PR Newswire | Oct 25, 2021 06:45AM EDT

10/25 05:45 CDT

Magnachip Reports Results for Third Quarter 2021- Third quarter revenue of $127.0 million was up 11.5% sequentially and up 1.8% year-over-year (YoY).- Gross profit margin for the third quarter was 36.7%, up 690 bps sequentially and up 1,380 bps YoY.- GAAP net income was $10.8 million or $0.23 per diluted share.- Non-GAAP net income was $20.1 million or $0.42 per diluted share. SEOUL, South Korea, Oct. 25, 2021

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%

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 the third quarter of 2020, total net income of $273.0 million included(2) 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.

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 Nine Months Ended

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

Revenues:

Net sales -standard $ 117,415 $ 103,268 $ 116,262 $ 333,589 $ 335,953productsbusiness

Net sales -transitional Fab 9,585 10,608 8,551 30,306 28,1613 foundryservices

Total revenues 127,000 113,876 124,813 363,895 364,114

Cost of sales:

Cost of sales -standard 71,641 70,409 87,494 221,297 245,917productsbusiness

Cost of sales -transitional Fab 8,772 9,497 8,731 27,659 28,3413 foundryservices

Total cost of 80,413 79,906 96,225 248,956 274,258sales

Gross profit 46,587 33,970 28,588 114,939 89,856

Gross profit asa percentage ofstandard 39.0 % 31.8 % 24.7 % 33.7 % 26.8 %productsbusiness netsales

Gross profit asa percentage of 36.7 % 29.8 % 22.9 % 31.6 % 24.7 %total revenues

Operatingexpenses:

Selling, generaland 12,550 14,001 12,888 39,185 37,398administrativeexpenses

Research anddevelopment 12,270 13,322 12,477 39,015 34,094expenses

Other charges 1,766 5,020 - 17,202 554

Total operating 26,586 32,343 25,365 95,402 72,046expenses

Operating income 20,001 1,627 3,223 19,537 17,810

Interest expense (113) (85) (5,485) (1,239) (16,522)

Foreign currency (7,579) 250 8,864 (12,000) (13,638)gain (loss), net

Other income, 1,608 611 714 2,839 2,343net

Income (loss)from continuingoperations 13,917 2,403 7,316 9,137 (10,007)before incometax expense

Income taxexpense 3,149 2,601 (1,145) 6,040 836(benefit)

Income (loss)from continuing 10,768 (198) 8,461 3,097 (10,843)operations

Income fromdiscontinued - - 264,501 - 289,227operations, netof tax

Net income $ 10,768 $ (198) $ 272,962 $ 3,097 $ 278,384(loss)

Basic earnings(loss) percommon share-

Continuing $ 0.23 $ (0.00) $ 0.24 $ 0.07 $ (0.31)operations

Discontinued - - 7.50 - 8.24operations

Total $ 0.23 $ (0.00) $ 7.74 $ 0.07 $ 7.93

Diluted earnings(loss) percommon share-

Continuing $ 0.23 $ (0.00) $ 0.21 $ 0.07 $ (0.31)operations

Discontinued - - 5.68 - 8.24operations

Total $ 0.23 $ (0.00) $ 5.89 $ 0.07 $ 7.93

Weighted averagenumber ofshares-

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, December 31, 2021 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, - 83,479net

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 1,970 2,422liabilities

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, 150,000,000shares authorized, 55,676,851 shares issuedand 46,464,889 outstanding at September 30, 557 4502021 and 44,943,854 shares issued and35,783,347 outstanding at December 31, 2020

Additional paid-in capital 256,619 163,010

Retained earnings 289,931 286,834

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

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 Nine Months Ended Ended

September 30, September 30, September 30,

2021 2021 2020

Cash flows from operatingactivities

Net income $ 10,768 $ 3,097 $ 278,384

Adjustments to reconcile netincome to net cash provided byoperating activities

Depreciation and amortization 3,578 10,576 13,333

Provision for severance 2,007 5,514 14,150benefits

Amortization of debt issuancecosts and original issue - 261 1,824discount

Loss on foreign currency, net 19,254 32,607 6,609

Restructuring and other charges 750 750 490

Provision for inventory (1,862) 1,484 4,079reserves

Stock-based compensation 2,005 6,056 4,754

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

Other, net 176 442 85

Changes in operating assets andliabilities

Accounts receivable, net 1,598 6,696 (16,583)

Unbilled accounts receivable, - - 14,260net

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 19,650 30,016 51,541activities

Cash flows from investingactivities

Proceeds from settlement of 3,023 3,995 8,029hedge collateral

Payment of hedge collateral (2,159) (2,744) (7,841)

Purchase of property, plant and (8,502) (13,368) (16,353)equipment

Payment for intellectual (167) (455) (664)property registration

Collection of guarantee 2,885 3,192 891deposits

Payment of guarantee deposits - (4,960) (611)

Proceeds from sale of - - 350,553discontinued operations

Other, net 27 (103) 26

Net cash provided by (used in) (4,893) (14,443) 334,030investing activities

Cash flows from financingactivities

Proceeds from exercise of stock 1,371 3,920 2,690options

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

Repayment of financing relatedto water treatment facility (139) (427) (402)arrangement

Repayment of principal portion (16) (49) (165)of finance lease liabilities

Net cash provided by financing 1,216 1,791 1,102activities

Effect of exchange rates on (11,552) (21,003) 3,781cash and cash equivalents

Net increase (decrease) in cash 4,421 (3,639) 390,454and cash equivalents

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 $ 20,001 $ 1,627 $ 3,223 $ 19,537 $ 17,810income

Adjustments:

Equity-basedcompensation 2,005 2,405 2,101 6,056 4,366expense

Inventoryreserverelated toHuawei (1,081) - 2,331 (1,081) 2,331impact ofdownstreamtraderestrictions

Expensesrelated to - - 1,168 - 1,168Fab 3 poweroutage

Other 1,766 5,020 - 17,202 554charges

Adjustedoperating $ 22,691 $ 9,052 $ 8,823 $ 41,714 $ 26,229income

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 $ 10,768 $ (198) $ 8,461 $ 3,097 $ (10,843)operations

Adjustments:

Interestexpense (439) (493) 4,875 (512) 14,541(income), net

Income taxexpense 3,149 2,601 (1,145) 6,040 836(benefit)

Depreciationand 3,578 3,550 2,854 10,576 7,968amortization

EBITDA 17,056 5,460 15,045 19,201 12,502

Equity-basedcompensation 2,005 2,405 2,101 6,056 4,366expense

Foreigncurrency loss 7,579 (250) (8,864) 12,000 13,638(gain), net

Derivativevaluation loss (237) 57 (50) (94) (222)(gain), net

Inventoryreserve relatedto Huaweiimpact of (1,081) - 2,331 (1,081) 2,331downstreamtraderestrictions

Expensesrelated to Fab - - 1,168 - 1,1683 power outage

Other charges, 1,039 5,020 - 16,475 554net

Adjusted EBITDA $ 26,361 $ 12,692 $ 11,731 $ 52,557 $ 34,337

Income (loss)from continuingoperations $ 10,768 $ (198) $ 8,461 $ 3,097 $ (10,843)

Adjustments:

Equity-basedcompensation 2,005 2,405 2,101 6,056 4,366expense

Foreigncurrency loss 7,579 (250) (8,864) 12,000 13,638(gain), net

Derivativevaluation loss (237) 57 (50) (94) (222)(gain), net

Inventoryreserve relatedto Huaweiimpact of (1,081) - 2,331 (1,081) 2,331downstreamtraderestrictions

Expensesrelated to Fab - - 1,168 - 1,1683 power outage

Other charges, 1,039 5,020 - 16,475 554net

Adjusted Net $ 20,073 $ 7,034 $ 5,147 $ 36,453 $ 10,992Income

Adjusted NetIncome percommon share-

- Basic $ 0.43 $ 0.15 $ 0.15 $ 0.82 $ 0.31

- Diluted $ 0.42 $ 0.15 $ 0.14 $ 0.78 $ 0.30

Weightedaverage number 46,449,234 46,322,027 35,280,864 44,377,250 35,089,479of shares -basic

Weightedaverage number 47,808,457 47,846,217 46,581,788 47,718,578 36,151,622of shares -diluted

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