   Income before provision for income taxes and equity in net loss of an unconsolidated affiliate 10,569 6,217 2,665 17,947 (603 ) Income tax expense 1,488 1,888 2,464 5,118 8,521 Equity in net loss of an unconsolidated affiliate   116       136         609     375         1,803   Net income (loss) $ 8,965     $ 4,193       $ (408 ) $ 12,454       $ (10,927 )   Net income (loss) per share – basic $ 0.12 $ 0.05 $ (0.00 ) $ 0.16 $ (0.13 ) Net income (loss) per share – diluted $ 0.11 $ 0.05 $ (0.00 ) $ 0.16 $ (0.13 ) Weighted average shares – basic 77,530 77,245 82,504 77,399 82,647 Weighted average shares – diluted 78,995 78,713 82,504 78,783 82,647   (1) Includes stock-based compensation expense $ 163 $ 153 $ 97 $ 451 $ 419 (2) Includes stock-based compensation expense $ 879 $ 827 $ 812 $ 2,724 $ 2,714 (3) Includes stock-based compensation expense $ 1,440 $ 1,438 $ 1,124 $ 4,649 $ 3,896   SILICON IMAGE, INC. GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME RECONCILIATION (In thousands, except per share amounts) Unaudited                     Three Months Ended Nine Months Ended September 30, 2013     June 30, 2013     September 30, 2012 September 30, 2013     September 30, 2012 GAAP net income (loss) $ 8,965 $ 4,193 $ (408 ) $ 12,454 $ (10,927 ) Non-GAAP adjustments: Stock-based compensation expense (1) 2,482 2,418 2,033 7,824 7,029 Amortization of intangible assets (2) 480 480 671 1,461 1,663 Amortization of intangible assets of an unconsolidated affiliate (2) 52 41 134 128 402 Business strategic initiative and acquisition related expenses (2) - - 201 - 3,257 Other than temporary impairment of a privately-held company investment (3) - 1,500 7,467 1,500 7,467 Proceeds from legal settlement (3) - (1,275 ) - (1,275 ) - Restructuring expense (3) 483 - 73 476 164 Impairment of intangible assets (3) 175 - - 175 - Recovery related to previously written-down inventory (3)   (960 )       -         -     (960 )       -   Non-GAAP net income before tax adjustments 11,677 7,357 10,171 21,783 9,055 Tax adjustments (4)   (2,462 )       (886 )       (1,327 )   (2,953 )       3,248   Non-GAAP net income $ 9,215       $ 6,471       $ 8,844   $ 18,830       $ 12,303     Non-GAAP net income per share — basic $ 0.12 $ 0.08 $ 0.11 $ 0.24 $ 0.15 Non-GAAP net income per share — diluted $ 0.12 $ 0.08 $ 0.11 $ 0.24 $ 0.15 Weighted average shares — basic 77,530 77,245 82,504 77,399 82,647 Weighted average shares — diluted 78,995 78,713 83,353 78,783 83,702   Stock-based compensation expense is composed of the following: Cost of revenue $ 163 $ 153 $ 97 $ 451 $ 419 Research and development 879 827 812 2,724 2,714 Selling, general and administrative   1,440         1,438         1,124     4,649         3,896   Total $ 2,482       $ 2,418       $ 2,033   $ 7,824       $ 7,029    

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 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, (iii) restructuring and related costs, (iv) impairment of intangible assets and (v) recovery related to previously written-down inventory. 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. 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. We entered into a settlement with a vendor and received a recovery related to previously written-down inventory. 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, 2013 and September 30, 2012 and the three months ended June 30, 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         September 30, 2013 December 31, 2012 ASSETS Current Assets: Cash and cash equivalents $ 79,283 $ 29,069 Short-term investments 54,801 78,398 Accounts receivable, net 41,407 37,936 Inventories 14,001 11,268 Prepaid expenses and other current assets 7,805 8,105 Deferred income taxes   1,039   841 Total current assets 198,336 165,617 Property and equipment, net 14,381 14,840 Deferred income taxes, non-current 4,144 4,144 Intangible assets, net 11,118 11,452 Goodwill 21,646 21,646 Other assets   8,596   9,043 Total assets $ 258,221 $ 226,742   LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 18,721 $ 10,690 Accrued and other current liabilities 20,259 19,600 Deferred margin on sales to distributors 10,245 10,340 Deferred license revenue   2,579   2,185 Total current liabilities 51,804 42,815 Other long-term liabilities   16,918   16,827 Total liabilities 68,722 59,642 Stockholders’ equity   189,499   167,100 Total liabilities and stockholders’ equity $ 258,221 $ 226,742   SILICON IMAGE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Unaudited     Nine Months Ended September 30, 2013   2012 Cash flows from operating activities: Net income (loss) $ 12,454 $ (10,927 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation 4,699 4,536 Stock-based compensation expense 7,824 7,029 Amortization of investment premium 805 1,574 Tax benefits from employee stock-based transactions 345 524 Amortization and impairment of intangible assets 2,354 1,819 Excess tax benefits from employee stock-based transactions (345 ) (524 ) Non-operating proceeds from legal settlement (1,275 ) - Other than temporary impairment of a privately-held company investment 1,500 7,467 Equity in net loss of unconsolidated affiliate 375 1,803 Others 409 339 Changes in assets and liabilities: Accounts receivable (4,126 ) (14,559 ) Inventories (2,733 ) (8,441 ) Prepaid expenses and other assets (189 ) 3,545 Accounts payable 8,168 5,062 Accrued and other liabilities 853 558 Deferred margin on sales to distributors 436 2,609 Deferred license revenue   (95 )     582   Cash provided by operating activities   31,459       2,996   Cash flows from investing activities: Proceeds from sales of short-term investments 56,829 67,286 Purchases of short-term investments (33,770 ) (55,367 ) Purchases of property and equipment (4,075 ) (6,634 ) Proceeds from legal settlement 1,275 - Investment in privately-held companies (1,500 ) (7,250 ) Cash paid for assets purchased from a privately-held company (300 ) - Purchase of intellectual properties (1,891 ) (915 ) Other   103       -   Cash provided by (used in) investing activities   16,671       (2,880 ) Cash flows from financing activities: Proceeds from employee stock program 5,375 4,958 Excess tax benefits from employee stock-based transactions 345 524 Repurchases of restricted stock units for income tax withholding (1,905 ) (2,120 ) Repurchases of common stock (1,383 ) (6,401 ) Other   (81 )     -   Cash provided by (used in) financing activities   2,351       (3,039 ) Effect of exchange rate changes on cash and cash equivalents   (267 )     (24 ) Net increase (decrease) in cash and cash equivalents 50,214 (2,947 ) Cash and cash equivalents — beginning of period   29,069       37,125   Cash and cash equivalents — end of period $ 79,283     $ 34,178   Supplemental cash flow information: Cash payment for income taxes $ (4,681 ) $ (4,730 ) Restricted stock units vested $ 5,401 $ 6,114 Property and equipment and other assets purchased but not paid for $ 416 $ 1,592 Unrealized gain (loss) on available-for-sale securities $ (413 ) $ 162

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