SEOUL, South Korea and SAN JOSE, Calif., May 3, 2017 /PRNewswire/ — MagnaChip Semiconductor Corporation (“MagnaChip” or the “Company”) (NYSE: MX), a Korea-based designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications, today announced financial results for the first quarter ended March 31, 2017.
Total revenue for the first quarter of 2017 was $161.7 million, up 9.2% as compared to $148.1 million for the first quarter of 2016 and a decline of 10.4% compared to $180.5 million for the fourth quarter of 2016. Total revenue in the first quarter came in at the higher end of the guidance range of $157-163 million provided in February.
Foundry Services Group revenue in the first quarter of 2017 was $77.5 million, up 29.3% from revenue of $60 million in the first quarter of 2016, and about flat with $77.8 million in the fourth quarter of 2016.
Revenue in the Standard Products Group was $84.2 million in the first quarter, down 4.3% from the first quarter a year ago, and a sequential decline of 17.9% from $102.5 million in the fourth quarter of 2016.
Total gross profit in the fourth quarter was $41.6 million or 25.7% as compared with gross profit of $34.2 million, or 23.1%, for the first quarter of 2016, and $46.1 million, or 25.5% in the fourth quarter of 2016. Gross profit margin in the first quarter came in near the top of the guidance range of 24-26% provided in February.
Foundry gross profit margin was 28.5% in the first quarter as compared with 23.8% in the first quarter of 2016 and 30.3% in the fourth quarter of 2016. Standard Products Group
gross profit margin was 23.1% in the first quarter as compared with 23.6% in the first quarter of 2016 and 21.8% in the fourth quarter of 2016.
Net income, on a GAAP basis, for the first quarter of 2017 was $43.7 million or $1.30 per basic share and $1.05 per diluted share as compared with a net income in the first quarter of 2016 of $8.1 million or $0.23 per basic and diluted share and compared with net loss of $49.8 million or $1.42 per basic share in the fourth quarter of 2016. The net income in the first quarter of 2017 was attributable primarily to a non-cash foreign exchange gain on the Company’s intercompany loans.
Adjusted Net Income, a non-GAAP financial measure, for the first quarter of 2017, totaled $0.5 million or $0.01 per basic share and per basic and diluted share as compared to an Adjusted Net Loss of $2.8 million or $0.08 per basic share in the first quarter of 2016 and an Adjusted Net Income of $1.6 million or $0.05 per basic share and $0.04 per diluted share in the fourth quarter of 2016.
Adjusted EBITDA in the first quarter was $13.1 million as compared with Adjusted EBITDA of $8.0 million in the first quarter of 2016, and $14.1 million in the fourth quarter of 2016, despite a 10.4% decline in total revenue.
“We continued to make significant operational progress in the first quarter, and clearly demonstrated our ongoing commitment to achieve higher gross margin and overall profitability,” said YJ Kim, Chief Executive Officer of MagnaChip. “With a balanced portfolio of standard products and analog foundry services, we are well positioned to increase revenue and capitalize on the analog technology trends driving growth in our target markets.”
During the first quarter, the Company reduced the workforce by approximately 140 positions as part of a previously announced headcount reduction plan. This plan is expected to cut the workforce by over two times a similar headcount reduction plan in 2016 that affected 169 employees. Once completed, the workforce reduction will have an expected payback period of less than 1.5 years with an estimated annual cost savings between $23-$27 million.
The Company believes it remains on track to complete the planned workforce reduction within its cash cost range of $29-33 million. During the first quarter, the Company recorded early termination charges of $11.1 million and made cash payments totaling approximately $10 million in connection with the headcount reduction. The cash payments were comprised of approximately $4 million related to the early termination charge and the remaining relates to statutory severance. The Company expects to complete or substantially complete the planned workforce reduction by the end of the second quarter and expects to record an additional early termination charge of approximately $1-2 million in the second quarter related to the workforce reduction.
In commenting on the first quarter financial results, Chief Financial Officer Jonathan Kim said, “Gross profit margin as a percentage of revenue was at its highest level in four years, and Adjusted EBITDA increased over 60% from the first quarter a year ago.” Mr. Kim added, “Based on our current view of the business and the projected savings from ongoing cost-cutting actions, we continue to anticipate that our gross profit margin and Adjusted EBITDA will show improvement in 2017.”
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 $132.6 million at the end of the first quarter, an increase of $49.3 million from $83.4 million at the end of the fourth quarter of 2016. The cash figure in the first quarter reflects the successful outcome of a Senior Exchangeable Notes Offering in January, and also includes approximately $17 million in connection with the sale of a building that housed a 6″ wafer fab that was closed in February 2016. The proceeds of the sale of the building were released from restricted cash in the first quarter of 2017 after the Company completed certain construction work obligations. Cash outlays during the quarter included, issuance fees and a stock buyback in connection with the Exchangeable Notes Offering, payment of deferred salaries, unusual charges and statutory severance payments related to the on-going workforce reduction, debt interest payments and capital expenditures among others.
First Quarter and Recent Company Highlights
Priced the upsized offering of 5.00% Exchangeable Senior Notes after the initial purchasers exercised an over-allotment option. The offering totaled $86.25 million aggregate principal amount of notes, taking into account the over-allotment option exercised by the initial purchasers
Announced it now offers a 0.35 micron 700V Ultra High Voltage process technology with process simplification that reduces manufacturing time and cost. This Ultra High Voltage (UHV) process is ideal for manufacturing AC-DC converter ICs and LED driver ICs.
Unveiled a new 0.18 micron RFSOI process with enhanced switching performance to reduce manufacturing cost and time-to-market, while also providing competitive and superior performance for antenna switches used in mobile and Internet of Things (IoT) devices for wireless connectivity
Announced it will host its annual Foundry Technology Symposium in Santa Clara, California, on June 7 to showcase its analog and mixed signal technology offerings and services
For the second quarter of 2017, MagnaChip anticipates:
Revenue to be in the range of $162 million to $168 million, or up sequentially nearly 4% at the high end of the projected range as compared with Q1, and compared to $167.1 million in the second quarter of 2016.
Gross profit is anticipated to be in the range of 25% to 27%, as compared to 25.7% in the first quarter of 2017, and as compared to 22% in the second quarter of 2016.
MagnaChip will hold a conference call on May 3 at 5 p.m. ET to discuss the first quarter 2017 financial results. The conference call will be webcast live and is also available by dialing toll-free at 1-844-536-5472. International call-in participants can dial at 1-614-999-9318. The conference ID number is 8267197. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 8 a.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 8267197.
About MagnaChip Semiconductor Corporation
MagnaChip is a Korea-based 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 a 30-year operating history, owns a portfolio of approximately 3,400 registered and pending patents, 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 second quarter 2017 revenue and gross profit 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, and other risks detailed from time to time in MagnaChip’s filings with the SEC, including our Form 10-K filed on February 21, 2017 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.
In the United States:
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