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MagnaChip Reports First Quarter 2017 Financial Results

SEOUL, South Korea and SAN JOSE, Calif., May 3, 2017 /PRNewswire/ -- MagnaChip Semiconductor Corporation ("MagnaChip" or the "Company") (NYSE: MX), a Korea-based designer and manufacturer of analog and mixed-signal semiconductor platform solutions for  communications, IoT, consumer, industrial and automotive applications, today announced financial results for the first quarter ended March 31, 2017.

Total revenue for the first quarter of 2017 was $161.7 million, up 9.2% as compared to $148.1 million for the first quarter of 2016 and a decline of 10.4% compared to $180.5 million for the fourth quarter of 2016. Total revenue in the first quarter came in at the higher end of the guidance range of $157-163 million provided in February. 

Foundry Services Group revenue in the first quarter of 2017 was $77.5 million, up 29.3% from revenue of $60 million in the first quarter of 2016, and about flat with $77.8 million in the fourth quarter of 2016.

Revenue in the Standard Products Group was $84.2 million in the first quarter, down 4.3% from the first quarter a year ago, and a sequential decline of 17.9% from $102.5 million in the fourth quarter of 2016. 

Total gross profit in the fourth quarter was $41.6 million or 25.7% as compared with gross profit of $34.2 million, or 23.1%, for the first quarter of 2016, and $46.1 million, or 25.5% in the fourth quarter of 2016.  Gross profit margin in the first quarter came in near the top of the guidance range of 24-26% provided in February.

Foundry gross profit margin was 28.5% in the first quarter as compared with 23.8% in the first quarter of 2016 and 30.3% in the fourth quarter of 2016. Standard Products Group
gross profit margin was 23.1% in the first quarter as compared with 23.6% in the first quarter of 2016 and 21.8% in the fourth quarter of 2016.

Net income, on a GAAP basis, for the first quarter of 2017 was $43.7 million or $1.30 per basic share and $1.05 per diluted share as compared with a net income in the first quarter of 2016 of $8.1 million or $0.23 per basic and diluted share and compared with net loss of $49.8 million or $1.42 per basic share in the fourth quarter of 2016.  The net income in the first quarter of 2017 was attributable primarily to a non-cash foreign exchange gain on the Company's intercompany loans.  

Adjusted Net Income, a non-GAAP financial measure, for the first quarter of 2017, totaled $0.5 million or $0.01 per basic share and per basic and diluted share as compared to an Adjusted Net Loss of $2.8 million or $0.08 per basic share in the first quarter of 2016 and an Adjusted Net Income of $1.6 million or $0.05 per basic share and $0.04 per diluted share in the fourth quarter of 2016.

Adjusted EBITDA in the first quarter was $13.1 million as compared with Adjusted EBITDA of $8.0 million in the first quarter of 2016, and $14.1 million in the fourth quarter of 2016, despite a 10.4% decline in total revenue. 

"We continued to make significant operational progress in the first quarter, and clearly demonstrated our ongoing commitment to achieve higher gross margin and overall profitability," said YJ Kim, Chief Executive Officer of MagnaChip. "With a balanced portfolio of standard products and analog foundry services, we are well positioned to increase revenue and capitalize on the analog technology trends driving growth in our target markets." 

During the first quarter, the Company reduced the workforce by approximately 140 positions as part of a previously announced headcount reduction plan.  This plan is expected to cut the workforce by over two times a similar headcount reduction plan in 2016 that affected 169 employees.  Once completed, the workforce reduction will have an expected payback period of less than 1.5 years with an estimated annual cost savings between $23-$27 million.

The Company believes it remains on track to complete the planned workforce reduction within its cash cost range of $29-33 million.  During the first quarter, the Company recorded early termination charges of $11.1 million and made cash payments totaling approximately $10 million in connection with the headcount reduction.  The cash payments were comprised of approximately $4 million related to the early termination charge and the remaining relates to statutory severance. The Company expects to complete or substantially complete the planned workforce reduction by the end of the second quarter and expects to record an additional early termination charge of approximately $1-2 million in the second quarter related to the workforce reduction.

In commenting on the first quarter financial results, Chief Financial Officer Jonathan Kim said, "Gross profit margin as a percentage of revenue was at its highest level in four years, and Adjusted EBITDA increased over 60% from the first quarter a year ago."   Mr. Kim added, "Based on our current view of the business and the projected savings from ongoing cost-cutting actions, we continue to anticipate that our gross profit margin and Adjusted EBITDA will show improvement in 2017."

Management believes that non-GAAP financial measures, when viewed in conjunction with GAAP results, can provide a meaningful understanding of the factors and trends affecting MagnaChip's business and operations and assist in evaluating our core operating performance. However, such non-GAAP financial measures have limitations and should not be considered as a substitute for net income or as a better indicator of our operating performance than measures that are presented in accordance with GAAP. A reconciliation of GAAP results to non-GAAP results is included in this press release.

Cash and cash equivalents totaled $132.6 million at the end of the first quarter, an increase of $49.3 million from $83.4 million at the end of the fourth quarter of 2016.  The cash figure in the first quarter reflects the successful outcome of a Senior Exchangeable Notes Offering in January, and also includes approximately $17 million in connection with the sale of a building that housed a 6" wafer fab that was closed in February 2016. The proceeds of the sale of the building were released from restricted cash in the first quarter of 2017 after the Company completed certain construction work obligations. Cash outlays during the quarter included, issuance fees and a stock buyback in connection with the Exchangeable Notes Offering, payment of deferred salaries, unusual charges and statutory severance payments related to the on-going workforce reduction, debt interest payments and capital expenditures among others.

 

The following table sets forth information relating to our operating segments:

























Three Months Ended







March 31,

2017



March 31,

2016





Net Sales












Foundry Services Group


$

77,528



$

59,979





Standard Products Group












Display Solutions



48,879




58,059





Power Solutions



35,280




29,918

















Total Standard Products Group


$

84,159



$

87,977





All other



23




149

















Total net sales


$

161,710



$

148,105






















Three Months Ended

March 31, 2017



Three Months Ended

March 31, 2016




    Amount    



% of

    Net Sales    



    Amount    



% of

    Net Sales    


Gross Profit

















Foundry Services Group


$

22,087




28.5

%


$

14,293




23.8

%

Standard Products Group



19,460




23.1




20,760




23.6


All other



23




100.0




(804)




(540.0)



















Total gross profit


$

41,570




25.7

%


$

34,249




23.1

%


















 

First Quarter and Recent Company Highlights

MagnaChip:

  • Priced the upsized offering of 5.00% Exchangeable Senior Notes after the initial purchasers exercised an over-allotment option. The offering totaled $86.25 million aggregate principal amount of notes, taking into account the over-allotment option exercised by the initial purchasers     
  • Announced it now offers a 0.35 micron 700V Ultra High Voltage process technology with process simplification that reduces manufacturing time and cost. This Ultra High Voltage (UHV) process is ideal for manufacturing AC-DC converter ICs and LED driver ICs.
  • Unveiled a new 0.18 micron RFSOI process with enhanced switching performance to reduce manufacturing cost and time-to-market, while also providing competitive and superior performance for antenna switches used in mobile and Internet of Things (IoT) devices for wireless connectivity
  • Announced it will host its annual Foundry Technology Symposium in Santa Clara, California, on June 7 to showcase its analog and mixed signal technology offerings and services

Business Outlook

For the second quarter of 2017, MagnaChip anticipates:

  • Revenue to be in the range of $162 million to $168 million, or up sequentially nearly 4% at the high end of the projected range as compared with Q1, and compared to $167.1 million in the second quarter of 2016.
  • Gross profit is anticipated to be in the range of 25% to 27%, as compared to 25.7% in the first quarter of 2017, and as compared to 22% in the second quarter of 2016.  

Conference Call
MagnaChip will hold a conference call on May 3 at 5 p.m. ET to discuss the first quarter 2017 financial results. The conference call will be webcast live and is also available by dialing toll-free at 1-844-536-5472. International call-in participants can dial at 1-614-999-9318. The conference ID number is 8267197. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 8 a.m. ET start time to ensure a timely connection. The webcast and earnings release will be accessible at www.magnachip.com.

A replay of the conference call will be available the same day and will run for 72 hours. The replay dial-in numbers are 1-404-537-3406 or toll-free at 1-855-859-2056.  The access code is 8267197.

About MagnaChip Semiconductor Corporation
MagnaChip is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications. The Company's Standard Products Group and Foundry Services Group provide a broad range of standard products and manufacturing services to customers worldwide.  MagnaChip, with a 30-year operating history, owns a portfolio of approximately 3,400 registered and pending patents, and has extensive engineering, design and manufacturing process expertise. For more information, please visit www.magnachip.com. Information on or accessible through, MagnaChip's website is not a part of, and is not incorporated into, this release.

Safe Harbor for Forward-Looking Statements
Information in this release regarding MagnaChip's forecasts, business outlook, expectations and beliefs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include statements about our future operating and financial performance, including second quarter 2017 revenue and gross profit expectations. All forward-looking statements included in this release are based upon information available to MagnaChip as of the date of this release, which may change, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include general economic conditions, the impact of competitive products and pricing, timely design acceptance by our customers, timely introduction of new products and technologies, ability to ramp new products into volume production, industry wide shifts in supply and demand for semiconductor products, industry and/or company overcapacity, effective and cost efficient utilization of manufacturing capacity, financial stability in foreign markets and the impact of foreign exchange rates, unanticipated costs and expenses or the inability to identify expenses which can be eliminated, compliance with U.S. and international trade and export laws and regulations by us and our distributors, and other risks detailed from time to time in MagnaChip's filings with the SEC, including our Form 10-K filed on February 21, 2017 and subsequent registration statements, amendments or other reports that we may file from time to time with the SEC and/or make available on our website. MagnaChip assumes no obligation and does not intend to update the forward-looking statements provided, whether as a result of new information, future events or otherwise.

 

CONTACTS:


In the United States:

Bruce Entin

Investor Relations

Tel. +1-408-625-1262

Investor.relations@magnachip.com

In Korea:

Chankeun Park

Director, Public Relations

Tel. +82-2-6903-3195

chankeun.park@magnachip.com 

 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of US dollars, except share data)

(Unaudited)




Three Months Ended




March 31,

2017



December 31,

2016



March 31,

2016


Net sales


$

161,710



$

180,462



$

148,105


Cost of sales



120,140




134,373




113,856


Gross profit



41,570




46,089




34,249


Gross profit %



25.7

%



25.5

%



23.1

%

Operating expenses













Selling, general and administrative expenses



23,148




23,112




19,952


Research and development expenses



17,958




17,748




17,815


Restructuring gain and other



(17,010)







(7,785)


Early termination charges



11,107








Total operating expenses



35,203




40,860




29,982


Operating income



6,367




5,229




4,267


Interest expense



(5,173)




(4,053)




(4,057)


Foreign currency gain (loss), net



41,786




(49,628)




8,195


Other income, net



1,611




561




535


Income (loss) before income tax expenses



44,591




(47,891)




8,940


Income tax expenses



853




1,899




815


Net income (loss)


$

43,738



$

(49,790)



$

8,125


Earnings (loss) per common share :













- Basic


$

1.30



$

(1.42)



$

0.23


- Diluted


$

1.05



$

(1.42)



$

0.23


Weighted average number of shares - Basic



33,662,297




35,068,330




34,698,904


Weighted average number of shares - Diluted



42,892,044




35,068,330




34,918,568



 

 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED NET INCOME

(In thousands of US dollars, except share data)

(Unaudited)




Three Months Ended





March 31,

2017



December 31,

2016



March 31,

2016



Net income (loss)


$

43,738



$

(49,790)



$

8,125



Adjustments:














Interest expense, net



4,976




3,987




3,999



Income tax expenses



853




1,899




815



Depreciation and amortization



6,758




6,625




6,024



EBITDA



56,325




(37,279)




18,963



Restructuring gain and other, net



(17,010)







(6,832)



Early termination charges



11,107









Equity-based compensation expense



830




877




536



Foreign currency loss (gain), net



(41,786)




49,627




(8,195)



Derivative valuation loss (gain), net



(637)




273




(42)



Restatement related expenses



4,259




597




3,592



Adjusted EBITDA


$

13,088



$

14,095



$

8,022

















Net income (loss)


$

43,738



$

(49,790)



$

8,125



Adjustments:














Restructuring gain and other, net



(17,010)







(6,832)



Early termination charges



11,107









Equity-based compensation expense



830




877




536



Foreign currency loss (gain), net



(41,786)




49,627




(8,195)



Derivative valuation loss (gain), net



(637)




273




(42)



Restatement related expenses



4,259




597




3,592



Adjusted Net Income (Loss)


$

501



$

1,584



$

(2,816)



Adjusted Net Income (Loss) per common share:














- Basic


$

0.01



$

0.05



$

(0.08)



- Diluted


$

0.01



$

0.04



$

(0.08)



Weighted average number of shares – Basic



33,662,297




35,068,330




34,698,904



Weighted average number of shares – Diluted



34,301,291




35,503,993




34,698,904

















We present Adjusted EBITDA and Adjusted Net Income (Loss) as supplemental measures of our performance. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) restructuring gain and other, net, (ii) early termination charges, (iii) equity-based compensation expense, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net and (vi) restatement related expenses. EBITDA for the periods indicated is defined as net income (loss) before interest expense, net, income tax expenses and depreciation and amortization. We prepare Adjusted Net Income (Loss) by adjusting net income (loss) to eliminate the impact of a number of non-cash expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income (Loss) is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We define Adjusted Net Income (Loss) for the periods as net income (loss), adjusted to exclude (i) restructuring gain and other, net, (ii) early termination charges, (iii) equity-based compensation expense, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net, and (vi) restatement related expenses.

 

 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share data)

(Unaudited)



March 31,

2017

December 31,

2016

Assets



Current assets



Cash and cash equivalents

$        132,627

$           83,355

Restricted cash

18,251

Accounts receivable, net

81,700

61,775

Inventories, net

60,969

57,048

Other receivables

6,639

5,864

Prepaid expenses

12,492

8,137

Hedge collateral

5,400

3,150

Other current assets

5,282

5,113

Total current assets

305,109

242,693

Property, plant and equipment, net

190,699

179,793

Intangible assets, net

3,407

3,085

Long-term prepaid expenses

10,115

9,556

Deferred income tax assets

188

193

Other non-current assets

5,213

6,632

Total assets

$        514,731

$        441,952




Liabilities and Stockholders' Equity



Current liabilities



Accounts payable

$           55,814

$           51,509

Other accounts payable

9,463

12,272

Accrued expenses

55,688

60,365

Deferred revenue

11,924

11,092

Deposits received

271

16,549

Other current liabilities

894

1,654

Total current liabilities

134,054

153,441

Long-term borrowings, net

301,875

221,082

Accrued severance benefits, net

139,948

129,225

Other non-current liabilities

9,430

10,318

Total liabilities

585,307

514,066




Stockholders' equity



Common stock, $0.01 par value, 150,000,000 shares authorized, 41,927,897 shares issued and 
33,553,688 outstanding at March 31, 2017 and 41,627,103 shares issued and 35,048,338
outstanding at December 31, 2016

419

416

Additional paid-in capital

132,705

130,189

Accumulated deficit

(82,087)

(125,825)

Treasury stock, 8,374,209 shares at March 31, 2017 and 6,578,765 shares at December 31, 2016

(102,319)

(90,918)

Accumulated other comprehensive income (loss)

(19,294)

14,024

Total stockholders' deficit

(70,576)

(72,114)

Total liabilities and stockholders' equity

$        514,731

$        441,952

 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(Unaudited)













Three Months Ended




    March 31,    

2017



    March 31,    

2016


Cash flows from operating activities


Net income


$

43,738



$

8,125


Adjustments to reconcile net income to net cash used in operating activities









Depreciation and amortization



6,758




6,024


Provision for severance benefits



7,386




5,771


Amortization of debt issuance costs and original issue discount



446




173


Gain on foreign currency, net



(49,059)




(8,857)


Restructuring gain and other



(17,010)




(7,785)


Stock-based compensation



830




536


Other



1,185




(10)


Changes in operating assets and liabilities









Accounts receivable, net



(15,734)




7,716


Inventories, net



1,077




(11,946)


Other receivables



1,467




(326)


Other current assets



(1,155)




(1,559)


Accounts payable



1,814




4,920


Other accounts payable



(3,499)




(3,748)


Accrued expenses



(7,128)




(3,729)


Deferred revenue



(73)




(9,777)


Other current liabilities



(212)




828


Other non-current liabilities



(62)




(325)


Payment of severance benefits



(7,524)




(4,098)


Other



(116)




(114)


Net cash used in operating activities



(36,871)




(18,181)


Cash flows from investing activities









Proceeds from disposal of plant, property and equipment



18,206





Purchase of plant, property and equipment



(5,368)




(4,288)


Payment for intellectual property registration



(216)




(237)


Collection of guarantee deposits



295




374


Proceeds from settlement of hedge collateral



2,164




3,993


Payment of hedge collateral



(4,452)





Payment of guarantee deposits



(41)




(14)


Other



20




10


Net cash provided by (used in) investing activities



10,608




(162)


Cash flows from financing activities









Proceeds from issuance of senior notes



86,250





Payment of debt issuance costs



(5,902)





Proceeds from issuance of common stock



1,689





Acquisition of treasury stock



(11,401)





Net cash provided by financing activities



70,636





Effect of exchange rates on cash and cash equivalents



4,899




988


Net increase (decrease) in cash and cash equivalents



49,272




(17,355)


Cash and cash equivalents









Beginning of the period



83,355




90,882


End of the period


$

132,627



$

73,527





Non-cash operating activities









Insurance proceeds in restricted cash reclassified from other receivables


$



$

(29,571)











 

 

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SOURCE MagnaChip Semiconductor Corporation