MagnaChip Reports Fourth Quarter 2016 Financial Results

Net loss, on a GAAP basis, for the fourth quarter of 2016 was $49.8 million or $1.42 per basic share as compared with net income in the third quarter of 2016 of $29.9 million or $0.86 per basic share and $0.85 per diluted share, and as compared to net income of $22.9 million or $0.66 per basic and diluted share for the fourth quarter of 2015.  The net loss in the fourth quarter of 2016 was attributable primarily to a non-cash foreign exchange loss on the Company's intercompany loans.

Adjusted Net Income, a non-GAAP financial measure, for the fourth quarter of 2016 totaled $1.6 million or $0.05 per basic share and $0.04  per diluted share, compared to Adjusted Net Loss of $1.3 million or $0.04 per basic share in the third quarter of 2016, and compared to Adjusted Net Income of $5.2 million or $0.15 per basic and diluted share in the fourth quarter of 2015.

Adjusted EBITDA in the fourth quarter of 2016 was $14.1 million as compared with $9.9 million in the third quarter of 2016 and a negative $1.2 million in the fourth quarter of 2015.

"The financial results in the fourth quarter of 2016 and the full year continue to reflect the operational progress we've made in our business turnaround," said YJ Kim, Chief Executive Officer of MagnaChip.  "Our key priorities in 2017 include a plan to achieve higher gross profit margin, improve overall profitability and invest in initiatives to fuel long-term growth."  

The Company this month launched a new headcount reduction plan that is expected to be two to three times larger than a 2016 program, which resulted last year in a reduction in headcount of 169 employees. The expected payback period is estimated at approximately 1.5 years, with estimated annual cost savings from $20 million to $27 million, depending upon the final size of the workforce reduction.  The Company expects to use $30-40 million of the proceeds from the Exchangeable Senior Notes Offering completed earlier this year to pay severance and other benefits to affected employees.

In commenting on the fourth quarter financial results, Chief Financial Officer Jonathan Kim said, "Gross profit margin exceeded our expectation, due primarily to a richer-than-expected product mix and a larger-than expected increase in foundry revenue. Gross margin for the AMOLED product line continued to exceed the corporate average in the fourth quarter despite a seasonal slowdown in revenue." Mr. Kim added, "We  believe  our gross profit margin and Adjusted EBITDA will increase sequentially throughout 2017 beginning in the second quarter, based on our current view of the business as well as our assumptions of the cost reductions we expect to achieve from the current headcount reduction program."

Management believes that non-GAAP financial measures, when viewed in conjunction with GAAP results, can provide a meaningful understanding of the factors and trends affecting MagnaChip's business and operations and assist in evaluating our core operating performance. However, such non-GAAP financial measures have limitations and should not be considered as a substitute for net income or as a better indicator of our operating performance than measures that are presented in accordance with GAAP. A reconciliation of GAAP results to non-GAAP results is included in this press release.

Cash and cash equivalents totaled $83.4 million at the end of the fourth quarter of 2016, an increase from $75.4 million at the end of the third quarter of 2016.  In the fourth quarter of 2016, MagnaChip received proceeds of $18.2 million in advance, including $1.7 million valued added tax, related to the sale of a building that housed a 6" wafer fab that was closed in February 2016. The Company is required to perform certain removal construction work that is expected to be completed by the end of March 2017. Accordingly, once the construction obligation is completed, the proceeds will be recorded as cash and cash equivalents on the consolidated balance sheet.   

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

		Three Months Ended								Year Ended
		December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
Net Sales
Foundry Services Group		$	77,809			$	65,822			$	273,961			$	290,775
Standard Products Group
Display Solutions			64,796				53,895				281,967				207,480
Power Solutions			37,718				32,576				131,468				134,814
Total Standard Products Group			102,514				86,471				413,435				342,294
All other			139				137				573				643
Total net sales		$	180,462			$	152,430			$	687,969			$	633,712
		Three Months Ended December 31, 2016								Three Months Ended December 31, 2015
		Amount				% of Net Sales				Amount				% of Net Sales
Gross Profit
Foundry Services Group		$	23,592				30.3	%		$	14,935				22.7	%
Standard Products Group			22,358				21.8				14,878				17.2
All other			139				100.0				89				65.0
Total gross profit		$	46,089				25.5	%		$	29,902				19.6	%
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