MagnaChip Reports Third Quarter 2015 Financial Results

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Oct 29, 2015, 04:01 ET

SEOUL, South Korea and SAN JOSE, Calif., Oct. 29, 2015 /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, 2015.

Revenue for the third quarter of 2015 was $154.4 million, a 4.7% decline compared to $162.0 million for the second quarter of 2015, and down 20.6% compared to $194.3 million for the third quarter of 2014. Foundry Services revenue in the third quarter of 2015 was $71.5 million and Standard Products Group revenue was $82.7 million.

Gross profit was $34.7 million, or 22.5% as a percent of revenue for the third quarter of 2015. This compared with gross profit of $35.3 million, or 21.8%, for the second quarter of 2015 and $42.6 million, or 21.9%, for the third quarter of 2014. Foundry gross profit was 26.1% and Standard Products Group gross profit was 19.1% in the third quarter of 2015.

Net loss, on a GAAP basis, for the third quarter of 2015 totaled $57.1 million, or $1.65 per diluted share, compared to net loss of $30.6 million, or $0.90 per diluted share, for the second quarter of 2015 and net loss of $46.8 million, or $1.37 per diluted share, for the third quarter of 2014. Net loss stemmed primarily from lower revenue and gross profit, as well as from non-cash foreign currency translation loss.

"We continue to face many challenges but in the third quarter we executed on our product strategies, achieved our short-term financial goals and continued to streamline the organization and reduce costs," said YJ Kim, Chief Executive Officer. "Despite a weak macro environment, revenue in the third quarter came in at the high end of our expectations, as we benefited from the adoption of our standard products by companies in China."

Chief Financial Officer Jonathan Kim commented, "We are well on our way to achieving our previously announced target to reduce total normalized spending by over $40 million in 2015 compared to 2014. Spending in the first three quarters of 2015 declined by approximately $38 million as compared with the same period last year," said Mr. Kim, "and our 2016 spending targets are now under review as part of a comprehensive cost reduction plan launched earlier this year."

Adjusted Net Loss, a non-GAAP measurement, for the third quarter of 2015 totaled $10.4 million, or $0.30 per diluted share, compared to an adjusted net loss of $11.1 million, or $0.32 per diluted share, in the second quarter of 2015 and compared to an adjusted net loss of $6.8 million, or $0.20 per diluted share, for the third quarter of 2014.

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. 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 following the financial statements.

Cash and cash equivalents totaled $68.5 million at the end of the third quarter of 2015, a decrease of $4.2 million from the end of the prior quarter.

The following table sets forth information relating to our operating segments:


	Three Months Ended		Nine Months Ended
	September 30, 2015	September 30, 2014	September 30, 2015	September 30, 2014
Net Sales
Foundry Services Group	$ 71,471	$ 99,333	$ 224,953	$ 281,600
Standard Products Group
Display Solutions	48,314	58,700	153,585	144,406
Power Solutions	34,406	36,088	102,238	104,138

Total Standard Products Group	82,720	94,788	255,823	248,544
All other	191	211	506	422

Total net sales	$ 154,382	$ 194,332	$ 481,282	$ 530,566


	Three Months Ended		Nine Months Ended
	September 30, 2015	September 30, 2014	September 30, 2015	September 30, 2014
Gross Profit
Foundry Services Group	$ 18,681	$ 19,386	$ 51,241	$ 60,109
Standard Products Group	15,827	23,033	53,216	57,833
All other	191	211	505	422

Total gross profit	$ 34,699	$ 42,630	$ 104,962	$ 118,364

Third Quarter and Recent Company Events

Hosted First Foundry Technology Symposium in Shanghai, China on September 22, 2015
Announced Second Foundry Technology Symposium in Shenzhen, China to be held on November 10, 2015

Business Outlook
For the fourth quarter of 2015, MagnaChip anticipates:

Revenue to be in the range of $143 million to $153 million
Gross profit to be 14% to 16% as a percent of revenue

Conference Call
MagnaChip will hold a conference call at 5 p.m. EDT today (October 29, 2015) to discuss the third quarter 2015 financial results. The conference call will be webcast live and is also available by dialing 1-866-776-2061 in the U.S. or 1-706-679-0298 for all other locations. The conference ID number is 56598267 and participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. EDT 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 access numbers are 1-855-859-2056 or 1-404-537-3406. The access code is 56598267.

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 future operating and financial performance, including fourth quarter 2015 revenue and gross profit and expectations related to future spending and cost reduction initiatives. 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 May 28, 2015 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, 2015			June 30, 2015			September 30, 2014
Net sales	$	154,382		$	162,015		$	194,332
Cost of sales		119,683			126,729			151,702

Gross profit		34,699			35,286			42,630
Gross profit %		22.5	%		21.8	%		21.9	%

Operating expenses
Selling, general and administrative expenses		22,107			28,588			38,690
Research and development expenses		20,450			21,931			23,422
Total operating expenses		42,557			50,519			62,112

Operating loss		(7,858)			(15,233)			(19,482)

Interest expense		(4,075)			(3,987)			(4,197)
Foreign currency loss, net		(44,139)			(12,296)			(23,508)
Other income, net		256			288			691

Loss before income taxes		(55,816)			(31,228)			(46,496)

Income tax expenses (benefits)		1,250			(602)			311

Net loss	$	(57,066)		$	(30,626)		$	(46,807)

Loss per common share :
- Basic	$	(1.65)		$	(0.90)		$	(1.37)
- Diluted	$	(1.65)		$	(0.90)		$	(1.37)

Weighted average number of shares—Basic		34,664,246			34,092,402			34,056,359
Weighted average number of shares—Diluted		34,664,246			34,092,402			34,056,359

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, 2015		June 30, 2015		September 30, 2014
Net loss	$	(57,066)	$	(30,626)	$	(46,807)
Adjustments:
Depreciation and amortization		6,399		6,797		7,824
Interest expense, net		4,023		3,933		4,079
Income tax expenses (benefits)		1,250		(602)		311
Equity-based compensation expense		393		1,792		593
Foreign currency loss, net		44,139		12,296		23,508
Derivative valuation loss, net		270		306		9
Restatement related expenses		1,891		5,168		15,478

Adjusted EBITDA	$	1,299	$	(936)	$	4,995
Adjusted EBITDA per common share:
- Diluted	$	0.04	$	(0.03)	$	0.14
Weighted average number of shares - Diluted		35,002,896		34,092,402		35,144,894

Net loss	$	(57,066)	$	(30,626)	$	(46,807)
Adjustments:
Equity-based compensation expense		393		1,792		593
Amortization of intangibles		—		—		372
Foreign currency loss, net		44,139		12,296		23,508
Derivative valuation loss, net		270		306		9
Restatement related expenses		1,891		5,168		15,478

Adjusted Net Loss	$	(10,373)	$	(11,064)	$	(6,847)

Adjusted Net Loss per common share:
- Diluted	$	(0.30)	$	(0.32)	$	(0.20)
Weighted average number of shares — Diluted		34,664,246		34,092,402		34,056,359

We define Adjusted EBITDA as net loss adjusted to exclude (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expenses (benefits), (iv) equity-based compensation expense, (v) foreign currency loss, net, (vi) derivative valuation loss, net and (vii) restatement related expenses.

We present Adjusted Net Loss as a further supplemental measure of our performance. We prepare Adjusted Net Loss by adjusting net 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 Loss is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We define Adjusted Net Loss as net loss adjusted to exclude (i) equity-based compensation expense, (ii) amortization of intangibles, (iii) foreign currency loss, net, (vi) derivative valuation loss, net and (v) restatement related expenses.

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


	September 30, 2015		December 31, 2014
Assets
Current assets
Cash and cash equivalents	$	68,510	$	102,434
Accounts receivable, net		57,885		72,957
Inventories, net		58,180		75,334
Other receivables		3,274		10,616
Prepaid expenses		10,957		7,560
Current deferred income tax assets		36		237
Hedge collateral		6,000		—
Other current assets		8,265		6,898

Total current assets		213,107		276,036

Property, plant and equipment, net		189,362		223,766
Intangible assets, net		2,516		2,451
Long-term prepaid expenses		13,255		10,916
Deferred income tax assets		246		415
Other non-current assets		11,905		14,147

Total assets	$	430,391	$	527,731

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	48,939	$	70,767
Other accounts payable		8,418		10,986
Accrued expenses		68,598		81,060
Other current liabilities		6,843		6,460
Total current liabilities		132,798		169,273

Long-term borrowings, net		224,125		224,035
Accrued severance benefits, net		133,955		139,289
Other non-current liabilities		12,362		13,636

Total liabilities		503,240		546,233

Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 41,147,307 shares issued and 34,568,542 outstanding at September 30, 2015 and 40,635,233 shares issued and 34,056,468 outstanding at December 31, 2014		411		406
Additional paid-in capital		124,218		118,419
Accumulated deficit		(119,064)		(11,343)
Treasury stock, 6,578,765 shares at September 30, 2015 and December 31, 2014		(90,918)		(90,918)
Accumulated other comprehensive income (loss)		12,504		(35,066)

Total stockholders' equity (deficit)		(72,849)		(18,502)

Total liabilities and stockholders' equity	$	430,391	$	527,731

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


	Three Months Ended		Nine Months Ended
	September 30, 2015		September 30, 2015		September 30, 2014
Cash flows from operating activities
Net loss	$	(57,066)	$	(107,721)	$	(53,402)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		6,399		20,066		22,846
Provision for severance benefits		2,296		14,173		14,775
Bad debt expenses (reversal of allowance)		(18)		(21)		3,755
Amortization of debt issuance costs and original issue discount		167		491		457
Loss (gain) on foreign currency, net		48,584		65,730		(4,077)
Gain on disposal of investments		—		—		(1,524)
Stock-based compensation		393		2,370		1,665
Other		(1,878)		(331)		951
Changes in operating assets and liabilities
Accounts receivable		5,527		8,672		(206)
Inventories, net		9,679		11,302		(1,199)
Other receivables		1,592		7,115		353
Other current assets		(1,566)		669		4,835
Deferred tax assets		28		367		835
Accounts payable		(6,463)		(18,894)		(964)
Other accounts payable		(4,649)		(10,199)		(7,265)
Accrued expenses		(22,021)		(32,731)		12,678
Other current liabilities		136		(1,922)		(201)
Other non-current liabilities		1,274		190		65
Payment of severance benefits		(3,674)		(7,905)		(4,712)
Other		288		141		19
Net cash used in operating activities		(20,972)		(48,438)		(10,316)

Cash flows from investing activities
Proceeds from settlement of hedge collateral		10,841		10,841		—
Payment of hedge collateral		(10,627)		(17,182)		—
Proceeds from disposal of investments		—		—		2,003
Proceeds from disposal of plant, property and equipment		1,685		1,698		—
Purchase of plant, property and equipment		(2,286)		(4,250)		(15,613)
Payment for intellectual property registration		(287)		(550)		(778)
Collection of guarantee deposits		77		123		—
Payment of guarantee deposits		(28)		(670)		(338)
Other		1		179		45
Net cash used in investing activities		(624)		(9,811)		(14,681)

Cash flows from financing activities
Proceeds from issuance of common stock		2,226		3,434		67
Net cash provided by financing activities		2,226		3,434		67
Effect of exchange rates on cash and cash equivalents		15,208		20,891		(3,466)

Net decrease in cash and cash equivalents		(4,162)		(33,924)		(28,396)

Cash and cash equivalents
Beginning of the period		72,672		102,434		153,606

End of the period	$	68,510	$	68,510	$	125,210