MagnaChip Reports Third Quarter 2013 Financial Results

Oct 29, 2013

-- Power Solutions Revenue Increased 14% Sequentially, 21% Year-Over-Year
-- Display Solutions Revenue Increased 6% Sequentially, 5% Year-Over-Year
-- Achieved GAAP EPS of $1.24 and Adjusted EPS of $0.76 Per Diluted Share

SEOUL, South Korea and CUPERTINO, Calif., Oct. 29, 2013 /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 third quarter ended September 30, 2013.

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

Revenue for the third quarter of 2013 was $217.8 million, a 1.2% increase compared to $215.3 million for the second quarter of 2013 and a 1.8% decrease compared to $221.9 million for the third quarter of 2012.

Gross margin was $71.9 million or 33.0%, as a percent of revenue, for the third quarter of 2013. This compares to gross margin of $71.0 million or 33.0% for the second quarter of 2013 and $76.4 million or 34.5% for the third quarter of 2012.

Net income, on a GAAP basis, for the third quarter of 2013 totaled $46.7 million or $1.24 per diluted share. This compares to a net income of $4.4 million or $0.12 per diluted share for the second quarter of 2013 and a net income of $48.4 million or $1.30 per diluted share for the third quarter of 2012. Net income was impacted primarily by a foreign currency gain of $43.3 million during the quarter which was primarily related to the non-cash foreign currency translation of intercompany balances that were denominated in U.S. dollars.

"We are pleased to have delivered results that met our financial guidance for the eleventh consecutive quarter. We met our revenue and gross margin guidance through a combination of product and customer diversification and the successful launch of a new product line for our Power Solutions Division," said Sang Park, MagnaChip Chairman and CEO. "Our smartphone related revenue grew quarter-to-quarter due to the expansion of AMOLED display drivers in high-end smartphones and from an increase of sales to mid- to low-end smartphone customers."

Adjusted net income, a non-GAAP measurement, for the third quarter of 2013 totaled $28.6 million or $0.76 per diluted share compared to $26.2 million or $0.71 per diluted share for the second quarter of 2013 and $30.4 million or $0.81 per diluted share for the third quarter of 2012.

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. A reconciliation of GAAP results to non-GAAP results is included following the financial statements.

Combined cash balances (cash and cash equivalents plus restricted cash) totaled $158.3 million at the end of the third quarter of 2013, a decrease of $34.4 million from the end of the prior quarter. Cash provided from operations totaled approximately $6.0 million for the third quarter of 2013.

Revenue by Segment

In thousands of US dollars	Three Months Ended
	September 30, 2013	June 30, 2013	September 30, 2012
Semiconductor Manufacturing Services (Foundry)	$ 103,076	$ 109,751	$ 117,978
Display Solutions	73,162	68,867	69,415
Power Solutions	40,959	35,959	33,849
Other	627	712	630
Total Revenue	$ 217,824	$ 215,289	$ 221,872

Third Quarter and Recent Company Highlights

Repurchased $25 Million or 1,213,517 Shares under MagnaChip's 2013 Stock Repurchase Program.
Eleventh Consecutive Quarter of Meeting or Exceeding Financial Guidance.
Completed Secondary Offering of 1.7 Million Shares of Common Stock.

Business Outlook
For the fourth quarter of 2013, MagnaChip expects:

Revenue will be in the range of $193 million to $203 million.
Gross margin will be 29.0% to 31.0% as a percent of revenue.

Conference Call
MagnaChip will hold a conference call at 5 p.m. EDT today to discuss the third quarter 2013 financial results. The conference call will be webcast live and is also available by dialing 1-866-776-2061 in the U.S. or 1-706-679-0298 for all other locations. The conference ID number is 78794356 and 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 access numbers are 1-855-859-2056 or 1-404-537-3406. The access code is 78794356.

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 fourth quarter 2013 revenue and gross margin. All forward-looking statements included in this release are based upon information available to MagnaChip Semiconductor 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, 2013 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:

Robert Pursel

Director of Investor Relations

Tel. +1-408-625-1262

robert.pursel@magnachip.com

In Korea:

Chankeun Park

Senior Manager, Public Relations

Tel. +82-2-6903-3195

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, 2013		June 30, 2013		September 30, 2012
Net sales	$	217,824	$	215,289	$	221,872
Cost of sales		145,936		144,241		145,432

Gross profit		71,888		71,048		76,440
Gross profit %		33.0%		33.0%		34.5%

Selling, general and administrative expenses		20,071		19,709		21,388
Research and development expenses		21,192		21,131		19,470

Operating income		30,625		30,208		35,582

Other income (expenses)
Interest expense, net		(4,548)		(5,879)		(5,746)
Foreign currency gain (loss), net		43,350		(20,978)		21,782
Loss on early extinguishment of senior notes		(32,812)		—		—
Other		763		(230)		695

		6,753		(27,087)		16,731

Income before income taxes		37,378		3,121		52,313

Income tax expense (benefit)		(9,293)		(1,315)		3,901

Net income	$	46,671	$	4,436	$	48,412

Earnings per common share:
- Basic	$	1.32	$	0.13	$	1.34
- Diluted	$	1.24	$	0.12	$	1.30
Weighted average number of shares—Basic		35,443,820		35,474,001		36,199,655
Weighted average number of shares—Diluted		37,493,550		37,125,005		37,324,787


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, 2013		June 30, 2013		September 30, 2012
Net income	$	46,671	$	4,436	$	48,412
Adjustments:
Depreciation and amortization		8,748		8,359		8,443
Interest expense, net		4,548		5,879		5,746
Income tax expense (benefit)		(9,293)		(1,315)		3,901
Stock-based compensation expense		485		493		535
Foreign currency loss (gain), net		(43,350)		20,978		(21,782)
Derivative valuation loss (gain), net		(763)		230		(695)
Secondary offering and others		460		—		2,119
Loss on early extinguishment of senior notes		32,812		—		—
Adjusted EBITDA	$	40,318	$	39,060	$	46,679
Adjusted EBITDA per common share:
- Diluted	$	1.08	$	1.05	$	1.25
Weighted average number of shares - Diluted		37,493,550		37,125,005		37,324,787

Net income	$	46,671	$	4,436	$	48,412
Adjustments:
Stock-based compensation expense		485		493		535
Amortization of intangibles		1,508		1,492		1,829
Foreign currency loss (gain), net		(43,350)		20,978		(21,782)
Derivative valuation loss (gain), net		(763)		230		(695)
Secondary offering and others		460		—		2,119
GAAP and cash tax expense difference		(9,173)		(1,452)		—
Loss on early extinguishment of senior notes		32,812		—		—
Adjusted net income	$	28,650	$	26,177	$	30,418
Adjusted net income per common share:
- Diluted	$	0.76	$	0.71	$	0.81
Weighted average number of shares - Diluted		37,493,550		37,125,005		37,324,787

We define Adjusted EBITDA as net income adjusted to exclude (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expense (benefit), (iv) stock-based compensation expense, (v) foreign currency loss (gain), net, (vi) derivative valuation loss (gain), net, (vii) secondary offering and others, and (viii) 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) stock-based compensation expense, (ii) amortization of intangibles, (iii) foreign currency loss (gain), net, (iv) derivative valuation loss (gain), net, (v) secondary offering and others, (vi) GAAP and cash tax expense difference, 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)

	September 30, 2013		December 31, 2012
Assets
Current assets
Cash and cash equivalents	$	158,268	$	182,238
Restricted cash		6		133
Accounts receivable, net		199,018		143,331
Inventories, net		80,881		89,363
Other receivables		2,114		1,429
Prepaid expenses		11,777		7,884
Current deferred income tax assets		32,686		22,768
Other current assets		6,828		9,680

Total current assets		491,578		456,826

Property, plant and equipment, net		263,150		238,256
Intangible assets, net		8,992		15,260
Long-term prepaid expenses		17,791		18,048
Deferred income tax assets		45,253		46,710
Other non-current assets		16,731		14,866

Total assets	$	843,495	$	789,966

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	74,655	$	79,236
Other accounts payable		17,381		15,600
Accrued expenses		44,765		43,486
Other current liabilities		7,420		9,973

Total current liabilities		144,221		148,295

Long-term borrowings, net		223,897		201,653
Accrued severance benefits, net		123,619		112,446
Other non-current liabilities		15,018		17,263

Total liabilities		506,755		479,657

Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 40,498,795 shares issued and 34,945,377 shares outstanding at September 30, 2013 and 39,599,374 shares issued and 35,635,357 shares outstanding at December 31, 2012		405		396
Additional paid-in capital		112,950		101,885
Retained earnings		330,953		287,251
Treasury stock, 5,553,418 shares at September 30, 2013 and 3,964,017 shares at December 31, 2012		(70,918)		(39,918)
Accumulated other comprehensive loss		(36,650)		(39,305)

Total stockholders' equity		336,740		310,309

Total liabilities and stockholders' equity	$	843,495	$	789,966


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

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013		September 30, 2012
Cash flows from operating activities
Net income	$	46,671	$	43,702	$	68,015
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		8,748		25,629		23,840
Provision for severance benefits		4,975		15,661		16,779
Amortization of debt issuance costs and original issue discount		176		744		753
Loss (gain) on foreign currency translation, net		(53,364)		1,644		(25,304)
Gain on disposal of property, plant and equipment, net		(49)		(75)		(174)
Loss on disposal of intangible assets, net		1		2		26
Restructuring and impairment charges		—		618		—
Stock-based compensation		485		1,398		1,450
Loss on early extinguishment of senior notes		32,812		32,812		—
Other		156		1,567		(332)
Changes in operating assets and liabilities
Accounts receivable		(29,825)		(59,311)		(18,168)
Inventories		1,638		8,398		(8,526)
Other receivables		(884)		(284)		(1,787)
Other current assets		743		8,168		(662)
Deferred tax assets		(9,043)		(10,038)		1,514
Accounts payable		(3,167)		(2,314)		17,472
Other accounts payable		(379)		(7,901)		(700)
Accrued expenses		8,007		1,004		13,761
Other current liabilities		434		(663)		9,450
Payment of severance benefits		(1,392)		(4,331)		(5,569)
Other		(707)		(1,814)		(2,239)

Net cash provided by operating activities		6,036		54,616		89,599

Cash flows from investing activities
Decrease in restricted cash		1		123		6,774
Proceeds from disposal of plant, property and equipment		66		93		937
Purchase of plant, property and equipment		(5,813)		(45,703)		(56,745)
Payment for intellectual property registration		(158)		(401)		(752)
Payment for acquisition		—		—		(8,642)
Decrease in short-term financial instruments		—		—		173
Collection of guarantee deposits		—		117		72
Payment of guarantee deposits		(2)		(941)		(311)
Other		1		12		(50)

Net cash used in investing activities		(5,905)		(46,700)		(58,544)

Cash flows from financing activities
Proceeds from issuance of senior notes		218,836		218,836		—
Proceeds from issuance of common stock		5,095		9,676		436
Repayment of long term borrowings		(229,333)		(229,333)		—
Repayment of obligations under capital lease		—		—		(2,968)
Acquisition of treasury stock		(25,000)		(31,000)		(22,937)

Net cash used in financing activities		(30,402)		(31,821)		(25,469)
Effect of exchange rates on cash and cash equivalents		(4,102)		(65)		(2,039)

Net increase (decrease) in cash and cash equivalents		(34,373)		(23,970)		3,547

Cash and cash equivalents
Beginning of the period		192,641		182,238		162,111

End of the period	$	158,268	$	158,268	$	165,658

SOURCE MagnaChip Semiconductor Corporation

News Release Details

MagnaChip Reports Third Quarter 2013 Financial Results