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MagnaChip Reports Third Quarter 2017 Financial Results

Q3 News Summary
- Revenue of $176.7 million at the higher end of guidance range despite power outage in August
- 28.5% gross profit margin at highest level in more than 4 years
- Foundry gross profit margin increases to 30.3%; fab utilization remains above 90%
- Power Standard Products revenue of $39.0 million at highest level since Q4 2013
- OLED Display Driver IC business resumed growth; OLED revenue increased 15.6% sequentially

SEOUL, South Korea and SAN JOSE, Calif., Nov. 1, 2017 /PRNewswire/ -- MagnaChip Semiconductor Corporation, (NYSE: MX), today announced revenue for the third quarter of $176.7 million, gross profit margin of 28.5%, net income of $5.6 million and Adjusted EBITDA of $24.7 million or 14.0% of revenue. Gross profit margin and Adjusted EBITDA both were at the highest quarterly levels in more than four years.

CEO Commentary: "Revenue in the third quarter came in at the higher end of the previous guidance range despite a power outage in August that temporarily halted production at our larger fab and caused wafers-in-process to be scrapped," said YJ Kim, Chief Executive Officer. "We recovered from that incident in a timely manner, and our standard product business lines recorded double digit-sequential revenue growth in the third quarter. Foundry revenue was generally flattish quarter over quarter, but gross profit margin for the Foundry business increased 1.6 percentage points to 30.3%.  The Company continued to benefit from an improving product mix and a strong product pipeline."   

On OLED: "We had forecasted earlier in the year that our OLED business would likely bottom in the second quarter of 2017 and resume revenue growth in the third quarter. I'm pleased to report that revenue from OLED display driver ICs increased 15.6% sequentially in the third quarter. Based on our current visibility and insight about multiple new smartphone introductions, we currently anticipate that we have the potential to generate OLED revenue that will exceed 50% growth or clearly exceed $100 million in 2018."

CFO Commentary: "Our improved financial results demonstrate the success of business strategies and initiatives we've implemented, and reflect the decisive steps we've taken to reduce our cost structure, streamline operations and strengthen the balance sheet," said Jonathan Kim, Chief Financial Officer. "We remain fully committed to focus on the overall profitability of MagnaChip and to invest in future initiatives to fuel profitable revenue growth."  

Third Quarter Financial Highlights

Total Revenue
Total revenue for the third quarter of 2017 was $176.7 million, down 8.1% from the third quarter a year ago, and up 6.0% as compared to $166.7 million for the second quarter of 2017. Total revenue in the third quarter was at the higher end of our previous guidance range of $172-178 million.

Segment Revenue
Foundry revenue in the third quarter was $80.4 million, up 8.9% year-over year and down 1.4% from $81.5 million in the prior quarter. Standard Products Group revenue in the third quarter was $96.2 million, down 18.7% year-over- year, and an increase of 13.1% sequentially, which primarily reflected changes in the mobile OLED business in both periods.   

Total Gross Profit
Total gross profit in the third quarter of 2017 was $50.3 million or 28.5% million as compared with gross profit of $39.1 million or 20.4% in the third quarter of 2016 and $46.7 million or 28.0% gross profit margin for the second quarter of 2017. Gross profit margin in the third quarter was at the highest level in more than four years and primarily reflected improved product mix, reduction in manufacturing headcount and high fab utilization.    

Segment Gross Profit Margin
Foundry Services Group gross profit margin was 30.3% in the third quarter of 2017 as compared with 23.5% in the third quarter of 2016 and 28.7% in the second quarter of 2017. The Standard Products Group gross profit margin was 26.9% in the third quarter of 2017 as compared with 18.3% in the third quarter of 2016 and 27.2% in the second quarter of 2017.

Net Income, Adjusted Net Income, Adjusted EBITDA
Net income, on a GAAP basis, for the third quarter was $5.6 million or $0.16 per basic share and $0.15 per diluted share, as compared with net income of $29.9 million or $0.86 per basic share and $0.85 per diluted share in the third quarter of 2016, and compared with a net loss of $8.1 million or $0.24 per basic share in the second quarter of 2017.

Adjusted Net Income, a non-GAAP financial measure, for the third quarter of 2017, totaled $11.4 million or $0.33 per basic share and $0.28 per diluted share, as compared with Adjusted Net Loss of $1.3 million or $0.04 per basic share in the third quarter of 2016, and 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. 

Adjusted EBITDA, a non-GAAP financial measure, in the third quarter was $24.7 million or 14.0% of revenue, as compared with Adjusted EBITDA of $10.0 million or 5.2% of revenue in the third quarter of 2016, and compared with Adjusted EBITDA of $20.3 million or 12.2% of revenue in the second 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 $128.4 million at the end of the third quarter, a decrease of $3.1 million from $131.5 million at the end of the second quarter of 2017.   

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






























Three Months Ended



Nine Months Ended




September 30,

2017



September 30,

2016



September 30,

2017



September 30,

2016


Net Sales













Foundry Services Group


$

80,404



$

73,863



$

239,460



$

196,152


Standard Products Group













Display Solutions



57,236




84,706




155,868




217,171


Power Solutions



39,001




33,619




109,595




93,750



















Total Standard Products Group



96,237




118,325




265,463




310,921


All other



56




108




169




434



















Total net sales                                          


$

176,697



$

192,296



$

505,092



$

507,507



















 




















Three Months Ended

September 30, 2017



Three Months Ended

September 30, 2016




Amount



% of

Net Sales



Amount



% of

Net Sales


Gross Profit













Foundry Services Group


$

24,374




30.3%



$

17,340




23.5%


Standard Products Group



25,880




26.9




21,691




18.3


All other



56




100.0




108




100.0



















Total gross profit                                                                  


$

50,310




28.5%



$

39,139




20.4%
























Nine Months Ended

September 30, 2017



Nine Months Ended

September 30, 2016




Amount



% of

Net Sales



Amount



% of

Net Sales


Gross Profit













Foundry Services Group


$

69,894




29.2%



$

45,820




23.4%


Standard Products Group



68,479




25.8




64,836




20.9


All other



169




100.0




(519)




(119.6)



















Total gross profit


$

138,542




27.4%



$

110,137




21.7%




















Third Quarter and Recent Company Highlights
MagnaChip:

  • Was selected as the foundry partner by ELAN Microelectronics to manufacture the world's first fingerprint sensor IC-based smartcards. The smartcard will be manufactured utilizing MagnaChip's 0.35um mixed-signal thick IMD manufacturing process.
  • Had its 6V slim mixed signal process qualified for various consumer-related applications such as home audio systems, cameras and electronic chargers.
  • Developed 150fs RonCoff in 0.13um RFSOI technology.
  • Hosted the second Foundry Technology Symposium in Hsinchu, Taiwan. More than 120 fabless, IDMs and other semiconductor companies attended.

Fourth Quarter Business Outlook
For the fourth quarter of 2017, MagnaChip anticipates:

  • Revenue to be in the range of $171million to $177 million, flattish or down sequentially 0.6% at the mid-point of the projected range, due to typical seasonal factors. The guidance for the fourth quarter compares with revenue of $176.7 million in the third quarter of 2017 and $180.5 million in the fourth quarter of 2016.
  • Gross profit margin to be in the range of 27% to 29%, despite an increase in silicon wafer prices, as compared to 28.5% in the third quarter of 2017, and 25.5% in the fourth quarter of 2016.

Third Quarter Conference Call
MagnaChip will hold a conference call on Nov. 1 at 5 p.m. EDT to discuss the third 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 98596895. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. EDT 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 98596895.

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 3,300 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 fourth 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.

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of US dollars, except share data)



(Unaudited)








Three Months Ended




September 30,

2017



June 30,

2017



September 30,

2016


Net sales


$

176,697



$

166,685



$

192,296


Cost of sales



126,387




120,023




153,157


Gross profit



50,310




46,662




39,139


Gross profit %



28.5%




28.0%




20.4%


Operating expenses













Selling, general and administrative expenses



17,266




17,730




20,082


Research and development expenses



17,554




16,928




18,439


Early termination charges






2,262





Total operating expenses



34,820




36,920




38,521


Operating income



15,490




9,742




618


Interest expense



(5,485)




(5,441)




(4,055)


Foreign currency gain (loss), net



(3,662)




(11,905)




33,174


Other income, net



198




83




887


Income (loss) before income tax expenses



6,541




(7,521)




30,624


Income tax expenses



937




538




758


Net income (loss)


$

5,604



$

(8,059)



$

29,866


Earnings (loss) per common share:













- Basic


$

0.16



$

(0.24)



$

0.86


- Diluted


$

0.15



$

(0.24)



$

0.85


Weighted average number of shares - Basic



34,103,029




33,952,574




34,849,805


Weighted average number of shares - Diluted



45,542,418




33,952,574




35,302,706


 

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,

2017



June 30,

2017



September 30,

2016


Net income (loss)


$

5,604



$

(8,059)



$

29,866


Adjustments:













Interest expense, net



5,193




5,187




3,996


Income tax expenses



937




538




758


Depreciation and amortization



7,158




6,773




6,539


EBITDA



18,892




4,439




41,159


Early termination charges






2,262





Equity-based compensation expense



435




349




1,462


Foreign currency loss (gain), net



3,662




11,905




(33,174)


Derivative valuation loss, net



370




467




32


Restatement related expenses and other



1,343




900




476


Adjusted EBITDA


$

24,702



$

20,322



$

9,955


Net income (loss)


$

5,604



$

(8,059)



$

29,866


Adjustments:













Early termination charges






2,262





Equity-based compensation expense



435




349




1,462


Foreign currency loss (gain), net



3,662




11,905




(33,174)


Derivative valuation loss, net



370




467




32


Restatement related expenses and other



1,343




900




476


Adjusted Net Income (Loss)


$

11,414



$

7,824



$

(1,338)


Adjusted Net Income (Loss) per common share:













– Basic


$

0.33



$

0.23



$

(0.04)


– Diluted


$

0.28



$

0.21



$

(0.04)


Weighted average number of shares – Basic



34,103,029




33,952,574




34,849,805


Weighted average number of shares – Diluted



45,542,418




44,974,577




34,849,805



























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

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share data)

(Unaudited)




September 30,
2017


December 31,
2016

Assets




Current assets




Cash and cash equivalents

$   128,425


$    83,355

Restricted cash


18,251

Accounts receivable, net

86,046


61,775

Inventories, net

57,162


57,048

Other receivables

2,944


5,864

Prepaid expenses

12,654


8,137

Hedge collateral

9,520


3,150

Other current assets

3,641


5,113

Total current assets

300,392


242,693

Property, plant and equipment, net

186,390


179,793

Intangible assets, net

3,748


3,085

Long-term prepaid expenses

13,074


9,556

Deferred income tax assets

274


193

Other non-current assets

4,805


6,632

Total assets

$   508,683


$   441,952

Liabilities and Stockholders' Equity




Current liabilities




Accounts payable

$    54,304


$    51,509

Other accounts payable

12,319


12,272

Accrued expenses

45,324


60,365

Deferred revenue

9,465


11,092

Deposits received

264


16,549

Other current liabilities

2,321


1,654

Total current liabilities

123,997


153,441

Long-term borrowings, net

302,894


221,082

Accrued severance benefits, net

132,288


129,225

Other non-current liabilities

10,632


10,318

Total liabilities

569,811


514,066

Stockholders' equity




Common stock, $0.01 par value, 150,000,000 shares authorized, 42,512,498 shares issued and 34,138,289 outstanding at September 30, 2017 and 41,627,103 shares issued and 35,048,338 outstanding at December 31, 2016

425


416

Additional paid-in capital

135,185


130,189

Accumulated deficit

(84,542 )


(125,825 )

Treasury stock, 8,374,209 shares at September 30, 2017 and 6,578,765 shares at December 31, 2016

(102,319 )


(90,918 )

Accumulated other comprehensive income (loss)

(9,877 )


14,024

Total stockholders' deficit

(61,128 )


(72,114 )

Total liabilities and stockholders' equity

$   508,683


$   441,952

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands of US dollars)


(Unaudited)






Three Months

Ended



Nine Months

Ended




September 30,

2017



September 30,

2017



September 30,

2016


Cash flows from operating activities













Net income


$

5,604



$

41,283



$

20,175


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

activities













Depreciation and amortization



7,158




20,689




18,791


Provision for severance benefits



4,578




15,354




13,609


Amortization of debt issuance costs and original issue discount



514




1,464




527


Loss (gain) on foreign currency, net



5,198




(30,615)




(38,182)


Restructuring gain and other






(17,010)




(7,785)


Stock-based compensation



435




1,614




2,966


Other



239




459




421


Changes in operating assets and liabilities













Accounts receivable, net



(10,511)




(20,241)




977


Inventories, net



635




3,281




(9,412)


Other receivables



943




5,304




20,214


Other current assets



1,748




2,897




510


Accounts payable



2,097




178




7,088


Other accounts payable



(588)




(8,378)




(4,764)


Accrued expenses



(5,683)




(16,459)




(22,087)


Other current liabilities



(386)




(822)




(3,869)


Deferred revenue



(1,978)




(2,243)




2,662


Other non-current liabilities



551




283




(1,412)


Payment of severance benefits



(1,496)




(19,578)




(14,178)


Other



110




35




(182)


Net cash provided by (used in) operating activities



9,168




(22,505)




(13,931)


Cash flows from investing activities













Proceeds from disposal of plant, property and equipment



3




18,753




185


Purchase of plant, property and equipment



(8,462)




(19,269)




(11,345)


Payment for intellectual property registration



(411)




(977)




(754)


Collection of guarantee deposits



26




1,426




476


Proceeds from settlement of hedge collateral



1,775




8,556




6,317


Payment of hedge collateral



(4,803)




(14,839)




(2,494)


Payment of guarantee deposits






(41)




(185)


Other



2




24




9


Net cash used in investing activities



(11,870)




(6,367)




(7,791)


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



866




3,391




1,502


Acquisition of treasury stock






(11,401)





Net cash provided by financing activities



866




72,338




1,502


Effect of exchange rates on cash and cash equivalents



(1,262)




1,604




4,766


Net increase (decrease) in cash and cash equivalents



(3,098)




45,070




(15,454)


Cash and cash equivalents













Beginning of the period



131,523




83,355




90,882


End of the period


$

128,425



$

128,425



$

75,428


 

CONTACTS:



In the United States:

In Korea:


Bruce Entin

Chankeun Park


Investor Relations

Director, Public Relations


Tel. +1-408-625-1262

Tel. +82-43-718-2100


Investor.relations@magnachip.com

chankeun.park@magnachip.com


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SOURCE MagnaChip Semiconductor Corporation