Q1 2022 MagnaChip Semiconductor Corp Earnings Call
Good day, and thank you for standing by and welcome to the Q1 2022 magnitude semiconductor Corporation's earnings Conference call.
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Zero.
I would now like to hand, the conference over to you.
I'll speak today.
So young Zheng Cheng the floor is yours.
Operator.
Thank you everyone for joining us to discuss financial results for the first quarter ended March 31st 2022.
First quarter earnings release that was filed today after the stock market closed can be found on our Investor Relations website.
A telephone replay of today's call will be available shortly after the completion of the call and the webcast will be archived on our website for one year.
Access information is provided in the earnings press release.
Joining me today are YJ, Kim maybe my chips, Chief Executive Officer, and Shin Young Park, our Chief Financial Officer.
YJ will discuss the company's recent operating performance and business overview and Shin Young will review financial results for the quarter and provide guidance for the second quarter of 2022.
There will be a Q&A session following the prepared remarks.
During the course of this conference call. We may make forward looking statements about making that chip business outlook and expectations.
Our forward looking statements and all other statements that are not historical facts.
Left our beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the Safe Harbor statement found in our SEC filings.
During the call. We also will discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of Mednet Europe's operating performance that may be useful.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our first quarter earnings release available on our website under the investors section at Www Dot Mednet chip Satcom.
I now will turn the call over to YJ Kim.
YJ.
Hello, everyone and thank you for joining our call today to begin I'd like to quickly touch on our Q1 consolidated results and then give an update on some challenges we are seeing in the broader macro environment. After that I will provide a detailed review of our business segments.
In Q1, we reported revenue of $104 1 million in a severely supply constrained environment.
Along with strong gross profit margin generated a non-GAAP EPS of <unk> 28, which was an increase of 27% year over year.
It is good to see the healthy bottom line bolstered by improved gross margin I am still disappointed with these results because it doesn't represent the full potential of this company.
But as we approach the end of Q1.
We are optimistic that we would begin to see incremental improvement in vision as condition for.
The rest of the year. However, the ongoing lockdowns in China have added new challenges to an already stressed supply chain to both about businesses, we want to take a cautious stance for the near term despite recent pause.
The momentum, which I will go over in detail.
Moving on to a detailed review of our Q1 results by product segment, starting with OLED.
OLED revenue in Q1 was $26 1 million down, 37% sequentially and down 53.1% year over year, but was expected severe shortages in 28 nanometer 12 inch wafer capacity, where we produce most about do you.
The product continued to significantly impact our results. However, we remain focused on supporting our existing customers and winning new business.
For additional capacity plans to set ourselves up for a strong recovery.
First our dedicated customer support and engineering teams are working closely with the top tier of panel maker in Korea to initiate and support to OLED driver IC project, which we expect to kick off this much.
Second budge.
As mentioned last quarter, we successfully broadened our customer base to include a top tier panel maker outside Korea. In Q1, we worked very closely with this customer and successfully taped out. The first project in February this product is expected to greatly contribute to our revenue in the later part.
Of this year.
Or we have engaged in design in discussions for additional new projects with this customer.
Third.
Our additional 28 nanometer manufacturing capacity remains on track to come online in the later part of this year, while we expect to go through a typical learning curve. During the initial phase of production ramp we expect yields to improve over 2023. In addition, we are in active.
Discussions with our foundry partners regarding a multiyear supply agreement to secure long term capacity and expect to have an update for you in a couple of months.
Finally in terms of our new business areas, we successfully ramped mass production of a new OLED TV driver IC product line during the quarter and saw strong revenue growth for the large display OLED TV market, while still small we are optimistic about the <unk>.
Gross potential for this business for oil at the automotive display applications. We added an additional customer design win during the quarter with a premium European automaker for the center stack display and the initial mass production is scheduled for the first half O two.
That in 'twenty three based on our customers' current plan.
In summary, our OLED business.
Is winning new customers and expanding into new applications with additional supply capacity expected to ramp up in the later part of this year and progress without LTA supply agreements. We are very optimistic about the growth in our OLED business in the future, particularly went out.
Newly designed products at a leading Korean customer and new major customer outside of Korea, I expect it to go into full production without newly added capacity for Q2, we anticipate our OLED business revenue to be flat to slightly up primarily.
<unk> is a capacity level remained about the same.
Now, let's turn to the power business I'm excited to report that we achieved the highest revenue in company history in a single quarter, primarily driven by strong demand for our premium power products as well as battery FET product our power business Rev.
In Q1 was $64 8 million up 11, 4% sequentially and 20% year over year. These results were driven by very strong demand for premium products, particularly our Super junction MOSFET and power IC and <unk> T product line.
<unk>, which grew 19, 5% sequentially and 25, 1% year over year to a record high 53, 6% and revenue mix.
In addition, battery fats that support world's leading foldable smartphone ear phones and tablets demonstrated strong growth. We are extremely excited about the continued momentum and growth in our power business in key end markets like communication consumer industrial and computing all drip.
And by the trend in electric vacation of everything.
Super Junction MOSFET product line, we are seeing a robust demand from T V. P C power and lightning applications due to increasing energy efficiency requirements. In Q1, we had strong traction with new designs in Tvs, and Italy, the lighting as well as share gains in laptops.
And gaming.
For power IC, we began ramping shipments of our bustier cheese for solid state disk for servers and data centers in our RGB T product line revenue grew by 60% year over year, driven by our entry into renewable energy end market.
<unk> solar inverter applications.
Go to market strategy efficient R&D and timely investment in fab three led to us.
To achieve record.
Quarterly revenue once again, and also accelerated development and introduction of new product.
One notable achievements for the quarter was that we successfully expanded the automotive design pipeline with our new high performance medium voltage MOSFET product for brushless direct current modal applications, we received a purchase order for our new fall.
Volt N V MOSFET from a tier one automotive supplier for a major car manufacturers and study mass production in April we also kicked off more Mb products for multiple automotive applications.
Season additional win aside from the original automotive power project that we announced previously our original automotive power project is progressing well the qualification and design activities are moving along with the end customer schedule. We expect the initial mass production to start in the second half of 2023 base.
On our customers' current plan during the quarter. We also added another new product to our power supply family with the announcement of a high performance synchronous boost converter that can be used in a variety of applications for ssds OLED panels in Peru.
Lose two speakers. This boost converter provides strong circuit protection capabilities and allows for smaller PCB board form factors in environmentally friendly packages in summary, we'll continue to execute the gross playing out power business by strengthening and fab through productivity.
D and introducing new products with superior performance and improved costs, which we expect will further drive healthy growth for many years.
For Q2.
We expect our power business business revenue to be flat to slightly down as a result, our backend capacity constraints due to the China Lockdown.
In conclusion, we are expanding our customer base penetrating new applications and remain focus on executing our long term strategy, despite macro issues and increase uncertainty, which may limit our near term will put Trinity recent developments.
Critical milestones, we have achieved reinforce our confidence and optimism about our long term growth now I will turn the call over to Shin young and come back for the Q&A Shin young Thank you Jay and welcome to everyone on the call.
To start with key financial metrics for Q1.
Total revenue in Q1 was on dress for $1 million down <unk>, 5.7% sequentially and down 15.4% year over year.
We knew from the send our parks business was $94 million down five 5% from Q3 and down 16.7% from the same quarter a year ago.
Once again, both the sequential and year over year decrease was due mainly to a significant decrease in revenue in our display and OLED business driven by the previously nation to supply shortage.
However, our power revenue in Q1 was very strong and achieved a record revenue of $64 $8 million, which represented an increase of 11, 4% sequentially and 20% year over year.
The significant growth was.
Strong demand across most product families, particularly our premium products.
Gross profit margin in Q1 was 37.5% up 250 basis points from Q4 and up over 960 basis points from Q1, a year ago.
The year over year increase was primarily attributable to the.
An improved product mix combined with an increase in average selling price under a favorable pricing environment.
Sequentially Q1 benefited by approximately 200 basis points from a timing mismatch of lower cost 12 inch wafers that was purchased in a prior period and sold in Q1.
Turning now to operating expenses.
Q1, SG&A was $14 $2 million as compared to $13 $3 million in Q4, 2021 and $12 $6 million in Q1 last year.
Q1, R&D was $12 million as compared to $12 $2 million in Q4, 2021 and $13 $4 million in Q1 last year.
Stock compensation charges, including operating expenses were $1 $6 million in Q1, and the same $1.6 million in Q4 and Q1 2021.
In Q1, our operating income was $12 $9 million compared to $63 $9 million in Q4 last year and an operating loss of $2 $1 million in Q1, 2021.
As a reminder, our Q4 2021 resorts included net gain of $49.4 million that represented income of $72 million from the recognition of a reverse termination fee net of professional service fees and expenses incurred in connection with a contemporary and merger transaction of the company.
<unk> that was terminated in December 2021.
After towards $72 million, we received $51 million in cash in December 'twenty, 'twenty, one and $19.2 million was recorded as other receivables on our balance sheet as of March 31 2022.
Subsequently in April 2022, we received $14.4 million and the remaining $4 $8 million is expected to be received by the end of June 2022.
Adjusted operating income in Q1 was $14 $5 million about flat from $14.4 million in Q4, 2021 and up from $10 million in Q1, a year ago.
Adjusted EBITDA in Q1 was $18.8 million slightly up from $18 $1 million in Q4 last year and up from $13 $5 million in Q1, a year ago.
Net income in Q1 was $9 $5 million as compared with $53 $6 million in Q4, 2021 and a net loss of $7 $5 million in Q1, a year ago.
The sharp sequential decrease was due primarily to the recognition of income in Q4 2021 from the $70.2 million reverse termination fee discussed earlier.
Our GAAP diluted earnings per share in Q1 was 20 cents as compared with $1.12 in Q4 last year and lost of 19 cents in Q1, a year ago.
Our non-GAAP diluted earnings per share in Q1 was 28.
Down from 31 cents in Q4 last year, but up from 222% in Q1 last year.
There were $46 7 million shares outstanding in Q1 calculated on a diluted weighted average basis.
On December 21, 2021 our board authorized the repurchase of up to $75 million of the company's stock and has an immediate step we entered into a $37 $5 million accelerated stock repurchase agreement with J P. Morgan Chase Bank National Association.
On March 14th 2022, we completed the ASR program and repurchased approximately 2 million shares at an average price of $18.51.
Now.
Moving to the balance sheet cash was $284 $9 million at the end of Q1. This compares to $279 $5 million at the end of Q4 of 2021 and $290.2 million in Q1 F. 2021.
Accounts receivables net $251 million about flat from Q4 last year, our days sales outstanding for Q1 was 44 days.
Inventories net tortured $36 $9 million a decrease of 6% from Q4 last year, our average days in inventory for Q1 was 51 days.
Capex was $9 million in Q1 as disclosed in our previous earnings call. This year, we'll invest about $8 million of special Capex to further improve factory capacity.
Excluding this special Capex, our normalized Capex for 2022 is expected to be at approximately $20 million.
Now moving to the second quarter guidance.
Our near term outlook is still being challenged by persisting supply constrained, especially for 28 nanometer 12 inch wafers.
While actual results may vary looking into the next quarter magnitude. We currently expect revenue to be in the range of $100 million $205 million, including about $9 $5 million of transitional factory foundry services and gross profit margin to be in the range of 33% to 30.
5%.
With that I'll turn the call over to Sweden, So N.
Thank you thank you YJ.
And Shin young so operator that concludes our prepared remarks, and we'll now open the call for questions.
Thank you.
As a reminder to ask a question you will need to press.
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Yes.
The Q&A roster.
Yeah.
Our first question.
Yeah.
Roth capital.
Your line is open.
Hi, YJ, hi shouldn't young.
So let's start off with some of the recent.
Press about potential OLED driver of industry consolidation I just wanted to get a sense from your perspective, if you can update on Bhangra chip strategic review process, where where that might be you know post the the wise wrote out a.
But that was terminated.
Susie a nice talking to you, but you know we are.
Unfortunately comment on rumor or the.
And the rumor deals in future deals so.
Let me put it that way.
And I wish I understand if you had a process in place that you've already articulated.
If there if there was if that was how that was progressing.
I don't think we have made any other.
Announcements after the Wise Road show Yeah, Okay, great. Thanks, I'm switching over to the OLED business I want understand YJ.
Choosy, but but but I can't say that look we are focusing on the amex readout of strategy as well as the board management are committed to protecting and sell a long term shareholder value. So let me put it that way.
I appreciate that YJ, okay. So switching over the OLED business. They obviously understanding the supply constraint there, but could you talk about the potential for the the new non Korean customers should we be conservative on that I wonder if that can can the wind base there potentially.
I have that revenue run rate move toward a size similar to your existing customers any thoughts on how that could shape up here would be helpful or intermediate term.
So first of all let let me say that the you know we are having a very key positive momentum first with our existing customer and so we have a dedicated support team and engineering team and as I mentioned today with the top tier Korean maker.
We are studying two new project.
We will kick off this.
This months.
And Additionally on your question on the Oh, Sorry, Korea customer, we actually successfully taped out a new product.
And so we.
We expect to grow production towards the later part of the year.
So we see a great feature with these two customers. So in addition to that we are also producing OLED TV products for the Korean maker show, we are diversifying customers and we are diversifying our product folio.
We expect.
To grow.
Grow with that kind of a momentum.
Okay. That's very helpful. And then on the gross margin side the product gross margin I believe topped 40% for the first time I know there was some onetime elements, but can you clarify what you meant when you said there was a favorable pricing environment this quarter.
I mean that this quarter, particularly see that 200 basis points represent a one time timing benefit that we enjoyed this quarter at a little because we lower cost 12 inch wafers that we purchase in a prior period, but we actually sold at a higher price in Q1 'twenty 'twenty. Two so this is actually similar to what happened in Q3.
Of last year.
Our partnering strategy to pass these type that increased cost how are customers that this may not happen all the time or the tiny may not be our lydall aligned all the time said this onetime benefit the reaction we had in this quarter.
He understands and young so the pricing comment was related to the the one time comment and then just to to look ahead I think even if I adjust for the 200 bps. The guidance is for a slight gross margin decline can you talk about the dynamics here, the gross margin quarter to quarter.
So the gross margin like I mean can vary by quarter by quarter and definitely product mix has an impact on it I mean Q1 definitely his product mix. So Q2 looking into all those pricing and the product mix and some I mean, the manufacturing cost variable within all that we can see those everything and now based on the information.
We are having the Q2, that's the guidance that we are actually estimating that gross margin in Q2.
Okay, and then lastly, YJ I know capacity is obviously one of the big fat.
Factors here can you talk about the potential for these L. T as a long term agreements and what supply agreements and how much capacity. There is the potential to secure obviously everybody's fighting for the same capacity. So if you could walk us through some of the opportunity and strategy there that'd be helpful to understand as you're approaching these discussions.
Sure. So we do have an Mou with a currently with multiple foundry makers that are 12 inch and 28 nanometer.
We are in the midst of a.
For transitioning into the actual LTA for the long term and so we will update the market in the next few months as I said today and we also have the new 28 nanometer foundry coming from new foundry towards the later part of the year. So that will give you.
Additional 28 nanometer capacity. So we are pretty excited about the going into production. When these are new products for the Korean customer as well as outside Korea customer go into full production when the additional capacity comes online starting later part of the year.
Okay that sounds a.
The source of optimism. Thanks, Thanks, Shin young thanks, YJ for the color.
Thank you.
Thank you.
Our next question comes from Rajiv Gill of Needham <unk> company.
Open.
Yeah. Thank you for taking my questions.
YJ.
The last quarter.
Remind me again, you had mentioned a pretty significant ramp in Q4 to hit.
Some of your growth targets.
I Wonder if you could kind of update us there do you still expect that to happen.
Yeah.
Yes.
In Q1.
So any update there in terms of.
We had a ramp in Q4.
Sure.
For 28 nanometer OLED.
Yeah. So thank you for asking so.
So you know the things are changing rapidly right. Since the late March you know you had the Shenzhen locked down now you have a Shanghai locked down that's about five six weeks and Ukrainian war, so that is creating some uncertainties globally.
So I'm trying to market.
As well as especially affecting the supply chain as you know we have a back end for the power as well as a potential a 12 inch foundry in there so that is creating some uncertainties as well as limiting our visibility so.
You know, it's creating very hard to pin point out how the rest of you will pan out and so we are now back to guiding one quarter at a time and once we get the best visibility, we will provide more colors, but in Tom job talking more long term you know despite these macro issues.
You know on the OLED side, we are winning new customers and expanding into new applications. So we are very optimistic about the growth in the OLED business and once these new projects, whether it's Korea, or a new customer project or or the outside Korea. When we go pre.
Duction, we're going to ramp up with the new capacity that I just mentioned to Susie.
And in terms of power.
And we have continued to execute our power our plan through the fab through productivity as well as our external.
Foundry and we are rolling out new generation product as we speak and so we are very optimistic.
About the growth.
So let me put it that way.
Got it yeah I appreciate the low volatility around the macro but.
Any sense do you think you know you'll still be able to grow this year overall revenue.
In light of these kind of macro concerns, but also on the flip side, though.
It's made a ramp.
With the new tweet.
Okay.
So as I said, it's very hard to pinpoint for the Russia V or how will pan out, but I can say that the once who we have the new foundry capacity with new product.
It goes into production that's going to ramp so.
You know once we have better visibility, we will guide you more and give you a better colors.
Got it Okay and then.
On the gross margin.
Syed.
You know you mentioned that you're kind of incurring some of the cost.
Associated with.
You know with the 28 nanometer and that are the yields are suboptimal, but bill.
They will start to improve.
In 2023 as you get the volume.
Should we be how do we think about the margins kind of throughout the year.
Are we expecting that you're going to be covering.
Some of that fixed cost or or still as you ramp 20 nanometer yields and low that the margin should be within this range or are there other drivers that could maybe bring it down.
Yeah. So you know again, we are guiding one quarter at a time, but you know I think we already factored in the yield assumption curve.
So so I think you know.
You know I think conservatively is what you should look at initially but we.
We should be able to go up the yield curve.
Especially towards next year.
I appreciate it thank you.
Yeah.
Yeah.
Thank you.
Again to ask a question. Please press star one on your telephone.
Our next question comes from Martin Yang of Oppenheimer.
Line is open.
Pardon me Mr. Yang.
Mute please UN mute your line.
Thanks for the reminder, I was on mute. Thank you for taking my question. So my first question is about the display segment trajectory revenue trajectory in the second quarter can.
Can you maybe provide us with more details regarding either pricing or volume expectations for display.
Yes.
Mark the earlier today that the we expect the oil at <unk> to be flat to up this second quarter.
It's limited by the supply constraints.
So that that's what Oh I can't comment.
Got it.
My next question is about your potential opportunities for medium to large sized OLED displays, particularly for Iot and automotive applications I think you highlighted the hurdle.
Where are you positioned.
Positioned for potential adoption for notebooks monitors in the longer term.
Yes.
So Martin that that's very good question. So in the auto are we now have three design wins, and we said that the some of the product will go production starting the first half of 'twenty three.
To the three and customer European automakers.
On the I T side, we do see some trend going into the.
To the our I T.
There we have opportunities not only the OLED driver IC, but also our pemex. So we're working on that so once we have a production schedule that we can pin pinpoint then we will also share with you.
Got it. Thank you my final question is al.
Org design with your lung Korean panel panel maker customers, assuming everything goes to a satisfactory yields with those products.
Let's say shipping by the end of the year or early next year, what do you have similar gross margins to.
Pre pandemic products.
How how does the gross margin profile as compare for.
For that customer versus other customers.
Yeah.
Yeah. So we expect you know based on the current forecast that we will grow production by a later part of this year.
You know.
The foundry will go through a learning curve on the 28 nanometer in OLED process. So are we being a little cautious, but I think we will can't update in the near.
Near future. So then we can move.
Give you more clear guidance on the the margin, but I mean, we will look February are going into next year.
We will have more.
But to pinpoint our outlook are in in the near future.
Thank you YJ.
Thank you.
And speakers.
Questions in the queue.
Turning it back over to you.
Closing remarks.
Thank you.
This concludes our first quarter 2022 earnings conference call. Please look for details of our future events on Magna Chip Investor Relations website.
Before we end the call I'd like to officially announce that I will be transitioning out of my role as the Investor Relations adviser.
Chip.
It's been an honor working with this great management team.
Any such a wonderful company.
Going forward the Blue shirt group will serve as Magna chips Investor Relations advisors and you can find a primary IR lead.
Si and his contact information at the bottom of our earnings press release.
Thank you and take care.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
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Okay.
Yes.
Yes.
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