- Fourth quarter revenue of $61.0 million was near the high-end of our guidance range. YoY, our revenue decreased 44.7% primarily due to severe 28nm wafer shortages required for our Display business.
- Full-year revenue of $337.7 million decreased 28.8% YoY due to significantly lower Display revenue as a result of severe 28nm 12-inch OLED wafer shortages that impacted 2nd half design-in projects from our large panel customers in Korea and weak demand for Android smartphones that led to an inventory correction by smartphone OEMs.
- Gross profit margin for the fourth quarter was 26.4%, within our guidance range.
- Full-year gross profit margin of 30.0% was down 240 bps YoY due mainly to certain inventory reserves and scrap cost related to 12-inch OLED products as a result of lower demand for China smartphones.
- GAAP diluted earnings per share for the fourth quarter was $0.07; Full-year GAAP diluted loss per share was $0.18.
- Non-GAAP diluted loss per share for the fourth quarter was $0.36; Full-year non-GAAP diluted earnings per share was $0.19.
SEOUL, South Korea, Feb. 16, 2023 /PRNewswire/ — Magnachip Semiconductor Corporation (NYSE: MX) (“Magnachip” or the “Company”) today announced financial results for the fourth quarter and full-year 2022.
YJ Kim, Magnachip’s chief executive officer commented, “We closed the fourth quarter with $61.0 million revenue, near the high-end of our guidance range. Q4 results continued to reflect the impact of severe wafer shortages and inventory correction in our Display business and deteriorating consumer demand in our Power Solutions business. Despite the challenges of this past year, we stayed focused and achieved milestones that set the foundation for recovery in 2023. In Display, we expanded our OLED business into international markets by winning a new tier one panel customer outside of Korea and strengthened our global supply chain by qualifying two additional foundries. Further, in Q4, we successfully qualified two OLED projects with our two leading panel customers and expect to begin shipping at the end of this quarter. In Power Solutions, we achieved a record year with 2022 revenue up 1.2% despite the slowdown in the 2nd half due to macro weakness. Further, our Power Solutions business won a record 209 design-in/wins, more than double compared to previous years.”
YJ continued, “Looking ahead, we continue to expect the first half of 2023 to be impacted by inventory corrections and broader macro weakness, but we believe the reopening of China should eventually lead to an improvement in their economy and consumer demand, which will help both our businesses. We expect a recovery in Display revenue in the second half of 2023 as we ramp shipments of our four design-in projects with our two leading panel customers. For Power, we anticipate on maintaining our momentum of design wins and premium tier product mix. As channel inventories are consumed and the broader economy recovers, we expect to see a rebound in Power revenue.”
| Q4 and 2022 Financial Highlights | ||||||||||||||||
| In thousands of U.S. dollars, except share data | ||||||||||||||||
| GAAP | ||||||||||||||||
| Q4 2022 | Q3 2022 | Q/Q change | Q4 2021 | Y/Y change | ||||||||||||
| Revenues | ||||||||||||||||
| Standard Products Business | ||||||||||||||||
| Display Solutions | 7,556 | 6,355 | up | 18.9 % | 41,298 | down | 81.7 % | |||||||||
| Power Solutions | 46,271 | 56,416 | down | 18.0 % | 58,212 | down | 20.5 % | |||||||||
| Transitional Fab 3 foundry services(1) | 7,163 | 8,428 | down | 15.0 % | 10,825 | down | 33.8 % | |||||||||
| Gross Profit Margin | 26.4 % | 24.2 | up | 2.2% pts | 35.0 % | down | 8.6%pts | |||||||||
| Operating Income (Loss) | (10,117) | (10,008) | down | n/a | 63,870 | down | n/a | |||||||||
| Net Income (Loss) | 2,971 | (17,195) | up | n/a | 53,611 | down | 94.5 % | |||||||||
| Basic Earnings (Loss) per Common Share | 0.07 | (0.38) | up | n/a | 1.16 | down | 94.0 % | |||||||||
| Diluted Earnings (Loss) per Common Share | 0.07 | (0.38) | up | n/a | 1.12 | down | 93.8 % | |||||||||
| In thousands of U.S. dollars, except share data | ||||||||||||||||
| Non-GAAP(3) | ||||||||||||||||
| Q4 2022 | Q3 2022 | Q/Q change | Q4 2021 | Y/Y change | ||||||||||||
| Adjusted Operating Income (Loss) | (8,567) | (6,646) | down | n/a | 14,421 | down | n/a | |||||||||
| Adjusted EBITDA | (4,768) | (2,995) | down | n/a | 18,144 | down | n/a | |||||||||
| Adjusted Net Income (Loss) | (15,848) | 1,097 | down | n/a | 13,699 | down | n/a | |||||||||
| Adjusted Earnings (Loss) per Common Share—Diluted | (0.36) | 0.02 | down | n/a | 0.29 | down | n/a | |||||||||
| In thousands of U.S dollars, except share data | ||||||||||||||||||
| GAAP | ||||||||||||||||||
| 2022 | 2021 | Y/Y Change | ||||||||||||||||
| Revenues | ||||||||||||||||||
| Standard Products Business | ||||||||||||||||||
| Display Solutions | 71,432 | 205,322 | down | 65.2 % | ||||||||||||||
| Power Solutions | 230,464 | 227,777 | up | 1.2 % | ||||||||||||||
| Transitional Fab 3 foundry services(1) | 35,762 | 41,131 | down | 13.1 % | ||||||||||||||
| Gross Profit Margin | 30.0 % | 32.4 % | down | 2.4% pts | ||||||||||||||
| Operating Income (Loss)(2) | (5,244) | 83,407 | down | n/a | ||||||||||||||
| Net Income (Loss) | (8,036) | 56,708 | down | n/a | ||||||||||||||
| Basic Earnings (Loss) per Common Share | (0.18) | 1.26 | down | n/a | ||||||||||||||
| Diluted Earnings (Loss) per Common Share | (0.18) | 1.21 | down | n/a | ||||||||||||||
| In thousands of U.S dollars, except share data | ||||||||||||
| Non-GAAP(3) | ||||||||||||
| 2022 | 2021 | Y/Y Change | ||||||||||
| Adjusted Operating Income | 4,091 | 56,135 | down | 92.7 % | ||||||||
| Adjusted EBITDA | 19,517 | 70,701 | down | 72.4 % | ||||||||
| Adjusted Net Income | 8,752 | 50,152 | down | 82.5 % | ||||||||
| Adjusted Earnings per Common Share—Diluted | 0.19 | 1.07 | down | 82.2 % | ||||||||
| (1) | 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, we will provide transitional foundry services to the buyer for foundry products manufactured in our fabrication facility located in Gumi (“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 business lines. | ||||||||
| (2) | For the year ended December 31, 2021, operating income of $83.4 million included net gain of $35.5 million that represented $70.2 million income from the recognition of a reverse termination fee, net of professional service fees and expenses of $34.7 million incurred in connection with the contemplated merger transaction. | ||||||||
| (3) | 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 our 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 (loss) 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. | ||||||||
Financial Guidance
The Company’s near-term outlook is being challenged by previous OLED wafer allocation constraints that impacted 2nd half 2022 design-in projects and ongoing inventory correction in smartphones and other consumer end markets driven by weakening consumer demand. Q1 is also typically the Company’s seasonally slowest quarter following holiday shipments and is impacted by slower activity around the Chinese New Year.
In response to the industry-wide slowdown and inventory correction, the Company has reduced production at its Fab 3. As a result, the Company expects Q1’23 gross profit margin will be further impacted by lower utilization as well as higher manufacturing input costs such as electricity and wages. The Company currently expects gross profit margin to recover as volume and utilization improves in the 2nd half of 2023.
While actual results may vary, Magnachip currently expects the following for Q1’23:
- Revenue to be in the range of $55 million to $59 million, including about $5 million of Transitional Fab 3 Foundry Services.
- Gross profit margin to be in the range of 21% to 23%.
Q4 2022 Earnings Conference Call
Magnachip will host a corresponding conference call at 2:00 p.m. PT / 5:00 p.m. ET on Thursday, February 16, 2023, to discuss its financial results. In advance of the conference call, all participants must use the following link to complete the online registration process. Upon registering, each participant will receive access details for this event including the dial-in numbers, a PIN number, and an e-mail with detailed instructions to join the conference call. A live and archived webcast of the conference call and a copy of earnings release will be accessible from the ‘Investors’ section of the Company’s website at www.magnachip.com.
Online registration: https://register.vevent.com/register/BI7b1cf7d40d2f43489a0d4fc290ea1ea2
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 expectations about estimated historical or future operating results and financial performance, outlook and business plans, including first quarter 2023 revenue and gross profit margin expectations, and the impact of market conditions associated with inflation and rising interest rates, the COVID-19 pandemic or the emergence of various variants of the virus, geopolitical conflict between Russia and Ukraine, and escalated trade tensions and supply constraints on Magnachip’s first quarter 2023 and future operating results. 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 impact of changes in macroeconomic and/or general economic conditions, including those caused by or related to inflation, potential recessions or other deteriorations, economic instability or civil unrest; the COVID-19 pandemic or the emergence of various variants of the virus or other outbreaks of disease, and governmental lock-downs or other measures implemented in response thereto, and the Russia-Ukraine conflict; 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; 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, our customers and our distributors, including those related to the Russia-Ukraine conflict; 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 or the emergence of various variants of the virus; 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 or the emergence of various variants of the virus 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 U.S. Securities and Exchange Commission (the “SEC”), including our Form 10-K filed on February 23, 2022 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.
About Magnachip Semiconductor
Magnachip is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, computing, 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 1,100 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:
Yujia Zhai
The Blueshirt Group
Tel. (860) 214-0809
Yujia@blueshirtgroup.com
| MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars, except share data) (Unaudited) |
|||||||||
| Three Months Ended | Year Ended | ||||||||
| December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
December 31, 2022 |
December 31, 2021 |
|||||
| Revenues: | |||||||||
| Net sales – standard products business | $ 53,827 | $ 62,771 | $ 99,510 | $ 301,896 | $ 433,099 | ||||
| Net sales – transitional Fab 3 foundry services | 7,163 | 8,428 | 10,825 | 35,762 | 41,131 | ||||
| Total revenues | 60,990 | 71,199 | 110,335 | 337,658 | 474,230 | ||||
| Cost of sales: | |||||||||
| Cost of sales – standard products business | 37,150 | 45,497 | 62,206 | 202,347 | 283,503 | ||||
| Cost of sales – transitional Fab 3 foundry services | 7,742 | 8,477 | 9,525 | 34,047 | 37,184 | ||||
| Total cost of sales | 44,892 | 53,974 | 71,731 | 236,394 | 320,687 | ||||
| Gross profit | 16,098 | 17,225 | 38,604 | 101,264 | 153,543 | ||||
| Gross profit as a percentage of standard products business net sales | 31.0 % | 27.5 % | 37.5 % | 33.0 % | 34.5 % | ||||
| Gross profit as a percentage of total revenues | 26.4 % | 24.2 % | 35.0 % | 30.0 % | 32.4 % | ||||
| Operating expenses: | |||||||||
| Selling, general and administrative expenses | 12,562 | 11,411 | 13,255 | 50,872 | 52,440 | ||||
| Research and development expenses | 13,653 | 13,321 | 12,197 | 52,338 | 51,212 | ||||
| Merger-related income, net | — | — | (49,369 ) | — | (35,527 ) | ||||
| Other charges, net | — | 2,501 | (1,349 ) | 3,298 | 2,011 | ||||
| Total operating expenses (income) | 26,215 | 27,233 | (25,266 ) | 106,508 | 70,136 | ||||
| Operating income (loss) | (10,117) | (10,008) | 63,870 | (5,244) | 83,407 | ||||
| Interest income | 2,420 | 1,784 | 858 | 5,980 | 2,609 | ||||
| Interest expense | (269) | (278) | (132 ) | (1,157) | (1,371 ) | ||||
| Foreign currency gain (loss), net | 17,492 | (12,809) | 147 | (3,019) | (11,853 ) | ||||
| Other income, net | (42) | 174 | 89 | 561 | 1,177 | ||||
| Income (loss) before income tax expense (benefit) | 9,484 | (21,137) | 64,832 | (2,879) | 73,969 | ||||
| Income tax expense (benefit) | 6,513 | (3,942) | 11,221 | 5,157 | 17,261 | ||||
| Net income (loss) | $ 2,971 | $ (17,195) | $ 53,611 | $ (8,036) | $ 56,708 | ||||
| Basic earnings (loss) per common share— | $ 0.07 | $ (0.38) | $ 1.16 | $ (0.18) | $ 1.26 | ||||
| Diluted earnings (loss) per common share— | $ 0.07 | $ (0.38) | $ 1.12 | $ (0.18) | $ 1.21 | ||||
| Weighted average number of shares— | |||||||||
| Basic | 44,054,275 | 44,865,266 | 46,369,520 | 44,850,791 | 44,879,412 | ||||
| Diluted | 44,731,683 | 44,865,266 | 47,691,816 | 44,850,791 | 47,709,373 | ||||
| MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars, except share data) (Unaudited) |
|||
| December 31, 2022 |
December 31, 2021 |
||
| (In thousands of U.S. dollars, except share data) | |||
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | $ 225,477 | $ 279,547 | |
| Accounts receivable, net | 35,380 | 50,954 | |
| Inventories, net | 39,883 | 39,370 | |
| Other receivables | 7,847 | 25,895 | |
| Prepaid expenses | 10,560 | 7,675 | |
| Hedge collateral | 2,940 | 3,060 | |
| Other current assets | 15,766 | 2,619 | |
| Total current assets | 337,853 | 409,120 | |
| Property, plant and equipment, net | 110,747 | 107,882 | |
| Operating lease right-of-use assets | 5,265 | 4,275 | |
| Intangible assets, net | 1,930 | 2,377 | |
| Long-term prepaid expenses | 10,939 | 8,243 | |
| Deferred income taxes | 38,324 | 41,095 | |
| Other non-current assets | 11,587 | 10,662 | |
| Total assets | $ 516,645 | $ 583,654 | |
| Liabilities and Stockholders’ Equity | |||
| Current liabilities | |||
| Accounts payable | $ 17,998 | $ 37,593 | |
| Other accounts payable | 9,702 | 6,289 | |
| Accrued expenses | 9,688 | 20,071 | |
| Accrued income taxes | 3,154 | 11,823 | |
| Operating lease liabilities | 1,397 | 2,323 | |
| Other current liabilities | 5,306 | 7,382 | |
| Total current liabilities | 47,245 | 85,481 | |
| Accrued severance benefits, net | 23,121 | 33,064 | |
| Non-current operating lease liabilities | 4,091 | 1,952 | |
| Other non-current liabilities | 14,035 | 10,395 | |
| Total liabilities | 88,492 | 130,892 | |
| Commitments and contingencies | |||
| Stockholders’ equity | |||
| Common stock, $0.01 par value, 150,000,000 shares authorized, 56,432,449 shares issued and 43,824,575 outstanding at December 31, 2022 and 55,905,320 shares issued and 45,659,304 outstanding at December 31, 2021 | 564 | 559 | |
| Additional paid-in capital | 266,058 | 241,197 | |
| Retained earnings | 335,506 | 343,542 | |
| Treasury stock, 12,607,874 shares at December 31, 2022 and 10,246,016 shares at December 31, 2021, respectively | (161,422) | (130,306 ) | |
| Accumulated other comprehensive loss | (12,553) | (2,230 ) | |
| Total stockholders’ equity | 428,153 | 452,762 | |
| Total liabilities and stockholders’ equity | $ 516,645 | $ 583,654 | |
| MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (Unaudited) |
||||||||||||||
| Three Months
Ended |
Year Ended | |||||||||||||
| December 31, 2022 |
December 31, 2022 |
December 31, 2021 |
||||||||||||
| Cash flows from operating activities | ||||||||||||||
| Net income (loss) | $ 2,971 | $ (8,036) | $ 56,708 | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||||||||
| Depreciation and amortization | 3,775 | 15,000 | 14,239 | |||||||||||
| Provision for severance benefits | 1,126 | 6,289 | 8,282 | |||||||||||
| Amortization of debt issuance costs and original issue discount | — | — | 261 | |||||||||||
| Loss (gain) on foreign currency, net | (46,606) | 19,729 | 32,432 | |||||||||||
| Provision for inventory reserves | 1,844 | 9,574 | 2,244 | |||||||||||
| Stock-based compensation | 1,550 | 6,037 | 7,704 | |||||||||||
| Deferred income tax assets | 56 | 278 | 918 | |||||||||||
| Other, net | 255 | 664 | (613) | |||||||||||
| Changes in operating assets and liabilities | ||||||||||||||
| Accounts receivable, net | 2,471 | 10,276 | 7,505 | |||||||||||
| Inventories | 582 | (12,626) | (5,939) | |||||||||||
| Other receivables | 1,031 | 18,146 | (21,538) | |||||||||||
| Other current assets | 9,967 | (4,150) | 12,397 | |||||||||||
| Accounts payable | (1,533) | (16,325) | (11,437) | |||||||||||
| Other accounts payable | (3,195) | (9,410) | (7,798 ) | |||||||||||
| Accrued expenses | (13,094) | (7,228) | 4,637 | |||||||||||
| Accrued income taxes | 3,083 | (8,400) | (1) | |||||||||||
| Deferred revenue | (47) | (1,261) | (131) | |||||||||||
| Other current liabilities | (276) | (645) | 1,445 | |||||||||||
| Other non-current liabilities | 226 | 749 | (1,398 ) | |||||||||||
| Contributions to severance insurance deposit accounts | (7,662) | (7,899) | (5,688) | |||||||||||
| Payment of severance benefits | (1,831) | (6,012) | (6,679) | |||||||||||
| Other, net | 228 | 415 | 193 | |||||||||||
| Net cash provided by (used in) operating activities | (45,079) | 5,165 | 87,743 | |||||||||||
| Cash flows from investing activities | ||||||||||||||
| Proceeds from settlement of hedge collateral | 12,427 | 15,232 | 5,214 | |||||||||||
| Payment of hedge collateral | — | (15,282) | (3,349 ) | |||||||||||
| Proceeds from disposal of property, plant and equipment | — | 550 | 1,446 | |||||||||||
| Purchase of property, plant and equipment | (11,582) | (23,394) | (32,212 ) | |||||||||||
| Payment for intellectual property registration | (89) | (390) | (614 ) | |||||||||||
| Collection of guarantee deposits | — | — | 3,192 | |||||||||||
| Payment of guarantee deposits | (306) | (2,381) | (5,001 ) | |||||||||||
| Other, net | 495 | 737 | (114 ) | |||||||||||
| Net cash provided by (used in) investing activities | 945 | (24,928) | (31,438 ) | |||||||||||
| Cash flows from financing activities | ||||||||||||||
| Proceeds from exercise of stock options | — | 1,786 | 4,279 | |||||||||||
| Acquisition of treasury stock | (8,895) | (13,960) | (1,653 ) | |||||||||||
| Acquisition of stock under accelerated stock repurchase agreement | — | — | (20,073) | |||||||||||
| Payment under accelerated stock repurchase agreement | — | — | (17,427) | |||||||||||
| Repayment of financing related to water treatment facility arrangement | (119) | (500) | (563 ) | |||||||||||
| Others | (20) | (70) | (107) | |||||||||||
| Net cash used in financing activities | (9,034) | (12,744) | (35,544 ) | |||||||||||
| Effect of exchange rates on cash and cash equivalents | 27,814 | (21,563) | (21,154 ) | |||||||||||
| Net decrease in cash and cash equivalents | (25,354) | (54,070) | (393 ) | |||||||||||
| Cash and cash equivalents | ||||||||||||||
| Beginning of the period | 250,831 | 279,547 | 279,940 | |||||||||||
| End of the period | $ 225,477 | $ 225,477 | $ 279,547 | |||||||||||
| MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES RECONCILIATION OF OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME (LOSS) (In thousands of U.S. dollars) (Unaudited) |
|||||||||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||||
| December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
December 31, 2022 |
December 31, 2021 |
|||||||||||||||||||
| Operating income (loss) | $ | (10,117) | $ | (10,008) | $ | 63,870 | $ | (5,244) | $ | 83,407 | |||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Equity-based compensation expense | 1,550 | 861 | 1,648 | 6,037 | 7,704 | ||||||||||||||||||
| Inventory reserve related to Huawei impact of downstream trade restrictions | — | — | (379) | — | (1,460) | ||||||||||||||||||
| Merger-related income, net | — | — | (49,369) | — | (35,527) | ||||||||||||||||||
| Other charges, net | — | 2,501 | (1,349) | 3,298 | 2,011 | ||||||||||||||||||
| Adjusted Operating Income (Loss) | $ | (8,567) | $ | (6,646) | $ | 14,421 | $ | 4,091 | $ | 56,135 | |||||||||||||
We present Adjusted Operating Income (Loss) as a supplemental measure of our performance. We define Adjusted Operating Income (Loss) for the periods indicated as operating income (loss) adjusted to exclude (i) Equity-based compensation expense (ii) Inventory reserve related to Huawei impact of downstream trade restrictions (iii) Merger-related income, net and (iv) Other charges, net.
For the year ended December 31, 2022, Other charges, net includes $2.8 million of one-time employee incentives and professional service fees and expenses of $1.0 million, incurred in connection with certain strategic evaluations, both of which were offset in part by a $0.5 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi. For the year ended December 31, 2021, Other charges, net includes $3.4 million of non-recurring professional service fees and expenses incurred in connection with the regulatory requests, partially offset by $1.4 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018).
For the year ended December 31, 2021, we recorded in our consolidated statement of operations net gain of $35.5 million that represented income of $70.2 million from the recognition of a reverse termination fee, net of professional service fees and expenses of $34.7 million incurred in connection with the contemplated merger transaction of the Company that was terminated in December 2021.
| MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND ADJUSTED NET INCOME (LOSS) (In thousands of U.S. dollars, except share data) (Unaudited) |
|||||||||||
| Three Months Ended | Year Ended | ||||||||||
| December 31, 2022 |
September 30, 2022 |
December 31, 2021 |
December 31, 2022 |
December 31, 2021 |
|||||||
| Net income (loss) | $ 2,971 | $ (17,195) | $ 53,611 | $ (8,036) | $ 56,708 | ||||||
| Adjustments: | |||||||||||
| Interest income | (2,420) | (1,784) | (858) | (5,980) | (2,609) | ||||||
| Interest expense | 269 | 278 | 132 | 1,157 | 1,371 | ||||||
| Income tax expense (benefit) | 6,513 | (3,942) | 11,221 | 5,157 | 17,261 | ||||||
| Depreciation and amortization | 3,775 | 3,623 | 3,663 | 15,000 | 14,239 | ||||||
| EBITDA | 11,108 | (19,020) | 67,769 | 7,298 | 86,970 | ||||||
| Equity-based compensation expense | 1,550 | 861 | 1,648 | 6,037 | 7,704 | ||||||
| Foreign currency loss (gain), net | (17,492) | 12,809 | (147) | 3,019 | 11,853 | ||||||
| Derivative valuation loss (gain), net | 66 | (146) | (29) | (135) | (123) | ||||||
| Inventory reserve related to Huawei impact of downstream trade restrictions | — | — | (379) | — | (1,460) | ||||||
| Merger-related income, net | — | — | (49,369) | — | (35,527) | ||||||
| Other charges, net | — | 2,501 | (1,349) | 3,298 | 1,284 | ||||||
| Adjusted EBITDA | $ (4,768) | $ (2,995) | $ 18,144 | $ 19,517 | $ 70,701 | ||||||
| Net income (loss) | $ 2,971 | $ (17,195 ) | $ 53,611 | $ (8,036) | $ 56,708 | ||||||
| Adjustments: | |||||||||||
| Equity-based compensation expense | 1,550 | 861 | 1,648 | 6,037 | 7,704 | ||||||
| Foreign currency loss (gain), net | (17,492) | 12,809 | (147) | 3,019 | 11,853 | ||||||
| Derivative valuation loss (gain), net | 66 | (146 ) | (29) | (135) | (123) | ||||||
| Inventory reserve related to Huawei impact of downstream trade restrictions | — | — | (379) | — | (1,460) | ||||||
| Merger-related income, net | — | — | (49,369) | — | (35,527) | ||||||
| Other charges, net | — | 2,501 | (1,349) | 3,298 | 1,284 | ||||||
| Income tax effect on non-GAAP adjustments | (2,943) | 2,267 | 9,713 | 4,569 | 9,713 | ||||||
| Adjusted Net Income (Loss) | $ (15,848) | $ 1,097 | $ 13,699 | $ 8,752 | $ 50,152 | ||||||
| Adjusted Net Income (Loss) per common share— | |||||||||||
| – Basic | $ (0.36) | $ 0.02 | $ 0.30 | $ 0.20 | $ 1.12 | ||||||
| – Diluted | $ (0.36) | $ 0.02 | $ 0.29 | $ 0.19 | $ 1.07 | ||||||
| Weighted average number of shares – basic | 44,054,275 | 44,865,266 | 46,369,520 | 44,850,791 | 44,879,412 | ||||||
| Weighted average number of shares – diluted | 44,054,275 | 45,747,255 | 47,691,816 | 45,795,559 | 47,709,373 | ||||||
We present Adjusted EBITDA and Adjusted Net Income (Loss) 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 loss (gain), net, (iii) Derivative valuation loss (gain), net, (iv) Inventory reserve related to Huawei impact of downstream trade restrictions, (v) Merger-related income, net and (vi) Other charges, net. EBITDA for the periods indicated is defined as net income (loss) before interest income, interest expense, income tax expense (benefit) and depreciation and amortization.
We prepare Adjusted Net Income (Loss) 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 (Loss) is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We define Adjusted Net Income (Loss) for the periods as net income (loss), adjusted to exclude (i) Equity-based compensation expense, (ii) Foreign loss (gain), net, (iii) Derivative valuation loss (gain), net, (iv) Inventory reserve related to Huawei impact of downstream trade restrictions, (v) Merger-related income, net, (vi) Other charges, net and (vii) Income tax effect on non-GAAP adjustments.
For the year ended December 31, 2022, Other charges, net includes $2.8 million of one-time employee incentives and professional service fees and expenses of $1.0 million, incurred in connection with certain strategic evaluations, both of which were offset in part by a $0.5 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi. For the year ended December 31, 2021, Other charges, net includes $3.4 million of non-recurring professional service fees and expenses incurred in connection with the regulatory requests, partially offset by $1.4 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018) and $0.7 million 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 third quarter of 2021.
For the year ended December 31, 2021, we recorded in our consolidated statement of operations net gain of $35.5 million that represented income of $70.2 million from the recognition of a reverse termination fee, net of professional service fees and expenses of $34.7 million incurred in connection with the contemplated merger transaction of the Company that was terminated in December 2021.
For the quarter and year ended December 31, 2021, the adjustment for GAAP and cash tax expense difference in connection with the release of valuation allowances will no longer be an adjustment included in the Company’s non-GAAP financial measure. As such, Adjusted Net Income and Adjusted Net Income per Common Share for Q4 2021 and for the full year 2021 presented here have been recast to reflect the removal of this adjustment in accordance with Securities and Exchange Commission guidance.
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SOURCE Magnachip Semiconductor Corporation
