MagnaChip Reports Third Quarter 2012 Financial Results

- Revenue Increased 9.5% Sequentially and 10.7% Year-Over-Year Driven By Solid Foundry Revenue Growth

- Gross Margin of 34.5% Expanded 350 Basis Points Sequentially and 450 Basis Points Year-Over-Year

- Achieved GAAP EPS of $1.30 Per Diluted Share and Adjusted EPS of $0.81 Per Diluted Share

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Nov 01, 2012, 04:00 ET

SEOUL, South Korea and CUPERTINO, Calif., Nov. 1, 2012 /PRNewswire/ -- MagnaChip Semiconductor Corporation ("MagnaChip") (NYSE: MX), a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products, today announced financial results for the third quarter ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120305/NY61184LOGO )

Revenue for the third quarter of 2012 was $221.9 million, a 9.5% increase compared to $202.6 million for the second quarter of 2012, and a 10.7% increase compared to $200.4 million for the third quarter of 2011.

Gross margin was $76.4 million or 34.5%, as a percent of revenue, for the third quarter of 2012. This compares to gross margin of $62.9 million or 31.0% for the second quarter of 2012 and $60.1 million or 30.0% for the third quarter of 2011.

Net income, on a GAAP basis, for the third quarter of 2012 totaled $48.4 million or $1.30 per diluted share. This compares to net income of $4.3 million or $0.12 per diluted share for the second quarter of 2012 and net loss of $56.0 million or $1.43 per diluted share for the third quarter of 2011. Net income was impacted primarily by a foreign currency gain of $21.8 million during the quarter which was primarily related to non-cash foreign currency translation for intercompany balances that were denominated in U.S. dollars.

"Our sequential revenue growth of nearly 10% put us at the high end of the semiconductor group in terms of top line performance with smartphone and tablet PC demand remaining strong going into the fourth quarter. This smartphone and tablet PC demand is well diversified with MagnaChip supplying about 50 unique products to 26 different customers," said Sang Park, MagnaChip Chairman and CEO. "In addition to strong revenue growth, our Q3 gross margin was up 350 basis points sequentially and up 630 basis points since Q1 due to higher fab utilization and improved product mix shift."

Adjusted net income, a non-GAAP measurement, for the third quarter of 2012 totaled $30.4 million or $0.81 per diluted share compared to $17.9 million or $0.48 per diluted share for the second quarter of 2012 and $18.2 million or $0.46 per diluted share for the third quarter of 2011.

Management believes that non-GAAP financial measures, when viewed in conjunction with GAAP results, can provide a more meaningful understanding of the factors and trends affecting MagnaChip's business and operations. 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.

Combined cash balances (cash and cash equivalents plus restricted cash) totaled $165.8 million at the end of the third quarter of 2012, an increase of $4.8 million from the end of the prior quarter. Cash provided from operations totaled approximately $23.0 million for the third quarter of 2012.

Revenue by Segment
In thousands of US dollars	Three Months Ended
	September 30, 2012	June 30, 2012	September 30, 2011
Semiconductor Manufacturing Services	$ 117,978	$ 91,318	$ 81,571
Display Solutions	69,415	76,784	91,767
Power Solutions	33,849	33,699	26,358
Other	630	833	709

Total Revenue	$ 221,872	$ 202,634	$ 200,405

Third Quarter and Recent Company Highlights

Seventh Consecutive Quarter of Achieving Financial Guidance.
Expanded Gross Margins to $76.4 million or 34.5%.
Achieved GAAP EPS of $1.30 Per Diluted Share and Adjusted EPS of $0.81 Per Diluted Share.
Repurchased 444 Thousand Shares under MagnaChip's 2011 Stock Repurchase Program.

Business Outlook
For the fourth quarter of 2012, MagnaChip expects:

Revenue will be in the range of $213 million to $222 million.
Gross margin will be 33.5% to 34.5%.

Non-GAAP Metrics
Adjusted EBITDA excludes charges related to depreciation and amortization, interest expense, net, income tax expense, restructuring and impairment charges, stock-based compensation expense, foreign currency loss (gain), net, derivative valuation loss (gain), net, secondary offering and others, and loss on early extinguishment of senior notes. Adjusted net income (loss) excludes charges related to restructuring and impairment charges, stock-based compensation expense, amortization of intangible assets associated with continuing operations, foreign currency loss (gain), net, derivative valuation loss (gain), net, secondary offering and others, and loss on early extinguishment of senior notes. A reconciliation of GAAP results to non-GAAP results is included following the financial statements.

About MagnaChip Semiconductor Corporation
Headquartered in South Korea, MagnaChip is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications. MagnaChip believes it has one of the broadest and deepest ranges of analog and mixed-signal semiconductor platforms in the industry, supported by its 30-year operating history, a large portfolio of registered and pending patents, and extensive engineering 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 ability to capitalize on improving market dynamics and future operating and financial performance including fourth quarter 2012 revenue and gross margin. 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, and other risks detailed from time to time in MagnaChip's filings with the SEC, including our Form 10-K filed on March 8, 2012 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:

Robert Pursel

Director of Investor Relations

Tel. +1-408-625-1262

[email protected]

In Korea:

Chankeun Park

Senior Manager, Public Relations

Tel. +82-2-6903-3195

[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, 2012		June 30, 2012		September 30, 2011
Net sales	$	221,872	$	202,634	$	200,405
Cost of sales		145,432		139,776		140,284

Gross profit		76,440		62,858		60,121
Gross profit %		34.5%		31.0%		30.0%

Selling, general and administrative expenses		21,388		20,093		17,881
Research and development expenses		19,470		19,762		19,003
Restructuring and impairment charges		—		—		1,621

Operating income		35,582		23,003		21,616

Other income (expense)
Interest expense, net		(5,746)		(5,619)		(5,860)
Foreign currency gain (loss), net		21,782		(10,586)		(68,058)
Loss on early extinguishment of senior notes		—		—		(1,357)
Other		695		701		(558)

		16,731		(15,504)		(75,833)

Income (loss) before income taxes		52,313		7,499		(54,217)

Income tax expense		3,901		3,159		1,793

Net income (loss)	$	48,412	$	4,340	$	(56,010)

Earnings (loss) per common share :
- Basic	$	1.34	$	0.12	$	(1.43)
- Diluted	$	1.30	$	0.12	$	(1.43)
Weighted average number of shares—Basic		36,199,655		36,713,569		39,064,071
Weighted average number of shares—Diluted		37,324,787		37,566,699		39,064,071

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, 2012		June 30, 2012		September 30, 2011
Net income (loss)	$	48,412	$	4,340	$	(56,010)
Adjustments:
Depreciation and amortization		8,443		7,923		13,053
Interest expense, net		5,746		5,619		5,861
Income tax expense		3,901		3,159		1,793
Restructuring and impairment charges		—		—		1,621
Stock-based compensation expense		535		457		552
Foreign currency loss (gain), net		(21,782)		10,586		68,058
Derivative valuation loss (gain), net		(695)		(701)		558
Secondary offering and others		2,119		1,216		—
Loss on early extinguishment of senior notes		—		—		1,357
Adjusted EBITDA	$	46,679	$	32,599	$	36,843
Adjusted EBITDA per common share:
- Diluted	$	1.25	$	0.87	$	0.92
Weighted average number of shares - Diluted		37,324,787		37,566,699		39,973,691

Net income (loss)	$	48,412	$	4,340	$	(56,010)
Adjustments:
Restructuring and impairment charges		—		—		1,621
Stock-based compensation expense		535		457		552
Amortization of intangibles		1,829		1,980		2,092
Foreign currency loss (gain), net		(21,782)		10,586		68,058
Derivative valuation loss (gain), net		(695)		(701)		558
Secondary offering and others		2,119		1,216		—
Loss on early extinguishment of senior notes		—		—		1,357
Adjusted net income	$	30,418	$	17,878	$	18,228
Adjusted net income per common share:
- Diluted	$	0.81	$	0.48	$	0.46
Weighted average number of shares - Diluted		37,324,787		37,566,699		39,973,691

We define Adjusted EBITDA as net income adjusted to exclude (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expense, (iv) restructuring and impairment charges, (v) stock-based compensation expense, (vi) foreign currency loss (gain), net, (vii) derivative valuation loss (gain), net, (viii) secondary offering and others, and (ix) loss on early extinguishment of senior notes.

We present Adjusted Net Income as a further supplemental measure of our performance. We prepare Adjusted Net Income by adjusting net income 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 as net income adjusted to exclude (i) restructuring and impairment charges (ii) stock-based compensation expense, (iii) amortization of intangibles, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net, (vi) secondary offering and others, and (vii) loss on early extinguishment of senior notes.

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

	September 30, 2012		December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	165,658	$	162,111
Restricted cash		136		6,830
Accounts receivable, net		148,537		125,922
Inventories, net		75,020		62,836
Other receivables		2,097		256
Prepaid expenses		9,120		6,032
Other current assets		19,270		15,909

Total current assets		419,838		379,896

Property, plant and equipment, net		229,632		182,663
Intangible assets, net		16,684		16,787
Long-term prepaid expenses		9,575		4,790
Other non-current assets		17,044		18,539

Total assets	$	692,773	$	602,675

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	97,386	$	77,848
Other accounts payable		19,049		13,452
Accrued expenses		40,483		31,723
Current portion of capital lease obligations		—		2,852
Derivative liabilities		1,818		9,757
Other current liabilities		8,460		2,007

Total current liabilities		167,196		137,639

Long-term borrowings, net		201,586		201,389
Accrued severance benefits, net		105,051		90,755
Other non-current liabilities		11,556		6,222

Total liabilities		485,389		436,005

Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 39,513,351 shares issued and 35,954,925 outstanding at September 30, 2012 and 39,439,115 shares issued and 37,907,575 outstanding at December 31, 2011		395		394
Additional paid-in capital		100,834		98,929
Retained earnings		161,965		93,950
Treasury stock, 3,558,426 shares at September 30, 2012		(34,730)		(11,793)
Accumulated other comprehensive loss		(21,080)		(14,810)

Total stockholders' equity		207,384		166,670

Total liabilities and stockholders' equity	$	692,773	$	602,675

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

	Three Months Ended		Nine Months Ended
	September 30, 2012		September 30, 2012		September 30, 2011
Cash flows from operating activities
Net income (loss)	$	48,412	$	68,015	$	(1,912)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		8,443		23,840		42,368
Provision for severance benefits		5,804		16,779		13,137
Amortization of debt issuance costs and original issue discount		256		753		728
Loss (gain) on foreign currency translation, net		(25,359)		(25,304)		33,220
Loss (gain) on disposal of property, plant and equipment, net		16		(174)		(15)
Loss on disposal of intangible assets, net		11		26		17
Restructuring and impairment charges		—		—		4,096
Stock-based compensation		535		1,450		1,798
Loss on early extinguishment of senior notes		—		—		5,460
Other		16		(332)		651
Changes in operating assets and liabilities
Accounts receivable		(9,872)		(18,168)		(4,400)
Inventories		2,972		(8,526)		(4,400)
Other receivables		793		(1,787)		836
Other current assets		(9,513)		(662)		(3,196)
Deferred tax assets		368		1,514		1,483
Accounts payable		2,818		17,472		15,072
Other accounts payable		(10,377)		(700)		7,157
Accrued expenses		5,871		13,761		(18,278)
Other current liabilities		2,839		9,450		(1,209)
Payment of severance benefits		(753)		(5,569)		(6,549)
Other		(243)		(2,239)		141

Net cash provided by operating activities		23,037		89,599		86,205

Cash flows from investing activities
Decrease (increase) in restricted cash		5,140		6,774		(9,711)
Proceeds from disposal of plant, property and equipment		46		937		29
Purchase of plant, property and equipment		(10,017)		(56,745)		(42,945)
Payment for intellectual property registration		(187)		(752)		(521)
Payment for acquisition		—		(8,642)		—
Decrease in short-term financial instruments		—		173		—
Collection of guarantee deposits		2		72		984
Payment of guarantee deposits		(135)		(311)		(2,489)
Other		3		(50)		(625)

Net cash used in investing activities		(5,148)		(58,544)		(55,278)

Cash flows from financing activities
Proceeds from issuance of common stock		253		436		8,835
Repurchase of senior notes		—		—		(50,307)
Repayment of obligations under capital lease		—		(2,968)		(4,831)
Acquisition of treasury stock		(6,002)		(22,937)		—

Net cash used in financing activities		(5,749)		(25,469)		(46,303)
Effect of exchange rates on cash and cash equivalents		(2,246)		(2,039)		2,672

Net increase (decrease) in cash and cash equivalents		9,894		3,547		(12,704)

Cash and cash equivalents
Beginning of the period		155,764		162,111		172,172

End of the period	$	165,658	$	165,658	$	159,468