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MagnaChip Reports Revenue of $229.7 Million in Third Quarter 2019; OLED, Power Revenue Set Records; Foundry Revenue Hits 5-year High

-- Q3 Revenue at High-End of Guidance Range; Gross Profit Margin of 26.5% Exceeds Guidance Range --

SEOUL, South Korea and SAN JOSE, Calif., Oct. 23, 2019 /PRNewswire/ -- MagnaChip Semiconductor Corporation (NYSE: MX) today announced financial results for the third quarter of 2019.

Q3 2019 Summary

  • Revenue of $229.7 million at high-end of guidance range of $220-230 million; Q3 revenue up 11.5% Year-over-Year (YoY); up 12% Quarter-over-Quarter (QoQ)
  • Standard Products Group (SPG) revenue of $139.2 million, up 14.1% YoY; up 5.5% QoQ
    • Display standard products revenue of $90.6 million, up 16.7% YoY; up 7.5% QoQ
      • OLED display driver IC revenue of $78.3 million up 34.2% YoY; up 7.2% QoQ
    • Power standard products revenue of $48.7 million, up 9.5% YoY; up 2.0% QoQ
  • Foundry Services Group (FSG) revenue of $90.3 million, up 7.7% YoY; up 23.6% QoQ
  • Total gross profit margin (GPM) of 26.5% exceeded the guidance range of 22-24%; GPM was 27.1% in Q3 2018; 21.4% in Q2 2019

Fourth Quarter 2019 Business Outlook
MagnaChip anticipates:

  • Normal seasonal softness in revenue but improvement from the fourth quarter of 2018. Revenue is expected to be in the range of $181 million to $191 million, down 19% at the mid-point of the projected range when compared with revenue of $229.7 million in the third quarter of 2019, and up 3.7% year-over-year when compared to revenue of $179.4 million in the fourth quarter of 2018.
  • Gross profit margin to be in the range of 24% to 26%, when compared to 26.5% in the third quarter of 2019 and 24.5% in the fourth quarter of 2018. Gross margin guidance for the fourth quarter reflects the current expectation that fab utilization will show an expected sequential decline from the third quarter of 2019.

CEO YJ Kim comments on Q3
Revenue of $229.7 million was the highest quarterly level achieved since we went public in 2011. Our Display and Power businesses both had record quarterly revenue, and Foundry revenue was at the highest level in five years. Demand continued to be robust for our OLED display drivers, as revenue increased over 34% year-over-year and over 7% sequentially.

We were awarded a record 11 new design wins for OLED display drivers in Asia, including three for mid-range smartphones from a major smartphone maker in Korea. Of the 11 design wins, seven were for display drivers in our 40-nanometer product family and four were for our new and lowest-power 28-nanometer display drivers. Smartphone makers in Asia launched a total of six high-end and mid-range models using our OLED display drivers. Our Power business showed sequential growth and the Foundry business showed sharp sequential growth, as customer demand was strong, particularly from the smartphone and computing segments.

Strategic Evaluation Process
"I'm pleased to report that we continue to make substantial progress on our previously announced strategic evaluation process of the Foundry business and Fab 4, including discussions with multiple interested parties toward a possible sale of the business as well as consideration of accretive business conversions, joint ventures and partnerships," said YJ Kim, CEO. "As stated previously, our decisions regarding the outcome of the various options of the strategic evaluation process will be guided by what the management and Board consider to be the best available path to improve MagnaChip's profitability and to maximize shareholder value."

CFO Jonathan Kim comments on Q3
Total revenue came in at the high-end of our guidance range, as Display, Power and Foundry all showed year-over-year and sequential revenue growth. Gross profit margin of 26.5% in Q3 exceeded our guidance range due primarily to higher-than-expected fab utilization, mainly as a result of a significant increase in Foundry revenue.

Cash and cash equivalents totaled $131.3 million, up sequentially from $123.8 million, and net operating cash flow was $12.9 million, marking the second consecutive quarter of net positive operating cash flow.

Third Quarter Financial Review
Total Revenue
Total revenue in the third quarter was $229.7 million, up 11.5% as compared to reported revenue of $206 million from the third quarter of 2018, and up 12.0% from $205.1 million in the second quarter of 2019.

Segment Revenue
Foundry Services Group revenue in the third quarter was $90.3 million, up 7.7% from the third quarter of 2018, and up 23.6% sequentially. Standard Products Group revenue in the third quarter was $139.2 million, up 14.1% from the third quarter of 2018, and up 5.5% sequentially.

Total Gross Profit and Gross Profit Margin
Total gross profit in the third quarter of 2019 was $60.9 million or 26.5% as a percentage of revenue, as compared with gross profit of $55.7 million or 27.1% as a percentage of revenue in the third quarter of 2018, and $43.8 million or 21.4% as a percentage of revenue in the second quarter of 2019.

Segment Gross Profit Margin
Foundry Services Group gross profit margin was 28.3% as compared with 24.4% in the third quarter of 2018 and 16.7% in the second quarter of 2019. The YoY and sequential improvement in the Foundry Services Group's gross profit margin was primarily due to an increase in Foundry revenue, an improved product mix and also higher fab utilization. The Standard Products Group gross profit margin was 25.3% as compared with 28.8% in the third quarter of 2018 and 23.9% in the second quarter of 2019. The sequential improvement in the Standard Products Group's gross profit margin was due primarily to an increase in fab utilization. The sequential improvement as well as a YoY decline in the Standard Product Group's gross profit margin was due to an increase in fab utilization that benefited Power and non-OLED products manufactured in-house, but the gain was offset by temporarily lower wafer yields from external suppliers on OLED products that recently entered production.

Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating income was of $25.9 million for the third quarter of 2019, as compared to operating income of $18.3 million in the third quarter of 2018 and operating income of $6.7 million for the second quarter of 2019.

Net loss, on a GAAP basis, was $1.6 million or $0.05 cents per basic and diluted share in the third quarter of 2019 as compared with a net income of $17.2 million or $0.50 per basic share and $0.41 per diluted share in the third quarter of 2018 and net loss of $9.5 million or $0.28 per basic and diluted share in the second quarter of 2019.

Adjusted Net Income, a non-GAAP financial measure, totaled $20.9 million or $0.61 per basic share and $0.49 per diluted share in the third quarter of 2019, as compared to Adjusted Net Income of $13.3 million or $0.38 per basic share and $0.32 per diluted share in the third quarter of 2018 and Adjusted Net Income of $2.9 million or $0.08 per basic and diluted share in the second quarter of 2019.

Adjusted EBITDA, a non-GAAP financial measure, was $35.5 million or 15.4% of revenue in the third quarter of 2019 as compared to Adjusted EBITDA of $27.9 million or 13.5% of revenue in the third quarter of 2018 and Adjusted EBITDA of $17.0 million or 8.3% of revenue in the second quarter of 2019.

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 $131.3 million in the third quarter, up from $123.8 million in the second quarter of 2019.




















Three Months Ended



Nine Months Ended




September 30,
2019



September 30,
2018



September 30,
2019



September 30,
2018


Net Sales

















Foundry Services Group


$

90,340



$

83,862



$

220,513



$

242,198


Standard Products Group

















Display Solutions



90,550




77,578




233,041




205,986


Power Solutions



48,690




44,458




138,443




123,153


Total Standard Products Group


$

139,240



$

122,036



$

371,484



$

329,139


All other



97




102




205




167


Total net sales


$

229,677



$

206,000



$

592,202



$

571,504


 

 




















Three Months Ended



Three Months Ended




September 30, 2019



September 30, 2018




Amount



% of
Net Sales



Amount



% of
Net Sales


Gross Profit

















Foundry Services Group


$

25,547




28.3

%


$

20,443




24.4

%

Standard Products Group



35,222




25.3




35,204




28.8


All other



97




100.0




102




100.0


Total gross profit


$

60,866




26.5

%


$

55,749




27.1

%























Nine Months Ended



Nine Months Ended




September 30, 2019



September 30, 2018




Amount



% of

Net Sales



Amount



% of

Net Sales


Gross Profit

















Foundry Services Group


$

41,361




18.8

%


$

63,292




26.1

%

Standard Products Group



85,842




23.1




90,874




27.6


All other



204




99.5




18




10.8


Total gross profit


$

127,407




21.5

%


$

154,184




27.0

%

 

Third Quarter 2019 and Recent Company Highlights
MagnaChip announced:

 

Third Quarter 2019 Earnings Conference Call
The earnings conference call will be webcast live today (October 23, 2019) at 5:00 p.m. ET, and also is available by dialing toll-free at 1-844-536-5472. International call-in participants can dial 1-614-999-9318. The conference ID number is 4069039. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.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 4069039.

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 about 40 years of operating history, owns a portfolio of approximately 3,000 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 but not limited to fourth quarter 2019 revenue and gross profit margin 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, the risk that the strategic evaluation and the initiatives related thereto described above are not successful, and other risks detailed from time to time in MagnaChip's filings with the SEC, including our Form 10-K filed on February 22, 2019 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




September 30,
2019



June 30,
2019



September 30,
2018


Net sales


$

229,677




205,145




206,000


Cost of sales



168,811




161,305




150,251


Gross profit



60,866




43,840




55,749


Gross profit %



26.5

%



21.4

%



27.1

%

Operating expenses













Selling, general and administrative expenses



16,812




16,975




18,566


Research and development expenses



17,368




18,989




18,918


Restructuring and other charges



763




1,130





Total operating expenses



34,943




37,094




37,484


Operating income



25,923




6,746




18,265


Interest expense



(5,656)




(5,679)




(5,587)


Foreign currency gain (loss), net



(21,205)




(10,431)




6,002


Other income, net



785




656




150


Income (loss) before income tax expense



(153)




(8,708)




18,830


Income tax expense



1,454




812




1,608


Net income (loss)


$

(1,607)



$

(9,520)



$

17,222


Earnings (loss) per common share—













 Basic


$

(0.05)



$

(0.28)



$

0.50


 Diluted


$

(0.05)



$

(0.28)



$

0.41


Weighted average number of shares—Basic



34,357,745




34,245,127




34,573,377


Weighted average number of shares—Diluted



34,357,745




34,245,127




46,021,610


 

 

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




September 30,
2019



June 30,
2019



September 30,
2018


Net income (loss)


$

(1,607)



$

(9,520)



$

17,222


Adjustments:













Interest expense, net



4,982




5,092




5,055


Income tax expense



1,454




812




1,608


Depreciation and amortization



8,156




8,202




7,913


EBITDA



12,985




4,586




31,798


Restructuring and other charges



763




1,130





Equity-based compensation expense



479




772




1,083


Foreign currency loss (gain), net



21,205




10,431




(6,001)


Derivative valuation loss, net



33




80




518


Other









473


Adjusted EBITDA


$

35,465



$

16,999



$

27,871


Net income (loss)


$

(1,607)



$

(9,520)



$

17,222


Adjustments:













Restructuring and other charges



763




1,130





Equity-based compensation expense



479




772




1,083


Foreign currency loss (gain), net



21,205




10,431




(6,001)


Derivative valuation loss, net



33




80




518


Other









473


Adjusted Net Income


$

20,873



$

2,893



$

13,295


Adjusted Net Income per common share:













- Basic


$

0.61



$

0.08



$

0.38


- Diluted


$

0.49



$

0.08



$

0.32


Weighted average number of shares – Basic



34,357,745




34,245,127




34,573,377


Weighted average number of shares – Diluted



45,516,245




34,965,562




46,021,610


 

We present Adjusted EBITDA and Adjusted Net Income 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, (ii) Equity-based compensation expense, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss, net and (v) Other. EBITDA for the periods indicated is defined as net income (loss) before interest expense, net, income tax expense and depreciation and amortization. We prepare Adjusted Net Income 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 is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We define Adjusted Net Income for the periods as net income (loss), adjusted to exclude (i) Restructuring and other charges, (ii) Equity-based compensation expense, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss, net and (v) Other. Other charges within the adjustment line item of the Restructuring and other charges included in the above table are primarily related to legal and consulting service fees incurred in connection with our strategic evaluation. Other adjustment in the table above primarily represents legal expense related to the indemnification of a former employee.

 


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




September 30,
2019



December 31,
2018


Assets









Current assets









Cash and cash equivalents


$

131,341



$

132,438


Accounts receivable, net



106,289




80,003


Unbilled accounts receivable, net



21,356




38,181


Inventories, net



72,703




71,611


Other receivables



10,015




3,702


Prepaid expenses



15,112




11,133


Hedge collateral



9,990




5,810


Other current assets



7,437




9,867


Total current assets



374,243




352,745


Property, plant and equipment, net



178,823




202,171


Operating lease right-of-use assets



11,517





Intangible assets, net



3,913




3,953


Long-term prepaid expenses



10,926




15,598


Other non-current assets



8,715




8,729


Total assets


$

588,137



$

583,196











Liabilities and Stockholders' Equity









Current liabilities









Accounts payable


$

79,908



$

55,631


Other accounts payable



10,843




15,168


Accrued expenses



48,944




46,250


Deferred revenue



5,822




6,477


Operating lease liabilities



2,023





Other current liabilities



4,563




9,133


Total current liabilities



152,103




132,659


Long-term borrowings, net



304,155




303,577


Non-current operating lease liabilities



9,494





Accrued severance benefits, net



138,794




146,031


Other non-current liabilities



17,018




18,239


Total liabilities



621,564




600,506











Commitments and contingencies









Stockholders' equity









Common stock, $0.01 par value, 150,000,000 shares authorized, 43,378,017 shares
issued and 34,370,689 outstanding at September 30, 2019 and 43,054,458 shares issued and
34,441,232 outstanding at December 31, 2018



434




431


Additional paid-in capital



145,555




142,600


Accumulated deficit



(81,557)




(36,305)


Treasury stock, 9,007,328 shares at September 30, 2019 and 8,613,226 shares at
December 31, 2018, respectively



(106,514)




(103,926)


Accumulated other comprehensive income (loss)



8,655




(20,110)


Total stockholders' deficit



(33,427)




(17,310)


Total liabilities and stockholders' equity


$

588,137



$

583,196











 

 

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




Three month Ended



Nine month Ended




September 30,
2019



September 30,
2019



September 30,
2018


Cash flows from operating activities













Net loss


$

(1,607)



$

(45,252)



$

(1,520)


Adjustments to reconcile net loss to net cash provided by operating 
     activities













Depreciation and amortization



8,156




24,661




23,883


Provision for severance benefits



4,085




10,491




14,686


Amortization of debt issuance costs and original issue discount



578




1,712




1,623


Loss on foreign currency, net



25,903




50,512




26,931


Restructuring and other charges



(262)




470





Stock-based compensation



479




1,920




3,893


Loss on early extinguishment of long-term borrowings, net






42





Other



555




61




(964)


Changes in operating assets and liabilities













Accounts receivable, net



(11,838)




(32,812)




(14,282)


Unbilled accounts receivable, net



8,007




14,208




1,187


Inventories, net



(7,910)




(6,321)




(30,296)


Other receivables



(1,845)




(4,814)




(2,669)


Other current assets



427




6,356




2,514


Accounts payable



(4,552)




27,585




17,414


Other accounts payable



(6,114)




(10,074)




(8,811)


Accrued expenses



951




3,831




(5,370)


Deferred revenue



739




(190)




3,560


Other current liabilities



403




(6,159)




1,533


Other non-current liabilities



(908)




808




1,035


Payment of severance benefits



(1,616)




(6,195)




(9,004)


Other



(767)




(821)




(329)


Net cash provided by operating activities



12,864




30,019




25,014


Cash flows from investing activities













Proceeds from settlement of hedge collateral



7,998




12,625




11,290


Payment of hedge collateral



(8,629)




(17,024)




(10,965)


Proceeds from disposal of plant, property and equipment






202




1,685


Purchase of plant, property and equipment



(1,693)




(16,693)




(18,875)


Payment for property related to water treatment facility 
     arrangement









(4,283)


Payment for intellectual property registration



(265)




(907)




(776)


Collection of guarantee deposits



151




539




794


Payment of guarantee deposits






(1,330)




(89)


Other



32




23




(38)


Net cash used in investing activities



(2,406)




(22,565)




(21,257)


Cash flows from financing activities













Repurchase of long-term borrowings






(1,175)





Proceeds from exercise of stock options



889




1,038




1,113


Acquisition of treasury stock






(2,588)




(199)


Proceeds from property related to water treatment facility 
     arrangement









4,283


Repayment of financing related to water treatment facility 
     arrangement



(134)




(415)




(73)


Repayment of principal portion of lease liabilities



(56)




(174)





Net cash provided by (used in) financing activities



699




(3,314)




5,124


Effect of exchange rates on cash, cash equivalents and restricted cash



(3,569)




(5,237)




(3,974)


Net increase (decrease) in cash, cash equivalents and 
     restricted cash



7,588




(1,097)




4,907


Cash, cash equivalents and restricted cash













Beginning of the period



123,753




132,438




128,575


End of the period


$

131,341



$

131,341



$

133,482


 

 

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SOURCE MagnaChip Semiconductor Corporation