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Magnachip Reports Results for Third Quarter 2021

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Magnachip Semiconductor Corporation (NYSE: MX) announced strong third-quarter 2021 results, achieving a historic gross profit margin of 36.7%. Factors contributing to this success included an improved product mix, increased selling prices, and high utilization at Fab 3. The Power business recorded revenue growth for the third consecutive quarter, while the Display business faced revenue constraints due to foundry capacity allocation issues amid global shortages. The company aims to tackle these challenges by enhancing mix management and expanding sustainable supply capacity for the future.

Positive
  • Achieved a historic gross profit margin of 36.7%.
  • Power business revenue grew for the third consecutive quarter.
  • Improved product mix and increased average selling prices.
Negative
  • Display business revenue limited by foundry capacity allocation.
  • Ongoing global manufacturing shortages may impact future growth.

SEOUL, South Korea, Oct. 25, 2021 /PRNewswire/ -- Magnachip Semiconductor Corporation (NYSE: MX) ("Magnachip" or the "Company") today announced its financial results for the third quarter 2021.

"Magnachip delivered solid third quarter results driven mainly by higher gross profit margin. Supported by an improved product mix, combined with an increase in average selling price under a favorable pricing environment, and high utilization rate at Fab 3, our gross profit margin reached 36.7%, the highest level reported in the company's history, enabling us to achieve a very healthy bottom line," said YJ Kim, Magnachip's chief executive officer.

"Our Power business posted record revenue again for the third consecutive quarter, driven by strong demand across all our end markets. While demand for Magnachip's OLED DDICs has been strong and outpacing supply, our Display business revenue continues to be limited by foundry capacity allocation amid global shortages in manufacturing capacities. As the supply constraint is expected to persist for the foreseeable future, we will keep pressing forward relentlessly to navigate the ongoing challenges by focusing on mix management in the near-term while also securing and expanding sustainable supply capacity for 2022 and beyond, which has already yielded some future capacity commitments."

Magnachip is not hosting a quarterly earnings conference call and has suspended the practice of providing forward-looking guidance while the Agreement and Plan of Merger executed on March 25, 2021 with an investment vehicle formed by an affiliate of Wise Road Capital LTD is in effect. 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.

Q3 2021 Financial Highlights








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








GAAP






Q3 2021

Q2 2021

Q/Q change

Q3 2020

Y/Y change


Revenues









Standard Products Business









Display Solutions

58,528

46,601

up

25.6%

69,583

down

15.9%

Power Solutions

58,887

56,667

up

3.9%

46,679

up

26.2%

Transitional Fab 3 Foundry Services(1)

9,585

10,608

down

9.6%

8,551

up

12.1%

Gross Profit Margin

36.7%

29.8%

up

6.9%pts

22.9%

up

13.8%pts

Operating Income

20,001

1,627

up

1,129.3%

3,223

up

520.6%

Net Income (Loss)(2)

10,768

(198)

up

n/a

272,962

down

96.1%

Basic Earnings (Loss) per Common Share

0.23

(0.00)

up

n/a

7.74

down

97.0%

Diluted Earnings (Loss) per Common Share

0.23

(0.00)

up

n/a

5.89

down

96.1%



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







Non-GAAP(3)





Q3 2021

Q2 2021

Q/Q change

Q3 2020

Y/Y change


Adjusted Operating Income

22,691

9,052

up

150.7%

8,823

up

157.2%

Adjusted EBITDA

26,361

12,692

up

107.7%

11,731

up

124.7%

Adjusted Net Income

20,073

7,034

up

185.4%

5,147

up

290.0%

Adjusted Earnings per Common Share—Diluted

0.42

0.15

up

180.0%

0.14

up

200.0%



(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 the third quarter of 2020, total net income of $273.0 million included income from discontinued operations, net of tax, of $264.5 million, primarily attributable to the recognition of $287.1 million as gain on sale of the Foundry Services Group business and Fab 4.

(3)

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, among others: 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; the possibility 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; 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 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



Nine Months Ended




September 30,

2021



June 30,

2021



September 30,

2020



September 30,

2021



September 30,

2020


Revenues:





Net sales – standard products business


$

117,415



$

103,268



$

116,262



$

333,589



$

335,953


Net sales – transitional Fab 3 foundry services



9,585




10,608




8,551




30,306




28,161


Total revenues



127,000




113,876




124,813




363,895




364,114


Cost of sales:





















Cost of sales – standard products business



71,641




70,409




87,494




221,297




245,917


Cost of sales – transitional Fab 3 foundry services



8,772




9,497




8,731




27,659




28,341


Total cost of sales



80,413




79,906




96,225




248,956




274,258


Gross profit



46,587




33,970




28,588




114,939




89,856


Gross profit as a percentage of standard products business net sales



39.0

%



31.8

%



24.7

%



33.7

%



26.8

%

Gross profit as a percentage of total revenues



36.7

%



29.8

%



22.9

%



31.6

%



24.7

%

Operating expenses:





















Selling, general and administrative expenses



12,550




14,001




12,888




39,185




37,398


Research and development expenses



12,270




13,322




12,477




39,015




34,094


Other charges



1,766




5,020







17,202




554


Total operating expenses



26,586




32,343




25,365




95,402




72,046


Operating income



20,001




1,627




3,223




19,537




17,810


Interest expense



(113)




(85)




(5,485)




(1,239)




(16,522)


Foreign currency gain (loss), net



(7,579)




250




8,864




(12,000)




(13,638)


Other income, net



1,608




611




714




2,839




2,343


Income (loss) from continuing operations before income tax expense



13,917




2,403




7,316




9,137




(10,007)


Income tax expense (benefit)



3,149




2,601




(1,145)




6,040




836


Income (loss) from continuing operations



10,768




(198)




8,461




3,097




(10,843)


Income from discontinued operations, net of tax









264,501







289,227


Net income (loss)


$

10,768



$

(198)



$

272,962



$

3,097



$

278,384


Basic earnings (loss) per common share—





















Continuing operations


$

0.23



$

(0.00)



$

0.24



$

0.07



$

(0.31)


Discontinued operations









7.50







8.24


Total


$

0.23



$

(0.00)



$

7.74



$

0.07



$

7.93


Diluted earnings (loss) per common share—





















Continuing operations


$

0.23



$

(0.00)



$

0.21



$

0.07



$

(0.31)


Discontinued operations









5.68







8.24


Total


$

0.23



$

(0.00)



$

5.89



$

0.07



$

7.93


Weighted average number of shares—





















Basic



46,449,234




46,322,027




35,280,864




44,377,250




35,089,479


Diluted



47,808,457




46,322,027




46,581,788




45,811,792




35,089,479


 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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




September 30,
2021

December 31,
2020

Assets

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

Current assets



Cash and cash equivalents   

$       276,301

$       279,940

Accounts receivable, net        

52,523

64,390

Inventories, net         

38,773

39,039

Other receivables    

8,971

4,338

Prepaid expenses   

9,666

7,332

Hedge collateral      

3,720

5,250

Other current assets

1,919

9,321

Total current assets      

391,873

409,610

Property, plant and equipment, net

103,352

96,383

Operating lease right-of-use assets

3,727

4,632

Intangible assets, net         

2,405

2,727

Long-term prepaid expenses          

9,451

4,058

Deferred income taxes     

41,255

44,541

Other non-current assets  

10,626

9,739

Total assets    

$       562,689

$       571,690

Liabilities and Stockholders' Equity



Current liabilities



Accounts payable    

$         33,386

$         52,164

Other accounts payable         

18,671

2,531

Accrued expenses   

13,168

16,241

Accrued income taxes            

1,955

12,398

Operating lease liabilities      

1,757

2,210

Current portion of long-term borrowings, net     

83,479

Other current liabilities            

7,800

4,595

Total current liabilities  

76,737

173,618

Accrued severance benefits, net     

37,741

40,462

Non-current operating lease liabilities           

1,970

2,422

Other non-current liabilities              

12,944

9,588

Total liabilities

129,392

226,090

Commitments and contingencies



Stockholders' equity



Common stock, $0.01 par value, 150,000,000 shares authorized, 55,676,851 shares issued and 46,464,889 outstanding at September 30, 2021 and 44,943,854 shares issued and 35,783,347 outstanding at December 31, 2020

557

450

Additional paid-in capital       

256,619

163,010

Retained earnings   

289,931

286,834

Treasury stock, 9,211,962 shares at September 30, 2021 and 9,160,507 shares at December 31, 2020, respectively

(109,407 )

(108,397 )

Accumulated other comprehensive income (loss)           

(4,403 )

3,703

Total stockholders' equity            

433,297

345,600

Total liabilities and stockholders' equity   

$       562,689

$       571,690

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)



Three Months Ended


Nine Months Ended




September 30,

2021



September 30,

2021



September 30,

2020


Cash flows from operating activities













Net income


$

10,768



$

3,097



$

278,384


Adjustments to reconcile net income to net cash provided by operating activities













Depreciation and amortization



3,578




10,576




13,333


Provision for severance benefits



2,007




5,514




14,150


Amortization of debt issuance costs and original issue discount






261




1,824


Loss on foreign currency, net



19,254




32,607




6,609


Restructuring and other charges



750




750




490


Provision for inventory reserves



(1,862)




1,484




4,079


Stock-based compensation



2,005




6,056




4,754


Gain on sale of discontinued operations









(287,117)


Other, net



176




442




85


Changes in operating assets and liabilities













Accounts receivable, net



1,598




6,696




(16,583)


Unbilled accounts receivable, net









14,260


Inventories



2,609




(4,561)




1,390


Other receivables



(446)




(5,287)




6,111


Other current assets



(690)




7,933




9,143


Accounts payable



(17,232)




(16,192)




(5,156)


Other accounts payable



(3,126)




(3,729)




(8,034)


Accrued expenses



(22)




(2,391)




1,991


Accrued income taxes



1,941




(8,308)




12,546


Other current liabilities



657




555




2,243


Other non-current liabilities



(392)




(666)




2,868


Payment of severance benefits



(1,936)




(4,772)




(5,888)


Other, net



13




(49)




59


Net cash provided by operating activities



19,650




30,016




51,541


Cash flows from investing activities













Proceeds from settlement of hedge collateral



3,023




3,995




8,029


Payment of hedge collateral



(2,159)




(2,744)




(7,841)


Purchase of property, plant and equipment



(8,502)




(13,368)




(16,353)


Payment for intellectual property registration



(167)




(455)




(664)


Collection of guarantee deposits



2,885




3,192




891


Payment of guarantee deposits






(4,960)




(611)


Proceeds from sale of discontinued operations









350,553


Other, net



27




(103)




26


Net cash provided by (used in) investing activities



(4,893)




(14,443)




334,030


Cash flows from financing activities













Proceeds from exercise of stock options



1,371




3,920




2,690


Acquisition of treasury stock






(1,653)




(1,021)


Repayment of financing related to water treatment facility arrangement



(139)




(427)




(402)


Repayment of principal portion of finance lease liabilities



(16)




(49)




(165)


Net cash provided by financing activities



1,216




1,791




1,102


Effect of exchange rates on cash and cash equivalents



(11,552)




(21,003)




3,781


Net increase (decrease) in cash and cash equivalents



4,421




(3,639)




390,454


Cash and cash equivalents













Beginning of the period



271,880




279,940




151,657


End of the period


$

276,301



$

276,301



$

542,111


 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF OPERATING INCOME TO ADJUSTED OPERATING INCOME

(In thousands of U.S. dollars)




Three Months Ended



Nine Months Ended




September 30,



June 30,



September 30,



September 30,



September 30,




2021



2021



2020



2021



2020


Operating income


$

20,001



$

1,627



$

3,223



$

19,537



$

17,810


Adjustments:





















Equity-based compensation expense



2,005




2,405




2,101




6,056




4,366


Inventory reserve related to Huawei impact of downstream trade restrictions



(1,081)







2,331




(1,081)




2,331


Expenses related to Fab 3 power outage









1,168







1,168


Other charges



1,766




5,020







17,202




554


Adjusted operating income


$

22,691



$

9,052



$

8,823



$

41,714



$

26,229


We present Adjusted Operating Income as a supplemental measure of our performance. We define Adjusted Operating Income for the periods indicated as operating income adjusted to exclude (i) Equity-based compensation expense, (ii) Inventory reserve related to Huawei impact of downstream trade restrictions, (iii) Expenses related to Fab 3 power outage and (iv) Other charges.

For the three and nine months ended September 30, 2021, other charges of $1,766 thousand and $17,202 thousand, respectively, related to non-recurring professional service fees and expenses in connection with the pending merger transaction and regulatory requests.

For the nine months ended September 30, 2020, other charges were $554 thousand, which pertained to non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives.

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


Nine Months Ended




September 30,


June 30,



September 30,


September 30,

September 30,




2021


2021


2020


2021


2020

Income (loss) from continuing operations


$

10,768


$

(198)



$

8,461


$

3,097


$

(10,843)

Adjustments:


















Interest expense (income), net



(439)



(493)



4,875


(512)



14,541

Income tax expense (benefit)



3,149



2,601



(1,145)


6,040



836

Depreciation and amortization



3,578



3,550



2,854


10,576



7,968

EBITDA



17,056



5,460



15,045


19,201



12,502

Equity-based compensation expense



2,005



2,405



2,101


6,056



4,366

Foreign currency loss (gain), net



7,579



(250)



(8,864)


12,000



13,638

Derivative valuation loss (gain), net



(237)



57



(50)


(94)



(222)

Inventory reserve related to Huawei impact of downstream trade restrictions



(1,081)





2,331


(1,081)



2,331

Expenses related to Fab 3 power outage







1,168




1,168

Other charges, net



1,039



5,020




16,475



554



















Adjusted EBITDA

$

26,361

$

12,692

$

11,731

$

52,557

$

34,337

Income (loss) from continuing operations




















$

10,768


$

(198)


$

8,461

$

3,097


$

(10,843)

Adjustments:



















Equity-based compensation expense



2,005



2,405



2,101


6,056



4,366

Foreign currency loss (gain), net



7,579



(250)



(8,864)


12,000



13,638

Derivative valuation loss (gain), net



(237)



57



(50)


(94)



(222)

Inventory reserve related to Huawei impact of downstream trade restrictions



(1,081)





2,331


(1,081)



2,331

Expenses related to Fab 3 power outage







1,168




1,168

Other charges, net



1,039



5,020




16,475



554

Adjusted Net Income


$

20,073


$

7,034


$

5,147

$

36,453


$

10,992




















Adjusted Net Income per common share—



















- Basic

$

0.43

$

0.15

$

0.15

$

0.82

$

0.31

- Diluted

$

0.42

$

0.15

$

0.14

$

0.78

$

0.30

Weighted average number of shares – basic



46,449,234



46,322,027



35,280,864


44,377,250



35,089,479

Weighted average number of shares – diluted



47,808,457



47,846,217



46,581,788


47,718,578



36,151,622






















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) Expenses related to Fab 3 power outage and (vi) Other charges, net. EBITDA for the periods indicated is defined as Income (loss) from continuing operations before interest expense (income), 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) Foreign currency loss (gain), net, (iii) Derivative valuation loss (gain), net, (iv) Inventory reserve related to Huawei impact of downstream trade restrictions, (v) Expenses related to Fab 3 power outage and (vi) Other charges, net.

For the three and nine months ended September 30, 2021, other charges, net included expenses of $1,766 thousand and $17,202 thousand, respectively, related to non-recurring professional service fees and expenses in connection with the pending merger transaction and regulatory requests, both of which were offset in part by $727 thousand legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the current quarter.

For the nine months ended September 30, 2020, other charges, net were $554 thousand, which pertained to non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives.

 

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SOURCE Magnachip Semiconductor Corporation

FAQ

What were Magnachip's financial results for Q3 2021?

Magnachip reported a gross profit margin of 36.7%, its highest ever, driven by an improved product mix and increased selling prices.

How did the Power business perform in Q3 2021?

The Power business posted record revenue for the third consecutive quarter, supported by strong demand across all end markets.

What challenges is Magnachip facing in its Display business?

The Display business is experiencing revenue limitations due to foundry capacity allocation issues amid global manufacturing shortages.

What is Magnachip's strategy to address supply constraints?

Magnachip plans to enhance mix management and secure sustainable supply capacity for 2022 and beyond.

Is Magnachip hosting a quarterly earnings conference call for Q3 2021?

No, Magnachip has suspended the practice of hosting quarterly earnings conference calls.

Magnachip Semiconductor Corp.

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