Magnachip Reports Results for First Quarter 2022

May 03, 2022
  • Revenue of $104.1 million was down 5.7% sequentially and down 15.4% year-over-year (YoY). The decrease was mainly due to a 29.3% sequential decline in Display solutions revenue as a result of continued severe supply shortage of 28nm 12" OLED wafers, partially offset by record revenue in our Power solutions business, which was up 11.4% sequentially and 20.0% YoY on strong demand in premium products.
  • Gross profit margin was 37.5%, up 250 basis points from Q4 and up over 960 basis points from Q1 a year ago. The YoY increase was primarily attributable to an improved product mix, combined with an increase in average selling price under a favorable pricing environment.  Sequentially, Q1 benefited by approximately 200 basis points from the timing mismatch of lower cost 12" wafers purchased in a prior period and sold in Q1.
  • GAAP diluted earnings per share (EPS) was $0.20.
  • Non-GAAP diluted EPS was $0.28.

SEOUL, South Korea, May 3, 2022 /PRNewswire/ -- Magnachip Semiconductor Corporation (NYSE: MX) ("Magnachip" or the "Company") today announced financial results for the first quarter of 2022.

Commenting on the results for the first quarter of 2022, YJ Kim, Magnachip's chief executive officer stated, "In Q1, we reported revenue of $104.1 million and non-GAAP EPS of 28 cents, which was an increase of 27% year-over-year bolstered by a strong gross profit margin.  As expected, OLED revenue remained severely impacted by the shortage of 28nm 12-inch wafer supply; however, this impact was somewhat offset by strength in our Power solutions business, which achieved yet another record quarterly revenue." 

YJ Kim continued, "Looking forward, the ongoing lockdowns in China has added new challenges to an already stressed supply chain. Despite the current macro issues, which may limit our near-term growth, our recent design tractions with an existing OLED customer, broadening customer base, and new wafer capacity later this year give us confidence and optimism about our long-term growth." 

Q1 2022 Financial Highlights
































In thousands of U.S. dollars, except share data





GAAP





Q1 2022



Q4 2021



Q/Q change



Q1 2021



Y/Y change


Revenues




























Standard Products Business




























Display Solutions


29,185




41,298




down




29.3

%



58,895




down




50.4

%

Power Solutions


64,825




58,212




up




11.4

%



54,011




up




20.0

%

Transitional Fab 3 foundry services(1)


10,083




10,825




down




6.9

%



10,113




down




0.3

%

Gross Profit Margin


37.5

%



35.0

%



up




2.5

%

pts



27.9

%



up




9.6

%

pts

Operating Income (Loss)(2)


12,879




63,870




down




79.8

%



(2,091)




up




n/a


Net Income (Loss)


9,528




53,611




down




82.2

%



(7,473)




up




n/a


Basic Earnings (Loss) per Common Share


0.21




1.16




down




81.9

%



(0.19)




up




n/a


Diluted Earnings (Loss) per Common Share


0.20




1.12




down




82.1

%



(0.19)




up




n/a








In thousands of U.S. dollars, except share data





Non-GAAP(3)





Q1 2022



Q4 2021



Q/Q change



Q1 2021



Y/Y change


Adjusted Operating Income


14,517




14,421




up




0.7

%



9,971




up




45.6

%

Adjusted EBITDA


18,755




18,144




up




3.4

%



13,504




up




38.9

%

Adjusted Net Income


12,936




14,606




down




11.4

%



9,346




up




38.4

%

Adjusted Earnings per Common Share—Diluted


0.28




0.31




down




9.7

%



0.22




up




27.3

%






























___________

(1)

Following the consummation of the sale of the Foundry Services Group business and Fab 4 in Q3 2020, and for a period of up to three years, we will provide transitional foundry services to the buyer for foundry products manufactured in our fabrication facility located in Gumi ("Transitional Fab 3 Foundry Services"). Management believes that disclosing revenue of Transitional Fab 3 Foundry Services separately from the standard products business allows investors to better understand the results of our core standard products display solutions and power solutions businesses.

(2)

For the three months ended December 31, 2021, operating income of $63.9 million included net gain of $49.4 million that represented $70.2 million income from the recognition of a reverse termination fee, net of professional service fees and expenses of $20.8 million incurred in connection with the contemplated merger transaction.

(3)

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 our 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 (loss) 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.



Q2 2022 Financial Guidance
Our near-term outlook is still being challenged by persisting supply constraints, especially for 28nm 12" wafers.  While actual results may vary, looking into the next quarter, Magnachip currently expects:

  • Revenue to be in the range of $100 million to $105 million, including about $9.5 million of Transitional Fab 3 Foundry Services.
  • Gross profit margin to be in the range of 33% to 35%.

Q1 2022 Earnings Conference Call
Magnachip will host a corresponding conference call at 2:00 p.m. PT / 5:00 p.m. ET on May 3, 2022 to discuss its financial results. The conference call will be webcast live and also is available by dialing toll-free at 1-844-536-5472 in US/Canada. International call-in participants can dial 1-614-999-9318. The conference ID number is 2619959. Participants are encouraged to initiate their calls at least 10 minutes in advance of the start time to ensure a timely connection. A live and archived webcast of the conference call and a copy of earnings release will be accessible from the 'Investors' section of the company's website at www.magnachip.com. A replay of the conference call will be available until 8:00 p.m. ET on May 10, 2022. The replay dial-in numbers are 1-404-537-3406 or toll-free at 1-855-859-2056.  The conference ID number is 2619959.

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 expectations about estimated historical or future operating results and financial performance, outlook and business plans, including second quarter 2022 revenue and gross profit margin expectations, and the impact of the COVID-19 pandemic or the emergence of various variants of the virus, escalated trade tensions and supply constraints on Magnachip's second quarter 2022 and future operating results. 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, among others: the impact of changes in macroeconomic and/or general economic conditions, including those caused by or related to the COVID-19 pandemic or the emergence of various variants of the virus and governmental lock-downs or other measures implemented in response thereto, other outbreaks of disease, the Russia-Ukraine crisis, recessions, economic instability or civil unrest; manufacturing capacity constraints or supply chain disruptions that may impact our ability to deliver our products or affect the price of components, which may lead to an increase in our costs, as well as impacting demand for our products from customers who are similarly affected by such capacity constraints or disruptions; 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 or supply constraints; 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, our customers and our distributors, including those related to the Russia-Ukraine crisis; change or ratification of local or international laws and regulations, including those related to environment, health and safety; public health issues, including the COVID-19 pandemic or the emergence of various variants of the virus; other business interruptions that could disrupt supply or delivery of, or demand for, Magnachip's products, including uncertainties regarding the impacts of the COVID-19 pandemic or the emergence of various variants of the virus that may result in factory closures, reduced workforces, scarcity of raw materials and goods produced in infected areas, as well as reduced consumer and business spending affecting demand for Magnachip's products due to government and private sector mandatory business closures, travel restrictions or the like to prevent the spread of disease; and other risks detailed from time to time in Magnachip's filings with the U.S. Securities and Exchange Commission (the "SEC"), including our Form 10-K filed on February 23, 2022 (including that the impact of the COVID-19 pandemic or the emergence of various variants of the virus, trade tensions and supply constraints may also exacerbate the risks discussed therein) 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.

About Magnachip Semiconductor 
Magnachip is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, computing, industrial and automotive applications. The Company provides a broad range of standard products to customers worldwide. Magnachip, with more than 40 years of operating history, owns a portfolio of approximately 1,150 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.

CONTACTS:
Yujia Zhai
The Blueshirt Group
Tel. (860) 214-0809
Yujia@blueshirtgroup.com

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share data)

(Unaudited)

















Three Months Ended



March 31,

December 31,

March 31,


2022

2021

2021

Revenues:













          Net sales – standard products business


$

94,010



$

99,510



$

112,906


          Net sales – transitional Fab 3 foundry services



10,083




10,825




10,113


               Total revenues



104,093




110,335




123,019


Cost of sales:













          Cost of sales – standard products business



56,080




62,206




79,247


          Cost of sales – transitional Fab 3 foundry services



9,017




9,525




9,390


               Total cost of sales



65,097




71,731




88,637


Gross profit



38,996




38,604




34,382


Gross profit as a percentage of standard products business net sales



40.3

%



37.5

%



29.8

%

Gross profit as a percentage of total revenues



37.5

%



35.0

%



27.9

%

Operating expenses:













          Selling, general and administrative expenses



14,163




13,255




12,634


          Research and development expenses



11,954




12,197




13,423


          Merger-related costs (income), net






(49,369)




9,831


          Other charges, net






(1,349)




585


               Total operating expenses (income)



26,117




(25,266)




36,473


Operating income (loss)



12,879




63,870




(2,091)


          Interest expense



(111)




(132)




(1,041)


          Foreign currency gain (loss), net



(690)




147




(4,671)


          Other income, net



933




947




620


Income (loss) before income tax expense



13,011




64,832




(7,183)


Income tax expense



3,483




11,221




290


Net income (loss)


$

9,528



$

53,611



$

(7,473)


Basic earnings (loss) per common share—


$

0.21



$

1.16



$

(0.19)


Diluted earnings (loss) per common share—


$

0.20



$

1.12



$

(0.19)


Weighted average number of shares—













          Basic



45,603,208




46,369,520




40,292,838


          Diluted



46,693,294




47,691,816




40,292,838


 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

(Unaudited)









      March 31,

      2022

    December 31,

      2021

Assets






Current assets






          Cash and cash equivalents


$  284,921



$  279,547

          Accounts receivable, net


51,208



50,954

          Inventories, net


36,947



39,370

          Other receivables


26,121



25,895

          Prepaid expenses


9,124



7,675

          Hedge collateral


4,060



3,060

          Other current assets


9,262



2,619

               Total current assets


421,643



409,120

Property, plant and equipment, net


102,675



107,882

Operating lease right-of-use assets


3,719



4,275

Intangible assets, net


2,203



2,377

Long-term prepaid expenses


6,771



8,243

Deferred income taxes


40,246



41,095

Other non-current assets


10,608



10,662

               Total assets


$  587,865



$  583,654

Liabilities and Stockholders' Equity






Current liabilities






          Accounts payable


$    37,566



$    37,593

          Other accounts payable


7,707



6,289

          Accrued expenses


20,573



20,071

          Accrued income taxes


9,361



11,823

          Operating lease liabilities


2,223



2,323

          Other current liabilities


6,989



7,382

               Total current liabilities


84,419



85,481

Accrued severance benefits, net


32,572



33,064

Non-current operating lease liabilities


1,496



1,952

Other non-current liabilities


8,216



10,395

               Total liabilities


126,703



130,892

Commitments and contingencies






Stockholders' equity






          Common stock, $0.01 par value, 150,000,000 shares authorized, 56,225,441 shares issued and
               44,894,385 outstanding at March 31, 2022 and 55,905,320 shares issued and 45,659,304
               outstanding at December 31, 2021


562



559

          Additional paid-in capital


261,830



241,197

          Retained earnings


353,070



343,542

          Treasury stock, 11,331,056 shares at March 31, 2022 and 10,246,016 shares at December 31, 2021, respectively


(148,523 )



(130,306 )

          Accumulated other comprehensive loss


(5,777 )



(2,230 )

               Total stockholders' equity


461,162



452,762

               Total liabilities and stockholders' equity


$   587,865



$   583,654

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)







Three Months Ended 


March 31,
2022
 


March 31,
2021
 

Cash flows from operating activities




Net income (loss)

$        9,528


$       (7,473 )

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




          Depreciation and amortization

3,891


3,448

          Provision for severance benefits           

1,670


1,771

          Amortization of debt issuance costs and original issue discount     


261

          Loss on foreign currency, net 

6,380


14,873

          Provision for inventory reserves            

145


1,504

          Stock-based compensation   

1,638


1,646

          Other, net  

161


154

Changes in operating assets and liabilities




          Accounts receivable, net        

(1,213 )


9,794

          Inventories

1,456


6,071

          Other receivables    

667


(1,438 )

          Other current assets

(6,829 )


5,427

          Accounts payable    

538


(7,701 )

          Other accounts payable         

(702 )


1,570

          Accrued expenses   

187


2,393

          Accrued income taxes             

(2,346 )


(10,700 )

          Other current liabilities            

(711 )


1,087

          Other non-current liabilities    

(73 )


18

          Payment of severance benefits             

(1,389 )


(1,493 )

          Other, net  

(178 )


12

Net cash provided by operating activities       

12,820


21,224

Cash flows from investing activities




          Proceeds from settlement of hedge collateral    

1,829


          Payment of hedge collateral  

(2,891 )


          Purchase of property, plant and equipment        

(944 )


(1,082 )

          Payment for intellectual property registration     

(59 )


(171 )

          Other, net  

(77 )


(111 )

Net cash used in investing activities

(2,142 )


(1,364 )

Cash flows from financing activities




          Proceeds from exercise of stock options             

1,781


2,538

          Acquisition of treasury stock   

(830 )


(1,540 )

          Repayment of financing related to water treatment facility arrangement       

(134 )


(144 )

          Repayment of principal portion of finance lease liabilities

(16 )


(16 )

Net cash provided by financing activities       

801


838

Effect of exchange rates on cash and cash equivalents             

(6,105 )


(10,444 )

Net increase in cash and cash equivalents   

5,374


10,254

Cash and cash equivalents at beginning of period

279,547


279,940

Cash and cash equivalents at end of period

$    284,921


$    290,194





 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME

(In thousands of U.S. dollars)

(Unaudited)




Three Months Ended


March 31,


December 31,


March 31,


2022


2021


2021

Operating income (loss)


$

12,879



$

63,870



$

(2,091)

Adjustments:












          Equity-based compensation expense



1,638




1,648




1,646

          Inventory reserve related to Huawei impact of downstream trade restrictions






(379)




          Merger-related costs (income), net






(49,369)




9,831

          Other charges, net






(1,349)




585

Adjusted Operating Income


$

14,517



$

14,421



$

9,971













We present Adjusted Operating Income as a supplemental measure of our performance. We define Adjusted Operating Income for the periods indicated as operating income (loss) adjusted to exclude (i) Equity-based compensation expense, (ii) Inventory reserve related to Huawei impact of downstream trade restrictions, (iii) Merger-related costs (income), net and (iv) Other charges, net.

For the three months ended December 31, 2021, we recorded in our consolidated statement of operations net gain of $49,369 thousand that represented income of $70,200 thousand from the recognition of a reverse termination fee, net of professional service fees and expenses of $20,831 thousand incurred in connection with the contemplated merger transaction of the Company that was terminated in December 2021. For the same period, we also recorded $1,419 thousand gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018), partially offset by $70 thousand of non-recurring expenses incurred in connection with the regulatory requests.

 For the three months ended March 31, 2021, we recorded $9,831 thousand non-recurring professional service fees and expenses incurred in connection with the contemplated merger transaction. For the same period, we also recorded $585 thousand non-recurring professional service fees and expenses incurred in connection with the regulatory requests.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND ADJUSTED NET INCOME

(In thousands of U.S. dollars, except share data)

(Unaudited)




Three Months Ended


March 31,

December 31,

March 31,


2022

2021

2021

Net income (loss)

$

9,528

$

53,611

$

(7,473)

Adjustments:







          Interest expense (income), net


(604)


(726)


420

          Income tax expense


3,483


11,221


290

          Depreciation and amortization


3,891


3,663


3,448

EBITDA


16,298


67,769


(3,315)

          Equity-based compensation expense


1,638


1,648


1,646

          Foreign currency loss (gain), net


690


(147)


4,671

          Derivative valuation loss (gain), net


129


(29)


86

          Inventory reserve related to Huawei impact of downstream trade restrictions



(379)


          Merger-related costs (income), net



(49,369)


9,831

          Other charges, net



(1,349)


585

Adjusted EBITDA

$

18,755

$

18,144

$

13,504

Net income (loss)

$

9,528

$

53,611

$

(7,473)

Adjustments:







          Equity-based compensation expense


1,638


1,648


1,646

          Foreign currency loss (gain), net


690


(147)


4,671

          Derivative valuation loss (gain), net


129


(29)


86

          Inventory reserve related to Huawei impact of downstream trade restrictions



(379)


          Merger-related costs (income), net



(49,369)


9,831

          Other charges, net



(1,349)


585

          GAAP and cash tax expense difference



907


          Income tax effect on non-GAAP adjustments


951


9,713


Adjusted Net Income

$

12,936

$

14,606

$

9,346

Adjusted Net Income per common share—







          - Basic

$

0.28

$

0.31

$

0.23

          - Diluted

$

0.28

$

0.31

$

0.22

Weighted average number of shares – basic


45,603,208


46,369,520


40,292,838

Weighted average number of shares – diluted


46,693,294


47,691,816


47,470,416








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 (gain), net, (iv) Inventory reserve related to Huawei impact of downstream trade restrictions, (v) Merger-related costs (income), net and (vi) Other charges, net. EBITDA for the periods indicated is defined as net income (loss) before interest expense (income), 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) Equity-based compensation expense, (ii) Foreign currency loss (gain), net, (iii) Derivative valuation loss (gain), net, (iv) Inventory reserve related to Huawei impact of downstream trade restrictions, (v) Merger-related costs (income), net, (vi) Other charges, net, (vii) GAAP and cash tax expense difference and (viii) Income tax effect on non-GAAP adjustments.

For the three months ended December 31, 2021, we recorded in our consolidated statement of operations net gain of $49,369 thousand that represented income of $70,200 thousand from the recognition of a reverse termination fee, net of professional service fees and expenses of $20,831 thousand incurred in connection with the contemplated merger transaction of the Company that was terminated in December 2021. For the same period, we also recorded $1,419 thousand gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018), partially offset by $70 thousand of non-recurring expenses incurred in connection with the regulatory requests.

For the three months ended March 31, 2021, we recorded $9,831 thousand non-recurring professional service fees and expenses incurred in connection with the contemplated merger transaction. For the same period, we also recorded $585 thousand non-recurring professional service fees and expenses incurred in connection with the regulatory requests.

 

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SOURCE Magnachip Semiconductor Corporation

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