PR Newswire | Aug 5, 2021 04:06PM EDT

08/05 15:05 CDT

Magnachip Reports Results for Second Quarter 2021-- Second quarter revenue of $113.9 million was down 7.4% sequentially and down 4.2% year-over-year (YoY).-- Gross profit margin for the second quarter was 29.8%, up 190 bps sequentially and up 280 bps YoY.-- GAAP net loss was $(0.2) million or $(0.00) per diluted share.-- Non-GAAP net income was $7.0 million or $0.15 per diluted share. SEOUL, South Korea, Aug. 5, 2021

SEOUL, South Korea, Aug. 5, 2021 /PRNewswire/ --Magnachip Semiconductor Corporation (NYSE: MX) ("Magnachip" or the "Company") today announced financial results for the second quarter 2021.

"Despite sustained demand across our product portfolio, our Display business revenue was negatively impacted by severe supply constraints that continued to deepen in the second quarter. Global shortages in manufacturing capacities, as well as changes in our foundry partners' wafer allocation plans, limit our ability to meet customers' needs. This revenue decline, however, was partially offset by the strong performance in our Power business that achieved record-setting quarterly revenue for the second consecutive quarter. Gross profit margin expanded to 29.8% due to the high utilization rate at our Fab 3, coupled with an improved product mix under a favorable pricing environment. We continue to work closely with our strategic customers and foundry partners to secure long-term supply capacity for OLED DDICs, being mindful of the fact that global supply constraints are having a significant impact on our OLED business." 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 is not 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.

Q2 2021 Financial Highlights

In thousands of US dollars, except share data

GAAP

Q2 2021 Q1 2021 Q/Q change Q2 2020 Y/Y change

Revenues

Standard Products Business

Display Solutions 46,601 58,895 down 20.9% 69,176 down 32.6%

Power Solutions 56,667 54,011 up 4.9% 39,779 up 42.5%

Transitional Fab 3 Foundry Services(1) 10,608 10,113 up 4.9% 9,873 up 7.4%

Gross Profit Margin 29.8% 27.9% up 1.9%pts 27.0% up 2.8%pts

Operating Income (Loss) (2) 1,627 (2,091) up 177.8% 8,622 down 81.1%

Net Income (Loss) (198) (7,473) up 97.4% 29,171 down 100.7%

Basic Earnings (Loss) per Common Share (0.00) (0.19) up 100.0% 0.84 down 100.0%

Diluted Earnings (Loss) per Common Share (0.00) (0.19) up 100.0% 0.65 down 100.0%

In thousands of US dollars, except share data

Non-GAAP(3)

Q2 2021 Q1 2021 Q/Q change Q2 2020 Y/Y change

Adjusted Operating Income 9,052 9,971 down 9.2% 10,125 down 10.6%

Adjusted EBITDA 12,692 13,504 down 6.0% 12,711 down 0.1%

Adjusted Net Income 7,034 9,346 down 24.7% 4,753 up 48.0%

Adjusted Earnings per Common Share-Diluted 0.15 0.22 down 31.8% 0.13 up 15.4%

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(1) ("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.

In Q2 and Q1 2021, respectively, operating income (loss) included non-recurring professional fees and certain transaction related expenses of $2.5 million and $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(2) 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.

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(3) 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 JeongHead of Investor RelationsTel. +1-408-712-6151Investor.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 Six Months Ended

June 30, March 31, June 30, June 30, June 30, 2021 2021 2020 2021 2020

Revenues:

Net sales - standard products business $ 103,268 $ 112,906 $ 108,955 $ 216,174 $ 219,691

Net sales - transitional Fab 3 foundry services 10,608 10,113 9,873 20,721 19,610

Total revenues 113,876 123,019 118,828 236,895 239,301

Cost of sales:

Cost of sales - standard products business 70,409 79,247 76,817 149,656 158,423

Cost of sales - transitional Fab 3 foundry services 9,497 9,390 9,873 18,887 19,610

Total cost of sales 79,906 88,637 86,690 168,543 178,033

Gross profit 33,970 34,382 32,138 68,352 61,268

Gross profit as a percentage of standard products business net sales 31.8% 29.8% 29.5% 30.8% 27.9%

Gross profit as a percentage of total revenues 29.8% 27.9% 27.0% 28.9% 25.6%

Operating expenses:

Selling, general and administrative expenses 14,001 12,634 12,408 26,635 24,510

Research and development expenses 13,322 13,423 11,108 26,745 21,617

Other charges 5,020 10,416 - 15,436 554

Total operating expenses 32,343 36,473 23,516 68,816 46,681

Operating income (loss) 1,627 (2,091) 8,622 (464) 14,587

Interest expense (85) (1,041) (5,430) (1,126) (11,037)

Foreign currency gain (loss), net 250 (4,671) 8,469 (4,421) (22,502)

Other income, net 611 620 791 1,231 1,629

Income (loss) from continuing operations before income tax expense 2,403 (7,183) 12,452 (4,780) (17,323)

Income tax expense 2,601 290 678 2,891 1,981

Income (loss) from continuing operations (198) (7,473) 11,774 (7,671) (19,304)

Income from discontinued operations, net of tax - - 17,397 - 24,726

Net income (loss) $ (198) $ (7,473) $ 29,171 $ (7,671) $ 5,422

Basic earnings (loss) per common share-

Continuing operations $ (0.00) $ (0.19) $ 0.34 $ (0.18) $ (0.55)

Discontinued operations - - 0.50 - 0.71

Total $ (0.00) $ (0.19) $ 0.84 $ (0.18) $ 0.16

Diluted earnings (loss) per common share-

Continuing operations $ (0.00) $ (0.19) $ 0.28 $ (0.18) $ (0.55)

Discontinued operations - - 0.37 - 0.71

Total $ (0.00) $ (0.19) $ 0.65 $ (0.18) $ 0.16

Weighted average number of shares-

Basic 46,322,027 40,292,838 35,092,312 43,324,088 34,992,734

Diluted 46,322,027 40,292,838 46,474,237 43,324,088 34,992,734

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)



June 30, December 31, 2021 2020

Assets

Current assets

Cash and cash equivalents $ 271,880 $ 279,940

Accounts receivable, net 56,730 64,390

Inventories, net 41,369 39,039

Other receivables 9,173 4,338

Prepaid expenses 6,836 7,332

Hedge collateral 4,830 5,250

Other current assets 5,117 9,321

Total current assets 395,935 409,610

Property, plant and equipment, net 94,721 96,383

Operating lease right-of-use assets 4,520 4,632

Intangible assets, net 2,541 2,727

Long-term prepaid expenses 5,626 4,058

Deferred income taxes 43,069 44,541

Other non-current assets 11,141 9,739

Total assets $ 557,553 $ 571,690

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $ 52,040 $ 52,164

Other accounts payable 9,119 2,531

Accrued expenses 13,020 16,241

Accrued income taxes 1,679 12,398

Operating lease liabilities 2,181 2,210

Current portion of long-term borrowings, net - 83,479

Other current liabilities 5,001 4,595

Total current liabilities 83,040 173,618

Accrued severance benefits, net 39,520 40,462

Non-current operating lease liabilities 2,338 2,422

Other non-current liabilities 10,024 9,588

Total liabilities 134,922 226,090

Commitments and contingencies

Stockholders' equity

Common stock, $0.01 par value, 150,000,000 shares authorized, 55,562,907 sharesissued and46,350,945 outstanding at June 30, 2021 and 44,943,854 shares issued and 556 45035,783,347outstanding at December 31, 2020

Additional paid-in capital 253,244 163,010

Retained earnings 279,163 286,834

Treasury stock, 9,211,962 shares at June 30, 2021 and 9,160,507 shares atDecember 31, 2020, (109,407) (108,397)respectively

Accumulated other comprehensive income (loss) (925) 3,703

Total stockholders' equity 422,631 345,600

Total liabilities and stockholders' equity $ 557,553 $ 571,690

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)



Three Months Six Months Ended Ended

June 30, June 30, June 30, 2021 2021 2020

Cash flows from operating activities

Net income (loss) $ (198) $ (7,671) $ 5,422

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

Depreciation and amortization 3,550 6,998 10,479

Provision for severance benefits 1,736 3,507 10,179

Amortization of debt issuance costs and original issue discount - 261 1,205

Loss (gain) on foreign currency, net (1,520) 13,353 26,397

Restructuring and other charges 3,295 3,295 141

Provision for inventory reserves 1,842 3,346 2,033

Stock-based compensation 2,405 4,051 2,528

Other, net 112 266 (111)

Changes in operating assets and liabilities

Accounts receivable, net (4,696) 5,098 (438)

Unbilled accounts receivable, net - - 10,933

Inventories (13,241) (7,170) (14,060)

Other receivables (3,403) (4,841) 67

Other current assets 3,196 8,623 4,747

Accounts payable 8,741 1,040 4,947

Other accounts payable (3,857) (2,287) (5,898)

Accrued expenses (6,373) (3,980) 161

Accrued income taxes 451 (10,249) 349

Other current liabilities (1,189) (102) 871

Other non-current liabilities (292) (274) 1,238

Payment of severance benefits (1,343) (2,836) (4,272)

Other, net (74) (62) 147

Net cash provided by (used in) operating activities (10,858) 10,366 57,065

Cash flows from investing activities

Proceeds from settlement of hedge collateral 972 972 5,855

Payment of hedge collateral (585) (585) (7,841)

Purchase of property, plant and equipment (3,784) (4,866) (8,842)

Payment for intellectual property registration (117) (288) (473)

Collection of guarantee deposits 306 307 47

Payment of guarantee deposits (4,884) (4,960) (571)

Other, net (94) (130) 21

Net cash used in investing activities (8,186) (9,550) (11,804)

Cash flows from financing activities

Proceeds from exercise of stock options 11 2,549 663

Acquisition of treasury stock (113) (1,653) (1,021)

Repayment of financing related to water treatment facility arrangement (144) (288) (267)

Repayment of principal portion of finance lease liabilities (17) (33) (119)

Net cash provided by (used in) financing activities (263) 575 (744)

Effect of exchange rates on cash and cash equivalents 993 (9,451) (3,350)

Net increase (decrease) in cash and cash equivalents (18,314) (8,060) 41,167

Cash and cash equivalents

Beginning of the period 290,194 279,940 151,657

End of the period $ 271,880 $ 271,880 $ 192,824

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESRECONCILIATION OF OPERATING INCOME TO ADJUSTED OPERATING INCOME(In thousands of U.S. dollars)



Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30, 2021 2021 2020 2021 2020

Operating income (loss) $ 1,627 $ (2,091) $ 8,622 $ (464) $ 14,587

Adjustments:

Equity-based compensation expense 2,405 1,646 1,503 4,051 2,265

Other charges 5,020 10,416 - 15,436 554

Adjusted Operating Income $ 9,052 $ 9,971 $ 10,125 $ 19,023 $ 17,406

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 and (ii) Other charges.

For the three and six months ended June 30, 2021, other charges of $5,020 thousand and $15,436 thousand, respectively, related to non-recurring professional service fees and expenses in connection with the Merger and regulatory requests.

For the six months ended June 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 Six Months Ended

June 30, March 31, June 30, June 30, June 30, 2021 2021 2020 2021 2020

Income (loss) from continuing operations $ (198) $ (7,473) $ 11,774 $ (7,67) $ (19,304)

Adjustments:

Interest expense, net (493) 420 4,736 (73) 9,666

Income tax expense 2,601 290 678 2,891 1,981

Depreciation and amortization 3,550 3,448 2,544 6,998 5,114

EBITDA 5,460 (3,315) 19,732 2,145 (2,543)

Equity-based compensation expense 2,405 1,646 1,503 4,051 2,265

Other charges 5,020 10,416 - 15,436 554

Foreign currency loss (gain), net (250) 4,671 (8,469) 4,421 22,502

Derivative valuation loss (gain), net 57 86 (55) 143 (172)

Adjusted EBITDA $ 12,692 $ 13,504 $ 12,711 $ 26,196 $ 22,606

Income (loss) from continuing operations $ (198) $ (7,473) $ 11,774 $ (7,671) $ (19,304 )

Adjustments:

Equity-based compensation expense 2,405 1,646 1,503 4,051 2,265

Other charges 5,020 10,416 - 15,436 554

Foreign currency loss (gain), net (250) 4,671 (8,469) 4,421 22,502

Derivative valuation loss (gain), net 57 86 (55) 143 (172)

Adjusted Net Income $ 7,034 $ 9,346 $ 4,753 $ 16,380 $ 5,845

Adjusted Net Income per common share-

- Basic $ 0.15 $ 0.23 $ 0.14 $ 0.38 $ 0.17

- Diluted $ 0.15 $ 0.22 $ 0.13 $ 0.36 $ 0.16

Weighted average number of shares - basic 46,322,027 40,292,838 35,092,312 43,324,088 34,992,734

Weighted average number of shares - diluted 47,846,217 47,470,416 36,330,083 47,685,875 36,248,039

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) Other charges, (iii) Foreign currency loss (gain), net and (iv) Derivative valuation loss (gain), net. EBITDA for the periods indicated is defined as Income (loss) from continuing operations before interest expense, net, income tax expense, 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) Other charges, (iii) Foreign currency loss (gain), net and (iv) Derivative valuation loss (gain), net.

For the three and six months ended June 30, 2021, other charges of $5,020 thousand and $15,436 thousand, respectively, related to non-recurring professional service fees and expenses in connection with the Merger and regulatory requests.

For the six months ended June 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.

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SOURCE Magnachip Semiconductor Corporation