MagnaChip Reports Revenue of $229.7 Million in Third Quarter 2019; OLED, Power Revenue Set Records; Foundry Revenue Hits 5-year High

-- Q3 Revenue at High-End of Guidance Range; Gross Profit Margin of 26.5% Exceeds Guidance Range --

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Oct 23, 2019, 16:05 ET

SEOUL, South Korea and SAN JOSE, Calif., Oct. 23, 2019 /PRNewswire/ -- MagnaChip Semiconductor Corporation (NYSE: MX) today announced financial results for the third quarter of 2019.

Q3 2019 Summary

Revenue of $229.7 million at high-end of guidance range of $220-230 million; Q3 revenue up 11.5% Year-over-Year (YoY); up 12% Quarter-over-Quarter (QoQ)
Standard Products Group (SPG) revenue of $139.2 million, up 14.1% YoY; up 5.5% QoQ

Display standard products revenue of $90.6 million, up 16.7% YoY; up 7.5% QoQ

OLED display driver IC revenue of $78.3 million up 34.2% YoY; up 7.2% QoQ

Power standard products revenue of $48.7 million, up 9.5% YoY; up 2.0% QoQ

Foundry Services Group (FSG) revenue of $90.3 million, up 7.7% YoY; up 23.6% QoQ
Total gross profit margin (GPM) of 26.5% exceeded the guidance range of 22-24%; GPM was 27.1% in Q3 2018; 21.4% in Q2 2019

Fourth Quarter 2019 Business Outlook
MagnaChip anticipates:

Normal seasonal softness in revenue but improvement from the fourth quarter of 2018. Revenue is expected to be in the range of $181 million to $191 million, down 19% at the mid-point of the projected range when compared with revenue of $229.7 million in the third quarter of 2019, and up 3.7% year-over-year when compared to revenue of $179.4 million in the fourth quarter of 2018.
Gross profit margin to be in the range of 24% to 26%, when compared to 26.5% in the third quarter of 2019 and 24.5% in the fourth quarter of 2018. Gross margin guidance for the fourth quarter reflects the current expectation that fab utilization will show an expected sequential decline from the third quarter of 2019.

CEO YJ Kim comments on Q3
Revenue of $229.7 million was the highest quarterly level achieved since we went public in 2011. Our Display and Power businesses both had record quarterly revenue, and Foundry revenue was at the highest level in five years. Demand continued to be robust for our OLED display drivers, as revenue increased over 34% year-over-year and over 7% sequentially.

We were awarded a record 11 new design wins for OLED display drivers in Asia, including three for mid-range smartphones from a major smartphone maker in Korea. Of the 11 design wins, seven were for display drivers in our 40-nanometer product family and four were for our new and lowest-power 28-nanometer display drivers. Smartphone makers in Asia launched a total of six high-end and mid-range models using our OLED display drivers. Our Power business showed sequential growth and the Foundry business showed sharp sequential growth, as customer demand was strong, particularly from the smartphone and computing segments.

Strategic Evaluation Process
"I'm pleased to report that we continue to make substantial progress on our previously announced strategic evaluation process of the Foundry business and Fab 4, including discussions with multiple interested parties toward a possible sale of the business as well as consideration of accretive business conversions, joint ventures and partnerships," said YJ Kim, CEO. "As stated previously, our decisions regarding the outcome of the various options of the strategic evaluation process will be guided by what the management and Board consider to be the best available path to improve MagnaChip's profitability and to maximize shareholder value."

CFO Jonathan Kim comments on Q3
Total revenue came in at the high-end of our guidance range, as Display, Power and Foundry all showed year-over-year and sequential revenue growth. Gross profit margin of 26.5% in Q3 exceeded our guidance range due primarily to higher-than-expected fab utilization, mainly as a result of a significant increase in Foundry revenue.

Cash and cash equivalents totaled $131.3 million, up sequentially from $123.8 million, and net operating cash flow was $12.9 million, marking the second consecutive quarter of net positive operating cash flow.

Third Quarter Financial Review
Total Revenue
Total revenue in the third quarter was $229.7 million, up 11.5% as compared to reported revenue of $206 million from the third quarter of 2018, and up 12.0% from $205.1 million in the second quarter of 2019.

Segment Revenue
Foundry Services Group revenue in the third quarter was $90.3 million, up 7.7% from the third quarter of 2018, and up 23.6% sequentially. Standard Products Group revenue in the third quarter was $139.2 million, up 14.1% from the third quarter of 2018, and up 5.5% sequentially.

Total Gross Profit and Gross Profit Margin
Total gross profit in the third quarter of 2019 was $60.9 million or 26.5% as a percentage of revenue, as compared with gross profit of $55.7 million or 27.1% as a percentage of revenue in the third quarter of 2018, and $43.8 million or 21.4% as a percentage of revenue in the second quarter of 2019.

Segment Gross Profit Margin
Foundry Services Group gross profit margin was 28.3% as compared with 24.4% in the third quarter of 2018 and 16.7% in the second quarter of 2019. The YoY and sequential improvement in the Foundry Services Group's gross profit margin was primarily due to an increase in Foundry revenue, an improved product mix and also higher fab utilization. The Standard Products Group gross profit margin was 25.3% as compared with 28.8% in the third quarter of 2018 and 23.9% in the second quarter of 2019. The sequential improvement in the Standard Products Group's gross profit margin was due primarily to an increase in fab utilization. The sequential improvement as well as a YoY decline in the Standard Product Group's gross profit margin was due to an increase in fab utilization that benefited Power and non-OLED products manufactured in-house, but the gain was offset by temporarily lower wafer yields from external suppliers on OLED products that recently entered production.

Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating income was of $25.9 million for the third quarter of 2019, as compared to operating income of $18.3 million in the third quarter of 2018 and operating income of $6.7 million for the second quarter of 2019.

Net loss, on a GAAP basis, was $1.6 million or $0.05 cents per basic and diluted share in the third quarter of 2019 as compared with a net income of $17.2 million or $0.50 per basic share and $0.41 per diluted share in the third quarter of 2018 and net loss of $9.5 million or $0.28 per basic and diluted share in the second quarter of 2019.

Adjusted Net Income, a non-GAAP financial measure, totaled $20.9 million or $0.61 per basic share and $0.49 per diluted share in the third quarter of 2019, as compared to Adjusted Net Income of $13.3 million or $0.38 per basic share and $0.32 per diluted share in the third quarter of 2018 and Adjusted Net Income of $2.9 million or $0.08 per basic and diluted share in the second quarter of 2019.

Adjusted EBITDA, a non-GAAP financial measure, was $35.5 million or 15.4% of revenue in the third quarter of 2019 as compared to Adjusted EBITDA of $27.9 million or 13.5% of revenue in the third quarter of 2018 and Adjusted EBITDA of $17.0 million or 8.3% of revenue in the second quarter of 2019.

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 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.

Cash and cash equivalents totaled $131.3 million in the third quarter, up from $123.8 million in the second quarter of 2019.


	Three Months Ended				Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Net Sales
Foundry Services Group	$	90,340	$	83,862	$	220,513	$	242,198
Standard Products Group
Display Solutions		90,550		77,578		233,041		205,986
Power Solutions		48,690		44,458		138,443		123,153
Total Standard Products Group	$	139,240	$	122,036	$	371,484	$	329,139
All other		97		102		205		167
Total net sales	$	229,677	$	206,000	$	592,202	$	571,504


	Three Months Ended					Three Months Ended
	September 30, 2019					September 30, 2018
	Amount		% of Net Sales			Amount		% of Net Sales
Gross Profit
Foundry Services Group	$	25,547		28.3	%	$	20,443		24.4	%
Standard Products Group		35,222		25.3			35,204		28.8
All other		97		100.0			102		100.0
Total gross profit	$	60,866		26.5	%	$	55,749		27.1	%


	Nine Months Ended					Nine Months Ended
	September 30, 2019					September 30, 2018
	Amount		% of Net Sales			Amount		% of Net Sales
Gross Profit
Foundry Services Group	$	41,361		18.8	%	$	63,292		26.1	%
Standard Products Group		85,842		23.1			90,874		27.6
All other		204		99.5			18		10.8
Total gross profit	$	127,407		21.5	%	$	154,184		27.0	%

Third Quarter 2019 and Recent Company Highlights
MagnaChip announced:

Its cumulative shipments of OLED DDICs (Display Driver ICs) surpassing the 500 million milestone. OLED display drivers are low-power devices that offer excellent screen resolution with deep and bright colors for mobile screens that do not require a backlight, They also enable full-screen, rounded edges and thinner and lighter smartphones. MagnaChip first introduced the OLED DD IC in 2003 and began mass production in 2007.
http://investors.magnachip.com/news-releases/news-release-details/magnachip-surpasses-500-million-milestone-cumulative-shipments
Offering of 0.35 micron 700V Ultra-High Voltage process technologies (UHV) suitable for different system requirements for AC-DC converter ICs and LED driver ICs. Currently the market demand is increasing dramatically for AC-powered products, including LED lighting drivers, AC-DC converter ICs and AC-DC chargers commonly found in home appliances. Due to increased competition, the cost competitiveness of these products, manufactured using UHV technologies, is becoming a critical consideration for IC providers.
http://investors.magnachip.com/news-releases/news-release-details/magnachip-offers-035-micron-700v-ultra-high-voltage-process-1
The release of a 100V Mid-Voltage MOSFET (Metal Oxide Semiconductor Field-Effect Transistor) with a new thermal package ("M2PAK-7P") designed for the fast-growing e-Bike market. This MOSFET with the M2PAK-7P package is suitable to meet the particular requirements of electric bike (e-Bike) systems. E-Bikes, an emerging trend along with electric scooters, have become an integral part of new eco-friendly wave of transportation and represents a "green personal mobility" movement in large urban markets.
http://investors.magnachip.com/news-releases/news-release-details/magnachip-targets-fast-growing-e-bike-market-high-performance

Third Quarter 2019 Earnings Conference Call
The earnings conference call will be webcast live today (October 23, 2019) at 5:00 p.m. ET, 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 4069039. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. ET 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 4069039.

About MagnaChip Semiconductor Corporation
MagnaChip is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications. The Company's Standard Products Group and Foundry Services Group provide a broad range of standard products and manufacturing services to customers worldwide. MagnaChip, with about 40 years of operating history, owns a portfolio of approximately 3,000 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.

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. These statements include statements about our future operating and financial performance, including but not limited to fourth quarter 2019 revenue and gross profit margin expectations. 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 general economic conditions, 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, the risk that the strategic evaluation and the initiatives related thereto described above are not successful, and other risks detailed from time to time in MagnaChip's filings with the SEC, including our Form 10-K filed on February 22, 2019 and subsequent registration statements, amendments or other reports that we may file from time to time with the SEC 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.

CONTACTS:

In the United States:

Bruce Entin

Investor Relations

Tel. +1-408-625-1262

[email protected]

In Korea:

Chankeun Park

Director, Public Relations

Tel. +82-2-6903-5223

[email protected]

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

	Three Months Ended
	September 30, 2019			June 30, 2019			September 30, 2018
Net sales	$	229,677			205,145			206,000
Cost of sales		168,811			161,305			150,251
Gross profit		60,866			43,840			55,749
Gross profit %		26.5	%		21.4	%		27.1	%
Operating expenses
Selling, general and administrative expenses		16,812			16,975			18,566
Research and development expenses		17,368			18,989			18,918
Restructuring and other charges		763			1,130			—
Total operating expenses		34,943			37,094			37,484
Operating income		25,923			6,746			18,265
Interest expense		(5,656)			(5,679)			(5,587)
Foreign currency gain (loss), net		(21,205)			(10,431)			6,002
Other income, net		785			656			150
Income (loss) before income tax expense		(153)			(8,708)			18,830
Income tax expense		1,454			812			1,608
Net income (loss)	$	(1,607)		$	(9,520)		$	17,222
Earnings (loss) per common share—
Basic	$	(0.05)		$	(0.28)		$	0.50
Diluted	$	(0.05)		$	(0.28)		$	0.41
Weighted average number of shares—Basic		34,357,745			34,245,127			34,573,377
Weighted average number of shares—Diluted		34,357,745			34,245,127			46,021,610

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

	Three Months Ended
	September 30, 2019		June 30, 2019		September 30, 2018
Net income (loss)	$	(1,607)	$	(9,520)	$	17,222
Adjustments:
Interest expense, net		4,982		5,092		5,055
Income tax expense		1,454		812		1,608
Depreciation and amortization		8,156		8,202		7,913
EBITDA		12,985		4,586		31,798
Restructuring and other charges		763		1,130		—
Equity-based compensation expense		479		772		1,083
Foreign currency loss (gain), net		21,205		10,431		(6,001)
Derivative valuation loss, net		33		80		518
Other		—		—		473
Adjusted EBITDA	$	35,465	$	16,999	$	27,871
Net income (loss)	$	(1,607)	$	(9,520)	$	17,222
Adjustments:
Restructuring and other charges		763		1,130		—
Equity-based compensation expense		479		772		1,083
Foreign currency loss (gain), net		21,205		10,431		(6,001)
Derivative valuation loss, net		33		80		518
Other		—		—		473
Adjusted Net Income	$	20,873	$	2,893	$	13,295
Adjusted Net Income per common share:
- Basic	$	0.61	$	0.08	$	0.38
- Diluted	$	0.49	$	0.08	$	0.32
Weighted average number of shares – Basic		34,357,745		34,245,127		34,573,377
Weighted average number of shares – Diluted		45,516,245		34,965,562		46,021,610

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) Restructuring and other charges, (ii) Equity-based compensation expense, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss, net and (v) Other. EBITDA for the periods indicated is defined as net income (loss) before interest expense, net, income tax expense and depreciation and amortization. We prepare Adjusted Net Income by adjusting net income (loss) 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 net income (loss), adjusted to exclude (i) Restructuring and other charges, (ii) Equity-based compensation expense, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss, net and (v) Other. Other charges within the adjustment line item of the Restructuring and other charges included in the above table are primarily related to legal and consulting service fees incurred in connection with our strategic evaluation. Other adjustment in the table above primarily represents legal expense related to the indemnification of a former employee.

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

	September 30, 2019		December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	131,341	$	132,438
Accounts receivable, net		106,289		80,003
Unbilled accounts receivable, net		21,356		38,181
Inventories, net		72,703		71,611
Other receivables		10,015		3,702
Prepaid expenses		15,112		11,133
Hedge collateral		9,990		5,810
Other current assets		7,437		9,867
Total current assets		374,243		352,745
Property, plant and equipment, net		178,823		202,171
Operating lease right-of-use assets		11,517		—
Intangible assets, net		3,913		3,953
Long-term prepaid expenses		10,926		15,598
Other non-current assets		8,715		8,729
Total assets	$	588,137	$	583,196

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	79,908	$	55,631
Other accounts payable		10,843		15,168
Accrued expenses		48,944		46,250
Deferred revenue		5,822		6,477
Operating lease liabilities		2,023		—
Other current liabilities		4,563		9,133
Total current liabilities		152,103		132,659
Long-term borrowings, net		304,155		303,577
Non-current operating lease liabilities		9,494		—
Accrued severance benefits, net		138,794		146,031
Other non-current liabilities		17,018		18,239
Total liabilities		621,564		600,506

Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 43,378,017 shares issued and 34,370,689 outstanding at September 30, 2019 and 43,054,458 shares issued and 34,441,232 outstanding at December 31, 2018		434		431
Additional paid-in capital		145,555		142,600
Accumulated deficit		(81,557)		(36,305)
Treasury stock, 9,007,328 shares at September 30, 2019 and 8,613,226 shares at December 31, 2018, respectively		(106,514)		(103,926)
Accumulated other comprehensive income (loss)		8,655		(20,110)
Total stockholders' deficit		(33,427)		(17,310)
Total liabilities and stockholders' equity	$	588,137	$	583,196

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

	Three month Ended		Nine month Ended
	September 30, 2019		September 30, 2019		September 30, 2018
Cash flows from operating activities
Net loss	$	(1,607)	$	(45,252)	$	(1,520)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization		8,156		24,661		23,883
Provision for severance benefits		4,085		10,491		14,686
Amortization of debt issuance costs and original issue discount		578		1,712		1,623
Loss on foreign currency, net		25,903		50,512		26,931
Restructuring and other charges		(262)		470		—
Stock-based compensation		479		1,920		3,893
Loss on early extinguishment of long-term borrowings, net		—		42		—
Other		555		61		(964)
Changes in operating assets and liabilities
Accounts receivable, net		(11,838)		(32,812)		(14,282)
Unbilled accounts receivable, net		8,007		14,208		1,187
Inventories, net		(7,910)		(6,321)		(30,296)
Other receivables		(1,845)		(4,814)		(2,669)
Other current assets		427		6,356		2,514
Accounts payable		(4,552)		27,585		17,414
Other accounts payable		(6,114)		(10,074)		(8,811)
Accrued expenses		951		3,831		(5,370)
Deferred revenue		739		(190)		3,560
Other current liabilities		403		(6,159)		1,533
Other non-current liabilities		(908)		808		1,035
Payment of severance benefits		(1,616)		(6,195)		(9,004)
Other		(767)		(821)		(329)
Net cash provided by operating activities		12,864		30,019		25,014
Cash flows from investing activities
Proceeds from settlement of hedge collateral		7,998		12,625		11,290
Payment of hedge collateral		(8,629)		(17,024)		(10,965)
Proceeds from disposal of plant, property and equipment		—		202		1,685
Purchase of plant, property and equipment		(1,693)		(16,693)		(18,875)
Payment for property related to water treatment facility arrangement		—		—		(4,283)
Payment for intellectual property registration		(265)		(907)		(776)
Collection of guarantee deposits		151		539		794
Payment of guarantee deposits		—		(1,330)		(89)
Other		32		23		(38)
Net cash used in investing activities		(2,406)		(22,565)		(21,257)
Cash flows from financing activities
Repurchase of long-term borrowings		—		(1,175)		—
Proceeds from exercise of stock options		889		1,038		1,113
Acquisition of treasury stock		—		(2,588)		(199)
Proceeds from property related to water treatment facility arrangement		—		—		4,283
Repayment of financing related to water treatment facility arrangement		(134)		(415)		(73)
Repayment of principal portion of lease liabilities		(56)		(174)		—
Net cash provided by (used in) financing activities		699		(3,314)		5,124
Effect of exchange rates on cash, cash equivalents and restricted cash		(3,569)		(5,237)		(3,974)
Net increase (decrease) in cash, cash equivalents and restricted cash		7,588		(1,097)		4,907
Cash, cash equivalents and restricted cash
Beginning of the period		123,753		132,438		128,575
End of the period	$	131,341	$	131,341	$	133,482