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MagnaChip Reports Second Quarter 2018 Financial Results

-- Revenue of Nearly $200 Million Fueled by Record Demand for OLED Display Drivers --

SEOUL, South Korea and SAN JOSE, Calif., July 30, 2018 /PRNewswire/ -- MagnaChip Semiconductor Corporation (NYSE: MX) today announced financial results for the second quarter of 2018 ended June 30.  

Q2 2018 Summary

  • Revenue of $199.7 million exceeded high-end of guidance range of $182-188 million; revenue increased 19.8% Year-over-Year (YoY)
  • Record OLED display driver revenue of $62.2 million quadrupled YoY and increased 81.3% from Q1 2018
  • Power products revenue increased 13.3% YoY; Foundry revenue decreased 0.8% YoY on a reported basis, but had better product mix with 17% increase in new products YoY
  • Gross profit margin of 27.0% in line with 26-28% guidance range; gross profit margin declined by one percentage point YoY and gross profit dollars increased 15.4% YoY
  • Operating income of $13.9 million increased 42.8% YoY
  • Adjusted EBITDA of $23.5 million increased 15.7% YoY
  • Cash flow from operations of $25.7 million up fivefold YoY; free cash flow, which represents cash flow from operations less capital expenditures, totaled $17.3 million as compared with a negative $0.2 million a year ago

CEO Comments from YJ Kim: "Revenue in the second quarter far exceeded previous guidance due to record demand for our OLED display drivers coupled with a higher-than-expected number of launches of OLED smartphones, primarily in China. Our OLED revenue in Q2 quadrupled from the second quarter a year ago and increased 81.3% sequentially. Given our current business visibility, OLED revenue in 2018 is expected to exceed the previous record of $161.0 million set in 2016. Revenue in the Power standard products business increased by double digits year-over-year, while new product revenue in our Foundry business increased by 17% year over year. Both Foundry and Power businesses recorded a sequential increase in revenue in Q2 as compared to Q1 2018." 

CFO Comments from Jonathan Kim:
"Key financial metrics showed continued improvement in the second quarter, driven primarily by higher-than-expected revenue. Revenue, gross profit dollars, operating income and Adjusted EBITDA, all showed double-digit percentage gains year-over-year, as well as sequentially. Operating income, Adjusted EBITDA and gross profit increased 88.6%, 51.7%, and 20.8% sequentially, and the Company remains committed to show improvement in gross profit over time. Our improved financial performance helped MagnaChip achieve positive free cash flow of $17.3 million in the second quarter as compared to negative free cash flow in the same year-ago period. We anticipate that we will continue to generate positive free cash flow for the second half of 2018."

Second Quarter Financial Review
Total Revenue
Total revenue in the second quarter of 2018 was $199.7 million, up 19.8% as compared to reported revenue of $166.7 million from the second quarter of 2017, and up 20.4% from $165.8 million in the first quarter of 2018. 

Segment Revenue and Segment Adjustments
In January 2018, as part of the Company's ongoing portfolio optimization effort to realign business processes and streamline the organizational structure, the Company transferred a portion of the non-OLED Display business, which was $4.4 million for Q1 2018 and $3.7 million for Q2 2018, from the Standard Products Group to the Foundry Services Group. As a result, the historical financial results below are discussed both on an as reported and as adjusted basis for comparative purposes.

Foundry Services Group revenue in the second quarter was $80.9 million, down 0.8% from reported revenue of $81.5 million from the second quarter of 2017, and up 4.5% from the first quarter of 2018 on an as reported basis; and down 7.6% from the second quarter of 2017, and down 3.2% from the first quarter of 2017 on an as adjusted basis.

Following the strategic realignment and portfolio optimization discussed above, Standard Products Group revenue in the second quarter of 2018 was $118.7 million, up 39.6% year-over-year on a reported basis and up 34.4% sequentially; and up 50.2% year-over-year on an as adjusted basis. The improved results in the Standard Products Group reflected a sharp improvement in mobile OLED driver revenue in connection with the introduction of new OLED smartphones from China manufacturers, and higher demand for premium Power products.  

Total Gross Profit and Gross Profit Margin
Total gross profit in the second quarter of 2018 was $53.9 million or 27.0% as a percentage of sales as compared with gross profit of $46.7 million or 28.0% gross profit margin in the second quarter of 2017, and $44.6 million or 26.9% gross profit margin for the first quarter of 2018.

Segment Gross Profit Margin
Foundry Services Group gross profit margin was 27.4% in the second quarter of 2018 as compared with, on an as reported basis, 28.7% in the second quarter of 2017 and 26.7% in the first quarter of 2018. The Foundry Services Group gross profit margin was, on an as adjusted basis, 28.2% in the second quarter of 2017 and 27.9% in the first quarter of 2017. The Standard Products Group gross profit margin was 26.6% in the second quarter of 2018 as compared with, on an as reported basis, 27.2% in the second quarter of 2017, and 27.2% in the first quarter of 2018. The Standard Products Group gross profit margin was, on an adjusted basis, 27.7% in the second quarter of 2017, and 23.3% in the first quarter of 2017.

Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating income, on a GAAP basis, for the second quarter was $13.9 million as compared with $9.7 million in the second quarter of 2017 and $7.4 million in the first quarter of 2018.

Net loss on a GAAP basis, for the second quarter was $21.5 million or $0.62 per basic and diluted share as compared with a net loss of $8.1 million or $0.24 per basic and diluted share in the second quarter of 2017, and net income of $2.8 million or $0.08 per basic and diluted share in the first quarter of 2018. The net loss in the second quarter of 2018 was attributable primarily to a non-cash foreign exchange loss on the Company's intercompany loans.

Adjusted Net Income, a non-GAAP financial measure, for the second quarter of 2018 totaled $8.9 million or $0.26 per basic share and $0.23 per diluted share, as compared with Adjusted Net Income of $7.8 million or $0.23 per basic share and $0.21 per diluted share in the second quarter of 2017, and compared with Adjusted Net Income of $1.4 million or $0.04 per basic and diluted share in the first quarter of 2018. 

Adjusted EBITDA, a non-GAAP financial measure, in the second quarter was $23.5 million or 11.8% of revenue, as compared with Adjusted EBITDA of $20.3 million or 12.2% of revenue in the second quarter of 2017, and compared with Adjusted EBITDA of $15.5 million or 9.3% of revenue in the first quarter of 2018.

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 $131.7 million at the end of the second quarter, up from $123.1 million at the end of the first quarter of 2018.  

Note: The following table sets forth information relating to our operating segments (in thousands).  The historical amounts below are presented both on an as reported and as adjusted basis to show the impact of the strategic realignment and transfer of a portion of the non-OLED Display business from the Standard Products Group to the Foundry Services Group beginning in the first quarter of 2018:



Three Months Ended




June 30,

2018

 



June 30,

2017

As Reported



June 30,

2017

As Adjusted


Net Sales













Foundry Services Group


$

80,907



$

81,528



$

87,549


Standard Products Group













Display Solutions



78,712




49,753




43,732


Power Solutions



40,028




35,314




35,314















Total Standard Products Group


$

118,740



$

85,067



$

79,046


All other



38




90




90















Total net sales


$

199,685



$

166,685



$

166,685















 



Six Months Ended




June 30,

2018

 



June 30,

2017

As Reported



June 30,

2017

As Adjusted


Net Sales













Foundry Services Group


$

158,336



$

159,056



$

171,091


Standard Products Group













Display Solutions



128,408




98,632




86,597


Power Solutions



78,695




70,594




70,594















Total Standard Products Group


$

207,103



$

169,226



$

157,191


All other



65




113




113















Total net sales


$

365,504



$

328,395



$

328,395


 





























Three Months Ended





June 30, 2018

 



June 30, 2017

As Reported



June 30, 2017

As Adjusted





Amount



% of

Net Sales



Amount



% of

Net Sales



Amount



% of

Net Sales



Gross Profit


























Foundry Services Group


$

22,185




27.4

%


$

23,433




28.7

%


$

24,670




28.2

%


Standard Products Group



31,631




26.6




23,139




27.2




21,902




27.7



All other



38




100.0




90




100.0




90




100.0





























Total gross profit


$

53,854




27.0

%


$

46,662




28.0

%


$

46,662




28.0

%
























































Six Months Ended





June 30, 2018

 



June 30, 2017

As Reported



June 30, 2017

As Adjusted





Amount



% of

Net Sales



Amount



% of

Net Sales



Amount



% of

Net Sales



Gross Profit


























Foundry Services Group


$

42,849




27.1

%


$

45,520




28.6

%


$

47,982




28.0

%


Standard Products Group



55,670




26.9




42,599




25.2




40,137




25.5



All other



(84)




(129.2)





113




100.0




113




100.0





























Total gross profit


$

98,435




26.9

%


$

88,232




26.9

%


$

88,232




26.9

%

























































 

Second Quarter 2018 and Recent Company Highlights
MagnaChip:

Third Quarter 2018 Business Outlook  
For the third quarter of 2018, MagnaChip anticipates:

  • Revenue to be in the range of $200 million to $210 million, up sequentially about 2.7% at the mid-point of the projected range. The guidance for the third quarter compares with higher-than- expected revenue of $199.7 million in the second quarter of 2018 and $176.7 million in the third quarter of 2017.
  • Gross profit margin to be in the range of 26% to 28%. This compares to 27.0% in the second quarter of 2018, and 28.5% in the third quarter of 2017.  

Second Quarter 2018 Conference Call
The conference call will be webcast live today at 5 p.m. ET and 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 8082947. 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 8082947.

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 3,100 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 third 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 22, 2018 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: 

In Korea:   

Bruce Entin             

Chankeun Park           

Investor Relations           

Director, Public Relations     

Tel. +1-408-625-1262          

Tel. +82-2-6903-5223        

Investor.relations@magnachip.com  

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


June 30,
2018


March 31,
2018


June 30,
2017

Net sales               

$     199,685


$     165,819


$     166,685

Cost of sales        

145,831


121,238


120,023

Gross profit          

53,854


44,581


46,662

Gross profit %     

27.0 %


26.9 %


28.0 %

Operating expenses            






Selling, general and administrative expenses     

18,935


17,622


17,730

Research and development expenses  

21,005


19,580


16,928

Early termination charges      



2,262

Total operating expenses             

39,940


37,202


36,920

Operating income

13,914


7,379


9,742

Interest expense       

(5,489 )


(5,463 )


(5,441 )

Foreign currency gain (loss), net            

(27,449 )


1,318


(11,905 )

Other income (expense), net  

(960 )


519


83

Income (loss) before income taxes 

(19,984 )


3,753


(7,521 )

Income tax expenses         

1,521


990


538

Net income (loss)

$      (21,505 )


$          2,763


$        (8,059 )

Earnings (loss) per common share—              






Basic          

$           (0.62 )


$            0.08


$           (0.24 )

Diluted       

$           (0.62 )


$            0.08


$           (0.24 )

Weighted average number of shares—          






Basic          

34,420,654


34,253,111


33,952,574

Diluted       

34,420,654


35,154,693


33,952,574

 

 

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




June 30,

2018



March 31,

2018



June 30,

2017


Net income (loss)


$

(21,505)



$

2,763



$

(8,059)


Adjustments:













Interest expense, net



5,059




5,123




5,187


Income tax expenses



1,521




990




538


Depreciation and amortization



8,012




7,958




6,773


EBITDA



(6,913)




16,834




4,439


Early termination charges









2,262


Equity-based compensation expense



1,341




665




349


Foreign currency loss (gain), net



27,449




(1,318)




11,905


Derivative valuation loss, net



1,632




76




467


Restatement related expenses (gain), net






(765)




900


Adjusted EBITDA


$

23,509



$

15,492



$

20,322


Net income (loss)


$

(21,505)



$

2,763



$

(8,059)


Adjustments:













Early termination charges









2,262


Equity-based compensation expense



1,341




665




349


Foreign currency loss (gain), net



27,449




(1,318)




11,905


Derivative valuation loss, net



1,632




76




467


Restatement related expenses (gain), net






(765)




900


Adjusted Net Income


$

8,917



$

1,421



$

7,824


Adjusted Net Income per common share:













– Basic


$

0.26



$

0.04



$

0.23


– Diluted


$

0.23



$

0.04



$

0.21


Weighted average number of shares – Basic



34,420,654




34,253,111




33,952,574


Weighted average number of shares – Diluted



45,735,521




35,154,693




44,974,577















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) early termination charges, (ii) equity-based compensation expense, (iii) foreign currency loss (gain), net, (iv) derivative valuation loss, net and (v) restatement related expenses (gain), net. 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 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) early termination charges, (ii) equity-based compensation expense, (iii) foreign currency loss (gain), net, (iv) derivative valuation loss, net and (v) restatement related expenses (gain), net.

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share data)

(Unaudited)



June 30,
2018


December 31,
2017


(In thousands of US dollars,
except share data)

Assets




Current assets      




Cash and cash equivalents    

$  131,682


$      128,575

Accounts receivable, net        

85,570


92,026

Unbilled accounts receivable 

35,857


Inventories, net        

57,456


73,073

Other receivables     

8,468


4,292

Prepaid expenses     

10,227


9,250

Hedge collateral       

10,100


7,600

Other current assets 

11,023


15,444

Total current assets       

350,383


330,260

Property, plant and equipment, net

197,034


205,903

Intangible assets, net         

3,966


4,061

Long-term prepaid expenses            

13,858


12,791

Other non-current assets   

5,851


5,774

Total assets    

$  571,092


$      558,789

Liabilities and Stockholders' Equity




Current liabilities 




Accounts payable    

$     60,742


$        65,940

Other accounts payable         

11,123


10,261

Accrued expenses    

49,506


51,746

Deferred revenue     

13,440


8,335

Other current liabilities            

5,149


1,860

Total current liabilities  

139,960


138,142

Long-term borrowings, net

304,489


303,416

Accrued severance benefits, net      

145,542


148,905

Other non-current liabilities              

14,894


7,963

Total liabilities

604,885


598,426

Stockholders' equity          




Common stock, $0.01 par value, 150,000,000 shares authorized, 42,877,395 shares issued and 
     34,483,754 outstanding at June 30, 2018 and 42,563,808 shares issued and 34,189,599 outstanding 
     at December 31, 2017 

429


426

Additional paid-in capital      

139,502


136,259

Accumulated deficit

(51,147 )


(40,889 )

Treasury stock, 8,393,641 shares at June 30, 2018 and 8,374,209 shares at December 31, 2017

(102,518 )


(102,319 )

Accumulated other comprehensive loss              

(20,059 )


(33,114 )

Total stockholders' deficit           

(33,793 )


(39,637)

Total liabilities and stockholders' equity  

$  571,092


$      558,789

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(Unaudited)




Three Months

Ended



Six Months

Ended




June 30,

2018



June 30,

2018



June 30,

2017


Cash flows from operating activities













Net income (loss)


$

(21,505)



$

(18,742)



$

35,679


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













Depreciation and amortization



8,012




15,970




13,531


Provision for severance benefits



4,653




9,165




10,776


Amortization of debt issuance costs and original issue discount



541




1,073




950


Loss (gain) on foreign currency, net



34,051




32,369




(35,813)


Restructuring gain and other









(17,010)


Stock-based compensation



1,341




2,810




1,179


Other



1,390




1,053




220


Changes in operating assets and liabilities













Accounts receivable, net



2,190




5,305




(9,730)


Unbilled accounts receivable



1,526




887





Inventories, net



(3,647)




(16,797)




2,646


Other receivables



(762)




(4,508)




2,598


Other current assets



3,288




2,253




1,135


Accounts payable



(7,641)




(4,473)




(1,919)


Other accounts payable



(2,470)




(5,229)




(7,790)


Accrued expenses



5,694




(1,435)




(10,776)


Other current liabilities



1,330




760




(436)


Deferred revenue



604




5,413




(265)


Other non-current liabilities



498




1,116




(268)


Payment of severance benefits



(3,507)




(5,754)




(18,082)


Other



87




516




(107)


Net cash provided by (used in) operating activities



25,673




21,752




(33,482)


Cash flows from investing activities













Proceeds from disposal of plant, property and equipment



13




13




1,125


Purchase of plant, property and equipment



(4,103)




(11,432)




(10,807)


Payment for property related to water treatment facility arrangement



(4,283)




(4,283)





Payment for intellectual property registration



(165)




(574)




(566)


Proceeds from settlement of hedge collateral






4,863




6,781


Payment of hedge collateral



(7,490)




(7,490)




(10,036)


Collection of guarantee deposits



645




659




1,400


Payment of guarantee deposits









(41)


Other



(2)




(38)




22


Net cash used in investing activities



(15,385)




(18,282)




(12,122)


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



293




435




2,525


Acquisition of treasury stock









(11,401)


Proceeds from property related to water treatment facility arrangement



4,283




4,283





Net cash provided by financing activities



4,576




4,718




71,472


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



(6,318)




(5,081)




4,049


Net increase in cash, cash equivalents and restricted cash



8,546




3,107




29,917


Cash, cash equivalents and restricted cash













Beginning of the period



123,136




128,575




101,606


End of the period


$

131,682



$

131,682



$

131,523


 

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SOURCE MagnaChip Semiconductor Corporation