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MagnaChip Reports Fourth Quarter and Full Year 2017 Financial Results

SEOUL, South Korea and SAN JOSE, Calif., Feb. 6, 2018 /PRNewswire/ -- MagnaChip Semiconductor Corporation (NYSE: MX), today, announced financial results for the fourth quarter and full year of 2017.

Q4 Summary

  • Revenue of $174.6 million, slightly higher than the mid-point of the guidance range
  • Gross profit margin of 28.3%, slightly higher than mid-point of guidance range
  • Operating income of $7.6 million, up 46.1% from $5.2 million in Q4 2016, and Adjusted EBITDA of$20.5 million, up 45.8% from $14.1 million in Q4 2016, reflecting improvement in core operating performance
  • Foundry gross profit margin of 31.7%, the highest level in 4 years
  • Power revenue highest since Q4 2013 with gross margin improvement of about 15 percentage points
  • Achieved 6 new OLED design wins

2017 Full-Year Highlights

  • $679.7 million in revenue achieved despite a prolonged slowdown in China smartphone market
  • Gross profit margin of 27.6% rose nearly 5 percentage points over 2016, due to improved product mix, higher utilization rate, product portfolio optimization and implementation of a headcount reduction plan
  • Operating income of $39.2 million increased from $2.7 million in 2016 and Adjusted EBITDA of $78.7 million increased 93.3% from $40.7 million in 2016
  • Foundry revenue grew 16.8% over 2016; Power standard product revenue increases 14.0%
  • Introduced 4 new advanced OLED display drivers and achieved a total of 18 new smartphone design wins

CEO Comments: "Revenue and gross profit margin in the fourth quarter topped the mid-point of our guidance range despite a typically soft seasonal period, a slowdown in the China smartphone market that affected our Display business, and an industry-wide increase in wafer prices that began in the second half of 2017, which kept a lid on gross profit," said YJ Kim, Chief Executive Officer.

"Revenue in our Foundry and Power businesses edged higher sequentially in the fourth quarter, while revenue in the Display business, including OLED drivers, declined due to general market factors." Mr. Kim said, "Based upon our current business visibility, we anticipate a sharp rebound and steep growth in our OLED business in the first quarter of 2018 and remain confident that our OLED revenue this year is on track to exceed 50% growth as compared to 2017 or clearly exceed $100 million." CEO Kim added, "Overall, we made significant operational progress across the board in 2017 and have set a solid foundation for MagnaChip's growth in 2018."

CFO Comments:
"Gross profit margin of 27.6% for the 2017 calendar year increased approximately 5 percentage points over 2016, operating income of $39.2 million increased substantially from $2.7 million in 2016, and Adjusted EBITDA of $78.7 million increased 93.3% from $40.7 million in 2016," said Jonathan Kim, Chief Financial Officer. "The sharp improvement in our financial results stemmed primarily from the success of our business strategy to improve product mix, achieve a higher utilization rate, increase manufacturing efficiencies and reduce expenses by implementing a substantial headcount reduction plan." CFO Kim added, "We remain fully committed in 2018 to focus on the overall profitability of MagnaChip, continue to optimize our product portfolio, and to manage the business in order to maximize opportunities for revenue growth."

Fourth Quarter and Full-Year 2017 Financial Review
Total Revenue
Total revenue for the fourth quarter of 2017 was $174.6 million, down 3.3% as compared to $180.5 million from the fourth quarter a year ago, and down 1.2% as compared to $176.7 million from the third quarter of 2017. Total revenue for the full year 2017 was $679.7 million, down 1.2% from $688.0 million in 2016.
Segment Revenue
Foundry Services Group revenue in the fourth quarter was $80.6 million, up 3.6% year-over year, and up 0.3% from $80.4 million in the prior quarter. Standard Products Group revenue in the fourth quarter was $93.9 million, down 8.4% year-over- year, and down 2.4% sequentially, which primarily reflected changes in the mobile OLED business in both periods.   
Total Gross Profit and Gross Profit Margin
Total gross profit in the fourth quarter of 2017 was $49.4 million or 28.3% as a percentage of sales as compared with gross profit of $46.1 million or 25.5% gross profit margin in the fourth quarter of 2016, and $50.3 million or 28.5% gross profit margin for the third quarter of 2017.  
Segment Gross Profit Margin
Foundry Services Group gross profit margin was 31.7% in the fourth quarter of 2017 as compared with 30.3% in the fourth quarter of 2016 and 30.3% in the third quarter of 2017. The Standard Products Group gross profit margin was 25.3% in the fourth quarter of 2017 as compared with 21.8% in the fourth quarter of 2016 and 26.9% in the third quarter of 2017.
Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating income, on a GAAP basis, for the fourth quarter was $7.6 million, as compared with $5.2 million in the fourth quarter of 2016 and $15.5 million in the third quarter of 2017.

Net income, on a GAAP basis, for the fourth quarter was $43.7 million or $1.28 per basic share and $0.99 per diluted share, as compared with a net loss on a GAAP basis of $49.8 million or $1.42 per basic share in the fourth quarter of 2016, and compared with net income of $5.6 million or $0.16 per basic share and $0.15 per diluted share in the third quarter of 2017.

Adjusted Net Income, a non-GAAP financial measure, for the fourth quarter of 2017, totaled $9.1 million or $0.27 per basic share and $0.23 per diluted share, as compared with 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, and compared with Adjusted Net Income of $11.4 million or $0.33 per basic share and $0.28 per diluted share in the third quarter of 2017. 

Adjusted EBITDA, a non-GAAP financial measure, in the fourth quarter was $20.5 million or 11.8% of revenue, as compared with Adjusted EBITDA of $14.1 million or 7.8% of revenue in the fourth quarter of 2016, and compared with Adjusted EBITDA of $24.7 million or 14.0% of revenue in the third quarter of 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 $128.6 million at the end of the fourth quarter, about flat with $128.4 million at the end of the third quarter of 2017.   

 

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




Three Months Ended



Year Ended



December 31,
2017



December 31,
2016



December 31,
2017



December 31,
2016

Net Sales












Foundry Services Group


$

80,629



$

77,809



$

320,089



$

273,961

Standard Products Group












Display Solutions



53,671




64,796




209,539




281,967

Power Solutions



40,241




37,718




149,836




131,468

















Total Standard Products Group



93,912




102,514




359,375




413,435

All other



39




139




208




573

















Total net sales


$

174,580



$

180,462



$

679,672



$

687,969

 



Three Months Ended
December 31, 2017



Three Months Ended
December 31, 2016



Amount



% of
Net Sales



Amount



% of
Net Sales

Gross Profit












Foundry Services Group


$

25,564




31.7%



$

23,592




30.3%

Standard Products Group



23,748




25.3




22,358




21.8

All other



39




100.0




139




100.0

















Total gross profit


$

49,351




28.3%



$

46,089




25.5%






















Year Ended
December 31, 2017



Year Ended
December 31, 2016



Amount



% of
Net Sales



Amount



% of
Net Sales

Gross Profit












Foundry Services Group


$

95,458




29.8%



$

69,412




25.3%

Standard Products Group



92,227




25.7




87,194




21.1

All other



208




100.0




(380)




(66.3)

















Total gross profit


$

187,893




27.6%



$

156,226




22.7%

 

Fourth Quarter 2017 and Recent Company Highlights
MagnaChip:

  • Developed a multi-level thick IMD (Inter-Metal Dielectric) process for a capacitor with ultra-high breakdown voltage, which is useful for electric vehicles and for applications in the industrial, communications and healthcare markets.
  • Announced it now offers a 0.35-micron 700V Ultra-High Voltage process technology (UHV) that reduces mask counts, manufacturing time and cost for power-related AC-DC products. This UHV process technology offers 700V nLDMOS, 700V JFET, and 5.5V CMOS devices suitable for manufacturing AC-DC converter ICs and LED driver ICs.
  • Hosted its annual Foundry Technology Symposium in Hsinchu, Taiwan in October 2017 to showcase the Company's latest technology offerings and provide a wide-ranging overview of its manufacturing capabilities, specialty technologies, target applications and end-markets. The event drew record attendance.

First Quarter 2018 Business Outlook
For the first quarter of 2018, MagnaChip anticipates:

  • Revenue to be in the range of $158 million to $164 million, down sequentially 7.8% at the mid-point of the projected range, due to typical seasonal factors and ongoing portfolio optimization activities. The guidance for the first quarter compares with revenue of $174.6 million in the fourth quarter of 2017 and $161.7 million in the first quarter of 2017.
  • An increase in silicon wafer prices, a lower fab utilization rate due to seasonal factors and product portfolio optimization activity will result in gross profit margin to be in the range of 26% to 28%. This compares to 28.3% in the fourth quarter of 2017, and 25.7% in the first quarter of 2017.

Fourth Quarter 2017 Conference Call
MagnaChip will hold a conference call on February 6 at 5 p.m. EST to discuss the fourth quarter and 2017 financial results. The conference call will be webcast live and also is available by dialing toll-free at 1-844 536-5472. International call-in participants can dial toll-free at 1-614-999-9318.

The conference ID number is 5392748. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. EST 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 5392748.

About MagnaChip Semiconductor Corporation
MagnaChip is a 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 over 30 years of operating history, owns a portfolio of approximately 3,200 registered patents and pending applications, 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 first quarter 2018 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. +82-2-6903-5223

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



Year Ended




December 31,

2017



September 30,

2017



December 31,

2016



December 31,

2017



December 31,

2016


Net sales


$

174,580



$

176,697



$

180,462



$

679,672



$

687,969


Cost of sales



125,229




126,387




134,373




491,779




531,743


Gross profit



49,351




50,310




46,089




187,893




156,226


Gross profit %



28.3%




28.5%




25.5%




27.6%




22.7%


Operating expenses





















Selling, general and administrative 
     expenses



23,631




17,266




23,112




81,775




83,549


Research and development expenses



18,083




17,554




17,748




70,523




72,180


Restructuring and other charges (gain), net












(17,010)




(6,480)


Early termination charges












13,369




4,240


Total operating expenses



41,714




34,820




40,860




148,657




153,489


Operating income



7,637




15,490




5,229




39,236




2,737


Interest expense



(5,460)




(5,485)




(4,053)




(21,559)




(16,238)


Foreign currency gain (loss), net



39,297




(3,662)




(49,628)




65,516




(15,360)


Other income, net



1,006




198




561




2,898




2,990


Income (loss) before income tax expenses



42,480




6,541




(47,891)




86,091




(25,871)


Income tax expenses (benefits)



(1,173)




937




1,899




1,155




3,744


Net income (loss)


$

43,653



$

5,604



$

(49,790)



$

84,936



$

(29,615)


Earnings (loss) per common share :





















- Basic


$

1.28



$

0.16



$

(1.42)



$

2.50



$

(0.85)


- Diluted


$

0.99



$

0.15



$

(1.42)



$

2.02



$

(0.85)


Weighted average number of shares—Basic



34,176,812




34,103,029




35,068,330




33,943,264




34,833,967


Weighted average number of shares—Diluted



45,573,889




45,542,418




35,068,330




44,755,137




34,833,967
























 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED NET INCOME (LOSS)
(In thousands of US dollars, except share data)
(Unaudited)
























Three Months Ended



Year Ended




December 31,

2017



September 30,

2017



December 31,

2016



December 31,

2017



December 31,

2016


Net income (loss)


$

43,653



$

5,604



$

(49,790)



$

84,936



$

(29,615)


Adjustments:





















Interest expense, net



5,149




5,193




3,987




20,505




15,983


Income tax expenses (benefits)



(1,173)




937




1,899




1,155




3,744


Depreciation and amortization



7,457




7,158




6,625




28,146




25,416


EBITDA



55,086




18,892




(37,279)




134,742




15,528


Restructuring and other charges (gain), net












(17,010)




(5,526)


Early termination charges












13,369




4,240


Equity-based compensation expense



722




435




877




2,336




3,843


Foreign currency loss (gain), net



(39,297)




3,662




49,627




(65,516)




15,360


Derivative valuation loss (gain), net



(436)




370




273




(236)




272


Restatement related expenses



4,319




828




597




10,306




6,970


Secondary offering expenses



154




515







669





Adjusted EBITDA


$

20,548



$

24,702



$

14,095



$

78,660



$

40,687























Net income (loss)


$

43,653



$

5,604



$

(49,790)



$

84,936



$

(29,615)


Adjustments:





















Restructuring and other charges (gain), net












(17,010)




(5,526)


Early termination charges












13,369




4,240


Equity-based compensation expense



722




435




877




2,336




3,843


Foreign currency loss (gain), net



(39,297)




3,662




49,627




(65,516)




15,360


Derivative valuation loss (gain), net



(436)




370




273




(236)




272


Restatement related expenses



4,319




828




597




10,306




6,970


Secondary offering expenses



154




515







669





Adjusted Net Income (Loss)


$

9,115



$

11,414



$

1,584



$

28,854



$

(4,456)


Adjusted Net Income (Loss) per common share:





















- Basic


$

0.27



$

0.33



$

0.05



$

0.85



$

(0.13)


- Diluted


$

0.23



$

0.28



$

0.04



$

0.76



$

(0.13)


Weighted average number of shares – Basic



34,176,812




34,103,029




35,068,330




33,943,264




34,833,967


Weighted average number of shares – Diluted



45,573,889




45,542,418




35,503,993




44,755,137




34,833,967























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 and other charges (gain), net, (ii) early termination charges, (iii) equity-based compensation expense, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net, (vi) restatement related expenses and (vii) secondary offering expenses. EBITDA for the periods indicated is defined as net income (loss) before interest expense, net, income tax expenses (benefits) 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 and other charges (gain), net, (ii) early termination charges, (iii) equity-based compensation expense, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net, (vi) restatement related expenses and (vii) secondary offering expenses.

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)
(Unaudited)




December 31,

2017


December 31,

2016

Assets




Current assets




Cash and cash equivalents

$        128,575


$           83,355

Restricted cash


18,251

Accounts receivable, net

92,026


61,775

Inventories, net

73,073


57,048

Other receivables

4,292


5,864

Prepaid expenses

9,250


8,137

Hedge collateral

7,600


3,150

Other current assets

15,444


5,113





Total current assets

330,260


242,693





Property, plant and equipment, net

205,903


179,793

Intangible assets, net

4,061


3,085

Long-term prepaid expenses

12,791


9,556

Deferred income tax assets

264


193

Other non-current assets

5,510


6,632





Total assets

$        558,789


$        441,952





Liabilities and Stockholders' Equity




Current liabilities




Accounts payable

$           65,940


$           51,509

Other accounts payable

10,261


12,272

Accrued expenses

51,746


60,365

Deferred revenue

8,335


11,092

Deposits received


16,549

Other current liabilities

1,860


1,654





Total current liabilities

138,142


153,441





Long-term borrowings, net

303,416


221,082

Accrued severance benefits, net

148,905


129,225

Other non-current liabilities

7,963


10,318





Total liabilities

598,426


514,066





Commitments and contingencies




Stockholders' equity




Common stock, $0.01 par value, 150,000,000 shares authorized, 42,563,808 shares issued and
34,189,599 outstanding at December 31, 2017 and 41,627,103 shares issued and 35,048,338
outstanding at December 31, 2016

426


416

Additional paid-in capital

136,259


130,189

Accumulated deficit

(40,889 )


(125,825 )

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

(102,319 )


(90,918 )

Accumulated other comprehensive income (loss)

(33,114 )


14,024





Total stockholders' deficit

(39,637 )


(72,114)





Total liabilities and stockholders' equity

$        558,789


$        441,952

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
(Unaudited)




Three Months

Ended



Year Ended




December 31,

2017



December 31,

2017



December 31,

2016


Cash flows from operating activities













Net income


$

43,653



$

84,936



$

(29,615)


Adjustments to reconcile net income to net cash provided by (used in) operating 
     activities













Depreciation and amortization



7,457




28,146




25,416


Provision for severance benefits



9,019




24,373




14,432


Amortization of debt issuance costs and original issue discount



523




1,987




707


Loss (gain) on foreign currency, net



(46,985)




(77,600)




18,884


Restructuring gain and other






(17,010)




(7,785)


Stock-based compensation



722




2,336




3,843


Other



(410)




49




103


Changes in operating assets and liabilities













Accounts receivable, net



(1,969)




(22,210)




285


Inventories, net



(11,358)




(8,077)




(557)


Other receivables



(1,323)




3,981




19,125


Other current assets



(579)




2,318




5,000


Accounts payable



10,142




10,320




(4,163)


Other accounts payable



(3,763)




(12,141)




(6,603)


Accrued expenses



4,439




(12,020)




(16,305)


Deferred revenue



(1,706)




(3,949)




1,674


Other current liabilities



(459)




(1,281)




(5,331)


Other non-current liabilities



(1,043)




(760)




(1,574)


Payment of severance benefits



(1,928)




(21,506)




(15,352)


Other



(371)




(336)




5,447


Net cash provided by (used in) operating activities



4,061




(18,444)




7,631


Cash flows from investing activities













Proceeds from settlement of hedge collateral



2,059




10,615




6,317


Payment of hedge collateral






(14,839)




(3,552)


Proceeds from disposal of plant, property and equipment



81




18,834




688


Purchase of plant, property and equipment



(13,392)




(32,661)




(18,727)


Payment for intellectual property registration



(230)




(1,207)




(1,049)


Collection of guarantee deposits



36




1,462




619


Payment of guarantee deposits






(41)




(193)


Other



70




94




23


Net cash used in investing activities



(11,376)




(17,743)




(15,874)


Cash flows from financing activities













Proceeds from issuance of senior notes






86,250





Payment of debt issuance costs






(5,902)





Proceeds from exercise of stock options



353




3,744




1,732


Acquisition of treasury stock






(11,401)





Net cash provided by financing activities



353




72,691




1,732


Effect of exchange rates on cash and cash equivalents



7,112




8,716




(1,016)


Net increase (decrease) in cash and cash equivalents



150




45,220




(7,527)


Cash and cash equivalents













Beginning of the period



128,425




83,355




90,882


End of the period


$

128,575



$

128,575



$

83,355


 

 

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SOURCE MagnaChip Semiconductor Corporation