Magnachip Reports Results for First Quarter 2021

Rhea-AI Summary

Magnachip Semiconductor Corporation (NYSE: MX) announced its Q1 2021 financial results, revealing revenues above the midpoint of guidance, primarily due to growth in the Power solutions sector. Gross profit margins surpassed expectations thanks to a better product mix and higher utilization rates. The company is navigating industry-wide supply constraints effectively. However, Magnachip will not host a quarterly earnings call due to an impending merger with Wise Road Capital, halting its usual earnings conference call practice.

Positive

• Revenue exceeded the midpoint of Q1 guidance due to strong growth in Power solutions.
• Gross profit margin surpassed high-end expectations due to improved product mix and higher utilization.

Negative

• The company will not hold a quarterly earnings conference call due to the pending merger.

SEOUL, South Korea, May 10, 2021 /PRNewswire/ -- Magnachip Semiconductor Corporation (NYSE: MX) ("Magnachip" or the "Company") today announced financial results for the first quarter 2021.

"Magnachip delivered solid quarterly results despite the industry-wide supply constraints. Our revenue came in above the midpoint of the company's Q1 revenue guidance range, driven by strong growth in the Power solutions business. Gross profit margin exceeded the high-end of our expectations due to the improved product mix and higher utilization," said YJ Kim, Magnachip's chief executive officer.

Due to the pending merger with an investment vehicle formed by an affiliate of Wise Road Capital LTD pursuant to a definitive agreement executed on March 25, 2021, Magnachip will not be hosting a quarterly earnings conference call and has suspended the practice of providing forward-looking guidance. Please review the 'Investors' section of the Company's website for the quarterly financial results and SEC filings for the latest updates on the pending transaction.

Q1 2021 Financial Highlights
						In thousands of US dollars, except share data
		GAAP
		Q1 2021	Q4 2020	Q/Q change			Q1 2020	Y/Y change
Revenues
	Standard Products Business
	Display Solutions	58,895	82,705		down	28.8%	77,593		down	24.1%
	Power Solutions	54,011	46,861		up	15.3%	33,143		up	63.0%
	Transitional Fab 3 Foundry Services(1)	10,113	13,379		down	24.4%	9,737		up	3.9%
Gross Profit Margin		27.9%	26.9%		up	1.0% pts	24.2%		up	3.7% pts
Operating Income (Loss) (2)		(2,091)	9,206		down	122.7%	5,965		down	135.1%
Net Income (Loss) (3)		(7,473)	66,581		down	111.2%	(23,749)		up	68.5%
Basic Earnings (Loss) per Common Share		(0.19)	1.87		down	110.2%	(0.68)		up	72.1%
Diluted Earnings (Loss) per Common Share		(0.19)	1.45		down	113.1%	(0.68)		up	72.1%
						In thousands of US dollars, except share data
		Non-GAAP(3)
		Q1 2021	Q4 2020	Q/Q change			Q1 2020	Y/Y change
Adjusted Operating Income		9,971	15,355		down	35.1%	7,281		up	36.9%
Adjusted EBITDA		13,504	18,582		down	27.3%	9,895		up	36.5%
Adjusted Net Income		9,346	17,268		down	45.9%	1,092		up	755.9%
Adjusted Earnings per Common Share—Diluted		0.22	0.40		down	45.0%	0.03		up	633.3%

(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, the Company will provide transitional foundry services to the buyer for foundry products manufactured in the Company's            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)     In Q1 2021, operating loss of $2.1 million included non-recurring professional fees and certain transaction related expenses of $9.8            million in connection with a definitive agreement (the "Merger Agreement") that the Company entered into with South Dearborn            Limited, an exempted company incorporated in the Cayman Islands with limited liability ("Parent"), formed by an affiliate of Wise            Road Capital LTD, and Michigan Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Parent ("Merger            Sub"). The Merger Agreement provides that, among other things, Merger Sub will be merged with and into the Company (the            "Merger"), with the Company continuing its corporate existence as the surviving corporation in the Merger and becoming a wholly            owned subsidiary of Parent.   (3)     In Q4 2020, total net income of $66.6 million included one-time recognition of deferred tax benefits of $43.9 million.   (4)     Non-GAAP financial measures are calculated based on the results from continuing operations. 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 from continuing            operations 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.

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. 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 the possibility that any or all of the conditions precedent to the consummation of the pending merger may not be satisfied or waived; unanticipated difficulties or expenditures relating to the proposed merger; that the merger may not be completed in a timely manner or at all; the diversion of and attention of Magnachip's management on merger-related issues; legal proceedings, judgments or settlements following the announcement of the proposed merger; disruptions of current plans and operations caused by the announcement and pendency of the proposed merger; potential difficulties in employee retention due to the announcement and pendency of the proposed merger; the response of customers, suppliers, business partners and regulators to the announcement of the proposed merger; the impact of changes in macroeconomic and/or general economic conditions, including those caused by or related to the COVID-19 outbreak, recessions, economic instability and the outbreak of disease; 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; 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; 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 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 SEC, including our Form 10-K filed on March 9, 2021 (including that the impact of the COVID-19 pandemic, 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 Securities and Exchange Commission 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, 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 1,200 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.

CONTACT:
So-Yeon Jeong Head of Investor Relations Tel. +1-408-712-6151 Investor.relations@magnachip.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,
		2021				2020			2020
Revenues:
Net sales – standard products business	$	112,906			$	129,566		$	110,736
Net sales – transitional Fab 3 foundry services		10,113				13,379			9,737
Total revenues		123,019				142,945			120,473
Cost of sales:
Cost of sales – standard products business		79,247				92,503			81,606
Cost of sales – transitional Fab 3 foundry services		9,390				11,981			9,737
Total cost of sales		88,637				104,484			91,343
Gross profit		34,382				38,461			29,130
Gross profit as a percentage of standard products
business net sales		29.8%				28.6%			26.3%
Gross profit as a percentage of total revenues		27.9%				26.9%			24.2%
Operating expenses:
Selling, general and administrative expenses		12,634				12,576			12,102
Research and development expenses		13,423				11,604			10,509
Early termination and other charges		10,416				5,075			554
Total operating expenses		36,473				29,255			23,165
Operating income (loss)		(2,091)				9,206			5,965
Interest expense		(1,041)				(1,625)			(5,607)
Foreign currency gain (loss), net		(4,671)				13,256			(30,971)
Loss on early extinguishment of borrowings, net		—				(766)			—
Other income, net		620				767			838
Income (loss) from continuing operations before
income tax expense		(7,183)				20,838			(29,775)
Income tax expense (benefit)		290				(47,064)			1,303
Income (loss) from continuing operations		(7,473)				67,902			(31,078)
Income (loss) from discontinued operations, net of tax		—				(1,321)			7,329
Net income (loss)	$	(7,473)			$	66,581		$	(23,749)
Basic earnings (loss) per common share—
Continuing operations	$	(0.19)			$	1.91		$	(0.89)
Discontinued operations		—				(0.04)			0.21
Total	$	(0.19)			$	1.87		$	(0.68)
Diluted earnings (loss) per common share—
Continuing operations	$	(0.19)			$	1.47		$	(0.89)
Discontinued operations		—				(0.02)			0.21
Total	$	(0.19)			$	1.45		$	(0.68)
Weighted average number of shares—
Basic		40,292,838				35,582,966			34,893,157
Diluted		40,292,838				47,062,903			34,893,157

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars, except share data) (Unaudited)
		March 31,				December 31,
			2021				2020
Assets
Current assets
Cash and cash equivalents		$	290,194			$	279,940
Accounts receivable, net			52,250				64,390
Inventories, net			29,964				39,039
Other receivables			5,649				4,338
Prepaid expenses			9,136				7,332
Hedge collateral			5,250				5,250
Other current assets			2,435				9,321
Total current assets			394,878				409,610
Property, plant and equipment, net			91,014				96,383
Operating lease right-of-use assets			4,592				4,632
Intangible assets, net			2,602				2,727
Long-term prepaid expenses			5,993				4,058
Deferred income taxes			42,906				44,541
Other non-current assets			9,422				9,739
Total assets		$	551,407			$	571,690
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$		43,357			$	52,164
Other accounts payable			8,261				2,531
Accrued expenses			17,867				16,241
Accrued income taxes			1,224				12,398
Operating lease liabilities			2,352				2,210
Current portion of long-term borrowings, net			—				83,479
Other current liabilities			6,558				4,595
Total current liabilities			79,619				173,618
Accrued severance benefits, net			39,070				40,462
Non-current operating lease liabilities			2,240				2,422
Other non-current liabilities			10,131				9,588
Total liabilities			131,060				226,090
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 55,469,375 shares issued and 46,257,413
outstanding at March 31, 2021 and 44,943,854 shares issued and 35,783,347 outstanding at December 31, 2020			555				450
Additional paid-in capital			250,829				163,010
Retained earnings			279,361				286,834
Treasury stock, 9,211,962 shares at March 31, 2021 and 9,160,507 shares at December 31, 2020, respectively			(109,407)				(108,397)
Accumulated other comprehensive income (loss)			(991)				3,703
Total stockholders' equity			420,347				345,600
Total liabilities and stockholders' equity		$	551,407			$	571,690

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (Unaudited)
	Three Months Ended
	March 31, 2021		March 31, 2020
Cash flows from operating activities
Net loss	$       (7,473)		$     (23,749)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	3,448		7,935
Provision for severance benefits	1,771		5,071
Amortization of debt issuance costs and original issue discount	261		598
Loss on foreign currency, net	14,873		38,480
Restructuring and other charges	9,504		2,138
Provision for inventory reserves	1,504		570
Stock-based compensation	1,646		885
Deferred income tax assets	30		23
Others, net	124		107
Changes in operating assets and liabilities
Accounts receivable, net	9,794		(10,430)
Unbilled accounts receivable, net	—		6,937
Inventories	6,071		(4,863)
Other receivables	(1,438)		1,982
Other current assets	5,427		909
Accounts payable	(7,701)		1,988
Other accounts payable	(2,009)		(1,817)
Accrued expenses	(3,532 )		(6,611)
Accrued income taxes	(10,700)		(274)
Other current liabilities	1,087		1,336
Other non-current liabilities	18		1,808
Payment of severance benefits	(1,493)		(2,080)
Others, net	12		125
Net cash provided by operating activities	21,224		21,068
Cash flows from investing activities
Proceeds from settlement of hedge collateral	—		4,239
Payment of hedge collateral	—		(7,841)
Purchase of property, plant and equipment	(1,082)		(3,351)
Payment for intellectual property registration	(171)		(229)
Payment of guarantee deposits	(76)		—
Others, net	(35)		55
Net cash used in investing activities	(1,364)		(7,127)
Cash flows from financing activities
Proceeds from exercise of stock options	2,538		—
Acquisition of treasury stock	(1,540)		(1,021)
Repayment of financing related to water treatment facility arrangement	(144)		(135)
Repayment of principal portion of finance lease liabilities	(16)		(60)
Net cash provided by (used in) financing activities	838		(1,216)
Effect of exchange rates on cash and cash equivalents	(10,444)		(7,089)
Net increase in cash and cash equivalents	10,254		5,636
Cash and cash equivalents
Beginning of the period	279,940		151,657
End of the period	$    290,194		$    157,293

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES RECONCILIATION OF OPERATING INCOME TO ADJUSTED OPERATING INCOME (In thousands of U.S. dollars) (Unaudited)
	Three Months Ended
	March 31,			December 31,			March 31,
	2021			2020			2020
Operating income (loss)	$	(2,091)		$	9,206		$	5,965
Adjustments:
Equity-based compensation expense		1,646			1,945			762
Early termination and other charges		10,416			5,075			554
Inventory reserve related to Huawei impact of
downstream trade restrictions		—			(871)			—
Adjusted operating income	$	9,971		$	15,355		$	7,281
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) Early termination and other charges and (iii) Inventory reserve related to Huawei impact of downstream trade restrictions.   For the three months ended March 31, 2021, early termination and other charges eliminate $10,416 thousand, of which $9,831 thousand related to non-recurring professional fees and certain transaction related expenses incurred in connection with the Merger. For the three months ended March 31, 2020, early termination and other charges eliminate $554 thousand of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives.   For the three months ended December 31, 2020, early termination and other charges eliminate $5,075 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees, and $653 thousand related to non-recurring professional fees and certain transaction related expenses incurred in connection with the Merger.

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET INCOME 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,
		2021				2020			2020
Income (loss) from continuing operations	$	(7,473)			$	67,902		$	(31,078)
Adjustments:
Interest expense, net		420				863			4,930
Income tax expense (benefit)		290				(47,064)			1,303
Depreciation and amortization		3,448				3,148			2,570
EBITDA		(3,315)				24,849			(22,275)
Equity-based compensation expense		1,646				1,945			762
Early termination and other charges		10,416				5,075			554
Foreign currency loss (gain), net		4,671				(13,256)			30,971
Derivative valuation loss (gain), net		86				74			(117)
Loss on early extinguishment of borrowings, net		—				766			—
Inventory reserve related to Huawei impact of
downstream trade restrictions		—				(871)			—
Adjusted EBITDA	$	13,504			$	18,582		$	9,895
Income (loss) from continuing operations	$	(7,473)			$	67,902		$	(31,078)
Adjustments:
Equity-based compensation expense		1,646				1,945			762
Early termination and other charges		10,416				5,075			554
Foreign currency loss (gain), net		4,671				(13,256)			30,971
Derivative valuation loss (gain), net		86				74			(117)
Loss on early extinguishment of borrowings, net		—				766			—
Inventory reserve related to Huawei impact of
downstream trade restrictions		—				(871)			—
GAAP and cash tax expense difference		—				(43,874)			—
Income tax effect on non-GAAP adjustments		—				(493)			—
Adjusted Net Income	$	9,346			$	17,268		$	1,092
Adjusted Net Income per common share—
- Basic	$	0.23			$	0.49		$	0.03
- Diluted	$	0.22			$	0.40		$	0.03
Weighted average number of shares – basic		40,292,838				35,582,966			34,893,157
Weighted average number of shares – diluted		47,470,416				47,062,903			35,883,200
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) Early termination and other charges, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss (gain), net, (v) Loss on early extinguishment of borrowings, net and (vi) Inventory reserve related to Huawei impact of downstream trade restrictions. EBITDA for the periods indicated is defined as Income (loss) from continuing operations before interest expense, net, income tax expense (benefit) and depreciation and amortization.   We present Adjusted Net Income by adjusting income (loss) from continuing operations 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 income (loss) from continuing operations, adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss (gain), net, (v) Loss on early extinguishment of borrowings, net, (vi) Inventory reserve related to Huawei impact of downstream trade restrictions, (vii) GAAP and cash tax expense difference and (viii) Income tax effect on non-GAAP adjustments.   For the three months ended March 31, 2021, early termination and other charges eliminate $10,416 thousand, of which $9,831 thousand related to non-recurring professional fees and certain transaction related expenses incurred in connection with the Merger. For the three months ended March 31, 2020, early termination and other charges eliminate $554 thousand of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives.   For the three months ended December 31, 2020, early termination and other charges eliminate $5,075 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees, and $653 thousand related to non-recurring professional fees and certain transaction related expenses incurred in connection with the Merger.

 

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SOURCE Magnachip Semiconductor Corporation