Q4 2022 MagnaChip Semiconductor Corp Earnings Call
Yeah.
Good day and welcome to the magnitude of third quarter two earnings conference call at this time, all participants only mode.
After the Speakers' presentation there'll be a question answer session.
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As a reminder, this call's being recorded I would like to turn the call over to you Josh that I am a representative for Magna Chip you may begin.
Good afternoon, everyone. Thank you for joining us.
<unk> financial results for the fourth quarter ended December 31, 2020 before.
Fourth quarter earnings release that was issued today after the stock market can be found in the company's Investor Relations website.
Broadcast replay of today's call will be archived and arguments and shortly afterwards.
Joining me today are YJ, Kim <unk>, Chief Executive Officer, and senior apartments, our Chief Financial Officer.
Dan will discuss the company's recent operating performance.
And Shin Young review <unk> results for the quarter and provide guidance for the first quarter.
There will be a Q&A session.
During the course of this conference call in a minute.
Looking statements magnetics.
Okay.
Forward looking statements and all other statements that are not historical facts.
Our beliefs and predictions as of today, and therefore are subject to risks and uncertainties as described in the safe Harbor statement foundry.
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During the call. We will also discuss non-GAAP financial measures non-GAAP measures are not prepared in accordance with generally accepted accounting principles.
Are intended to illustrate an alternative measure of magnitude operating performance that may be.
Useful.
Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our fourth quarter earnings release available on our website under the Investor Relations section at Www Dot magazine Dot com.
I will now turn the call over to YJ Kim again.
Hello, everyone. Thank you for joining us today and welcome to making their chips Q4, 2022 earnings call I will begin today's call with a summary of our Q4 results as well as our performance for the full year 2022 after that our probes.
A detailed update on each of our business segments before turning the call over to Shane young to go over our financials in more detail and provide guidance for Q1 2023, starting with Q4 results revenue was 61 million near the high end of our guidance range.
Nevertheless, Q4 revenue was lower by 44.7% year over year, and 14, 3% sequentially gross profit margin was 26, 4% within our guidance range by business line display revenue was $10 6 million and power revenue was.
$46 3 million as we indicated last quarter. These results were primarily driven by severe wafer shortages in our OLED business, which prevented our new designs at our leading Korean panel customer to hit new key product launches window in the second half.
For 2022.
The business was also impacted by weak consumer demand in China, and globally, which led to an inventory correction by Android smart phone Oems.
Our power business the record momentum, we said in the first half of the year slowed down.
Typically in Q4.
Macro conditions and consumer demand deteriorated, leading to inventory builds across a number of our end markets.
Going back at the full year total revenue was 303 points.
$337 7 million and gross profit margin was 30.0% down 28, 8% and 240 basis points year over year.
Respectively.
The business line, our display business solely contributed to the significant year over year decline as your revenue was only $71 4 million compared to $205 3 million in 2021, our power business revenue in 2022 was 235.
Up one 2% year over year from $227 8 million. It goes without saying that 2022 was a very difficult year on many fronts, particularly for our display business. However, we stayed focused and executed on what we.
Could control and achieved key milestones in 2022 that we believe sets the foundation for a solid recovery in 2023.
In our display business, we successfully won a tier one panel customer outside of Korea, which mark the expansion of our OLED business.
Into international markets. We are currently working with this customer on to on to OLED T D. IC design project and.
I'm happy to report today that our first chip was successfully qualified by this customer in December and we will begin shipping towards the end of Q1 2023.
Furthermore, our second OLED <unk>.
Driver IC project with this customer successfully taped out in November our in house and we are ahead of schedule to deliver the first sample in this months and production is expected to begin in the second half of 2023. The second chip offers significant per phone.
A months and feature improvements over our first ship and alternative product. We're extremely excited about this new chip and multiple prospective smartphone makers are already showing interest for their new smartphones.
We also strengthened our global supply chain by qualifying two additional 28 nanometer foundry one of which was in a strategic partnership with all new OLED customer in total we now have 328 nanometer 12 inch all the foundries qualify.
And we anticipate these foundry to increase our wafer allocation by two to four X over the next few years compared to our 2022 levels going forward wafer supply should not be a constraint on the OLED segment revenue.
And our leading South Korean panel customer in Q4, we completed qualification of our first OLED chip for an automotive center display and we will begin shipping this quarter, we expect to be used by a leading European luxury automaker in it.
We taped out a new high end smartphone driver IC during Q4 and that is expected to begin production in the second half 2023.
In our power solutions business 2020 was a record year and was stronger fundamentally then well our Q4 revenue trend indicates in 2022, we were awarded a record 209 design in wins across our entire power solution.
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It was also a record year for revenue from our premium products, which grew 10% year over year and represented a record $15 55, 9% of power solutions revenue up from 41.5% in 2021 this shrink.
<unk> helped overall power Isps over 2021, and 2020 levels forever.
From our Super Junction, MOSFET, and RGB product or so set record highs in 2022 IGT strengths was most notable with revenue growing 52% year over year. Thanks to extremely strong demand for solar inverter manufacturers, we expect this error.
We have a business to continue to remain strong going forward. Thanks to the transformative clean energy policies globally to come back.
Climate changes.
In 2022, we remain focus on R&D and introduced many innovative performance power products across a wide range of applications from smartphones automotive solar consumer products and industrial in Q4, we unveiled our first.
Hello management chip optimized for OLED I T applications. The newly designed so Pemex provides a variable voltage control that enables automated customer refresh rates based on the frame rate this greatly improves power consumption.
And enables a smooth and comfortable viewing experience for games and videos further you know power solutions, our automotive business in Q4, we introduced our eighth generation hundred 50 volt Amex T MOSFET for optimized for light electric vehicles.
Auto controllers and battery management systems. This MOSFET improves the drain to source resistance by over 28% improves heat dissipation and can operate in extreme temperature between minus 55 seats to up to 175 Celsius, making.
It suitable to be using a wide range of ex EV applications automotive business saw significant momentum in 2022 and is exiting the year with multiple design in projects for a leading Asian automakers.
And is expect to start contributing revenue in 2023.
In summary, while 2022 presented many challenges, particularly during the later half of the year, we remain optimistic about the future of OLED business is poised for a recovery in 2023 with the revenue projected to increase significantly in the second half.
As we ramp shipments about four design in projects with our two leading panel maker customers. We continue to expect the first half of 2023 to be impacted by elevated inventory levels and a very weak macro environment, but the reopening of.
China is a very welcome development and should lead to an improvement in the economy and consumer demand, which will help both our efficiencies for power solutions business, we expect to maintain the momentum of design wins and premium tier product mix. However, it's important to know that.
Our power business is not immune to the broader economy downturn, which impacts consumer related applications and we expect the first half of 2023 to also be challenging we believe that this will largely be due to macro factors rather than anything, especially Victor fundamentals.
The data points I, just highlighted that a testament to the competitiveness of our product power products Q1 is also typically our seasonally slowest quarter following holiday shipments and is impacted by slower activity around Chinese new years looking forward.
Inventories are consumed and the broader economy recovers, we expect to see a rebound in power revenue.
In closing despite a very challenging 2022, and an anticipated challenging 2023, our team remains committed to one introducing new competitive power products and accelerating next generation products, especially in new applications such as.
The automotive true continuing our successful sales momentum our design wins in power to drive business with current and new customers, which will improve our fab three utilization as well as margins three accelerate next generation OLED driver IC for our customers domestically and.
Italy to hit volume production by second half 2023, four expand our OLED products for international markets to sell 85 foundation for future growth in 2024.
Five we have initiated a voluntary resignation resignation program, where we expect 45% of employees may apply for this program with our choice to accept or reject the applicants and finally I have voluntarily taken a 10% reduction.
Sure in my salary for 2023 and rest of the senior management team are also deferring a portion of their base salary until we execute on our commitments now I will turn the call over to Shane Young to go over our Q4 results and gave our Q1 guidance Chanel.
Thank you Jay and welcome to everyone on the call, let's start with key financial metrics for Q4.
Total revenue in Q4 was $61 million down 14, 3% sequentially.
And down 44, 7% year over here.
Revenue from the standard products business was $53 $8 million down 14, 2% from Q3 and down 45, 9% year over year.
That's why Jay already mentioned, both the sequential and year over year decrease were mainly attributable to the supply crunch transfer wafers in our OLED business.
Slow demand for Chinese in Korea top tier smartphone models as a result of the global downturn the smartphone market.
Revenue from our power business was $46 $3 million down, 18% sequentially and down 25% year over year, the sequential decline accelerated from last quarter, driven by deteriorating consumer demand for Tvs smartphones E bike and computing applications.
Gross profit margin in Q4 was 26, 4% down from 35% in Q4 2021, but up from 24, 2% in Q3 2022.
The lower gross profit margin year over year was mainly due to unfavorable mix from lower display revenue as well as the war utilization rate of our factory.
The 220 basis points sequential improvement was primarily due to the absence of material inventory reserves and write offs during the quarter.
As a reminder, we recorded a $3 3 million scrap charge in Q3 related to demand weakness as a result of elevated smartphone inventories looking.
Looking forward, we have reduced production at our factory in response to industry wide slowdown and inventory correction.
As a result, our Q1 'twenty three gross profit margin will be further impacted by lower utilization as well as higher manufacturing input costs, such as electricity and wages.
We expect gross profit margin to recover as Paul you mean utilization improves in the second half.
Turning now to operating expenses Q4, SG&A was $12 $6 million as compared to the fourth.
In Q3, 2022, and $13 $3 million in Q4 of last year.
Q4, R&D was $13 $7 million as compared to $13 $3 million in Q3, 2022, and $12 $2 million in Q4 last year.
Stock compensation charges, including operating expenses were $1 $5 million in Q4 compared to <unk> $8 million in Q3, and $1 $6 million in Q4 2021.
Note that our Q3 SG&A was lower due to adjustments in Q3 to reduce then year to date of course related to performance based stock compensation.
Q4 operating loss was $10 $1 million. This compares to an operating loss of $10 million in Q3, and then operating income of $63 $9 million in Q4 2021.
As a reminder, our Q4 2021 operating income benefited from $49 $4 million of net termination fees related to our merger deal with why is road that was terminated in December 2021.
On a non-GAAP basis Q4, adjusted operating loss was $8 $6 million compared to adjusted operating loss of $6 $6 million in Q3, and our adjusted operating income of $14 $4 million in Q4 last year.
Q4, adjusted EBITDA was negative $4 $8 million. This compares to negative $3 million in Q3, and a positive $18.1 million in Q4, a year ago.
For the full year 2022, we recognized a tax expense of $5 $2 million due mainly to realized foreign currency gains recognized that our operating entity in Korea as a result of FX volatility during the year and a decrease in the Korea subsidiaries deferred tax assets as a result of a change in.
Corporate income tax rate, which was announced in December 2022.
Net income in Q4 was $3 million as compared with net loss of $17 $2 million in Q3, and a net income of $53.6 million in Q4, a year ago.
Yeah.
Our GAAP diluted earnings per share in Q4 was seven cents as compared with a loss per share of 38 cents in Q3 and earnings per share of $1.12 in Q4 of last year.
Our non-GAAP diluted loss per share in Q4 was 36 cents. This compares with non-GAAP diluted earnings per share of two cents in Q3, and 29 cents in Q4 last year.
Our diluted shares outstanding for the quarter were about $44 1 million shares which reflects shares repurchased as part of our expanded share repurchase program that we announced in mid September and we continue to exercise the buyback that was authorized by the board.
Moving to the balance sheet, our cash balance at the end of Q4 was.
$5 5 million.
Down from $258 million at the end of Q3, the primary cash outflows in Q4 was planned capex of $11 $6 million $8 $9 million spent on stock buybacks and $7 9 million dollar of annual contribution of statutory severance to certain extra.
Deposit accounts to comply with the local labor goes we expect to continue to draw down on our cash driven primarily by continuation of our buyback program and an LTA prepayment to secure wafers at our leading foundry partner and normal Capex.
Based on our forecast, we anticipate our cash may rich as low as $116 million. During 2023, if we execute the L. T a.
Net of countries suitable at the end of the quarter toward $35 $4 million a decrease of three 8% from Q3.
Our days sales outstanding for Q4 was 53 days and 47 days in Q3.
Inventories net tortured $39 $9 million compared to $37 $3 million in Q3.
Average days of inventory for Q4, it was 82 days and 64 days for Q3.
Higher average days in inventory for Q4 compared to Q3 was due mainly to a lower cost of sales, which decreased about 17% quarter over quarter.
Regarding our Capex plan as I mentioned earlier Q4, Capex was $11 $6 million and for the for full year 2022, we spent $23 $4 million in line with our previous estimate of $23 $5 million that we provided last quarter.
For 2023, we now anticipate capex to be approximately $10 million, which is nearly 60 person lower from between 2022 level.
Yeah.
In regards to our capital structure in Q4, we repurchased approximately 9 million worth of stock or approximately 900000 shares and continue to be active in the market with approximately 37 million remaining in our buyback program at the end of Q4.
We ended the year with 225, five 225 5 million in cash and zero debt.
It's solid balance sheet allows us to confidently navigate any further economic downturns that may arise during this period of uncertainty.
Before moving to the first quarter guidance I would like to note that we just commenced a voluntary resignation program and expect to complete it by the end of the first quarter due to the voluntary nature of this program. We are unable to provide an exact amount of the related financial impact at this time.
However, under the assumption that about 45% of our employees apply for this program. We expect to have annual cost savings up to $3 million with a total cash cost of approximately $8 5 million to $12 million about 35% to 40% of which relates to statutory severance.
Now moving to our first quarter guidance.
Actual results May vary for Q1 Magnus you currently expect revenue to be in the range of $55 million to $59 million, including about $5 million of transitional factory foundry services gross profit margin to be in the range of 21% to 23%.
Thank you and I'll now turn the call back over to Jamie for closing remarks.
Thank you chenille before we begin Q&A I'd like to close today by thanking all of our shareholders for their continued support during these challenging times.
Also like to reiterate my earlier comments about a recovery plan for 2023 and beyond we remain firmly committed to setting the business back on a solid foundation for growth this year and we will do.
Cute it by one introducing new competitive power product and accelerating next generation products, especially in new applications, such as automotive to continuing our success sales momentum of design wins in power to drive business with current and new customers, which will improve our fab three.
Utilization as well as margins three accelerate next generation OLED driver Ics for our customers domestically and internationally to hit the volume production by second half of 2023, and finally, we will further expand new OLED products for inter.
National markets to solid five foundation for future growth in 2024 with that I'll turn the call back to over to use here.
Thanks, YJ so that concludes the prepared remarks.
On his call later please.
Yeah.
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Again, Thats Star one wanted to ask a question.
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Yeah.
I'm not showing any questions at this time like to turn the call back over to you use that for closing remarks.
The operator, Keith your screen screen again for questions I did see some of our covering analysts on the line.
Alright.
Like to ask the question. Please press star one one.
Okay.
Thank you and our first question comes from Martin Young with Oppenheimer. Your line is open.
Yeah.
Hi, Thanks for taking my question and good morning.
I'll, let you maybe ask your.
Expectations for key.
Key customer ramp.
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2023.
Current challenges in the near term affect your outlook for our key customer run and you know.
That's my first question.
Hi, Martin. Thank you. So I am assuming that are you asking for new international customer for Omar the ramp for the OLED. So yeah. So we said that the the first ship has been qualified.
Last December and we expect the.
Initial production to begin towards the end of this quarter, we just.
Got our second trip for this customer in house.
And we expect to ship.
Within this month and so that's all ahead of schedule then we expect that to go to production towards second half. So the first chip.
Targeted for the full HD plus second chip is full HD plus N beyond a second ship as much robust capabilities.
Sure, we'll talk about once a chip start to shipping so with those that we expect.
The a.
Majority of the shipments are and the big curb to come on second half of this year.
Got it.
Is there any way for you to quantify.
The number of designs are just overall missed opportunities for all of that due to capacity constraints.
So, whereas missed opportunities for Mr Zions to store.
Finished you would have realized in calendar 'twenty three.
Well, so you know we don't.
Report the smartphone vendor design wins, but the Oh, you know, we expect to disclose more of that once the smartphone start to introduce their new product lines and so I think it's more towards the.
Second half heavily we are shipping some volumes are based on the current design wins and current products.
And so that that's the curve you should look at.
Got it.
Last question for me is.
Do you expect to see any lingering effect on your torchy.
24, meaning any design activities.
That will result in.
2000, twenty's for shipments are being disrupted.
We are a shipper.
Shipping new products as we speak so are we believe that our revenue will hit in second half as well as their early 'twenty four and we will be working on new products are too.
<unk> hit the samples in second half this year that should go into 2024. In addition to some of the product that are are we shipping in second half this year.
Got it.
I have no more questions. Thank you YJ.
Thank you.
Thank you. Our next question comes from Rajiv Gill with Needham Your line is open.
Thanks Doyle on for Rajeev I, just had a question about auto how do we think about the auto opportunity in calendar 'twenty three and then hopefully 24 could you be a little more specific on the opportunities with the design wins that you talked about on the on the call earlier.
Sure. Thank you.
So in the automotive ER This series phase Edinburg stage, a year for us in both OLED.
OLED and power we are start shipping the first OLED automotive parts this quarter.
And we also expect to ship a.
Power this quarter as well and we had several design ends are going in to a lot. She at year end and a.
We expect a four to five our auto a motive power to ship. This year the revenue is not huge.
But what's nice about automotive as a you know it's a long design cycle, even in OLED may be five years.
And the ASP and margin typically much better than the regular AR smart smartphone usage.
So we are going to work on incrementally, adding these automotive opportunities and Oh, I think that's going to be gradual over the next few years.
Thank you and then are you really focusing just on the Asian market here or are you also trying to expand internationally and auto as well.
Obviously, the Asia is close to our home coverage so but.
Like OLED are the major auto makers Oh.
Europe and Asia for a market on the power side its more in Asia and automakers. So that's how we're gonna start out and we'll try to cover a globally with the success of our design wins.
Thank you.
Thank you there are no further questions at this time I'll turn the call back over to you for closing remarks.
Operator. This concludes our Q4 earnings conference call. Please the floor.
For our future events on magnitude of Investor relations. Thank you.
Thank you Eric.
This concludes the program and you may now disconnect everyone have a great day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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