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MagnaChip Reports First Quarter 2019 Financial Results

SEOUL, South Korea and SAN JOSE, Calif., April 30, 2019 /PRNewswire/ -- MagnaChip Semiconductor Corporation (MX) today announced financial results for the first quarter of 2019.

Q1 2019 Summary

  • Revenue of $157.4 million exceeded the guidance range of $150-$155 million; revenue down 5.1% Year-over-Year (YoY)
  • Standard Products Group (SPG) revenue of $100.3 million, up 13.5% YoY
  • Foundry Services Group (FSG) revenue of $57.1 million, down 26.3% YoY due to a previously disclosed customer inventory correction and a previously announced decision to be more selective about new business as a result of a strategic evaluation of the Foundry business and Fab 4
  • Total gross profit margin of 14.4% was within the guidance range of 14-16%; gross margin down 12.5 percentage points YoY due primarily to a widely anticipated decline in Foundry fab utilization, and an inventory reserve of $3.3 million related to a legacy display product

Second Quarter 2019 Business Outlook
For the second quarter of 2019, MagnaChip anticipates:

  • Revenue to be in the range of $173 million to $181 million, up 12.5% at the mid-point of the projected range when compared with revenue of $157.4 million in the first quarter of 2019, and down 11.4% year-on-year when compared to the $199.7 million revenue recorded in the second quarter of 2018. Revenue guidance for the second quarter reflects an expectation that standard product revenue will show double-digit sequential improvement, and Foundry revenue will be flattish as compared to Q1 2019.
  • Gross profit margin to be in the range of 16% to 18%, as compared to 14.4% in the first quarter of 2019 and 27% in the second quarter of 2018. Gross margin guidance reflects the expectation that fab utilization in the Foundry business has stabilized.

Statement on strategic evaluation of the Foundry business and Fab 4
Chairman of the Board Nader Tavakoli said, "The Board and Company-led strategic evaluation of the Foundry business and Fab 4 that was announced in February is ongoing and supported by our financial advisor, JP Morgan, and legal advisor, Paul, Weiss. The Company intends to provide updates about the strategic evaluation process in a timely manner when meaningful milestones are achieved. As stated previously, the Board is committed to improving MagnaChip's profitability and unlocking shareholder value. As we proceed with the strategic evaluation of the Foundry business and Fab 4, we will be mindful of the best interests of all of our stakeholders, including shareholders, customers and employees."

CEO Comments on Q1 business
"Revenue for both OLED and Power standard products achieved the highest levels ever recorded in the first quarter of a year, despite typically weak seasonal trends and a soft China smartphone market.

In the display segment, OLED revenue increased over 41% year over year, and we were awarded six OLED design wins from leading smartphone makers in China. We also commenced volume production of OLED DDICs for mid-range smartphones from a major Korean brand. We added our ninth OLED DDIC with the launch of the industry's most power-efficient 28-nanometer OLED DDIC, manufactured with the most advanced process technology used for DDICs. We also announced an OLED ecosystem initiative with three companies initially to develop next-generation features to improve the functionality of OLED platform solutions in a wide range of products and markets.   

In the Power segment, revenue from Premium products increased nearly 46% from the first quarter a year ago, and accounted for nearly 55% of Power revenue, as compared with 40% in the first quarter of 2018. We also continued to make inroads in the automotive sector, as we commenced shipments of two different high-voltage power standard products to a customer in that market.

Our Foundry revenue and fab utilization both experienced a severe decline in Q1, as was widely anticipated. While the Foundry business will remain weak in Q2, the business has recently showed signs of stabilizing."   

First Quarter Financial Review
Total Revenue
Total revenue in the first quarter of 2019 was $157.4 million, down 5.1% as compared to reported revenue of $165.8 million from the first quarter of 2018, and down 12.3% from $179.4 million in the fourth quarter of 2018. 

Segment Revenue
Foundry Services Group revenue in the first quarter was $57.1 million, down 26.3% from the first quarter of 2018, and down 31.3% from the fourth quarter of 2018.

Standard Products Group revenue in the first quarter was $100.3 million, up 13.5% YoY and up 4.2% sequentially. The improved results in the Standard Products Group year-over-year were primarily attributable to a sharp increase in revenue from mobile OLED display driver ICs in connection with the introduction of new OLED smartphones from manufacturers in China and Korea, and an increase in demand for premium Power products such as high-voltage MOSFETS, primarily for TV and industrial applications. The revenue improvement in the Standard Products Group was offset in part by a strategic reduction in demand of low-margin LCD business.

Total Gross Profit and Gross Profit Margin
Total gross profit in the first quarter of 2019 was $22.7 million or 14.4 % as a percentage of revenue as compared with gross profit of $44.6 million or 26.9% in the first quarter of 2018, and $43.9 million or 24.5% in the fourth quarter of 2018.

Segment Gross Profit Margin
Foundry Services Group gross profit margin was 6.4% as compared with 26.7% in the first quarter of 2018 and 23.2% in the fourth quarter of 2018. The Standard Products Group gross profit margin was 19.0% in the first quarter of 2019 as compared with 27.2% in the first quarter of 2018 and 25.6% in the fourth quarter of 2018. The sequential and YoY decline in the Standards Products Group gross profit margin was attributable in part by an additional inventory reserve of $3.3 million related to a legacy display product.

Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating loss, on a GAAP basis, for the first quarter of 2019 was $18.3 million, as compared with an income of $7.4 million in the first quarter of 2018 and an income of $7.9 million in the fourth quarter of 2018.

Net loss, on a GAAP basis, was $34.1 million or $1.00 per basic and diluted share in the first quarter of 2019, as compared with net income of $2.8 million or $0.08 per basic and diluted share in the first quarter of 2018, and net loss of $2.4 million or $0.07 per basic and diluted share in the fourth quarter of 2018.

Adjusted Net Loss, a non-GAAP financial measure, totaled $19.9 million or $0.58 per basic and diluted share in the first quarter of 2019, as compared with Adjusted Net Income of $1.4 million or $0.04 per basic and diluted share in the first quarter of 2018, and Adjusted Net Income of $3.5 million or $0.10 per basic and diluted share in the fourth quarter of 2018.

Adjusted EBITDA, a non-GAAP financial measure, in the first quarter of 2019 was negative $5.7 million or negative 3.6% of revenue in the first quarter of 2019, as compared with Adjusted EBITDA of $15.5 million or 9.3% of revenue in the first quarter of 2018, and Adjusted EBITDA of $17.4 million or 9.7% of revenue in the fourth 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 $105.8 million in the first quarter of 2019, down from $132.4 million at the end of the fourth quarter of 2018. 



Three Months Ended




March 31,

2019



March 31,

2018


Net Sales









Foundry Services Group


$

57,075



$

77,429


Standard Products Group









Display Solutions



58,230




49,696


Power Solutions



42,030




38,667


Total Standard Products Group


$

100,260



$

88,363


All other



45




27


Total net sales


$

157,380



$

165,819


 



Three Months Ended



Three Months Ended




March 31, 2019



March 31, 2018




Amount



% of

Net Sales



Amount



% of

Net Sales


Gross Profit

















Foundry Services Group


$

3,637




6.4%



$

20,664




26.7%


Standard Products Group



19,020




19.0




24,039




27.2


All other



45




100.0




(122)




(452)


Total gross profit


$

22,702




14.4%



$

44,581




26.9%


First Quarter 2019 and Recent Company Highlights 
MagnaChip announced:

  • A launch of its 28-nanometer OLED Display Driver IC for smartphone displays, The 28nm process is the most advanced used today for manufacturing OLED DDICs, achieves a form factor reduction of 20 percent compared with the previous 40nm process, has a logic voltage of 1.0V vs. 1.1V in the previous generation, and also is expected to improve call quality by reducing EMI (Electromagnetic Interference) levels by 20 percent as compared to the 40nm DDIC, MagnaChip's product roadmap includes plans to expand the feature set of OLED DDICs to include Ultra-High Definition (UHD) capabilities.
    http://investors.magnachip.com/news-releases/news-release-details/magnachip-launches-28-nanometer-oled-ddic-smartphone-displays
  • A new initiative to partner with companies in the development of next-generation display features of smartphones and other mobile or handheld consumer electronic devices. MagnaChip intends to develop individual strategic partnerships with leading manufacturers of touch, stylus, fingerprint technologies, and associated OLED display technologies. Each company will collaborate with MagnaChip to develop and standardize innovative human-interface solutions based upon smart touch, stylus and fingerprint technologies that are suitable for MagnaChip's industry leading OLED DDICs. The goal in each instance will be to improve the functionality of OLED displays on end user devices. There also will be a specified collaboration in shared intellectual property that will extend into new applications, including the IoT and automotive sectors.
    http://investors.magnachip.com/news-releases/news-release-details/magnachip-announces-initiative-develop-next-generation-display
  • A partnership with ELAN Microelectronics Corp. to expand the capabilities for OLED displays for a wide variety of next-generation consumer, communication, computing and industrial products, as well as for automotive displays. The partnership seeks to build upon the recent growth and market penetration of OLED displays in areas such as smartphones, mobile devices, tablets and automotive applications, ranging from navigation and infotainment screens to brake light and interior lighting systems.
    http://investors.magnachip.com/news-releases/news-release-details/magnachip-and-elan-microelectronics-announce-partnership-expand
  • A partnership with HiDeep to develop advanced OLED display capabilities for smartphone makers and other handheld consumer electronics devices. MagnaChip will cooperate with HiDeep to develop enhanced HMI solutions optimized for the growing OLED display market. Specifically, MagnaChip and HiDeep will collaborate and create useful and cost effective new HMI solutions for flexible OLED displays for top-tier panel makers and smartphone OEMs. This collaboration also will extend into a variety of other applications and end markets.
    http://investors.magnachip.com/news-releases/news-release-details/magnachip-and-hideep-inc-announce-partnership-develop-enhanced
  • A partnership with Melfas Inc. to develop advanced OLED display capabilities for the automotive and consumer electronics sectors. Currently, OLED technology is deployed primarily in televisions and mobile products such as smartphones and smartwatches, but MagnaChip and Melfas are working towards developing automotive display-related solutions in an effort to respond to this fast-growing market. With their current solutions, the two companies will initially address opportunities in consumer electronics and, going forward, will work together to develop solutions for OLED displays in automotive applications.
    http://investors.magnachip.com/news-releases/news-release-details/magnachip-and-melfas-inc-announce-partnership-collaborate-oled
  • An offering of second generation 0.13 micron 18V high-voltage process technology to its foundry customers. The technology, which is dedicated for designing source drivers for LCD and OLED televisions, offers fewer steps, allows suitable high-voltage design rules to shrink chip size, and adds a new device for DAC block design, as compared to the first-generation process.
    http://investors.magnachip.com/news-releases/news-release-details/magnachip-offers-013-micron-18v-high-voltage-gen2-technology

First Quarter 2019 Conference Call
The conference call will be webcast live today (April 30, 2019) at 5:00 p.m. EDT and also is available by dialing toll-free at 1-844-536-5472. International call-in participants can dial 1-614-999-9318. The conference ID number is 8618428. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5:00 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 8618428.

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 about 40 years of operating history, owns a portfolio of approximately 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 but not limited to second quarter 2019 revenue and gross profit margin 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, 2019 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




March 31,

2019


December 31,

2018


March 31,

2018


Net sales


$

157,380


$

179,394


$

165,819


Cost of sales



134,679



135,482



121,238


Gross profit



22,701



43,912



44,581


Gross profit %



14.4

%


24.5

%


26.9

%

Operating expenses











Selling, general and administrative expenses



18,070



17,516



17,622


Research and development expenses



20,018



18,536



19,580


Restructuring and other charges



2,894






Total operating expenses



40,982



36,052



37,202


Operating income (loss)



(18,281)



7,860



7,379


Interest expense



(5,637)



(5,743)



(5,463)


Foreign currency gain (loss), net



(9,997)



(4,316)



1,318


Loss on early extinguishment of long-term borrowings, net



(42)



(206)




Other income, net



673



555



519


Income (loss) before income tax expenses



(33,284)



(1,850)



3,753


Income tax expenses



841



530



990


Net income (loss)


$

(34,125)


$

(2,380)


$

2,763


Earnings (loss) per common share :











- Basic


$

(1.00)


$

(0.07)


$

0.08


- Diluted


$

(1.00)


$

(0.07)


$

0.08


Weighted average number of shares—Basic



34,194,878



34,627,292



34,253,111


Weighted average number of shares—Diluted



34,194,878



34,627,292



35,154,693















 

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




March 31,

2019



December 31,

2018



March 31,

2018


Net income (loss)


$

(34,125)



$

(2,380)



$

2,763


Adjustments:













Interest expense, net



5,059




5,180




5,123


Income tax expenses



841




530




990


Depreciation and amortization



8,303




8,165




7,958


EBITDA



(19,922)




11,495




16,834


Restructuring and other charges



2,894








Equity-based compensation expense



669




1,320




665


Foreign currency loss (gain), net



9,997




4,315




(1,318)


Derivative valuation loss, net



56




144




76


Restatement related expenses









(765)


Loss on early extinguishment of long-term borrowings, net



42




206





Others



585




(89)





Adjusted EBITDA


$

(5,679)



$

17,391



$

15,492


Net income (loss)


$

(34,125)



$

(2,380)



$

2,763


Adjustments:













Restructuring and other charges



2,894








Equity-based compensation expense



669




1,320




665


Foreign currency loss (gain), net



9,997




4,315




(1,318)


Derivative valuation loss, net



56




144




76


Restatement related expenses









(765)


Loss on early extinguishment of long-term borrowings, net



42




206





Others



585




(89)





Adjusted Net Income (Loss)


$

(19,882)



$

3,516



$

1,421


Adjusted Net Income (Loss) per common share:













- Basic


$

(0.58)



$

0.10



$

0.04


- Diluted


$

(0.58)



$

0.10



$

0.04


Weighted average number of shares – Basic



34,194,878




34,627,292




34,253,111


Weighted average number of shares – Diluted



34,194,878




35,128,341




35,154,693



We present Adjusted EBITDA and Adjusted Net Income (Loss) as non-GAAP supplemental measures of our performance. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) Restructuring and other charges, (ii) Equity-based compensation expense, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss, net, (v) Restatement related expenses, (vi) Loss on early extinguishment of long-term borrowings, net and (vii) Others. 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 (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) Restructuring and other charges, (ii) Equity-based compensation expense, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss, net, (v) Restatement related expenses, (vi) Loss on early extinguishment of long-term borrowings, net and (vii) Others.

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share data)

(Unaudited)



March 31,

2019


December 31,

2018

Assets




Current assets




Cash and cash equivalents

$           105,812


$           132,438

Accounts receivable, net

92,056


80,003

Unbilled accounts receivable

27,885


38,181

Inventories, net

80,794


71,611

Other receivables

8,035


3,702

Prepaid expenses

13,781


11,133

Hedge collateral

3,560


5,810

Other current assets

7,293


9,867





Total current assets

339,216


352,745





Property, plant and equipment, net

201,738


202,171

Operating lease right-of-use assets

13,046


Intangible assets, net

3,900


3,953

Long-term prepaid expenses

13,028


15,598

Other non-current assets 

9,038


8,729





Total assets

$           579,966


$           583,196





Liabilities and Stockholders' Equity




Current liabilities




Accounts payable

$             76,031


$             55,631

Other accounts payable

18,884


15,168

Accrued expenses

43,481


46,250

Deferred revenue

6,907


6,477

Other current liabilities

4,531


9,133





Total current liabilities

149,834


132,659





Long-term borrowings, net

303,016


303,577

Non-current operating lease liabilities

10,975


Accrued severance benefits, net

144,502


146,031

Other non-current liabilities

17,950


18,239





Total liabilities

626,277


600,506





Commitments and contingencies




Stockholders' equity




Common stock, $0.01 par value, 150,000,000 shares authorized, 43,230,535 shares issued and
34,223,502 outstanding at March 31, 2019 and 43,054,458 shares issued and 34,441,232 outstanding
at December 31, 2018

433


431

Additional paid-in capital

143,315


142,600

Accumulated deficit

(70,430 )


(36,305 )

Treasury stock, 9,007,033 shares at March 31, 2019 and 8,613,226 shares at December 31, 2018,
respectively

(106,511 )


(103,926 )

Accumulated other comprehensive loss

(13,118 )


(20,110 )





Total stockholders' deficit

(46,311 )


(17,310 )





Total liabilities and stockholders' equity

$           579,966


$           583,196






Under the new leases standard (codified as Accounting Standards Codification 842, and effective January 1, 2019), operating leases as of March 31, 2019 are recognized in operating lease right-of-use assets of $13.0 million, and other current liabilities of $2.1 million for the current portion of operating lease liabilities and non-current operating lease liabilities of $11.0 million on our consolidated balance sheets. Finance lease right-of-use assets of $2.4 million are included in property, plant and equipment, net and the current and non-current portions of finance lease liabilities are included in other current liabilities of $0.2 million and other non-current liabilities of $2.2 million in our consolidated balance sheets, respectively.

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(Unaudited)




Year Ended




March 31,

2019



March 31,

2018


Cash flows from operating activities









Net income (loss)


$

(34,125)



$

2,763


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









Depreciation and amortization



8,303




7,958


Provision for severance benefits



3,117




4,512


Amortization of debt issuance costs and original issue discount



571




532


Loss (gain) on foreign currency, net



11,720




(1,682)


Restructuring and other charges



2,894





Stock-based compensation



669




1,469


Loss on early extinguishment of long-term borrowings, net



42





Other



96




(337)


Changes in operating assets and liabilities









Accounts receivable, net



(12,844)




3,115


Unbilled accounts receivable



9,726




(639)


Inventories, net



(10,585)




(13,150)


Other receivables



(4,205)




(3,746)


Other current assets



1,836




(1,071)


Accounts payable



20,874




3,168


Other accounts payable



2,725




(2,759)


Accrued expenses



(5,365)




(7,129)


Deferred revenue



555




4,809


Other current liabilities



(6,848)




(570)


Other non-current liabilities



1,085




618


Payment of severance benefits



(2,263)




(2,247)


Other



347




465


Net cash used in operating activities



(11,675)




(3,921)


Cash flows from investing activities









Proceeds from settlement of hedge collateral



2,242




4,863


Purchase of plant, property and equipment



(11,207)




(7,329)


Payment for intellectual property registration



(232)




(409)


Collection of guarantee deposits



298




14


Payment of guarantee deposits



(892)





Other



(10)




(36)


Net cash used in investing activities



(9,801)




(2,897)


Cash flows from financing activities









Repurchase of long-term borrowings



(1,175)





Proceeds from exercise of stock options



48




142


Acquisition of treasury stock



(2,353)





Repayment of financing related to water treatment facility arrangement



(143)





Repayment of principal portion of lease liabilities



(59)





Net cash provided by (used in) financing activities



(3,682)




142


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



(1,468)




1,237


Net decrease in cash, cash equivalents and restricted cash



(26,626)




(5,439)


Cash, cash equivalents and restricted cash









Beginning of the period



132,438




128,575


End of the period


$

105,812



$

123,136


 

Cision

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