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MagnaChip Reports Third Quarter 2018 Financial Results

-- Revenue up 16.6% Year-over-Year; Operating Income, Adjusted EBITDA Highest in Six Years --

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

Q3 2018 Summary

  • Revenue of $206 million within the guidance range of $200-210 million, and highest since fourth quarter of 2012; revenue increased 16.6% Year-over-Year (YoY) as Display and Power showed gains.  
  • Standard Products Group revenue grew 26.8% YoY; gross margin of 28.8% sets record
  • OLED display driver revenue of $58.3 million up 232.2% YoY; OLED revenue at nearly $155 million Year-to-Date (YTD) and poised to set revenue record in 2018
  • Highest-ever Power standard products revenue; increased 14% YoY
  • Total gross profit margin of 27.1% in line with 26-28% guidance range, and down 1.4 percentage points YoY; gross profit dollars of $55.7 million increased 10.8% YoY
  • Operating income of $18.3 million, or 8.9% of revenue, increased 17.9% YoY
  • Adjusted EBITDA of $27.9 million, or 13.5% of revenue, increased 12.8% YoY

CEO Comments from YJ Kim:
"Revenue increased 16.6% from the same quarter a year ago, and was the highest since the fourth quarter of 2012. Within the Standard Products Group, the Power products business generated record revenue of $44.5 million and achieved double-digit growth year-over-year as well as sequentially. The OLED display driver business, which represented 75% of the total Display business, grew three-fold to $58.3 million. With OLED revenue of nearly $155 million through the first three quarters of 2018, we are on track to surpass the previous record of $161 million achieved in 2016. During Q3, six smartphones with our OLED drivers were launched, as anticipated, and we continued to win several new designs for smartphones in Asia."

CFO Comments from Jonathan Kim:
"Key profitability metrics continued to improve in Q3. Higher revenue contributed to a year-over-year increase in gross profit dollars, operating income and Adjusted EBITDA. Gross profit dollars of $55.7 million increased 10.8% year-over-year, operating income of $18.3 million increased 17.9% and Adjusted EBITDA of $27.9 million rose 12.8%. Total revenue, operating income and Adjusted EBITDA all were at their highest levels since the fourth quarter of 2012. Total gross margin of 27.1% was in line with the previous guidance of 26-28% despite headwinds from higher wafer prices and lower fab utilization. As previously stated, the Company remains fully committed to improving profitability over time."

Third Quarter Financial Review
Total Revenue
Total revenue in the third quarter of 2018 was $206.0 million, up 16.6% as compared to reported revenue of $176.7 million from the third quarter of 2017, and up 3.2% from $199.7 million in the second 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 $11.5 million for Q3 2018 and $19.6 million YTD, 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 third quarter was $83.9 million, up 4.3% from, on an as reported basis, $80.4 million in the third quarter of 2017, and up 3.7% from the second quarter of 2018; and on an as adjusted basis, down 5.8% from the third quarter of 2017, and down 4.2% from the second quarter of 2017.

Following the strategic realignment and portfolio optimization discussed above, Standard Products Group revenue in the third quarter of 2018 was $122.0 million, up 26.8% year-over-year on an as reported basis and up 2.8% sequentially; and on an as adjusted basis, up 39.3% year-over-year, and up 54.4% from the second quarter of 2017. The improved results in the Standard Products Group reflected continued higher demand for premium Power products as well as continued strong demand for mobile OLED drivers, primarily from China manufacturers.  

Total Gross Profit and Gross Profit Margin
Total gross profit in the third quarter of 2018 was $55.7 million or 27.1% as a percentage of sales as compared with gross profit of $50.3 million or 28.5% gross profit margin in the third quarter of 2017, and $53.9 million or 27.0% gross profit margin for the second quarter of 2018.

Segment Gross Profit Margin
Foundry Services Group gross profit margin was 24.4% in the third quarter of 2018 as compared with 30.3% on an as reported basis in the third quarter of 2017 and 27.4% in the second quarter of 2018. The Foundry Services Group gross profit margin was, on an as adjusted basis, 29.6% in the third quarter of 2017 and 28.2% in the second quarter of 2017. The Standard Products Group gross profit margin was 28.8% in the third quarter of 2018 as compared with, on an as reported basis, 26.9% in the third quarter of 2017, and 26.6% in the second quarter of 2018. The Standard Products Group gross profit margin was, on an adjusted basis, 27.3% in the third quarter of 2017, and 27.7% in the second quarter of 2017.

Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating income, on a GAAP basis, for the third quarter was $18.3 million as compared with $15.5 million in the third quarter of 2017 and $13.9 million in the second quarter of 2018.

Net income on a GAAP basis, for the third quarter was $17.2 million or $0.50 per basic share and $0.41 per diluted share, as 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, and a net loss of $21.5 million or $0.62 cents per basic share and diluted share in the second quarter of 2018. The net income in the third quarter was attributable primarily to a non-cash foreign exchange gain on the Company's intercompany loans.

Adjusted Net Income, a non-GAAP financial measure, for the third quarter of 2018 totaled $13.3 million or $0.38 per basic share and $0.32 per diluted share, as 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, and compared with Adjusted Net Income of $8.9 million or $0.26 per basic share and $0.23 per diluted share in the second quarter of 2018. 

Adjusted EBITDA, a non-GAAP financial measure, in the third quarter was $27.9 million or 13.5% of revenue, as compared with Adjusted EBITDA of $24.7 million or 14.0% of revenue in the third quarter of 2017, and compared with Adjusted EBITDA of $23.5 million or 11.8% of revenue in the second 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 $133.5 million at the end of the third quarter, up from $131.7 million at the end of the second 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




September 30,

2018



September 30,

2017

As Reported



September 30,

2017

As Adjusted


Net Sales













Foundry Services Group


$

83,862



$

80,404



$

89,004


Standard Products Group













Display Solutions



77,578




57,236




48,636


Power Solutions



44,458




39,001




39,001















Total Standard Products Group


$

122,036



$

96,237



$

87,637


All other



102




56




56















Total net sales


$

206,000



$

176,697



$

176,697

















Nine Months Ended




September 30,

2018



September 30,

2017

As Reported



September 30,

2017

As Adjusted


Net Sales













Foundry Services Group


$

242,198



$

239,460



$

260,095


Standard Products Group













Display Solutions



205,986




155,868




135,233


Power Solutions



123,153




109,595




109,595















Total Standard Products Group


$

329,139



$

265,463



$

244,828


All other



167




169




169















Total net sales


$

571,504



$

505,092



$

505,092


 





























Three Months Ended





September 30, 2018



September 30, 2017

As Reported



September 30, 2017

As Adjusted





Amount



% of

Net Sales



Amount



% of

Net Sales



Amount



% of

Net Sales



Gross Profit


























Foundry Services Group


$

20,443




24.4

%


$

24,374




30.3

%


$

26,344




29.6

%


Standard Products Group



35,204




28.8




25,880




26.9




23,910




27.3



All other



102




100.0




56




100.0




56




100.0



Total gross profit


$

55,749




27.1

%


$

50,310




28.5

%


$

50,310




28.5

%
























































Nine Months Ended





September 30, 2018



September 30, 2017

As Reported



September 30, 2017

As Adjusted





Amount



% of

Net Sales



Amount



% of

Net Sales



Amount



% of

Net Sales



Gross Profit


























Foundry Services Group


$

63,292




26.1

%


$

69,894




29.2

%


$

74,326




28.6

%


Standard Products Group



90,874




27.6




68,479




25.8




64,047




26.2



All other



18




10.8




169




100.0




169




100.0



Total gross profit


$

154,184




27.0

%


$

138,542




27.4

%


$

138,542




27.4

%

























































 

Third Quarter 2018 and Recent Company Highlights

MagnaChip:

Fourth Quarter 2018 Business Outlook
For the fourth quarter of 2018, MagnaChip anticipates:

  • Revenue in this seasonally soft quarter to be in the range of $174 million to $184 million, down sequentially about 13.1% at the mid-point of the projected range. The guidance for the fourth quarter compares with revenue of $206 million in the third quarter of 2018, and $174.6 million in the fourth quarter of 2017. The revenue guidance reflects an inventory correction from certain foundry customers, consistent with current macro trends.
  • Gross profit margin to be in the range of 25% to 27%. This compares to 27.1% in the third quarter of 2018, and 28.3% in the fourth quarter of 2017.

Third Quarter 2018 Conference Call
The conference call will be webcast live today at 5 p.m. EDT and also will be 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 2362749. 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 2362749.

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 more than 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 fourth 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:

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,
2018


June 30,
2018


September 30,
2017

Net sales               

$     206,000


$     199,685


$     176,697

Cost of sales        

150,251


145,831


126,387







Gross profit          

55,749


53,854


50,310







Gross profit %     

27.1 %


27.0 %


28.5 %

Operating expenses            






Selling, general and administrative expenses     

18,566


18,935


17,266

Research and development expenses  

18,918


21,005


17,554







Total operating expenses             

37,484


39,940


34,820







Operating income

18,265


13,914


15,490







Interest expense       

(5,587 )


(5,489 )


(5,485 )

Foreign currency gain (loss), net            

6,002


(27,449 )


(3,662 )

Other income (expense), net  

150


(960 )


198







Income (loss) before income taxes 

18,830


(19,984 )


6,541

Income tax expenses         

1,608


1,521


937







Net income (loss)

$       17,222


$      (21,505 )


$          5,604







Earnings (loss) per common share—              






Basic          

$            0.50


$           (0.62 )


$            0.16

Diluted       

$            0.41


$           (0.62 )


$            0.15

Weighted average number of shares—          






Basic          

34,573,377


34,420,654


34,103,029

Diluted       

46,021,610


34,420,654


45,542,418









 

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,

2018



June 30,

2018



September 30,

2017

Net income (loss)


$

17,222



$

(21,505)



$

5,604

Adjustments:












Interest expense, net



5,055




5,059




5,193

Income tax expenses



1,608




1,521




937

Depreciation and amortization



7,913




8,012




7,158

EBITDA



31,798




(6,912)




18,892

Equity-based compensation expense



1,083




1,341




435

Foreign currency loss (gain), net



(6,001)




27,449




3,662

Derivative valuation loss, net



518




1,632




370

Restatement related expenses, net









1,343

Other



473







Adjusted EBITDA


$

27,871



$

23,509



$

24,702

Net income (loss)


$

17,222



$

(21,505)



$

5,604

Adjustments:












Equity-based compensation expense



1,083




1,341




435

Foreign currency loss (gain), net



(6,001)




27,449




3,662

Derivative valuation loss, net



518




1,632




370

Restatement related expenses, net









1,343

Other



473







Adjusted Net Income


$

13,295



$

8,917



$

11,414

Adjusted Net Income per common share:












– Basic


$

0.38



$

0.26



$

0.33

– Diluted


$

0.32



$

0.23



$

0.28

Weighted average number of shares – Basic



34,573,377




34,420,654




34,103,029

Weighted average number of shares – Diluted



46,021,610




45,735,521




45,542,418



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) equity-based compensation expense, (ii) foreign currency loss (gain), net, (iii) derivative valuation loss, net, (iv) restatement related expenses (gain) and (v) 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 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, adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss (gain), net, (iii) derivative valuation loss, net, (iv) restatement related expenses (gain) and (v) other.

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share data)

(Unaudited)




September 30,
2018


December 31,
2017


(In thousands of US dollars,
except share data)

Assets




Current assets      




Cash and cash equivalents    

$  133,482


$      128,575

Accounts receivable, net        

103,221


92,026

Unbilled accounts receivable 

35,837


Inventories, net        

71,532


73,073

Other receivables     

7,510


4,292

Prepaid expenses     

15,481


9,250

Hedge collateral       

6,970


7,600

Other current assets 

10,711


15,444





Total current assets       

384,744


330,260





Property, plant and equipment, net

200,393


205,903

Intangible assets, net         

3,995


4,061

Long-term prepaid expenses            

17,744


12,791

Other non-current assets   

5,830


5,774





Total assets    

$  612,706


$      558,789





Liabilities and Stockholders' Equity




Current liabilities 




Accounts payable    

$     81,570


$        65,940

Other accounts payable         

16,445


10,261

Accrued expenses    

45,641


51,746

Deferred revenue     

11,682


8,335

Other current liabilities            

4,772


1,860





Total current liabilities  

160,110


138,142





Long-term borrowings, net

305,039


303,416

Accrued severance benefits, net      

148,148


148,905

Other non-current liabilities              

16,861


7,963





Total liabilities

630,158


598,426





Stockholders' equity          




Common stock, $0.01 par value,
 
150,000,000 shares authorized,
 42,994,105 shares issued and 
 34,600,464 outstanding at September 30,
 2018 and 42,563,808 shares issued and
 34,189,599 outstanding at December 31, 2017           

430


426

Additional paid-in capital      

141,261


136,259

Accumulated deficit

(33,925 )


(40,889 )

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

(102,518 )


(102,319 )

Accumulated other comprehensive loss              

(22,700 )


(33,114 )





Total stockholders' deficit           

(17,452 )


(39,637 )





Total liabilities and stockholders' equity  

$  612,706


$      558,789

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(Unaudited)




Three Months

Ended


Nine Months

Ended



September 30,

2018


September 30,

2018


September 30,

2017

Cash flows from operating activities










Net income (loss)


$

17,222


$

(1,520)


$

41,283

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










Depreciation and amortization



7,913



23,883



20,689

Provision for severance benefits



5,521



14,686



15,354

Amortization of debt issuance costs
 and original
 issue discount



550



1,623



1,464

Loss (gain) on foreign currency, net



(5,438)



26,931



(30,615)

Restructuring gain and other







(17,010)

Stock-based compensation



1,083



3,893



1,614

Other



(2,017)



(964)



459

Changes in operating assets and liabilities










Accounts receivable, net



(19,587)



(14,282)



(20,241)

Unbilled accounts receivable



300



1,187



Inventories, net



(13,499)



(30,296)



3,281

Other receivables



1,839



(2,669)



3,541

Other current assets



261



2,514



2,897

Accounts payable



21,887



17,414



178

Other accounts payable



(3,582)



(8,811)



(8,378)

Accrued expenses



(3,935)



(5,370)



(16,459)

Other current liabilities



773



1,533



(822)

Deferred revenue



(1,853)



3,560



(2,243)

Other non-current liabilities



(81)



1,035



283

Payment of severance benefits



(3,250)



(9,004)



(19,578)

Other



(845)



(329)



(11)

Net cash provided by (used in)
 operating activities



3,262



25,014



(24,314)

Cash flows from investing activities










Proceeds from settlement of hedge collateral



6,427



11,290



8,556

Payment of hedge collateral



(3,475)



(10,965)



(14,839)

Proceeds from disposal of plant, property and equipment



1,672



1,685



1,128

Purchase of plant, property and equipment



(7,443)



(18,875)



(19,269)

Payment for property related to water treatment
 facility arrangement





(4,283)



Payment for intellectual property registration



(202)



(776)



(977)

Collection of guarantee deposits



135



794



1,426

Payment of guarantee deposits



(89)



(89)



(41)

Other





(38)



24

Net cash used in investing activities



(2,975)



(21,257)



(23,992)

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



678



1,113



3,391

Acquisition of treasury stock



(199)



(199)



(11,401)

Proceeds from property related to water treatment
  facility arrangement





4,283



Repayment of financing related to water treatment
  facility arrangement



(73)



(73)



Net cash provided by financing activities



406



5,124



72,338

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



1,107



(3,974)



2,787

Net increase in cash, cash equivalents
 and restricted cash



1,800



4,907



26,819

Cash, cash equivalents and restricted cash










Beginning of the period



131,682



128,575



101,606

End of the period



133,482



133,482



128,425

 

 

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SOURCE MagnaChip Semiconductor Corporation