PR Newswire | Oct 29, 2020 04:02PM EDT

10/29 15:01 CDT

MagnaChip Reports Results for Third Quarter 2020- Completed sale of the Foundry Services Group business and Fab 4 on September 1, 2020- Cash balance as of September 30, 2020 was $542.1 million including approximately $350.6 million cash proceeds-- Paid $227.4 million to fully redeem 6.625% 2021 Senior Notes on October 2, 2020, lowering the future interest expense by approximately $16 million annually- Revenue of $124.8 million, including $8.6 million revenue from transitional foundry service, increased 5% sequentially, exceeding high-end of the guidance range- Gross profit margin of 22.9% reflecting approximately 300 bps negative impact from one-time items- Net income of $273.0 million, including income from discontinued operations reflecting the $287.1 million gain on sale of the Foundry Services Group business and Fab 4; GAAP earnings per share of $7.74, including income from discontinued operations- Net income from continuing operations of $8.5 million; GAAP diluted earnings per share from continuing operations of 21 cents- Non-GAAP diluted earnings per share from continuing operations of 14 cents SEOUL, South Korea, Oct. 29, 2020

SEOUL, South Korea, Oct. 29, 2020 /PRNewswire/ -- MagnaChip Semiconductor Corporation (NYSE: MX) ("MagnaChip" or the "Company") today announced financial results for the third quarter of 2020.

"Q3 represented a pivotal chapter of MagnaChip as we successfully closed the sale of the Foundry business and Fab 4 that ultimately resulted in MagnaChip becoming a pure-play Products company with a very healthy balance sheet. Across the company, we are making well-planned moves to realign our resources, sharpen our R&D focus on key priority areas, and improve our operational efficiency," said YJ Kim, MagnaChip's chief executive officer. "During the third quarter, we also delivered solid performance with a 5% sequential revenue growth and a healthy bottom line despite the market disruptions caused by pandemic and geopolitical tension."

"More importantly, the upswing in demand which began in July has continued into the fourth quarter thus far. We are encouraged by the robust growth opportunities ahead of us, which creates a stronger foundation for profitable growth. We continue to push the envelope on enhancing our competitive position through continuous technology advancement, addressable market expansion and strategic customer engagements."

Q3 2020 Financial Highlights



In thousands of US dollars, except share data

GAAP

Q3 2020 Q2 2020 Q/Q change Q3 2019 Y/Y change

Revenues

Standard Products Business

Display Solutions 69,583 69,176 up 0.6% 90,550 down 23.2%

Power Solutions 46,679 39,779 up 17.3% 48,723 down 4.2%

Transitional Fab 3 foundry services^(1) 8,551 9,873 down 13.4% 9,894 down 13.6%

Gross Profit Margin 22.9% 27.0% down 4.1% pts 23.6% down 0/7% pts

Operating Income 3,223 8,622 down 62.6% 14,336 up 77.5%

Income (loss) from continuing operations 8,461 11,774 down 28.1% (14,244) up 159.4%

Diluted earnings (loss) per common share-(Continuing operations) 0.21 0.28 down 25.0% (0.41) up 151.2%

Net Income (Loss)^(2) 272,962 29,171 up 835.7% (1,607) up 17,085.8%

Basic Earnings (Loss) per Common Share 7.74 0.84 up 821.4% (0.05) up 15,580.0%

Diluted Earnings (Loss) per Common Share 5.89 0.65 up 806.2% (0.05) up 11,880.0%

In thousands of US dollars, except share data

Non-GAAP^(3)

Q3 2020 Q2 2020 Q/Q change Q3 2019 Y/Y change

Adjusted Operating Income 8,823 10,125 down 12.9% 14,766 down 40.2%

Adjusted EBITDA 11,731 12,711 down 7.7% 17,404 down 32.6%

Adjusted Net Income 5,147 4,753 up 8.3% 8,204 down 37.3%

Adjusted Earnings per Common Share-Diluted 0.14 0.13 up 7.7% 0.21 down 33.3%

(1) Following the consummation of the sale of the Foundry Services Group business and Fab 4, and for a period 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 the 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, 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 and Fab 4.

(3) 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.

Q4 2020 financial guidance

The COVID-19 global pandemic is still evolving and continues to reduce our forward visibility. While actual results may vary, MagnaChip currently anticipates for Q4 2020:

* Revenue to be in the range of $128 million to $136 million, which represents approximately 3% to 9% sequential growth, including $10 million to $11 million of the Transitional Fab 3 Foundry Services. * Gross profit margin to be in the range of 25% to 27%.

Third Quarter 2020 Earnings Conference CallMagnaChip will host a conference call at 5 p.m. Eastern Time on October 29, 2020. The conference call will be webcast live 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 7584769. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. Eastern Time 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 7584769.

Safe Harbor for Forward-Looking StatementsInformation 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 MagnaChip's future operating and financial performance, outlook and business plans, including fourth quarter 2020 revenue and gross profit margin expectations, and the impact of the COVID-19 pandemic and escalated trade tensions on MagnaChip's fourth quarter 2020 and future operating results. 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 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; 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 February 21, 2020, our Form 10-Qs filed on May 11, 2020 and August 7, 2020 (all of which including that the impact of the COVID-19 pandemic 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 SemiconductorMagnaChip 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 and manufacturing services 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.

CONTACTS:

In the United States: In Korea:

So-Yeon Jeong Chankeun Park

Head of Investor Relations Director of Public Relations

Tel. +1-408-712-6151 Tel. +82-2-6903-5223

Investor.relations@magnachip.com chankeun.park@magnachip.com

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of US dollars, except share data)(Unaudited)

Three Months Ended Nine Months Ended

September June 30, September 30, September 30, September 30, 30,

2020 2020 2019 2020 2019

Revenues:

Net sales - standard products business $ 116,262 $ 108,955 $ 139,273 $ 335,953 $ 371,543

Net sales - transitional Fab 3 foundry services 8,551 9,873 9,894 28,161 25,776

Total revenues 124,813 118,828 149,167 364,114 397,319

Cost of sales:

Cost of sales - standard products business 87,494 76,817 104,018 245,917 285,643

Cost of sales - transitional Fab 3 foundry services 8,731 9,873 9,894 28,341 25,776

Total cost of sales 96,225 86,690 113,912 274,258 311,419

Gross profit 28,588 32,138 35,255 89,856 85,900

Gross profit as a percentage of standard products

business net sales 24.7% 29.5% 25.3% 26.8% 23.1%

Gross profit as a percentage of total revenues 22.9% 27.0% 23.6% 24.7% 21.6%

Operating expenses:

Selling, general and administrative expenses 12,888 12,408 10,686 37,398 33,817

Research and development expenses 12,477 11,108 10,233 34,094 34,049

Other charges - - - 554 -

Total operating expenses 25,365 23,516 20,919 72,046 67,866

Operating income: 3,223 8,622 14,336 17,810 18,034

Interest expense (5,485) (5,430) (5,539) (16,522) (16,615)

Foreign currency gain (loss), net 8,864 8,469 (21,985) (13,638) (44,166)

Loss on early extinguishment of long-term

borrowings, net - - - - (42)

Other income, net 714 791 678 2,343 1,816

Income (loss) from continuing operations before

income tax expense 7,316 12,452 (12,510) (10,007) (40,973)

Income tax expense (benefit) (1,145) 678 1,734 836 3,316

Income (loss) from continuing operations 8,461 11,774 (14,244) (10,843) (44,289)

Income (loss) from discontinued operations, net of tax 264,501 17,397 12,637 289,227 (963)

Net income (loss) $ 272,962 $ 29,171 $ (1,607) $ 278,384 $ (45,252)

Basic earnings (loss) per common share-

Continuing operations $ 0.24 $ 0.34 $ (0.41) $ (0.31) $ (1.29)

Discontinued operations 7.50 0.50 0.36 8.24 (0.03)

Total $ 7.74 $ 0.84 $ (0.05) $ 7.93 $ (1.32)

Diluted earnings (loss) per common share-

Continuing operations $ 0.21 $ 0.28 $ (0.41) $ (0.31) $ (1.29)

Discontinued operations 5.68 0.37 0.36 8.24 (0.03)

Total $ 5.89 $ 0.65 $ (0.05) $ 7.93 $ (1.32)

Weighted average number of shares-

Basic 35,280,864 35,092,312 34,357,745 35,089,479 34,266,513

Diluted 46,581,788 46,474,237 34,357,745 35,089,479 34,266,513

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

September 30, December 31,

2020 2019

Assets

Current assets

Cash and cash equivalents $ 542,111 $ 151,657

Accounts receivable, net 57,772 47,447

Inventories, net 33,631 41,404

Other receivables 4,551 10,200

Prepaid expenses 8,265 9,003

Hedge collateral 9,650 9,820

Other current assets 8,338 10,013

Current assets held for sale - 99,821

Total current assets 664,318 379,365

Property, plant and equipment, net 77,489 73,068

Operating lease right-of-use assets 2,032 1,876

Intangible assets, net 2,877 2,769

Long-term prepaid expenses 2,138 5,757

Other non-current assets 8,598 9,059

Non-current assets held for sale - 123,434

Total assets $ 757,452 $ 595,328

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $ 40,497 $ 40,376

Other accounts payable 7,639 6,410

Accrued expenses 41,630 44,799

Accrued income taxes 14,038 1,569

Operating lease liabilities 1,390 1,625

Current portion of long-term borrowings, net 306,567 -

Other current liabilities 7,652 2,014

Current liabilities held for sale - 37,040

Total current liabilities 419,413 133,833

Long-term borrowings, net - 304,743

Accrued severance benefits, net 51,953 51,181

Other non-current liabilities 7,782 9,671

Non-current liabilities held for sale - 110,881

Total liabilities 479,148 610,309

Commitments and contingencies

Stockholders' equity

Common stock, $0.01 par value, 150,000,000 shares authorized, 44,595,393 sharesissued and35,489,720

outstanding at September 30, 2020 and 43,851,991 shares issued and 34,800,312outstanding at 447 439December 31, 2019

Additional paid-in capital 159,840 152,404

Retained earnings (deficit) 220,253 (58,131)

Treasury stock, 9,105,673 shares at September 30, 2020 and 9,051,679 shares atDecember 31, (107,649) (107,033)2019, respectively

Accumulated other comprehensive income (loss) 5,413 (2,660)

Total stockholders' equity (deficit) 278,304 (14,981)

Total liabilities and stockholders' equity $ 757,452 $ 595,328

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

Three Months Ended Nine Months Ended

September September 30, September 30, 30, 2020 2020 2019

Cash flows from operating activities

Net income (loss) $ 272,962 $ 278,384 $ (45,252)

Adjustments to reconcile net income (loss) to net cash provided by operatingactivities

Depreciation and amortization 2,854 13,333 24,661

Provision for severance benefits 3,971 14,150 10,491

Amortization of debt issuance costs and original issue discount 619 1,824 1,712

Loss (gain) on foreign currency, net (19,788) 6,609 50,512

Restructuring and other charges 349 490 470

Provision for inventory reserves 2,226 4,079 9,255

Stock-based compensation 2,046 4,754 1,920

Loss on early extinguishment of long-term borrowings, net - - 42

Gain on sale of discontinued operations (287,117) (287,117) -

Others 196 85 61

Changes in operating assets and liabilities

Accounts receivable, net (16,145) (16,583) (32,812)

Unbilled accounts receivable, net 3,327 14,260 14,208

Inventories 15,450 1,390 (15,576)

Other receivables 6,044 6,111 (4,814)

Other current assets 4,396 9,143 6,356

Accounts payable (10,103) (5,156) 27,585

Other accounts payable (2,136) (8,034) (10,074)

Accrued expenses 1,830 1,991 3,831

Accrued income taxes 12,197 12,546 (583)

Other current liabilities 1,372 2,243 (5,766)

Other non-current liabilities 1,630 2,868 808

Payment of severance benefits (1,616) (5,888) (6,195)

Others (88) 59 (821)

Net cash provided by (used in) operating activities (5,524) 51,541 30,019

Cash flows from investing activities

Proceeds from settlement of hedge collateral 2,174 8,029 12,625

Payment of hedge collateral - (7,841) (17,024)

Purchase of property, plant and equipment (7,511) (16,353) (16,693)

Payment for intellectual property registration (191) (664) (907)

Collection of guarantee deposits 844 891 539

Payment of guarantee deposits (40) (611) (1,330)

Proceeds from sale of discontinued operations 350,553 350,553 -

Other 5 26 225

Net cash provided by (used in) investing activities 345,834 334,030 (22,565)

Cash flows from financing activities

Repurchase of long-term borrowings - - (1,175)

Proceeds from exercise of stock options 2,027 2,690 1,038

Acquisition of treasury stock - (1,021) (2,588)

Repayment of financing related to water treatment facility arrangement (135) (402) (415)

Repayment of principal portion of lease liabilities (46) (165) (174)

Net cash provided by (used in) financing activities 1,846 1,102 (3,314)

Effect of exchange rates on cash and cash equivalents 7,131 3,781 (5,237)

Net increase (decrease) in cash and cash equivalents 349,287 390,454 (1,097)

Cash and cash equivalents

Beginning of the period 192,824 151,657 132,438

End of the period $ 542,111 $ 542,111 $ 131,341

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES RECONCILIATION OF OPERATING INCOME TO ADJUSTED OPERATING INCOME (In thousands of US dollars) (Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

Operating income $ 3,223 $ 8,622 $ 14,336 $ 17,810 $ 18,034

Adjustments:

Equity-based compensation expense 2,101 1,503 430 4,366 1,661

Inventory reserve related to Huawei 2,331 - - 2,331 -

Expenses related to Fab 3 power outage 1,168 - - 1,168 -

Others - - - 554 585

Adjusted operating income $ 8,823 $ 10,125 $ 14,766 $ 26,229 $ 20,280

We present Adjusted Operating Income as supplemental measures 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, (iii) Expenses related to Fab 3 power outage and (iv) Others. For the three and nine months ended September 30, 2020, inventory reserve related to Huawei eliminates a $2,331 thousand excess and obsolete inventory charge that we recorded in relation to the US Government's export restrictions on Huawei. During the same periods, expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the nine months ended September 30, 2020, others primarily eliminates non-recurring professional fees and expenses incurred in connection with certain treasury and finance initiatives incurred during the three months ended March 31, 2020. For the nine months ended September 30, 2019, others eliminates a $0.6 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESRECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED NET INCOME(In thousands of US dollars, except share data)(Unaudited)

Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

Income (loss) from continuing operations $ 8,461 $ 11,774 $ (14,244) $ (10,843) $ (44,289)

Adjustments:

Interest expense, net 4,875 4,736 4,865 14,541 14,776

Income tax expense (benefit) (1,145) 678 1,734 836 3,316

Depreciation and amortization 2,854 2,544 2,601 7,968 7,703

EBITDA 15,045 19,732 (5,044) 12,502 (18,494)

Equity-based compensation expense 2,101 1,503 430 4,366 1,661

Foreign currency loss (gain), net (8,864) (8,469) 21,985 13,638 44,166

Derivative valuation loss (gain), net (50) (55) 33 (222) 169

Loss on early extinguishment of long-term

borrowings, net - - - - 42

Inventory reserve related to Huawei 2,331 - - 2,331 -

Expenses related to Fab 3 power outage 1,168 - - 1,168 -

Others - - - 554 585

Adjusted EBITDA 11,731 12,711 17,404 34,337 28,129

Income (loss) from continuing operations $ 8,461 $ 11,774 $ (14,244) $ (10,843) $ (44,289)

Adjustments:

Equity-based compensation expense 2,101 1,503 430 4,366 1,661

Foreign currency loss (gain), net (8,864) (8,469) 21,985 13,638 44,166

Derivative valuation loss (gain), net (50) (55) 33 (222) 169

Loss on early extinguishment of long-term

borrowings, net - - - - 42

Inventory reserve related to Huawei 2,331 - - 2,331 -

Expenses related to Fab 3 power outage 1,168 - - 1,168 -

Others - - - 554 585

Adjusted Net Income $ 5,147 $ 4,753 $ 8,204 $ 10,992 $ 2,334

Adjusted Net Income per common share-

- Basic $ 0.15 $ 0.14 $ 0.24 $ 0.31 $ 0.07

- Diluted $ 0.14 $ 0.13 $ 0.21 $ 0.30 $ 0.07

Weighted average number of shares - basic 35,280,864 35,092,312 34,357,745 35,089,479 34,266,513

Weighted average number of shares - diluted 46,581,788 36,330,083 45,516,245 36,151,622 34,955,722

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) Loss on early extinguishment of long-term borrowings, net, (v) Inventory reserve related to Huawei, (vi) Expenses related to Fab 3 power outage and (vii) Others. For the three and nine months ended September 30, 2020, inventory reserve related to Huawei eliminates a $2,331 thousand excess and obsolete inventory charge that we recorded in relation to the US Government's export restrictions on Huawei. During the same periods, expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the nine months ended September 30, 2020, others primarily eliminates non-recurring professional fees and expenses incurred in connection with certain treasury and finance initiatives incurred during the three months ended March 31, 2020. For the nine months ended September 30, 2019, others eliminates a $0.6 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019. 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 prepare 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) Loss on early extinguishment of long-term borrowings, net, (v) Inventory reserve related to Huawei, (vi) Expenses related to Fab 3 power outage and (vii) Others. For the three and nine months ended September 30, 2020, inventory reserve related to Huawei eliminates a $2,331 thousand excess and obsolete inventory charge that we recorded in relation to the US Government's export restrictions on Huawei. During the same periods, expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the nine months ended September 30, 2020, others primarily eliminates non-recurring professional fees and expenses incurred in connection with certain treasury and finance initiatives incurred during the three months ended March 31, 2020. For the nine months ended September 30, 2019, others eliminates a $0.6 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.

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SOURCE MagnaChip Semiconductor Corporation