Magnachip Reports Results for Fourth Quarter and Year 2020
SEOUL, South Korea, Feb. 17, 2021 /PRNewswire/ -- Magnachip Semiconductor Corporation (NYSE: MX) ("Magnachip" or the "Company") today announced financial results for the fourth quarter and full-year 2020.
Commenting on the results for the fourth quarter of 2020, YJ Kim, Magnachip's chief executive officer stated, "Magnachip's Q4 results exceeded our expectations, capping off one of the most challenging years for any of us. Our Q4 results demonstrated counter-seasonal strength with a 14.5% sequential revenue growth and GAAP operating income margin of 6.4%, and Non-GAAP adjusted operating income margin of 10.7% driven by a strong ramp-up in 5G as well as effective cost management."
Commenting on the full-year, YJ stated, "2020 was an exceptional year for Magnachip, despite the challenges presented by the pandemic. We entered MX 3.0, the exciting new chapter of growth, with a sharpened focus as a pure-play standard products company, renewed energy, and a clear mission of empowering our customers. Under MX 3.0, we set long-term financial targets that we would like to achieve by 2023. While we recognize the path will not always be a straight line, the exciting opportunities ahead of us only reinforce our confidence in our growth outlook. I am proud of and thankful for our amazing group of dedicated employees who continued to deliver extraordinary results in 2020."
Q4 and 2020 Financial Highlights
In thousands of US dollars, except share data | ||||||||||
GAAP | ||||||||||
Q4 2020 | Q3 2020 | Q/Q change | Q4 2019 | Y/Y change | ||||||
Revenues | ||||||||||
Standard Products Business | ||||||||||
Display Solutions | 82,705 | 69,583 | up | 18.9% | 75,490 | up | 9.6% | |||
Power Solutions | 46,861 | 46,679 | up | 0.4% | 37,814 | up | 23.9% | |||
Transitional Fab 3 foundry services(1) | 13,379 | 8,551 | up | 56.5% | 10,048 | up | 33.2% | |||
Gross Profit Margin | 26.9% | 22.9% | up | 4.0% pts | 24.7% | up | 2.2% pts | |||
Operating Income | 9,206 | 3,223 | up | 185.6% | 5,691 | up | 61.8% | |||
Net Income (2) | 66,581 | 272,962 | down | 75.6% | 23,426 | up | 184.2% | |||
Basic Earnings per Common Share | 1.87 | 7.74 | down | 75.8% | 0.68 | up | 175.0% | |||
Diluted Earnings per Common Share | 1.45 | 5.89 | down | 75.4% | 0.54 | up | 168.5% | |||
In thousands of US dollars, except share data | ||||||||||
Non-GAAP(3) | ||||||||||
Q4 2020 | Q3 2020 | Q/Q change | Q4 2019 | Y/Y change | ||||||
Adjusted Operating Income | 15,355 | 8,823 | up | 74.0% | 10,136 | up | 51.5% | |||
Adjusted EBITDA | 18,582 | 11,731 | up | 58.4% | 12,794 | up | 45.2% | |||
Adjusted Net Income | 17,268 | 5,147 | up | 235.5% | 6,620 | up | 160.8% | |||
Adjusted Earnings per Common Share—Diluted | 0.40 | 0.14 | up | 185.7% | 0.17 | up | 135.3% | |||
In thousands of US dollars, except share data | ||||||
GAAP | ||||||
2020 | 2019 | Y/Y Change | ||||
Revenues | ||||||
Standard Products Business | ||||||
Display Solutions | 299,057 | 308,531 | down | 3.1% | ||
Power Solutions | 166,462 | 176,316 | down | 5.6% | ||
Transitional Fab 3 foundry services(1) | 41,540 | 35,824 | up | 16.0% | ||
Gross Profit Margin | 25.3% | 22.4% | up | 2.9% pts | ||
Operating Income | 27,016 | 23,725 | up | 13.9% | ||
Net Income (Loss) (2) | 344,965 | (21,826) | up | 1680.5% | ||
Basic Earnings (Loss) per Common Share | 9.80 | (0.64) | up | 1631.3% | ||
Diluted Earnings (Loss) per Common Share | 7.54 | (0.64) | up | 1278.1% | ||
In thousands of US dollars, except share data | ||||||
Non-GAAP(3) | ||||||
2020 | 2019 | Y/Y Change | ||||
Adjusted Operating Income | 41,584 | 30,416 | up | 36.7% | ||
Adjusted EBITDA | 52,919 | 40,923 | up | 29.3% | ||
Adjusted Net Income | 28,260 | 8,954 | up | 215.6% | ||
Adjusted Earnings per Common Share—Diluted | 0.73 | 0.25 | up | 192.0% | ||
(1) Following the consummation of the sale of the Foundry Services Group business and Fab 4 in Q3 2020, and for a period of up to three years, the Company will provide transitional foundry services to the buyer for foundry products manufactured in the Company's fabrication facility located in Gumi ("Transitional Fab 3 Foundry Services"). Management believes that disclosing revenue of Transitional Fab 3 Foundry Services separately from the standard products business allows investors to better understand the results of our core standard products display solutions and power solutions businesses. |
(2) In Q4 2020, total net income of $66.6 million included one-time recognition of deferred tax benefits of $43.9 million. In Q3 2020, total net income of $273.0 million included income from discontinued operations, net of tax, of $264.5 million, primarily attributable to the recognition of $287.1 million as gain on sale of the Foundry Services Group business and Fab 4. |
(3) Non-GAAP financial measures are calculated based on the results from continuing operations. Management believes that non-GAAP financial measures, when viewed in conjunction with GAAP results, can provide a meaningful understanding of the factors and trends affecting Magnachip's business and operations and assist in evaluating our core operating performance. However, such non-GAAP financial measures have limitations and should not be considered as a substitute for net income from continuing operations or as a better indicator of our operating performance than measures that are presented in accordance with GAAP. A reconciliation of GAAP results to non-GAAP results is included in this press release. |
Q1 2021 Financial GuidanceThe COVID-19 global pandemic is not behind us and continues to reduce our forward visibility. Q1 is our seasonally low quarter, but the demand in most of our end markets remains very healthy. Currently, the industry is going through severe supply constraints. While we are leaving some demand unmet in Q1 due to supply constraints, we are working closely with our strategic customer and our foundry partners to address supply constraints, and we expect the supply situation to improve later in the quarter. While actual results may vary, Magnachip currently anticipates for Q1 2021:
- Revenue to be in the range of $119 million to $124 million, including about $10 million of the Transitional Fab 3 Foundry Services.
- Gross profit margin to be in the range of 25% to 27%.
Q4 2020 Earnings Conference CallMagnachip will host a conference call at 5 p.m. Eastern Time on February 17, 2021. The conference call will be webcast live and also is available by dialing toll-free at 1-844-536-5472. International call-in participants can dial 1-614-999-9318. The conference ID number is 6298187. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. Eastern Time start time to ensure a timely connection. The webcast and earnings release will be accessible at www.magnachip.com. A replay of the conference call will be available the same day and will run for 72 hours. The replay dial-in numbers are 1-404-537-3406 or toll-free at 1-855-859-2056. The access code is 6298187.
Safe Harbor for Forward-Looking StatementsInformation in this release regarding Magnachip's forecasts, business outlook, expectations and beliefs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include statements about Magnachip's future operating and financial performance, outlook and business plans, including first quarter 2021 revenue and gross profit margin expectations, and the impact of the COVID-19 pandemic, escalated trade tensions and supply constraints on Magnachip's first quarter 2021 and future operating results. All forward-looking statements included in this release are based upon information available to Magnachip as of the date of this release, which may change, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include the impact of changes in macroeconomic and/or general economic conditions, including those caused by or related to the COVID-19 outbreak, recessions, economic instability and the outbreak of disease; the impact of competitive products and pricing; timely design acceptance by our customers; timely introduction of new products and technologies; ability to ramp new products into volume production; industry wide shifts in supply and demand for semiconductor products; industry and/or company overcapacity; effective and cost efficient utilization of manufacturing capacity; financial stability in foreign markets and the impact of foreign exchange rates; unanticipated costs and expenses or the inability to identify expenses which can be eliminated; compliance with U.S. and international trade and export laws and regulations by us and our distributors; change or ratification of local or international laws and regulations, including those related to environment, health and safety; public health issues, including the COVID-19 pandemic; other business interruptions that could disrupt supply or delivery of, or demand for, Magnachip's products, including uncertainties regarding the impacts of the COVID-19 pandemic that may result in factory closures, reduced workforces, scarcity of raw materials and goods produced in infected areas, as well as reduced consumer and business spending affecting demand for Magnachip's products due to government and private sector mandatory business closures, travel restrictions or the like to prevent the spread of disease; and other risks detailed from time to time in Magnachip's filings with the SEC, including our Form 10-K filed on February 21, 2020, our Form 10-Qs filed on May 11, 2020, August 7, 2020 and November 6, 2020 (including that the impact of the COVID-19 pandemic, trade tensions and supply constraints may also exacerbate the risks discussed therein) and subsequent registration statements, amendments or other reports that we may file from time to time with the Securities and Exchange Commission and/or make available on our website. Magnachip assumes no obligation and does not intend to update the forward-looking statements provided, whether as a result of new information, future events or otherwise.
About Magnachip Semiconductor
Magnachip is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications. The Company provides a broad range of standard products to customers worldwide. Magnachip, with more than 40 years of operating history, owns a portfolio of approximately 1,200 registered patents and pending applications, and has extensive engineering, design and manufacturing process expertise. For more information, please visit www.magnachip.com. Information on or accessible through Magnachip's website is not a part of, and is not incorporated into, this release.
CONTACTS: | |
In the United States: So-Yeon Jeong Head of Investor Relations Tel. +1-408-712-6151 | In Korea: Chankeun Park Director of Public Relations Tel. +82-2-6903-5223 |
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES | |||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
(In thousands of U.S. dollars, except share data) (Unaudited) | |||||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||||
December 31, |
September 30, | December 31, | December 31, | December 31, | |||||||||||||
2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | |||||||||||||||||
Net sales – standard products business | $ | 129,566 | $ | 116,262 | $ | 113,304 | $ | 465,519 | $ | 484,847 | |||||||
Net sales – transitional Fab 3 foundry services | 13,379 | 8,551 | 10,048 | 41,540 | 35,824 | ||||||||||||
Total revenues | 142,945 | 124,813 | 123,352 | 507,059 | 520,671 | ||||||||||||
Cost of sales: | |||||||||||||||||
Cost of sales – standard products business | 92,503 | 87,494 | 82,807 | 338,420 | 368,450 | ||||||||||||
Cost of sales – transitional Fab 3 foundry services | 11,981 | 8,731 | 10,048 | 40,322 | 35,824 | ||||||||||||
Total cost of sales | 104,484 | 96,225 | 92,855 | 378,742 | 404,274 | ||||||||||||
Gross profit | 38,461 | 28,588 | 30,497 | 128,317 | 116,397 | ||||||||||||
Gross profit as a percentage of standard products | |||||||||||||||||
business net sales | 28.6% | 24.7% | 26.9% | 27.3% | 24.0% | ||||||||||||
Gross profit as a percentage of total revenues | 26.9% | 22.9% | 24.7% | 25.3% | 22.4% | ||||||||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative expenses | 12,576 | 12,888 | 13,778 | 49,974 | 47,595 | ||||||||||||
Research and development expenses | 11,604 | 12,477 | 10,975 | 45,698 | 45,024 | ||||||||||||
Early termination and other charges | 5,075 | — | 53 | 5,629 | 53 | ||||||||||||
Total operating expenses | 29,255 | 25,365 | 24,806 | 101,301 | 92,672 | ||||||||||||
Operating income: | 9,206 | 3,223 | 5,691 | 27,016 | 23,725 | ||||||||||||
Interest expense | (1,625) | (5,485) | (5,542) | (18,147) | (22,157) | ||||||||||||
Foreign currency gain (loss), net | 13,256 | 8,864 | 21,850 | (382) | (22,316) | ||||||||||||
Loss on early extinguishment of borrowings, net | (766) | — | — | (766) | (42) | ||||||||||||
Other income, net | 767 | 714 | 761 | 3,110 | 2,577 | ||||||||||||
Income (loss) from continuing operations before | |||||||||||||||||
income tax expense | 20,838 | 7,316 | 22,760 | 10,831 | (18,213) | ||||||||||||
Income tax expense (benefit) | (47,064) | (1,145) | (1,116) | (46,228) | 2,200 | ||||||||||||
Income (loss) from continuing operations | 67,902 | 8,461 | 23,876 | 57,059 | (20,413) | ||||||||||||
Income (loss) from discontinued operations, net of tax | (1,321) | 264,501 | (450) | 287,906 | (1,413) | ||||||||||||
Net income (loss) | $ | 66,581 | $ | 272,962 | $ | 23,426 | $ | 344,965 | $ | (21,826) | |||||||
Basic earnings (loss) per common share— | |||||||||||||||||
Continuing operations | $ | 1.91 | $ | 0.24 | $ | 0.69 | $ | 1.62 | $ | (0.59) | |||||||
Discontinued operations | (0.04) | 7.50 | (0.01) | 8.18 | (0.05) | ||||||||||||
Total | $ | 1.87 | $ | 7.74 | $ | 0.68 | $ | 9.80 | $ | (0.64) | |||||||
Diluted earnings (loss) per common share— | |||||||||||||||||
Continuing operations | $ | 1.47 | $ | 0.21 | $ | 0.55 | $ | 1.35 | $ | (0.59) | |||||||
Discontinued operations | (0.02) | 5.68 | (0.01) | 6.19 | (0.05) | ||||||||||||
Total | $ | 1.45 | $ | 5.89 | $ | 0.54 | $ | 7.54 | $ | (0.64) | |||||||
Weighted average number of shares— | |||||||||||||||||
Basic | 35,582,966 | 35,280,864 | 34,542,415 | 35,213,525 | 34,321,888 | ||||||||||||
Diluted | 47,062,903 | 46,581,788 | 46,078,768 | 46,503,586 | 34,321,888 | ||||||||||||
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEETS | |||
(In thousands of U.S. dollars, except share data) | |||
(Unaudited) | |||
December 31, 2020 | December 31, 2019 | ||
Assets | |||
Current assets | |||
Cash and cash equivalents | $ 279,940 | $ 151,657 | |
Accounts receivable, net | 64,390 | 47,447 | |
Inventories, net | 39,039 | 41,404 | |
Other receivables | 4,338 | 10,200 | |
Prepaid expenses | 7,332 | 9,003 | |
Hedge collateral | 5,250 | 9,820 | |
Other current assets | 9,321 | 10,013 | |
Current assets held for sale | — | 99,821 | |
Total current assets | 409,610 | 379,365 | |
Property, plant and equipment, net | 96,383 | 73,068 | |
Operating lease right-of-use assets | 4,632 | 1,876 | |
Intangible assets, net | 2,727 | 2,769 | |
Long-term prepaid expenses | 4,058 | 5,757 | |
Deferred income taxes | 44,541 | 155 | |
Other non-current assets | 9,739 | 8,904 | |
Non-current assets held for sale | — | 123,434 | |
Total assets | $ 571,690 | $ 595,328 | |
Liabilities and Stockholders' Equity | |||
Current liabilities | |||
Accounts payable | $ 52,164 | $ 40,376 | |
Other accounts payable | 2,531 | 6,410 | |
Accrued expenses | 16,241 | 44,799 | |
Accrued income taxes | 12,398 | 1,569 | |
Operating lease liabilities | 2,210 | 1,625 | |
Current portion of long-term borrowings, net | 83,479 | — | |
Other current liabilities | 4,595 | 2,014 | |
Current liabilities held for sale | — | 37,040 | |
Total current liabilities | 173,618 | 133,833 | |
Long-term borrowings, net | — | 304,743 | |
Accrued severance benefits, net | 40,462 | 51,181 | |
Non-current operating lease liabilities | 2,422 | 251 | |
Other non-current liabilities | 9,588 | 9,420 | |
Non-current liabilities held for sale | — | 110,881 | |
Total liabilities | 226,090 | 610,309 | |
Commitments and contingencies | |||
Stockholders' equity | |||
Common stock, $0.01 par value, 150,000,000 shares authorized, 44,943,854 shares issued and 35,783,347 outstanding at December 31, 2020 and 43,851,991 shares issued and 34,800,312 outstanding at December 31, 2019 | 450 | 439 | |
Additional paid-in capital | 163,010 | 152,404 | |
Retained earnings (deficit) | 286,834 | (58,131 ) | |
Treasury stock, 9,160,507 shares at December 31, 2020 and 9,051,679 shares at December 31, 2019, respectively | (108,397 ) | (107,033 ) | |
Accumulated other comprehensive income (loss) | 3,703 | (2,660 ) | |
Total stockholders' equity (deficit) | 345,600 | (14,981 ) | |
Total liabilities and stockholders' equity | $ 571,690 | $ 595,328 | |
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES | |||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
(In thousands of U.S. dollars) | |||||||||||
(Unaudited) | |||||||||||
Three Months Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | |||||||||
2020 | 2020 | 2019 | |||||||||
Cash flows from operating activities | |||||||||||
Net income (loss) | $ | 66,581 | $ | 344,965 | $ | (21,826) | |||||
Adjustments to reconcile net income (loss) to net cash provided (used in) by operating activities | |||||||||||
Depreciation and amortization | 3,148 | 16,481 | 32,729 | ||||||||
Provision for severance benefits | 2,593 | 16,743 | 17,139 | ||||||||
Amortization of debt issuance costs and original issue discount | 396 | 2,220 | 2,299 | ||||||||
Loss (gain) on foreign currency, net | (29,842) | (23,233) | 24,692 | ||||||||
Restructuring and other charges | 3,502 | 3,502 | 3,598 | ||||||||
Provision for inventory reserves | (384) | 3,695 | 10,468 | ||||||||
Stock-based compensation | 1,945 | 6,699 | 6,952 | ||||||||
Loss on early extinguishment of borrowings, net | 766 | 766 | 42 | ||||||||
Gain on sale of discontinued operations | — | (287,117) | — | ||||||||
Others, net | 132 | 217 | 247 | ||||||||
Changes in operating assets and liabilities | |||||||||||
Accounts receivable, net | (2,685) | (19,268) | (19,824) | ||||||||
Unbilled accounts receivable, net | — | 14,260 | 19,274 | ||||||||
Inventories | (2,206) | (816) | (14,678) | ||||||||
Other receivables | 843 | 6,954 | (6,200) | ||||||||
Deferred income tax assets | (44,440) | (44,441) | 35 | ||||||||
Other current assets | 4,418 | 13,561 | 11,984 | ||||||||
Accounts payable | 8,626 | 3,960 | 7,375 | ||||||||
Other accounts payable | (3,966) | (12,000) | (8,518) | ||||||||
Accrued expenses | (30,747) | (28,756) | 5,279 | ||||||||
Accrued income taxes | (1,721) | 10,825 | 267 | ||||||||
Deferred revenue | (478) | 2,174 | (4,768) | ||||||||
Other current liabilities | 688 | 279 | (4,727) | ||||||||
Other non-current liabilities | 653 | 3,521 | (306) | ||||||||
Contributions to severance insurance deposit accounts | (11,885) | (11,921) | (2,262) | ||||||||
Payment of severance benefits | (6,188) | (12,076) | (9,288) | ||||||||
Others, net | (3,820) | (3,724) | 514 | ||||||||
Net cash provided by (used in) operating activities | (44,071) | 7,470 | 50,497 | ||||||||
Cash flows from investing activities | |||||||||||
Proceeds from settlement of hedge collateral | 5,733 | 13,762 | 13,583 | ||||||||
Payment of hedge collateral | (998) | (8,839) | (17,833) | ||||||||
Proceeds from disposal of plant, property and equipment | 59 | 65 | 202 | ||||||||
Purchase of property, plant and equipment | (19,747) | (36,100) | (22,955) | ||||||||
Payment for intellectual property registration | (77) | (741) | (1,103) | ||||||||
Collection of guarantee deposits | 133 | 1,024 | 549 | ||||||||
Payment of guarantee deposits | (625) | (1,236) | (1,349) | ||||||||
Proceeds from sale of discontinued operations | — | 350,553 | — | ||||||||
Other, net | (26) | (6) | 9 | ||||||||
Net cash provided by (used in) investing activities | (15,548) | 318,482 | (28,897) | ||||||||
Cash flows from financing activities | |||||||||||
Repurchase of long-term borrowings | (224,250) | (224,250) | (1,175) | ||||||||
Proceeds from exercise of stock options | 1,228 | 3,918 | 2,860 | ||||||||
Acquisition of treasury stock | (104) | (1,125) | (2,702) | ||||||||
Repayment of financing related to water treatment facility arrangement | (144) | (546) | (552) | ||||||||
Others | (113) | (278) | (233) | ||||||||
Net cash used in financing activities | (223,383) | (222,281) | (1,802) | ||||||||
Effect of exchange rates on cash and cash equivalents | 20,831 | 24,612 | (579) | ||||||||
Net increase (decrease) in cash and cash equivalents | (262,171) | 128,283 | 19,219 | ||||||||
Cash and cash equivalents | |||||||||||
Beginning of the period | 542,111 | 151,657 | 132,438 | ||||||||
End of the period | $ | 279,940 | $ | 279,940 | $ | 151,657 | |||||
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES | ||||||||||||||||||
RECONCILIATION OF OPERATING INCOME TO ADJUSTED OPERATING INCOME | ||||||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||
2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Operating income | $ | 9,206 | $ | 3,223 | $ | 5,691 | $ | 27,016 | $ | 23,725 | ||||||||
Adjustments: | ||||||||||||||||||
Equity-based compensation expense | 1,945 | 2,101 | 4,392 | 6,311 | 6,053 | |||||||||||||
Early termination and other charges | 5,075 | — | 53 | 5,629 | 53 | |||||||||||||
Inventory reserve related to Huawei impact of downstream trade restrictions | (871) | 2,331 | — | 1,460 | — | |||||||||||||
Expenses related to Fab 3 power outage | — | 1,168 | — | 1,168 | — | |||||||||||||
Others | — | — | — | — | 585 | |||||||||||||
Adjusted operating income | $ | 15,355 | $ | 8,823 | $ | 10,136 | $ | 41,584 | $ | 30,416 | ||||||||
We present Adjusted Operating Income as supplemental measures of our performance. We define Adjusted Operating Income for the periods indicated as operating income adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Inventory reserve related to Huawei impact of downstream trade restrictions, (iv) Expenses related to Fab 3 power outage and (v) Others. For the year ended December 31, 2020, Early termination and other charges eliminate $5,629 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. During the same period, inventory reserve related to Huawei eliminates a net charge of $1,460 thousand that we recorded in relation to the U.S. Government's export restrictions on Huawei, and expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the year ended December 31, 2019, others eliminates a $585 thousand legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED NET INCOME | ||||||||||||||||||||
(In thousands of U.S. dollars, except share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31. | ||||||||||||||||
2020 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
Income (loss) from continuing operations | $ | 67,902 | $ | 8,461 | $ | 23,876 | $ | 57,059 | $ | (20,413) | ||||||||||
Adjustments: | ||||||||||||||||||||
Interest expense, net | 863 | 4,875 | 4,675 | 15,404 | 19,451 | |||||||||||||||
Income tax expense (benefit) | (47,064) | (1,145) | (1,116) | (46,228) | 2,200 | |||||||||||||||
Depreciation and amortization | 3,148 | 2,854 | 2,615 | 11,116 | 10,318 | |||||||||||||||
EBITDA | 24,849 | 15,045 | 30,050 | 37,351 | 11,556 | |||||||||||||||
Equity-based compensation expense | 1,945 | 2,101 | 4,392 | 6,311 | 6,053 | |||||||||||||||
Early termination and other charges | 5,075 | — | 53 | 5,629 | 53 | |||||||||||||||
Foreign currency loss (gain), net | (13,256) | (8,864) | (21,850) | 382 | 22,316 | |||||||||||||||
Derivative valuation loss (gain), net | 74 | (50) | 149 | (148) | 318 | |||||||||||||||
Loss on early extinguishment of borrowings, net | 766 | — | — | 766 | 42 | |||||||||||||||
Inventory reserve related to Huawei impact of downstream trade restrictions | (871) | 2,331 | — | 1,460 | — | |||||||||||||||
Expenses related to Fab 3 power outage | — | 1,168 | — | 1,168 | — | |||||||||||||||
Others | — | — | — | — | 585 | |||||||||||||||
Adjusted EBITDA | 18,582 | 11,731 | 12,794 | 52,919 | 40,923 | |||||||||||||||
Income (loss) from continuing operations | $ | 67,902 | $ | 8,461 | $ | 23,876 | $ | 57,059 | $ | (20,413) | ||||||||||
Adjustments: | ||||||||||||||||||||
Equity-based compensation expense | 1,945 | 2,101 | 4,392 | 6,311 | 6,053 | |||||||||||||||
Early termination and other charges | 5,075 | — | 53 | 5,629 | 53 | |||||||||||||||
Foreign currency loss (gain), net | (13,256) | (8,864) | (21,850) | 382 | 22,316 | |||||||||||||||
Derivative valuation loss (gain), net | 74 | (50) | 149 | (148) | 318 | |||||||||||||||
Loss on early extinguishment of borrowings, net | 766 | — | — | 766 | 42 | |||||||||||||||
Inventory reserve related to Huawei impact of downstream trade restrictions | (871) | 2,331 | — | 1,460 | — | |||||||||||||||
Expenses related to Fab 3 power outage | — | 1,168 | — | 1,168 | — | |||||||||||||||
GAAP and cash tax expense difference | (43,874) | — | — | (43,874) | — | |||||||||||||||
Others | — | — | — | — | 585 | |||||||||||||||
Income tax effect on non-GAAP adjustments | (493) | — | — | (493) | — | |||||||||||||||
Adjusted Net Income | $ | 17,268 | $ | 5,147 | $ | 6,620 | $ | 28,260 | $ | 8,954 | ||||||||||
Adjusted Net Income per common share— | ||||||||||||||||||||
- Basic | $ | 0.49 | $ | 0.15 | $ | 0.19 | $ | 0.80 | $ | 0.26 | ||||||||||
- Diluted | $ | 0.40 | $ | 0.14 | $ | 0.17 | $ | 0.73 | $ | 0.25 | ||||||||||
Weighted average number of shares – basic | 35,582,966 | 35,280,864 | 34,542,415 | 35,213,525 | 34,321,888 | |||||||||||||||
Weighted average number of shares – diluted | 47,062,903 | 46,581,788 | 46,078,768 | 46,503,586 | 35,405,077 | |||||||||||||||
We present Adjusted EBITDA and Adjusted Net Income as supplemental measures of our performance. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss (gain), net, (v) Loss on early extinguishment of borrowings, net, (vi) Inventory reserve related to Huawei impact of downstream trade restrictions, (vii) Expenses related to Fab 3 power outage and (viii) Others. For the year ended December 31, 2020, Early termination and other charges eliminate $5,629 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. During the same period, inventory reserve related to Huawei eliminates a net charge of $1,460 thousand that we recorded in relation to the U.S. Government's export restrictions on Huawei, and expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the year ended December 31, 2019, others eliminates a $585 thousand legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.
EBITDA for the periods indicated is defined as Income (loss) from continuing operations before interest expense, net, income tax expense (benefit) and depreciation and amortization. We prepare Adjusted Net Income by adjusting income (loss) from continuing operations to eliminate the impact of a number of non-cash expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We define Adjusted Net Income for the periods as income (loss) from continuing operations, adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss (gain), net, (v) Loss on early extinguishment of borrowings, net, (vi) Inventory reserve related to Huawei impact of downstream trade restrictions, (vii) Expenses related to Fab 3 power outage, (viii) GAAP and cash tax expense difference, (ix) Others and (x) Income tax effect on non-GAAP adjustments. For the year ended December 31, 2020, Early termination and other charges eliminate $5,629 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. During the same period, inventory reserve related to Huawei eliminates a net charge of $1,460 thousand that we recorded in relation to the U.S. Government's export restrictions on Huawei, and expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the year ended December 31, 2019, others eliminates a $585 thousand legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.
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SOURCE Magnachip Semiconductor Corporation