MagnaChip Reports Second Quarter 2012 Financial Results

Aug 02, 2012

- Q2 Revenue Increased 14.5% Sequentially Driven By Strong Growth From Power Solutions (33.4%) and Foundry (34.6%) Revenue
- Gross Margin Expanded 280 Basis Points to 31.0% in Q2
- Expects Q3 Revenue to Increase 7% to 11% and Gross Margin to Increase 100 to 200 Basis Points on a Sequential Basis

SEOUL, South Korea and CUPERTINO, Calif., Aug. 2, 2012 /PRNewswire/ -- MagnaChip Semiconductor Corporation ("MagnaChip") (NYSE: MX), a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products, today announced financial results for the second quarter ended June 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120305/NY61184LOGO)

Revenue for the second quarter of 2012 was $202.6 million, a 14.5% increase compared to $177.0 million for the first quarter of 2012, and a 0.5% decrease compared to $203.7 million for the second quarter of 2011.

Gross margin was $62.9 million or 31.0%, as a percent of revenue, for the second quarter of 2012. This compares to gross margin of $49.9 million or 28.2% for the first quarter of 2012 and $66.2 million or 32.5% for the second quarter of 2011.

"I am very pleased that the second quarter represented our sixth consecutive quarter of meeting revenue and gross margin guidance in what is being described as a challenging macro environment. Our foundry services and power solutions segments saw greater than anticipated order strength and revenue growth during the quarter," said Sang Park, MagnaChip Chairman and CEO. "This is possible because of our alignment with strategic customers in high growth markets - including the leading smart phone and tablet PC makers. During the last three years, we have made solid progress shifting our customer base and refocusing our product portfolio. Our direct and indirect revenue from the top two smart phone/tablet PC makers has almost tripled in the first half of this year compared to the first half of 2010."

Net income, on a GAAP basis, for the second quarter of 2012 totaled $4.3 million or $0.12 per diluted share. This compares to net income of $15.3 million or $0.40 per diluted share for the first quarter of 2012 and net income of $31.6 million or $0.78 per diluted share for the second quarter of 2011. Net income was impacted primarily by a foreign currency loss of $10.6 million during the quarter which was primarily related to non-cash translation losses for intercompany balances that were denominated in U.S. dollars.

Adjusted net income, a non-GAAP measurement, for the second quarter of 2012 totaled $17.9 million or $0.48 per diluted share compared to $6.5 million or $0.17 per diluted share for the first quarter of 2012 and $22.5 million or $0.56 per diluted share for the second quarter of 2011.

Management believes that non-GAAP financial measures, when viewed in conjunction with GAAP results, can provide a more meaningful understanding of the factors and trends affecting MagnaChip's business and operations. 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.

Combined cash balances (cash and cash equivalents plus restricted cash) totaled $161.0 million at the end of the second quarter of 2012, an increase of $0.4 million from the end of the prior quarter. Cash provided from operations totaled approximately $26.7 million for the second quarter of 2012.

Revenue by Segment

In thousands of US dollars	Three Months Ended
	June 30, 2012	March 31, 2012	June 30, 2011
Semiconductor Manufacturing Services	$ 91,318	$ 67,863	$ 96,458
Display Solutions	76,784	83,225	82,719
Power Solutions	33,699	25,253	23,739
Other	833	661	763
Total Revenue	$ 202,634	$ 177,002	$ 203,679

Second Quarter and Recent Company Highlights

Sixth Consecutive Quarter of Achieving Financial Guidance.
Factory Utilization Increased to More than 90% in the Second Quarter.
Achieved GAAP EPS of $0.12 Per Diluted Share and Adjusted EPS of $0.48.
Completed Successful Secondary Offering of 7 Million Shares of Common Stock in May.
Repurchased 539 Thousand Shares under MagnaChip's Stock Repurchase Program Announced October 11, 2011.

Business Outlook

For the third quarter of 2012, MagnaChip expects:

Revenue to increase 7% to 11% to $217 million to $225 million on a sequential basis.
Gross margin to increase 100 to 200 basis points to 32.0% to 33.0% sequentially.

Non-GAAP Metrics
Adjusted EBITDA excludes charges related to depreciation and amortization, interest expense, net, income tax expense, restructuring and impairment charges, stock-based compensation expense, foreign currency loss (gain), net, derivative valuation gain, net, secondary offering expense, and loss on early extinguishment of senior notes. Adjusted net income (loss) excludes charges related to restructuring and impairment charges, stock-based compensation expense, amortization of intangible assets associated with continuing operations, foreign currency loss (gain), net, derivative valuation gain, net, secondary offering expense, and loss on early extinguishment of senior notes. A reconciliation of GAAP results to non-GAAP results is included following the financial statements.

About MagnaChip Semiconductor Corporation
Headquartered in South Korea, MagnaChip is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications. MagnaChip believes it has one of the broadest and deepest ranges of analog and mixed-signal semiconductor platforms in the industry, supported by its 30-year operating history, a large portfolio of registered and pending patents, and extensive engineering 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 ability to capitalize on improving market dynamics and future operating and financial performance including third quarter 2012 revenue and gross profit. 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 March 8, 2012 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:
Robert Pursel	Chankeun Park
Director of Investor Relations	Senior Manager, Public Relations
Tel. 408-625-1262	Tel. +82-2-6903-3195
robert.pursel@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, 2012		March 31, 2012		June 30, 2011
Net sales	$	202,634	$	177,002	$	203,679
Cost of sales		139,776		127,087		137,497

Gross profit		62,858		49,915		66,182
Gross profit %		31.0%		28.2%		32.5%

Selling, general and administrative expenses		20,093		18,209		17,458
Research and development expenses		19,762		19,831		20,614
Restructuring and impairment charges		—		—		2,475

Operating income		23,003		11,875		25,635

Other income (expense)
Interest expense, net		(5,619)		(5,580)		(6,369)
Foreign currency gain (loss), net		(10,586)		11,109		18,234
Loss on early extinguishment of senior notes		—		—		(4,103)
Other		701		89		203

		(15,504)		5,618		7,965

Income before income taxes		7,499		17,493		33,600

Income tax expense		3,159		2,230		1,970

Net income	$	4,340	$	15,263	$	31,630

Earnings per common share :
- Basic	$	0.12	$	0.41	$	0.81
- Diluted	$	0.12	$	0.40	$	0.78
Weighted average number of shares—Basic		36,713,569		37,524,127		39,066,303
Weighted average number of shares—Diluted		37,566,699		38,298,336		40,294,902

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,		March 31,		June 30,
	2012		2012		2011
Net income	$	4,340	$	15,263	$	31,630
Adjustments:
Depreciation and amortization		7,923		7,474		15,412
Interest expense, net		5,619		5,580		6,368
Income tax expense		3,159		2,230		1,970
Restructuring and impairment charges		—		—		2,475
Stock-based compensation expense		457		458		605
Foreign currency loss (gain), net		10,586		(11,109)		(18,234)
Derivative valuation gain, net		(701)		(85)		(203)
Secondary offering expense		1,216		—		—
Loss on early extinguishment of senior notes		—		—		4,103
Adjusted EBITDA	$	32,599	$	19,811	$	44,126
Adjusted EBITDA per common share:
- Diluted	$	0.87	$	0.52	$	1.10
Weighted average number of shares - Diluted		37,566,699		38,298,336		40,294,902

Net income	$	4,340	$	15,263	$	31,630
Adjustments:
Restructuring and impairment charges		—		—		2,475
Stock-based compensation expense		457		458		605
Amortization of intangibles		1,980		1,993		2,080
Foreign currency loss (gain), net		10,586		(11,109)		(18,234)
Derivative valuation gain, net		(701)		(85)		(203)
Secondary offering expense		1,216		—		—
Loss on early extinguishment of senior notes		—		—		4,103
Adjusted net income	$	17,878	$	6,520	$	22,456
Adjusted net income per common share:
- Diluted	$	0.48	$	0.17	$	0.56
Weighted average number of shares - Diluted		37,566,699		38,298,336		40,294,902

We define Adjusted EBITDA as net income adjusted to exclude (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expense, (iv) restructuring and impairment charges (v) stock-based compensation expense, (vi) foreign currency loss (gain), net, (vii) derivative valuation gain, net, (viii) secondary offering expense, and (ix) loss on early extinguishment of senior notes.

We present Adjusted Net Income as a further supplemental measure of our performance. We prepare Adjusted Net Income by adjusting net income 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 as net income adjusted to exclude (i) restructuring and impairment charges (ii) stock-based compensation expense, (iii) amortization of intangibles, (iv) foreign currency loss (gain), net, (v) derivative valuation gain, net, (vi) secondary offering expense, and (vii) loss on early extinguishment of senior notes.

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

		June 30, 2012		December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	155,764	$	162,111
Restricted cash		5,218		6,830
Accounts receivable, net		135,090		125,922
Inventories, net		75,417		62,836
Other receivables		2,497		256
Prepaid expenses		4,940		6,032
Other current assets		8,102		15,909

Total current assets		387,028		379,896

Property, plant and equipment, net		219,021		182,663
Intangible assets, net		18,139		16,787
Long-term prepaid expenses		4,137		4,790
Other non-current assets		17,379		18,539

Total assets	$	645,704	$	602,675

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	92,906	$	77,848
Other accounts payable		23,344		13,452
Accrued expenses		39,550		31,723
Current portion of capital lease obligations		—		2,852
Derivative liabilities		8,449		9,757
Other current liabilities		6,566		2,007

Total current liabilities		170,815		137,639

Long-term borrowings, net		201,519		201,389
Accrued severance benefits, net		96,883		90,755
Other non-current liabilities		5,939		6,222

Total liabilities		475,156		436,005

Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 39,468,338 shares issued and 36,353,545 outstanding at June 30, 2012 and 39,439,115 shares issued and 37,907,575 outstanding at December 31, 2011		395		394
Additional paid-in capital		100,027		98,929
Retained earnings		113,553		93,950
Treasury stock, 3,114,793 shares at June 30, 2012		(28,728)		(11,793)
Accumulated other comprehensive loss		(14,699)		(14,810)

Total stockholders' equity		170,548		166,670

Total liabilities and stockholders' equity	$	645,704	$	602,675

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

	Three Months Ended		Six Months Ended
	June 30, 2012		June 30, 2012		June 30, 2011
Cash flows from operating activities
Net income	$	4,340	$	19,603	$	54,098
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		7,923		15,397		29,315
Provision for severance benefits		6,272		10,975		8,396
Amortization of debt issuance costs and original issue discount		255		497		491
Loss (gain) on foreign currency translation, net		12,879		55		(44,109)
Loss (gain) on disposal of property, plant and equipment, net		79		(190)		(11)
Loss on disposal of intangible assets, net		4		15		8
Restructuring and impairment charges		—		—		2,475
Stock-based compensation		457		915		1,246
Loss on early extinguishment of senior notes		—		—		4,103
Other		(471)		(348)		1,104
Changes in operating assets and liabilities
Accounts receivable		(9,635)		(8,296)		2,103
Inventories		(8,638)		(11,498)		(14,300)
Other receivables		1,444		(2,580)		(1,309)
Other current assets		315		8,851		(884)
Deferred tax assets		275		1,146		824
Accounts payable		2,073		14,654		12,139
Other accounts payable		9,975		9,677		13,800
Accrued expenses		(1,996)		7,890		3,141
Other current liabilities		4,386		6,611		(1,155)
Payment of severance benefits		(2,493)		(4,816)		(3,745)
Other		(735)		(1,996)		(232)

Net cash provided by operating activities		26,709		66,562		67,498

Cash flows from investing activities
Decrease (increase) in restricted cash		(1,361)		1,634		—
Proceeds from disposal of plant, property and equipment		618		891		23
Purchase of plant, property and equipment		(21,970)		(46,728)		(26,926)
Payment for intellectual property registration		(375)		(565)		(324)
Payment for acquisition		—		(8,642)		—
Decrease in short-term financial instruments		—		173		—
Collection of guarantee deposits		39		70		979
Payment of guarantee deposits		2		(176)		(1,483)
Other		(5)		(53)		(402)

Net cash used in investing activities		(23,052)		(53,396)		(28,133)

Cash flows from financing activities
Proceeds from issuance of common stock		75		183		8,818
Repurchase of senior notes		—		—		(38,150)
Repayment of obligations under capital lease		(1,458)		(2,968)		(3,182)
Acquisition of treasury stock		(5,000)		(16,935)		—

Net cash used in financing activities		(6,383)		(19,720)		(32,514)
Effect of exchange rates on cash and cash equivalents		1,867		207		(1,259)

Net increase (decrease) in cash and cash equivalents		(859)		(6,347)		5,592

Cash and cash equivalents
Beginning of the period		156,623		162,111		172,172

End of the period	$	155,764	$	155,764	$	177,764

SOURCE MagnaChip Semiconductor Corporation

News Release Details

MagnaChip Reports Second Quarter 2012 Financial Results