QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
| Large accelerated filer | ☐ | ☒ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Item 1. |
Interim Consolidated Financial Statements (Unaudited) |
March 31, 2025 |
December 31, 2024 |
|||||||
(In thousands of U.S. dollars, except share data) |
||||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Accounts receivable, net |
||||||||
| Inventories, net |
||||||||
| Other receivables |
||||||||
| Prepaid expenses |
||||||||
| Hedge collateral (Note 8) |
||||||||
| Other current assets (Note 18) |
||||||||
| |
|
|
|
|||||
| Total current assets |
||||||||
| Property, plant and equipment, net |
||||||||
| Operating lease right-of-use |
||||||||
| Intangible assets, net |
||||||||
| Long-term prepaid expenses, net |
||||||||
| Deferred income taxes |
||||||||
| Other non-current assets |
||||||||
| |
|
|
|
|||||
| Total assets |
$ | $ | ||||||
| |
|
|
|
|||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | $ | ||||||
| Other accounts payable |
||||||||
| Accrued expenses (Note 7) |
||||||||
| Accrued income taxes |
||||||||
| Operating lease liabilities |
||||||||
| Other current liabilities |
||||||||
| |
|
|
|
|||||
| Total current liabilities |
||||||||
| Long-term borrowing |
||||||||
| Accrued severance benefits, net |
||||||||
| Non-current operating lease liabilities |
||||||||
| Other non-current liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| |
|
|
|
|||||
| Commitments and contingencies (Note 18) |
||||||||
| Stockholders’ equity |
||||||||
| Common stock, $ |
||||||||
| Additional paid-in capital |
||||||||
| Retained earnings |
||||||||
| Treasury stock, |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Total stockholders’ equity |
||||||||
| |
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
(In thousands of U.S. dollars, except share data) |
||||||||
Revenues: |
||||||||
Net sales – Power solutions business |
$ | $ | ||||||
Net sales – transitional Fab 3 foundry services |
||||||||
Total revenues |
||||||||
Cost of sales: |
||||||||
Cost of sales – Power solutions business |
||||||||
Cost of sales – transitional Fab 3 foundry services |
||||||||
Total cost of sales |
||||||||
Gross profit |
||||||||
Operating expenses: |
||||||||
Selling, general and administrative expenses |
||||||||
Research and development expenses |
||||||||
Total operating expenses |
||||||||
Operating loss |
( |
) | ( |
) | ||||
Interest income |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Foreign currency loss, net |
( |
) | ( |
) | ||||
Other income, net |
||||||||
Loss from continuing operations before income tax expense (benefit) |
( |
) | ( |
) | ||||
Income tax expense (benefit), net |
( |
) | ||||||
Loss from continuing operations |
( |
) | ( |
) | ||||
Loss from discontinued operations, net of tax |
( |
) | ( |
) | ||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Basic loss per common share— |
||||||||
Continuing operations |
$ | ( |
) | $ | ( |
) | ||
Discontinued operations |
$ | ( |
) | $ | ( |
) | ||
Total |
$ | ( |
) | $ | ( |
) | ||
Diluted loss per common share— |
||||||||
Continuing operations |
$ | ( |
) | $ | ( |
) | ||
Discontinued operations |
$ | ( |
) | $ | ( |
) | ||
Total |
$ | ( |
) | $ | ( |
) | ||
Weighted average number of shares— |
||||||||
Basic |
||||||||
Diluted |
||||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
(In thousands of U.S. dollars) |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive income (loss) |
||||||||
| Foreign currency translation adjustments |
( |
) | ||||||
| Derivative adjustments |
||||||||
| Fair valuation of derivatives |
( |
) | ||||||
| Reclassification adjustment for loss on derivatives included in net loss |
||||||||
| |
|
|
|
|||||
| Total other comprehensive income (loss) |
( |
) | ||||||
| |
|
|
|
|||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Loss |
||||||||||||||||||||||||||
Retained Earnings |
Treasury Stock |
Total |
||||||||||||||||||||||||||
| (In thousands of U.S. dollars, except share data) |
Shares |
Amount |
||||||||||||||||||||||||||
Three Months Ended March 31, 2025: |
||||||||||||||||||||||||||||
Balance at December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Settlement of restricted stock units |
( |
) | — | — | — | — | ||||||||||||||||||||||
Acquisition of treasury stock |
( |
) | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||
Other comprehensive income, net |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||
Balance at March 31, 2025 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Three Months Ended March 31, 2024: |
||||||||||||||||||||||||||||
Balance at December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Settlement of restricted stock units |
( |
) | — | — | — | — | ||||||||||||||||||||||
Acquisition of treasury stock |
( |
) | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||
Other comprehensive loss, net |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net loss |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||
Balance at March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
(In thousands of U.S. dollars) |
||||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
| Depreciation and amortization |
||||||||
| Provision for severance benefits |
||||||||
| Loss (gain) on foreign currency, net |
( |
) | ||||||
| Provision (reversal) for inventory reserves |
( |
) | ||||||
| Stock-based compensation |
||||||||
| Deferred income taxes |
( |
) | ||||||
| Other, net |
||||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts receivable, net |
||||||||
| Inventories |
( |
) | ||||||
| Other receivables |
( |
) | ( |
) | ||||
| Prepaid expenses |
||||||||
| Other current assets |
||||||||
| Accounts payable |
||||||||
| Other accounts payable |
( |
) | ( |
) | ||||
| Accrued expenses |
( |
) | ( |
) | ||||
| Accrued income taxes |
( |
) | ||||||
| Other current liabilities |
( |
) | ( |
) | ||||
| Other non-current liabilities |
( |
) | ||||||
| Payment of severance benefits |
( |
) | ( |
) | ||||
| Other, net |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities |
||||||||
| Purchase of property, plant and equipment |
( |
) | ( |
) | ||||
| Payment for intellectual property registration |
( |
) | ( |
) | ||||
| Collection guarantee deposits |
||||||||
| Payment of guarantee deposits |
( |
) | ( |
) | ||||
| Other, net |
||||||||
| |
|
|
|
|||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities |
||||||||
| Proceeds from long-term borrowing |
||||||||
| Acquisition of treasury stock |
( |
) | ( |
) | ||||
| Repayment of financing related to water treatment facility arrangement |
( |
) | ( |
) | ||||
| Repayment of principal portion of finance lease liabilities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Effect of exchange rates on cash and cash equivalents |
( |
) | ||||||
| |
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| |
|
|
|
|||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| |
|
|
|
|||||
| Supplemental cash flow information |
||||||||
| Cash paid for interest on long-term borrowing |
$ | $ | ||||||
| Cash paid (refund) for income taxes |
$ | ( |
) | $ | ||||
| Non-cash investing activities |
||||||||
| Property, plant and equipment additions in other accounts payable |
$ | $ | ||||||
| Non-cash financing activities |
||||||||
| Unsettled common stock repurchases |
$ | $ | ||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
(In thousands of U.S. dollars) |
||||||||
| Net sales |
$ | $ | ||||||
| Cost of sales |
||||||||
| |
|
|
|
|||||
| Gross profit |
||||||||
| Operating expenses: |
||||||||
| Selling, general and administrative expenses |
||||||||
| Research and development expenses |
||||||||
| Other charges |
||||||||
| |
|
|
|
|||||
| Total operating expenses |
||||||||
| |
|
|
|
|||||
| Operating loss from discontinued operations |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Interest income |
||||||||
| Interest expense |
( |
) | ( |
) | ||||
| Foreign currency loss, net |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Loss from discontinued operations before income tax benefit |
( |
) | ( |
) | ||||
| Income tax benefit, net |
( |
) | ||||||
| |
|
|
|
|||||
| Loss from discontinued operations, net of tax |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
| Significant non-cash operating activities: |
||||||||
| Depreciation and amortization |
$ | $ | ||||||
| Provision for severance benefits |
||||||||
| Stock-based compensation |
||||||||
| Investing activities: |
||||||||
| Capital expenditures |
$ | $ | ||||||
March 31, 2025 |
December 31, 2024 |
|||||||
| Finished goods |
$ | $ | ||||||
| Semi-finished goods and work-in-process |
||||||||
| Raw materials |
||||||||
| Materials in-transit |
||||||||
| Less: inventory reserve |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Inventories, net |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
| Beginning balance |
$ | ( |
) | $ | ( |
) | ||
| Change in reserve |
||||||||
| Inventory reserve charged to costs of sales |
( |
) | ( |
) | ||||
| Sale of previously reserved inventory |
||||||||
| |
|
|
|
|||||
( |
) |
|||||||
| Write off |
||||||||
| Translation adjustments |
( |
) | ||||||
| |
|
|
|
|||||
| Ending balance |
$ | ( |
) | $ | ( |
) | ||
| |
|
|
|
|||||
March 31, 2025 |
December 31, 2024 |
|||||||
Buildings and related structures |
$ | $ | ||||||
Machinery and equipment |
||||||||
Finance lease right-of-use |
||||||||
Others |
||||||||
Less: accumulated depreciation |
( |
) | ( |
) | ||||
Land |
||||||||
Construction in progress |
||||||||
Property, plant and equipment, net |
$ | $ | ||||||
March 31, 2025 |
||||||||||||
Gross amount |
Accumulated amortization |
Net amount |
||||||||||
Intellectual property assets |
$ | $ | ( |
) | $ | |||||||
Intangible assets |
$ | $ | ( |
) | $ | |||||||
December 31, 2024 |
||||||||||||
Gross amount |
Accumulated amortization |
Net amount |
||||||||||
Intellectual property assets |
$ | $ | ( |
) | $ | |||||||
Intangible assets |
$ | $ | ( |
) | $ | |||||||
Leases |
Classification |
March 31, 2025 |
December 31, 2024 |
|||||||||
Assets |
||||||||||||
Operating lease |
$ | $ | ||||||||||
Finance lease |
Property, plant and equipment, net | |||||||||||
Total lease assets |
$ | $ | ||||||||||
Liabilities |
||||||||||||
Current |
||||||||||||
Operating lease |
$ | $ | ||||||||||
Finance lease |
Other current liabilities | |||||||||||
Non-current |
||||||||||||
Operating lease |
Non-current operating lease liabilities |
|||||||||||
Finance lease |
||||||||||||
Total lease liabilities |
$ | $ | ||||||||||
March 31, 2025 |
December 31, 2024 |
|||||||
Weighted average remaining lease term |
||||||||
Operating leases |
||||||||
Finance leases |
||||||||
Weighted average discount rate |
||||||||
Operating leases |
% | % | ||||||
Finance leases |
% | % | ||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
Operating lease cost |
$ | $ | ||||||
Finance lease cost |
||||||||
Amortization of right-of-use |
||||||||
Interest on lease liabilities |
||||||||
Total lease cost |
$ | $ | ||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
Cash paid for amounts included in the measurement of lease liabilities |
||||||||
Operating cash flows from operating leases |
$ | $ | ||||||
Operating cash flows from finance leases |
||||||||
Financing cash flows from finance leases |
||||||||
Operating Leases |
Leases |
|||||||
Remainder of 2025 |
$ | $ | ||||||
2026 |
||||||||
2027 |
||||||||
2028 |
||||||||
2029 |
||||||||
Total future lease payments |
||||||||
Less: Imputed interest |
( |
) | ( |
) | ||||
Present value of future payments |
$ | $ | ||||||
March 31, 2025 |
December 31, 2024 |
|||||||
Payroll, benefits and related taxes, excluding severance benefits |
$ | $ | ||||||
Withholding tax attributable to intercompany interest income |
||||||||
Outside service fees |
||||||||
Others |
||||||||
Accrued expenses |
$ | $ | ||||||
Date of transaction |
Total notional amount |
Month of settlement | ||||
| $ | ||||||
| $ | ||||||
| $ | ||||||
Date of transaction |
Total notional amount |
Month of settlement | ||||
| $ | ||||||
| $ | ||||||
| $ | ||||||
Derivatives designated as hedging instruments: |
March 31, 2025 |
December 31, 2024 |
||||||||||
Liability Derivatives: |
||||||||||||
Zero cost collars |
Other current liabilities | $ | $ | |||||||||
As of March 31, 2025 |
Gross amounts of recognized liabilities |
Gross amounts offset in the balance sheets |
Net amounts of liabilities presented in the balance sheets |
Gross amounts not offset in the balance sheets |
Net amount |
|||||||||||||||||||
Financial instruments |
Cash collateral pledged |
|||||||||||||||||||||||
Liability Derivatives: |
||||||||||||||||||||||||
Zero cost collars |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
As of December 31, 2024 |
Gross amounts of recognized liabilities |
Gross amounts offset in the balance sheets |
Net amounts of liabilities presented in the balance sheets |
Gross amounts not offset in the balance sheets |
Net amount |
|||||||||||||||||||
Financial instruments |
Cash collateral pledged |
|||||||||||||||||||||||
Liability Derivatives: |
||||||||||||||||||||||||
Zero cost collars |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationships |
Amount of Gain (Loss) Recognized in AOCI on Derivatives |
Location/Amount of Loss Reclassified from AOCI Into Statement of Operations |
Location/Amount of Gain Recognized in Statement of Operations on Derivatives |
|||||||||||||||||||||||||||||
Three Months Ended March 31, |
Three Months Ended March 31, |
Three Months Ended March 31, |
||||||||||||||||||||||||||||||
2025 |
2024 |
2025 |
2024 |
2025 |
2024 |
|||||||||||||||||||||||||||
Zero cost collars |
$ | $ | ( |
) | Net sales | $ | ( |
) | $ | ( |
) | Other income, net | $ | $ | ||||||||||||||||||
| $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||
Counterparty |
March 31, 2025 |
December 31, 2024 |
||||||
SC |
$ | $ | ||||||
Total |
$ | $ | ||||||
Carrying Value March 31, 2025 |
Fair Value Measurement March 31, 2025 |
Quoted Prices in Active Markets for Identical Liability (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Liabilities: |
||||||||||||||||||||
(other current liabilities) |
$ |
$ |
— | $ |
— | |||||||||||||||
Carrying Value December 31, 2024 |
Fair Value Measurement December 31, 2024 |
Quoted Prices in Active Markets for Identical Liability (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Liabilities: |
||||||||||||||||||||
(other current liabilities) |
$ |
$ |
— | $ |
— | |||||||||||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
Beginning balance |
$ | $ | ||||||
Provisions |
||||||||
Severance payments |
( |
) | ( |
) | ||||
Translation adjustments |
( |
) | ||||||
Less: Cumulative contributions to severance insurance deposit accounts |
( |
) | ( |
) | ||||
The National Pension Fund |
( |
) | ( |
) | ||||
Accrued severance benefits, net |
$ | $ | ||||||
Severance benefit |
||||
2026 |
$ | |||
2027 |
$ | |||
2028 |
$ | |||
2029 |
$ | |||
2030 |
$ | |||
2031 – 2036 |
$ | |||
| Power Analog Solutions |
Power IC | Discontinued Operations |
Total | |||||||||||||||||
| Mixed-Signal Solutions |
$ | $ | $ | $ | $ | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Power Analog Solutions |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
| Revenues |
||||||||
| Power solutions business |
||||||||
| Power Analog Solutions |
$ | $ | ||||||
| Power IC |
||||||||
| |
|
|
|
|||||
| Total Power solutions business |
$ | $ | ||||||
| Transitional Fab 3 foundry services |
||||||||
| |
|
|
|
|||||
| Total revenues |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
| Cost of Sales |
||||||||
| Power solutions business |
||||||||
| Power Analog Solutions |
$ | $ | ||||||
| Power IC |
||||||||
| |
|
|
|
|||||
| Total Power solutions business |
$ | $ | ||||||
| Transitional Fab 3 foundry services |
||||||||
| |
|
|
|
|||||
| Total cost of sales |
$ | $ | ||||||
| |
|
|
|
|||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
Gross Profit |
||||||||
Power solutions business |
||||||||
Power Analog Solutions |
$ | $ | ||||||
Power IC |
||||||||
Total Power solutions business |
$ | $ | ||||||
Transitional Fab 3 foundry services |
( |
) | ||||||
Total gross profit |
$ | $ | ||||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
Korea |
$ | $ | ||||||
Asia Pacific (other than Korea) |
||||||||
United States |
||||||||
Europe |
||||||||
Total |
$ | $ | ||||||
March 31, 2025 |
December 31, 2024 |
|||||||
Foreign currency translation adjustments |
$ | ( |
) | $ | ( |
) | ||
Derivative adjustments |
( |
) | ( |
) | ||||
Total |
$ | ( |
) | $ | ( |
) | ||
Three Months Ended March 31, 2025 |
Foreign currency translation adjustments |
Derivative adjustments |
Total |
|||||||||
Beginning balance |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Other comprehensive income before reclassifications |
||||||||||||
Amounts reclassified from accumulated other comprehensive loss |
||||||||||||
Net current-period other comprehensive income |
||||||||||||
Ending balance |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Three Months Ended March 31, 2024 |
Foreign currency translation adjustments |
Derivative adjustments |
Total |
|||||||||
Beginning balance |
$ | ( |
) | $ | $ | ( |
) | |||||
Other comprehensive loss before reclassifications |
( |
) | ( |
) | ( |
) | ||||||
Amounts reclassified from accumulated other comprehensive loss |
||||||||||||
Net current-period other comprehensive loss |
( |
) | ( |
) | ( |
) | ||||||
Ending balance |
$ | ( |
) | $ | $ | ( |
) | |||||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
(In thousands of U.S. dollars, except share data) |
||||||||
Basic loss per common share |
||||||||
Loss from continuing operations |
$ | ( |
) | $ | ( |
) | ||
Loss from discontinued operations, net of tax |
( |
) | ( |
) | ||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Basic weighted average common stock outstanding |
||||||||
Basic loss per common share |
||||||||
Continuing operations |
$ | ( |
) | $ | ( |
) | ||
Discontinued operations |
( |
) | ( |
) | ||||
Total |
$ | ( |
) | $ | ( |
) | ||
Diluted loss per common share |
||||||||
Loss from continuing operations |
$ | ( |
) | $ | ( |
) | ||
Loss from discontinued operations, net of tax |
( |
) | ( |
) | ||||
Net loss allocated to common stockholders |
$ | ( |
) | $ | ( |
) | ||
Basic weighted average common stock outstanding |
||||||||
Net effect of dilutive equity awards |
||||||||
Diluted weighted average common stock outstanding |
||||||||
Diluted loss per common share |
||||||||
Continuing operations |
$ | ( |
) | $ | ( |
) | ||
Discontinued operations |
( |
) | ( |
) | ||||
Total |
$ | ( |
) | $ | ( |
) | ||
Three Months Ended |
||||||||
March 31, 2025 |
March 31, 2024 |
|||||||
Options |
||||||||
Restricted Stock Units |
||||||||
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.
These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in this section, in “Part II: Item 1A. Risk Factors” herein and in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2024 filed on March 14, 2025 (“2024 Form 10-K”).
All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Statements made in this Report, unless the context otherwise requires, that include the use of the terms “we,” “us,” “our” and “Magnachip” refer to Magnachip Semiconductor Corporation and its consolidated subsidiaries. The term “Korea” refers to the Republic of Korea or South Korea.
24
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the related notes included elsewhere in this Report.
Overview
We are a designer and manufacturer of analog and mixed-signal power semiconductor platform solutions for various applications, including industrial, automotive, communication, consumer and computing. We have a proven record with approximately 45 years of operating history, a portfolio of approximately 1,000 registered patents and pending applications and extensive engineering and manufacturing process expertise.
We develop and manufacture Power discrete products and develop Power integrated circuit (“IC”) products. Power discrete products include metal oxide semiconductor field effect transistors (“MOSFETs”) and insulated-gate bipolar transistors (“IGBTs”) for a range of devices, including televisions, smartphones, mobile phones, wearable devices, desktop personal computers (“PCs”), notebook PCs, tablet PCs, servers, other consumer electronics, as well as automotive and industrial applications such as power suppliers, e-bikes, solar inverters, LED lighting and motor drives. Power IC products include AC-DC/DC-DC converters, LED drivers, regulators, power management integrated circuits (“PMICs”) and level shifter for a range of devices, including televisions, wearable devices, notebooks, tablet PCs and others consumer electronics, as well as automotive applications.
In 2024, the Power IC business was operated by Magnachip Mixed-Signal, Ltd. (“MMS”), which later transferred the business to Magnachip Semiconductor, Ltd. (“MSK”) effective January 1, 2025, pursuant to an intercompany business transfer agreement executed between MMS and MSK. The transfer was based on the mutual understanding that consolidating the Power IC and Power Analog Solutions businesses under a single company would create a more effective framework for expanding and strengthening the Company’s business for Power products. We refer to the Power Analog Solutions and Power IC businesses collectively as the Power solutions business.
On March 7, 2025, our Board of Directors authorized a strategy to transition into a pure-play Power company, focusing its investments on the Power Analog Solutions and Power IC businesses to enhance profitability and maximize shareholder value. As part of this strategy, we explored all strategic options including a sale, merger, joint venture, licensing, and wind-down for its Display business (Display IC products). However, we were not able to consummate any transaction following several months of discussions with several interested parties on terms that our Board of Directors believed were in the best interests of the Company and our stockholders.
Accordingly, on April 6, 2025, our Board of Directors unanimously approved the plan to shut down our Display business (the “Discontinued Business”), including the liquidation of MMS, our indirect wholly owned subsidiary that operated the discontinued Display business. For additional information regarding the announcement of our plan to shut down display business, see the Company’s Current Report on Form 8-K filed on April 8, 2025. As a result of the Discontinued Business and the cessation of transitional Fab 3 foundry services, our results from continuing operations in future periods will consist solely of the Power solutions business.
Our wide variety of analog and mixed-signal power semiconductor products combined with our mature technology platform allow us to address multiple high-growth end markets and rapidly develop and introduce new products and services in response to market demands. Our design center in Korea and global manufacturing operations place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers. Certain of our Power IC products are produced using an external foundry. Through a strategic cooperation with an external foundry, we manage to ensure outsourcing wafers at competitive price and produce quality products.
To maintain and increase our profitability, we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce. We must understand our customers’ needs as well as the likely end market trends and demand in the markets they serve. We must also invest in relevant research and development activities and purchase necessary materials on a timely basis to meet our customers’ demand while maintaining our target margins and cash flow.
The semiconductor markets in which we participate are highly competitive. The prices of our products tend to decrease regularly over their useful lives, and such price decreases can be significant as new generations of products are introduced by us or our competitors. We strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence.
25
Demand for our products and services is driven by overall demand for industrial, automotive, communication, consumer and computing products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers. In order to mitigate the impact of market volatility on our business, we continually strive to diversify our portfolio of products, customers, and target applications. We also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services. While we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history, existing manufacturing capacity and our worldwide customer base, if we are not effective in competing in these markets, our operating results may be adversely affected.
Net sales for our Power Analog Solutions and Power IC business are driven by design wins in which we are selected by an electronics original equipment manufacturer (“OEM”) or other potential customer to supply its demand for a particular product. A customer will often have more than one supplier designed into multi-source components for a particular product line. Once we have design wins and the products enter into mass production, we often specify the pricing of a particular product for a set period of time, with periodic discussions and renegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the end-market demand for the goods in which our products are used, the inventory levels maintained by our customers and, in some cases, allocation of demand for components for a particular product among selected qualified suppliers.
In contrast to completely fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over certain manufacturing costs and the ability to implement process and production improvements for our internally manufactured products, which can favorably impact gross profit margins. Our internal manufacturing capacity also allows for better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these internally manufactured products. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins, particularly during downturns in the semiconductor industry.
Our Power Analog Solutions and Power IC business requires investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment. Many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. In addition, we are less likely to experience significant industry overcapacity, which can cause product prices to decline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time. In addition, we outsource manufacturing of Power IC products which do require advanced technology and 8-inch wafer capacity. We believe this balanced capital investment strategy enables us to optimize our capital investments and facilitates more diversified product and service offerings.
By outsourcing manufacturing of Power IC products to an external foundry, we have been able to adapt dynamically to changing customer requirements and address growing markets without substantial capital investments by us. However, relying on an external foundry exposes us to the risk of being unable to secure manufacturing capacity, particularly during the global shortage of foundry services. Although we work to diversify the sourcing of external manufacturing, if these efforts are at any time unsuccessful, our ability to deliver products to our customers may be negatively impacted, which would adversely affect our relationship with customers and opportunities to secure new design-wins.
Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities, market and technology trends and improve our ability to adapt and grow successfully.
26
Recent Developments
Shut-Down of Display business
On March 7, 2025, our Board of Directors authorized a strategy to transition to a pure-play Power company, focusing its investments on the Power Analog Solutions and Power IC businesses to enhance profitability and maximize shareholder value. As part of this strategy, we explored all strategic options including a sale, merger, joint venture, licensing, and wind-down for its Display business (Display IC products). However, we were not able to consummate a transaction following several months of discussions with several interested parties on terms that our Board of Directors believed were in the best interests of the Company and our stockholders.
Accordingly, on April 6, 2025, our Board of Directors unanimously approved the plan to shut down our Display business (the “Discontinued Business”) by the end of the second quarter of 2025, including the liquidation of MMS, our indirect wholly owned subsidiary that operated the discontinued Display business. For additional information regarding the announcement of our plan to shut down display business, see the Company’s Current Report on Form 8-K filed on April 8, 2025.
After shutting down the Display business, we will provide limited support for remaining customer obligations including the sale of “end of life” (“EOL”)” Display products, which will be conducted by MSK. We will maintain a small team to continue to support customers with respect to EOL Display products. The sale of EOL Display products and the potential monetization of the intellectual property assets of the discontinued Display business are currently expected to generate cash inflow of approximately $15 million to $20 million over a period of approximately 2 years after completion of the liquidation, depending upon the demand of customers and the outcome of the monetization efforts of the Display intellectual property assets.
The total estimated cash cost of the liquidation is approximately $12 to $15 million, which is expected to be offset by the cash inflow that we will generate as described above. The one-time liquidation cost is expected to consist of statutory severance and other employee-related costs, contract termination charges and other associated costs. Of this estimated total cash cost, approximately $4.5 million represents the net statutory severance, required by law, which have already been fully accrued in our consolidated financial statements. We expect to recognize substantially all of these charges, excluding the already fully-accrued net statutory severance of $4.5 million, in the quarter ending June 30, 2025.
CAPEX Loans
On December 16, 2024, MSK executed a Standard Credit Agreement (as amended) (together with its General Terms and Conditions, the “Equipment Financing Credit Agreement”) with Korea Development Bank (“KDB”). In connection with the Equipment Financing Credit Agreement, on December 8, 2024, MSK amended the Kun-Pledge Agreement (the “Equipment Pledge Agreement”) with KDB, originally executed on or about March 26, 2024, to increase the maximum secured amount and to expand the scope of collateral to include certain machinery and equipment owned by MSK, which are located in its fabrication facility located in Gumi, Korea (“Fab 3 machinery and equipment”).
The Equipment Financing Credit Agreement provides for loans for MSK’s capital expenditures (the “CAPEX Loans”) up to an aggregate of KRW 38,000,000,000 ($26.5 million based on the KRW/USD exchange rate of 1,432.7:1 as of December 16, 2024 as quoted by KEB Hana Bank), which will be funded directly to capital expenditure supply vendors by KDB upon the submission of a request form by MSK with the necessary evidence such as purchase agreement, invoice and other documentation, as applicable.
The CAPEX Loans will bear interest at a fixed rate quoted by the treasury bond market yield (a six-year Korea treasury bill rate). CAPEX Loans mature in ten years from the initial loan disbursement date, with an initial two-year (measured from the first loan disbursement date) interest-only payment period during which only interest is paid monthly, followed by eight years of amortizing payments where the principal is repaid in equal installments every three months and interest is paid monthly. The Equipment Financing Credit Agreement contains customary representations of MSK in connection with the execution of the agreement and with each borrowing of CAPEX Loans and customary terms and conditions for a secured equipment financing loan of this type in Korea. All obligations of MSK under the Equipment Financing Credit Agreement and CAPEX Loans are secured by certain Fab 3 machinery and equipment pursuant to the Equipment Pledge Agreement.
Loan Agreement
On March 26, 2024, MSK executed a Standard Credit Agreement (together with its General Terms and Conditions, the “Loan Agreement”) with KDB. In connection with the Loan Agreement, on March 26, 2024, MSK entered into a Kun-Pledge (Mortgage) Agreement (the “Pledge Agreement”) with KDB pursuant to which MSK pledged its real property and buildings located in Gumi, Korea (“Fab 3 properties”) in favor of KDB.
27
The Loan Agreement provides for a working capital term loan (the “Term Loan”) of KRW 40,000,000,000 (approximately $29.8 million based on the KRW/USD exchange rate of 1,340.7:1 as of March 26, 2024 as quoted by KEB Hana Bank), which was funded in full to MSK on March 26, 2024.
The Term Loan bears interest at a variable rate equal to the 3-month CD rate quoted by KDB, plus 1.21%, which rate is adjusted quarterly. The initial interest rate on the Term Loan was 4.86% per annum. The Term Loan requires monthly interest-only payments and matures on March 26, 2027, at which time the full principal balance will be due and payable. All obligations of MSK under the Loan Agreement and the Term Loan are secured by the Fab 3 properties pursuant to the Pledge Agreement.
Macroeconomic Industry Conditions
The semiconductor industry continues to face a number of macroeconomic challenges, including rising inflation, increased interest rates, supply chain disruptions, inventory corrections, shifting customer and end-user demand, fluctuations in currency rates, and geopolitical tensions, including without limitation ongoing conflicts involving Russia and Ukraine, sustained military action and conflicts in the Middle East, and trade conflicts or trade wars (especially those between the United States and China) including those arising directly or indirectly from tariffs recently imposed by the United States, any one or more of which may cause (if they have not already caused) volatility and unpredictability in the supply chain or market for semiconductor products and end-user demand. The length and severity of these macroeconomic events and their overall impact on our business, results of operations and financial condition remain uncertain.
Developments in Export Control Regulations
On October 7, 2022, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce published changes to U.S. export control regulations (U.S. Export Regulations), including new restrictions on Chinese entities’ ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. Further, on October 12, 2022, a new rule went into effect requiring U.S. persons to obtain a license prior to engaging in certain activities that could “support” certain end-uses and end-users, including those related to weapons of mass destruction. Additionally, on October 21, 2022, BIS brought into effect a series of new Foreign Direct Product (FDP) rules and various new controls on advanced computing items, significantly expanding the scope of items that are subject to export control under the U.S. Export Regulations. More recently, on October 25, 2023, BIS published additional rules, which went into effect on November 17, 2023 to expand, clarify, and correct the rules published in October 2022. A further corrected and clarified version of these rules went into effect on April 4, 2024. On January 16, 2025, BIS published amendments and clarifications of the U.S. Export Regulations which further tightened controls of advanced computing items. Based on our understanding of the U.S. Export Regulations and related rules currently in effect, we do not anticipate that they will have a material impact on our current business, but we will continue reviewing and assessing these rules and regulations and their potential impact on our business. Additional changes to the U.S. Export Regulations are expected, such as recently proposed rule changes that may expand restrictions on export transactions involving end users or end uses with military connections; but the scope or timing of such changes is uncertain. We will continue to monitor such developments, including potential additional trade restrictions, and other regulatory or policy changes by the U.S. and foreign governments.
28
Explanation and Reconciliation of Non-U.S. GAAP Measures
Adjusted EBITDA, Adjusted Operating Income (Loss) and Adjusted Net Income (Loss)
We use the terms Adjusted EBITDA, Adjusted Operating Income (Loss) and Adjusted Net Income (Loss) (including on a per share basis) in this Report. Adjusted EBITDA, as we define it, is a non-U.S. GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net and (iii) derivative valuation gain, 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.
See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of our performance because:
| • | we believe that Adjusted EBITDA, by eliminating the impact of a number of items that we do not consider to be indicative of our core ongoing operating performance, provides a more comparable measure of our operating performance from period-to-period and may be a better indicator of future performance; |
| • | we believe that Adjusted EBITDA is commonly requested and used by securities analysts, investors and other interested parties in the evaluation of a company as an enterprise level performance measure that eliminates the effects of financing, income taxes and the accounting effects of capital spending, as well as other one time or recurring items described above; and |
| • | we believe that Adjusted EBITDA is useful for investors, among other reasons, to assess a company’s period-to-period core operating performance and to understand and assess the manner in which management analyzes operating performance. |
We use Adjusted EBITDA in a number of ways, including:
| • | for planning purposes, including the preparation of our annual operating budget; |
| • | to evaluate the effectiveness of our enterprise level business strategies; |
| • | in communications with our Board of Directors concerning our consolidated financial performance; and |
| • | in certain of our compensation plans as a performance measure for determining incentive compensation payments. |
We encourage you to evaluate each adjustment and the reasons we consider them appropriate. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Adjusted EBITDA is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to income (loss) from continuing operations or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of liquidity. A reconciliation of loss to Adjusted EBITDA from continuing operations is as follows:
| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
|||||||
| (Dollars in millions) | ||||||||
| Loss from continuing operations |
$ | (5.1 | ) | $ | (14.3 | ) | ||
| Interest income |
(1.5 | ) | (2.1 | ) | ||||
| Interest expense |
0.4 | 0.2 | ||||||
| Income tax expense (benefit) |
(0.4 | ) | 1.9 | |||||
| Depreciation and amortization |
3.3 | 3.7 | ||||||
|
|
|
|
|
|||||
| EBITDA from continuing operations |
(3.3 | ) | (10.6 | ) | ||||
| Adjustments: |
||||||||
| Equity-based compensation expense(a) |
0.9 | 0.8 | ||||||
| Foreign currency loss, net(b) |
0.4 | 5.0 | ||||||
| Derivative valuation gain, net(c) |
(0.0 | ) | (0.0 | ) | ||||
|
|
|
|
|
|||||
| Adjusted EBITDA from continuing operations |
$ | (2.1 | ) | $ | (4.8 | ) | ||
|
|
|
|
|
|||||
29
| (a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses as supplemental information. |
| (b) | This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. |
| (c) | This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance. |
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
| • | Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
| • | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| • | Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
| • | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
| • | Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; |
| • | Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and |
| • | other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
30
We present Adjusted Operating Income (Loss) as supplemental measures of our performance. We prepare Adjusted Operating Income (Loss) by adjusting operating income (loss) to eliminate the impact of equity-based compensation 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 Operating Income (Loss) is useful to investors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income (loss) from ongoing business operations.
Adjusted Operating Income (Loss) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to operating income (loss), income (loss) from continuing operations or any other performance measure derived in accordance with U.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Operating Income (Loss) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Operating Income (Loss), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Operating Income (Loss) for the periods indicated as operating income (loss) adjusted to exclude equity-based compensation expense.
The following table summarizes the adjustments to operating loss that we make in order to calculate Adjusted Operating Loss for the periods indicated:
| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
|||||||
| (Dollars in millions) | ||||||||
| Operating loss |
$ | (6.3 | ) | $ | (9.4 | ) | ||
| Adjustments: |
||||||||
| Equity-based compensation expense(a) |
0.9 | 0.8 | ||||||
|
|
|
|
|
|||||
| Adjusted Operating Loss |
$ | (5.4 | ) | $ | (8.6 | ) | ||
|
|
|
|
|
|||||
| (a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses as supplemental information. |
31
We present Adjusted Net Income (Loss) (including on a per share basis) as a further supplemental measure of our performance. We prepare Adjusted Net Income (Loss) (including on a per share basis) 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) (including on a per share basis) is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income (Loss) (including on a per share basis) for a number of reasons, including:
| • | we use Adjusted Net Income (Loss) (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of non-cash expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and |
| • | we believe that reporting Adjusted Net Income (Loss) (including on a per share basis) is useful to readers in evaluating our core operating results because it eliminates the effects of non-cash expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantly from period to period. |
Adjusted Net Income (Loss) (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to income (loss) from continuing operations or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of liquidity. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (Loss) (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (Loss) (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (Loss) (including on a per share basis); for the periods indicated as net income (loss), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation gain, net and (iv) income tax effect on non-GAAP adjustments.
The following table summarizes the adjustments to loss from continuing operations that we make in order to calculate Adjusted Loss (including on a per share basis) from continuing operations for the periods indicated:
| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
|||||||
| (Dollars in millions, except per share data) |
||||||||
| Loss from continuing operations |
$ | (5.1 | ) | $ | (14.3 | ) | ||
| Adjustments: |
||||||||
| Equity-based compensation expense(a) |
0.9 | 0.8 | ||||||
| Foreign currency loss, net(b) |
0.4 | 5.0 | ||||||
| Derivative valuation gain, net(c) |
(0.0 | ) | (0.0 | ) | ||||
| Income tax effect on non-GAAP adjustments(d) |
0.0 | (1.3 | ) | |||||
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|
|||||
| Adjusted Loss from continuing operations |
$ | (3.8 | ) | $ | (9.8 | ) | ||
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|
|||||
| Reported loss per share—basic |
$ | (0.14 | ) | $ | (0.37 | ) | ||
| Reported loss per share—diluted |
$ | (0.14 | ) | $ | (0.37 | ) | ||
| Weighted average number of shares—basic |
36,887,841 | 38,544,781 | ||||||
| Weighted average number of shares—diluted |
36,887,841 | 38,544,781 | ||||||
| Adjusted loss per share—basic |
$ | (0.10 | ) | $ | (0.26 | ) | ||
| Adjusted loss per share—diluted |
$ | (0.10 | ) | $ | (0.26 | ) | ||
| Weighted average number of shares—basic |
36,887,841 | 38,544,781 | ||||||
| Weighted average number of shares—diluted |
36,887,841 | 38,544,781 | ||||||
| (a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses as supplemental information. |
32
| (b) | This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. |
| (c) | This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance. |
| (d) | For the three months ended March 31, 2025 and 2024, income tax effect on non-GAAP adjustments were calculated by calculating the tax expense of each jurisdiction with or without the non-GAAP adjustments. For the three months ended March 31, 2024, income tax effect on non-GAAP adjustments related to our Korean subsidiary and the U.S. parent entity were negative $1.1 million and negative $0.3 million, respectively. |
We believe that all adjustments to income (loss) from continuing operations used to calculate Adjusted Net Income (Loss) from continuing operations was applied consistently to the periods presented.
Adjusted Net Income (Loss) has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
| • | Adjusted Net Income (Loss) does not reflect changes in, or cash requirements for, our working capital needs; |
| • | Adjusted Net Income (Loss) does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; |
| • | Adjusted Net Income (Loss) does not reflect the costs of holding certain assets and liabilities in foreign currencies; and |
| • | Other companies in our industry may calculate Adjusted Net Income (Loss) differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted Net Income (Loss) should not be considered as a measure of profitability of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted Net Income (Loss) only as a supplement.
33
Factors Affecting Our Results of Operations
Net Sales. We derive substantially all of our sales (net of sales returns and allowances) from our Power solutions business. Our product inventory is primarily located in Korea and is available for drop shipment globally. Outside of Korea, we maintain limited product inventory, and our sales representatives generally relay orders to our fabrication facility in Korea for fulfillment. We have strategically located our sales offices near concentrations of major customers. Our sales offices are located in Korea, Japan, Taiwan and Greater China. Our network of authorized agents and distributors is in the United States, Europe and the Asia Pacific region.
We recognize revenue when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. For the three months ended March 31, 2025 and 2024, we sold products to 140 and 122 customers, respectively, and our net sales to our ten largest customers represented 75% and 74% of our net sales – Power solutions business, respectively.
Gross Profit. Our overall gross profit generally fluctuates as a result of changes in overall sales volumes and in the average selling prices of our products and services. Other factors that influence our gross profit include changes in product mix, the introduction of new products and services and subsequent generations of existing products and services, shifts in the utilization of our manufacturing facility and the yields achieved by our manufacturing operations, changes in material, labor and other manufacturing costs including outsourced manufacturing expenses, and variation in depreciation expense.
Average Selling Prices. Average selling prices for our products tend to be highest at the time of introduction of new products which utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. We strive to offset the impact of declining selling prices for existing products through our product development activities and by introducing new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to preclude losses from product and productive capacity obsolescence.
Material Costs. Our material costs consist of costs of raw materials, such as silicon wafers, chemicals, gases and tape and packaging supplies. We use processes that require specialized raw materials, such as silicon wafers, that are generally available from a limited number of suppliers. If demand increases or supplies decrease, the costs of our raw materials could increase significantly.
Labor Costs. A significant portion of our employees are located in Korea. Under Korean labor laws, most employees and certain executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of March 31, 2025, 95% of our employees were eligible for severance benefits.
Depreciation Expense. We periodically evaluate the carrying values of long-lived assets, including property, plant and equipment and intangible assets, as well as the related depreciation periods. We depreciated our property, plant and equipment using the straight-line method over the estimated useful lives of our assets. Depreciation rates vary from 30-40 years on buildings to 3-12 years for certain equipment and assets. Our evaluation of carrying values is based on various analyses including cash flow and profitability projections. If our projections indicate that future undiscounted cash flows are not sufficient to recover the carrying value of the related long-lived assets, the carrying value of the assets is impaired and will be reduced, with the reduction charged to expense so that the carrying value is equal to fair value.
Selling Expenses. We sell our products worldwide through a direct sales force as well as a network of sales agents and representatives to OEMs, including major branded customers and contract manufacturers, and indirectly through distributors. Selling expenses consist primarily of the personnel costs for the members of our direct sales force, a network of sales representatives and other costs of distribution. Personnel costs include base salary, benefits and incentive compensation.
General and Administrative Expenses. General and administrative expenses consist of the costs of various corporate operations, including finance, legal, human resources and other administrative functions. These expenses primarily consist of payroll-related expenses, consulting and other professional fees and office facility-related expenses.
Research and Development. The rapid technological change and product obsolescence that characterize our industry require us to make continuous investments in research and development. Product development time frames vary but, in general, we incur research and development costs one to two years before generating sales from the associated new products. These expenses include personnel costs for members of our engineering workforce, cost of photomasks, silicon wafers and other non-recurring engineering charges related to product design. Additionally, we develop base line process technology through experimentation and through the design and use of characterization wafers that help achieve commercially feasible yields for new products. The majority of research and development expenses of our Power IC business are material and design-related costs for Power IC products. Power IC uses standard BCD process technologies which can be sourced from multiple foundries. The majority of research and development expenses of our Power discrete business are certain equipment, material and design-related costs for Power discrete products.
34
Impact of Foreign Currency Exchange Rates on Reported Results of Operations. Historically, a portion of our revenues and cost of sales and greater than the majority of our operating expenses have been denominated in non-U.S. currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars converted from our non-U.S. revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative to Korean won, depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.S. dollar were to appreciate relative to the Korean won. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the U.S. dollar as a substantial portion of non-cash translation gain or loss is associated with the intercompany long-term loans to one of our Korean subsidiaries, Magnachip Semiconductor, Ltd. or MSK, which is denominated in U.S. dollars. As of March 31, 2025, the outstanding intercompany loan balance including accrued interest between MSK and our Dutch subsidiary was $260.7 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected.
From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary, Magnachip Semiconductor, Ltd., enters into foreign currency zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean won exchange rate fluctuations on our operating results. Obligations under these foreign currency zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These zero cost collar contracts may be terminated by a counterparty in a number of circumstances, including if our total cash and cash equivalents is less than $30.0 million at the end of a fiscal quarter unless a waiver is obtained from the counterparty. We cannot assure that any hedging technique we implement will be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on our results of operations.
Foreign Currency Gain or Loss. Foreign currency translation gains or losses on transactions by us or our subsidiaries in a currency other than our or our subsidiaries’ functional currency are included in foreign currency gain (loss), net in our consolidated statements of operations. A substantial portion of this net foreign currency gain or loss relates to non-cash translation gain or loss related to the principal balance of intercompany balances at our Korean subsidiary, Magnachip Semiconductor, Ltd., that are denominated in U.S. dollars. This gain or loss results from fluctuations in the exchange rate between the Korean won and U.S. dollar.
Income Taxes. We record our income taxes in each of the tax jurisdictions in which we operate. This process involves using an asset and liability approach whereby deferred tax assets and liabilities are recorded for differences in the financial reporting bases and tax basis of our assets and liabilities. We exercise significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities. We assess whether it is more likely than not that the deferred tax assets existing at the period-end will be realized in future periods. In such assessment, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.
We are subject to income-or non-income-based tax examinations by tax authorities of the U.S., Korea and multiple other foreign jurisdictions for all open tax years. Significant estimates and judgments are required in determining our worldwide provision for income-or non-income based taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.
Capital Expenditures. We primarily invest in manufacturing equipment, software design tools and other tangible assets mainly for fabrication facility maintenance, capacity expansion and technology improvement. Capacity expansions and technology improvements typically occur in anticipation of increases in demand. We typically pay for capital expenditures in partial installments with portions due on order, delivery and final acceptance. Our capital expenditures mainly include our payments for the purchase of property, plant and equipment.
Inventories. We monitor our inventory levels in light of product development changes and market expectations. We may be required to take additional charges for quantities in excess of demand, cost in excess of market value and product age. Our analysis may take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sales of existing products, product age, customer design activity, customer concentration and other factors. These forecasts require us to estimate our ability to predict demand for current and future products and compare those estimates with our current inventory levels and inventory purchase commitments. Our forecasts for our inventory may differ from actual inventory use.
35
Results of Operations – Comparison of Three Months Ended March 31, 2025 and 2024
The following table sets forth consolidated results of operations for the three months ended March 31, 2025 and 2024:
| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
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| Amount | % of Total Revenues |
Amount | % of Total Revenues |
Change Amount |
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| (Dollars in millions) | ||||||||||||||||||||
| Revenues |
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| Net sales – Power solutions business |
$ | 44.7 | 100.0 | % | $ | 39.9 | 91.9 | % | $ | 4.8 | ||||||||||
| Net sales – transitional Fab 3 foundry services |
— | — | 3.5 | 8.1 | (3.5 | ) | ||||||||||||||
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| Total revenues |
44.7 | 100.0 | 43.4 | 100.0 | 1.3 | |||||||||||||||
| Cost of sales |
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| Cost of sales – Power solutions business |
35.4 | 79.1 | 32.9 | 75.7 | 2.5 | |||||||||||||||
| Cost of sales – transitional Fab 3 foundry services |
— | — | 4.2 | 9.7 | (4.2 | ) | ||||||||||||||
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| Total cost of sales |
35.4 | 79.1 | 37.1 | 85.4 | (1.7 | ) | ||||||||||||||
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| Gross profit |
9.4 | 20.9 | 6.4 | 14.6 | 3.0 | |||||||||||||||
| Selling, general and administrative expenses |
9.7 | 21.7 | 9.5 | 22.0 | 0.2 | |||||||||||||||
| Research and development expenses |
5.9 | 13.3 | 6.2 | 14.3 | (0.3 | ) | ||||||||||||||
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| Operating loss |
(6.3 | ) | (14.1 | ) | (9.4 | ) | (21.6 | ) | 3.1 | |||||||||||
| Interest income |
1.5 | 3.5 | 2.1 | 4.9 | (0.6 | ) | ||||||||||||||
| Interest expense |
(0.4 | ) | (1.0 | ) | (0.2 | ) | (0.4 | ) | (0.3 | ) | ||||||||||
| Foreign currency loss, net |
(0.4 | ) | (0.9 | ) | (5.0 | ) | (11.5 | ) | 4.6 | |||||||||||
| Others, net |
0.1 | 0.3 | 0.0 | 0.1 | 0.1 | |||||||||||||||
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| 0.8 | 1.8 | (3.0 | ) | (6.9 | ) | 3.8 | ||||||||||||||
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| Loss from continuing operations before income tax expense (benefit) |
(5.5 | ) | (12.3 | ) | (12.4 | ) | (28.5 | ) | 6.9 | |||||||||||
| Income tax expense (benefit), net |
(0.4 | ) | (0.9 | ) | 1.9 | 4.4 | (2.3 | ) | ||||||||||||
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| Loss from continuing operations |
(5.1 | ) | (11.4 | ) | (14.3 | ) | (32.9 | ) | 9.2 | |||||||||||
| Loss from discontinued operations, net of tax |
(3.8 | ) | (8.5 | ) | (1.1 | ) | (2.6 | ) | (2.7 | ) | ||||||||||
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| Net loss |
$ | (8.9 | ) | (19.9 | ) | $ | (15.4 | ) | (35.5 | ) | $ | 6.5 | ||||||||
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| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
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| Amount | % of Total Revenues |
Amount | % of Total Revenues |
Change Amount |
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| (Dollars in millions) | ||||||||||||||||||||
| Revenues |
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| Net sales – Power solutions business |
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| Power Analog Solutions |
$ | 39.9 | 89.1 | % | $ | 36.5 | 84.1 | % | $ | 3.3 | ||||||||||
| Power IC |
4.9 | 10.9 | 3.4 | 7.8 | 1.5 | |||||||||||||||
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| Total Power solutions business |
44.7 | 100.0 | 39.9 | 91.9 | 4.8 | |||||||||||||||
| Net sales – transitional Fab 3 foundry services |
— | — | 3.5 | 8.1 | (3.5 | ) | ||||||||||||||
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| Total revenues |
$ | 44.7 | 100.0 | % | $ | 43.4 | 100.0 | % | $ | 1.3 | ||||||||||
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36
| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
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| Amount | % of Net Sales |
Amount | % of Net Sales |
Change Amount |
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| (Dollars in millions) | ||||||||||||||||||||
| Gross Profit |
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| Gross profit – Power solutions business |
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| Power Analog Solutions |
$ | 7.1 | 17.8 | % | $ | 5.6 | 15.4 | % | $ | 1.5 | ||||||||||
| Power IC |
2.3 | 46.5 | 1.4 | 41.8 | 0.9 | |||||||||||||||
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| Total Power solutions business |
9.4 | 20.9 | % | 7.0 | 17.6 | % | 2.3 | |||||||||||||
| Gross profit – transitional Fab 3 foundry services |
— | — | (0.7 | ) | (19.4 | ) | 0.7 | |||||||||||||
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| Total gross profit |
$ | 9.4 | 20.9 | % | $ | 6.4 | 14.6 | % | $ | 3.0 | ||||||||||
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Revenues
Total revenues were $44.7 million for the three months ended March 31, 2025, a $1.3 million, or 3.0%, increase compared to $43.4 million for the three months ended March 31, 2024. This increase was primarily due to an increase in revenue related to our Power solutions business as described below.
The Power solutions business. Net sales from our Power solutions business were $44.7 million for the three months ended March 31, 2025, a $4.8 million, or 12.1%, increase compared to $39.9 million for the three months ended March 31, 2024. The increase in net sales from our Power solutions business line was attributable to a higher demand for power products such as MOSFETs in the communication applications. A higher demand for our Power IC products, primarily for televisions and OLED IT devices, also had a favorable impact on net sales.
Gross Profit
Total gross profit was $9.4 million for the three months ended March 31, 2025 compared to $6.4 million for the three months ended March 31, 2024, a $3.0 million, or 47.2%, increase. Gross profit as a percentage of net sales for the three months ended March 31, 2025 increased to 20.9% compared to 14.6% for the three months ended March 31, 2024. The increase in gross profit and gross profit as a percentage of net sales was primarily due to our Power solutions business as further described below.
The Power solutions business. Gross profit from our Power solutions business was $9.4 million for the three months ended March 31, 2025, which represented a $2.3 million, or 32.9%, increase from gross profit of $7.0 million for the three months ended March 31, 2024. Gross profit as a percentage of net sales for the three months ended March 31, 2025 increased to 20.9% compared to 17.6% for the three months ended March 31, 2024. The year-over-year increase in gross profit as a percentage of net sales was primarily attributable to the appreciation in value of U.S. dollar against the Korean Won in the first quarter of 2025.
37
Net Sales – Power solutions business by Geographic Region
We report net sales – Power solutions business by geographic region based on the location to which the products are billed. The following table sets forth our net sales – Power solutions business by geographic region and the percentage of total net sales – Power solutions business represented by each geographic region for the three months ended March 31, 2025 and 2024:
| Three Months Ended March 31, 2025 |
Three Months Ended March 31, 2024 |
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| Amount | % of Net Sales – Power solutions business |
Amount | % of Net Sales – Power solutions business |
Change Amount |
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| (Dollars in millions) | ||||||||||||||||||||
| Korea |
$ | 21.7 | 48.6 | % | $ | 17.1 | 42.8 | % | $ | 4.6 | ||||||||||
| Asia Pacific (other than Korea) |
21.0 | 46.9 | 21.1 | 52.8 | (0.1 | ) | ||||||||||||||
| United States |
1.2 | 2.6 | 0.3 | 0.8 | 0.8 | |||||||||||||||
| Europe |
0.8 | 1.9 | 1.4 | 3.5 | (0.6 | ) | ||||||||||||||
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| $ | 44.7 | 100.0 | % | $ | 39.9 | 100.0 | % | $ | 4.8 | |||||||||||
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Net sales – Power solutions business in Korea increased from $17.1 million for the three months ended March 31, 2024 to $21.7 million for the three months ended March 31, 2025, or by $4.6 million, or 27.1%, primarily due to a higher demand for power products such as MOSFETs, primarily for smartphone applications. A higher demand for our Power IC products, primarily for televisions, also had a favorable impact on net sales.
Net sales – Power solutions business in Asia Pacific (other than Korea) were $21.0 million for the three months ended March 31, 2025, which remained almost flat, compared to $21.1 million for the three months ended March 31, 2024.
Operating Expenses
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $9.7 million, or 21.7% of total revenues, for the three months ended March 31, 2025, compared to $9.5 million, or 22.0% of total revenues, for the three months ended March 31, 2024. The increase of $0.2 million, or 1.8%, was primarily attributable to a net increase in employee compensation and certain benefit related charges.
Research and Development Expenses. Research and development expenses were $5.9 million, or 13.3% of total revenues, for the three months ended March 31, 2025, compared to $6.2 million, or 14.3% of total revenues, for the three months ended March 31, 2024. The decrease of $0.3 million, or 4.4%, was primarily attributable to a decrease in material costs for power products based on the timing of development activities.
Operating Loss
As a result of the foregoing, operating loss of $6.3 million was recorded for the three months ended March 31, 2025 compared to operating loss of $9.4 million for the three months ended March 31, 2024. As discussed above, the improvement in operating loss of $3.1 million resulted primarily from a $3.0 million increase in gross profit and a $0.3 million decrease in research and development expenses, which as offset in part by a $0.2 million increase in selling, general and administrative expenses.
38
Other Income (Expense)
Interest Income. Interest income was $1.5 million and $2.1 million for the three months ended March 31, 2025 and March 31, 2024, respectively.
Interest Expense. Interest expense was $0.4 million and $0.2 million for the three months ended March 31, 2025 and March 31, 2024, respectively. The increase of $0.3 million, or 142.7%, was primarily due to the Term Loan that we executed in March 2024.
Foreign Currency Loss, Net. Net foreign currency loss for the three months ended March 31, 2025 was $0.4 million compared to net foreign currency loss of $5.0 million for the three months ended March 31, 2024. The net foreign currency loss for the three months ended March 31, 2025 and March 31, 2024 was due to the depreciation in value of the Korean won relative to the U.S. dollar during the period.
A substantial portion of our net foreign currency gain or loss is non-cash translation gain or loss associated with intercompany long-term loans to one of our Korean subsidiaries, which are denominated in U.S. dollars, and are affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of March 31, 2025 and March 31, 2024, the outstanding intercompany loan balances, including accrued interest between our Korean subsidiary, Magnachip Semiconductor, Ltd., and our Dutch subsidiary, were $260.7 million and $258.3 million, respectively. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income (loss) since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.
Income Tax Expense (Benefit), Net
Income tax benefit was $0.4 million for the three months ended March 31, 2025, which was primarily attributable to the estimated taxable loss in our Korean subsidiary for the respective period.
Income tax expense was $1.9 million for the three months ended March 31, 2024, which was primarily related to a deferred tax adjustment associated with the assets transferred between our Korean subsidiaries as an in-kind contribution.
Loss from Continuing Operations
Loss from continuing operations for the three months ended March 31, 2025 was $5.1 million compared to loss from continuing operations of $14.3 million for the three months ended March 31, 2024. The $9.2 million improvement in results from continuing operations was primarily attributable to a $4.6 million improvement in net foreign currency loss, a $3.1 million decrease in operating loss and a $2.3 million decrease in income tax expense.
Loss from Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax for the three months ended March 31, 2025 was $3.8 million, compared to loss from discontinued operations, net of tax of $1.1 million for the three months ended March 31, 2024. The $2.7 million increase in loss from discontinued operations, net of tax primarily resulted from a $2.9 million decrease in income tax benefit, which was recorded in the first quarter of 2024.
Net Loss
As a result of the foregoing, a net loss of $8.9 million was recorded for the three months ended March 31, 2025 compared to a net loss of $15.4 million for the three months ended March 31, 2024. As discussed above, the improvement in net loss of $6.5 million primarily resulted from a $9.2 million decrease in loss from continuing operations, which was offset in part by a $2.7 million increase in loss from discontinued operations, net of tax.
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Liquidity and Capital Resources
Our principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, to make debt service payments and to fund working capital needs. We calculate working capital as current assets less current liabilities.
Our principal sources of liquidity are our cash, cash equivalents, cash flows from operations and financing activities. Our ability to manage cash and cash equivalents may be limited, as our primary cash flows are dictated by the terms of our sales and supply agreements, contractual obligations, debt instruments and legal and regulatory requirements. From time to time, we may sell accounts receivable to third parties under factoring agreements or engage in accounts receivable discounting to facilitate the collection of cash. In addition, from time to time, we may make payments to our vendors on extended terms with their consent. As of March 31, 2025, we did not have any accounts payable on extended terms or payment deferment with our vendors.
As of June 29, 2018, our Korean subsidiary, Magnachip Semiconductor, Ltd. (“MSK”), entered into an arrangement whereby it (i) acquired a water treatment facility from SK hynix for $4.2 million to support our fabrication facility in Gumi, Korea, and (ii) subsequently sold the water treatment facility for $4.2 million to a third party management company that we engaged to run the facility for a 10-year term beginning July 1, 2018. As of March 31, 2025, the outstanding obligation of this arrangement is approximately $12.9 million for remaining service term through 2028.
On March 26, 2024, MSK executed a Standard Credit Agreement (together with its General Terms and Conditions, the “Loan Agreement”) with Korea Development Bank. The Loan Agreement provides for a working capital term loan (the “Term Loan”) of KRW 40,000,000,000 (approximately $27.3 million based on the KRW/USD exchange rate of 1,466.5:1 as of March 31, 2025 as quoted by KEB Hana Bank). The Term Loan requires monthly interest-only payments and matures on March 26, 2027, at which time the full principal balance will be due and payable.
As of March 31, 2025, cash and cash equivalents held by our Korean subsidiaries were $126.4 million, which represents 95% of our total cash and cash equivalents on a consolidated basis. We currently believe that we will have sufficient cash reserves from cash on hand and expected cash from operations to fund our operations as well as capital expenditures for the next 12 months and the foreseeable future.
Working Capital
Our working capital balance as of March 31, 2025 was $167.7 million compared to $173.0 million as of December 31, 2024. The decrease in working capital balance was mainly attributable to a $6.0 million decrease in cash and cash equivalents.
Cash Flows from Operating Activities
Cash outflow used in operating activities totaled $4.7 million for the three months ended March 31, 2025, compared to $4.0 million of cash outflow used in operating activities for the three months ended March 31, 2024. The net operating cash outflow for the three months ended March 31, 2025 reflects our net loss of $8.9 million, as adjusted favorably by $6.8 million, which mainly consisted of depreciation and amortization, provision for severance benefits, provision for inventory reserves, net foreign currency gain and stock-based compensation, and net unfavorable impact of $2.6 million from changes in operating assets and liabilities.
Cash Flows from Investing Activities
Cash outflow used in investing activities totaled $0.4 million for the three months ended March 31, 2025, compared to $1.5 million of cash outflow used in investing activities for the three months ended March 31, 2024. The $1.1 million decrease in cash outflow was primarily attributable to a $0.6 million decrease in net payment of guarantee deposits and a $0.5 million decrease in purchase of property, plant and equipment.
Cash Flows from Financing Activities
Cash outflow used in financing activities totaled $1.5 million for the three months ended March 31, 2025, compared to $25.2 million of cash inflow provided by financing activities for the three months ended March 31, 2024. The financing cash outflow for the three months ended March 31, 2025 was primarily attributable to a payment of $0.9 million for the repurchases of our common stock pursuant to our stock repurchase program and a payment of $0.5 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units. The financing cash inflow for the three months ended March 31, 2024 was primarily attributable to the $30.1 million of proceeds received from the new Term Loan with KDB, which was offset in part by a payment of $4.1 million for the repurchases of our common stock pursuant to our stock repurchase program and a payment of $0.5 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units.
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For additional cash flow information associated with our discontinued operation, please see “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2 – Discontinued Operations” included elsewhere in this Report.
Capital Expenditures
We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facility and reinforcement of our global research and development capability. For the three months ended March 31, 2025, capital expenditures for property, plant and equipment were $0.2 million, a $0.5 million, or 68.9%, decrease from $0.7 million for the three months ended March 31, 2024. The capital expenditures for the three months ended March 31, 2025 and 2024 were related to meeting our customer demand and supporting technology and facility improvement at our fabrication facility.
Looking ahead, we expect the capital expenditures for the year ending December 31, 2025 to be in the range of $26–28 million, which includes approximately $14-15 million for new investments into our fabrication facility located in Gumi, Korea. The capital expenditures for 2025 will be partially funded through the $26.5 million Equipment Financing Credit Agreement, which is specifically designated for equipment purchases or upgrades in our Gumi fabrication facility. These new investments in the Gumi fabrication facility are expected to drive development of a new generation product portfolio, and upgrade new tools to optimize product mix and improve gross profit margin in the near future and the longer-term.
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Critical Accounting Policies and Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our consolidated financial statements and accompanying notes.
We believe that our significant accounting policies, which are described further in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for our fiscal year ended December 31, 2024, or our 2024 Form 10-K, are critical due to the fact that they involve a high degree of judgment and estimates about the effects of matters that are inherently uncertain. We base these estimates and judgments on historical experience, knowledge of current conditions and other assumptions and information that we believe to be reasonable. Estimates and assumptions about future events and their effects cannot be determined with certainty. Accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes.
A description of our critical accounting policies that involve significant management judgement appears in our 2024 Form 10-K, under “Management’s Discussion and Analysis of Financial Conditions and Reports of Operations—Critical Accounting Policies and Estimates.” There have been no other material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 2024 Form 10-K.
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| Item 3. | [Reserved] |
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Report, we carried out an evaluation under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of March 31, 2025, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
For a discussion of legal proceedings, see “Part I, Item 3. Legal Proceedings” of our 2024 Form 10-K.
See also “Item 1A. Risk Factors” in this Report and “Part I, Item 1A. Risk Factors” of our 2024 Form 10-K for additional information.
| Item 1A. | Risk Factors |
The Company is subject to risks and uncertainties, any of which could have a significant or material adverse effect on our business, financial condition, liquidity or consolidated financial statements.
In addition to the other information contained in this Report and the other reports and materials the Company files with the SEC, investors should carefully consider the risk factors disclosed in Part I, Item 1A of our 2024 Form 10-K as well as in our subsequent filings with the SEC. The risks described herein and therein are not the only ones we face.
There have been no material changes to the risk factors disclosed in Part I, Item 1A of our 2024 Form 10-K.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table shows the monthly activity related to our repurchases of common stock for the quarter ended March 31, 2025.
| Period |
Total Number of Shares Purchased(1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) |
Approximate dollar value of Shares that may yet be Purchased under the Plans or Programs (in thousands)(2) |
||||||||||||
| January 2025 |
31,254 | $ | 3.95 | 31,254 | $ | 24,465 | ||||||||||
| February 2025 |
— | — | — | $ | 24,465 | |||||||||||
| March 2025(1) |
278,037 | $ | 3.71 | 265,581 | $ | 23,489 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
309,291 | $ | 3.74 | 296,835 | $ | 23,489 | ||||||||||
|
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|
|
|
|
|
|
|
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| (1) | Includes 12,456 shares withheld to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued under our equity incentive plans. |
| (2) | On July 19, 2023, the Company’s Board of Directors authorized a $50 million stock buyback program. Purchases have been and will be made in the open market or through privately negotiated transactions, depending upon market conditions and other factors. In connection with the repurchase program, the Company established a stock trading plan with Needham & Company, LLC in accordance with Rule 10b5-1 under the Exchange Act. |
| Item 3. | Defaults Upon Senior Securities |
Not applicable.
| Item 4. | Mine Safety Disclosures |
Not applicable.
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Item 5. |
Other Information |
| Item 6. | Exhibits. |
Footnotes:
| # | Filed herewith |
| † | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MAGNACHIP SEMICONDUCTOR CORPORATION (Registrant) | ||||||
| Dated: May 12, 2025 | By: | /s/ Young-Joon Kim | ||||
| Young-Joon Kim | ||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||
| Dated: May 12, 2025 | By: | /s/ Shin Young Park | ||||
| Shin Young Park | ||||||
| Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||||
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