Magnachip Semiconductor Corporation

Good day everyone and thank you for standing by. Welcome to the MagnetChip Semiconductor first quarter 2025 earnings conference call. At this time all participants are on a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please note that this conference is being recorded. I will now hand the conference over to your speaker host. Stephen Palau of Investolations, please go ahead.

Great, hello everyone. Thank you for joining us to discuss MagnetChip's financial results for the first quarter ended March 31st, 2025. The first quarter earnings release was issued today after the market closed and can be found on the company's investor relations website. The webcast replay of today's call will be archived on our website shortly afterwards. Joining me today are YJ Kim, MagnetChip's 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. There'll be a Q&A session following the prepared remarks. During the course of this conference call we may make forward looking statements about MagnetChip's business outlook and expectations. Our forward looking statements and all other statements that are not historical facts reflect 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. Such statements are based upon information available to the company as of the date hereof and are subject to change for future development. Except as required by law, the company does not undertake any obligations to update these statements. During the call we will also discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended as supplemental measures of MagnetChip's operating performance that may be useful to investors. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our first quarter earnings release in the investor relations section of our website. With that I'll now turn the call over to YJ Kim. YJ.

Hello everyone and thank you for joining us today and welcome to MagnetChip's Q1 earnings call. As a reminder on April 8th we announced that after a thorough review our board of directors unanimously approved a plan to shut down the company's display business by the end of Q2. So we will continue to evaluate opportunity to monetize display assets. The company had previously announced its intention to explore all strategic options for the display business and to classify the display business as discontinue operations when it reports Q1 results in order to focus as a pure play power semiconductor company. Xun Yang will provide details in our section. As a result the Power Analog Solutions and Power IC businesses which accounted for 186 million in revenue in 2024 represent MagnetChip's going forward continuing operations. Our strategic people to focus exclusively on Power Analog Solutions and Power IC business is designed to drive a structural improvement in operational efficiency and position the company for return to sustainable profitability. Navigating on unpredictable macroeconomic landscape will likely pose challenges for our industry. We have a very small amount, less than 2.5 million in direct shipment to the US but we are monitoring the tariff situation closely. However, our aim is still to attain a quarterly adjusted EBITDA breakeven from continuing operations by at the end of this year. We also believe that reaching this goal will pave the way for achieving positive adjusted operating income in 2026 and positive adjusted free cash flow in 2027. Each of these targets will act as milestones towards achieving a goal in three years to reach a 300 million annual revenue run rate with a 30% gross profit margin target. We call this our 333 strategy. Turning to Q1 results, consolidated Q1 revenue from continuing operations which includes Power Analog Solutions and Power IC and excludes our former display business was 44.7 million up .1% year over year and down .5% sequentially on an Apple to Apple basis. Consolidated Q1 revenue from continuing operations was in line with the midpoint of our guidance range of 42 to 47 million. Consolidated Q1 gross profit margin from continuing operations of .9% was up 3.3 percentage points year over year but down 2.3 percentage points sequentially. Consolidated Q1 gross profit margin from continuing operation exceeded the high end of our guidance range of .5% to 20.5%. Shin Young will provide more details in our section. Q1 was the fourth consecutive quarter of a year over year growth from continuing operations driven by Power Analog Solutions growth in communications and automotive markets as well as strengths in Power IC. We released 27 new generation Power Analog Solutions products in Q1 that are fully qualified and ready for commercial sampling. These innovative product families open new high value market opportunities for magnitude such as automotive, industrial and AI applications. We currently expect these three market opportunities to represent more than 60% of managers future product mix in 2028, up from 37% in 2024. We already have ongoing engagement to penetrate auto markets, which we expect to reach over 10% of our revenue by 2028 from less than 5% in 2024. In Q1, we saw Power Analog Solutions design wins across multiple end markets and regions, including Korea, China, USA and Taiwan. Many of these design wins were from our new generation products. As part of our pivot to a pure play on power, we will be sharing additional metrics each quarter, such as the number of design wins. We define a design win as receiving a purchase order for a new application. We achieved 15 design wins in Q1, up .6% from 44 wins we achieved in the year or quarter, year ago, quarter. The industrial business had 25 design wins, up from 22 in Q1 to 2024 and representing 50% of the total. Other notable design win activity included the computing business, which had 11 design wins in the March quarter, nearly double the six achieved in Q1 to 2024. And the automotive business had five design wins up from two in the year ago period. From an application perspective, our new generation Gen 6 Super Junction products had design wins in the China lighting market, a PC power and computing application in Taiwan and a TV main motherboard application in Korea. Our new generation low voltage Gen 8 MOSFETs had a design win for a new flagship portable smartphone in Korea and our prior generation medium voltage and Super Junction products had design wins in the industrial market for e-scooters and automotive power charge application from Taiwanese suppliers. And an automotive electric oil pump for vehicles targeted for the European market. In Powai Sea, we secured design wins in Q1 with leading notebook manufacturer in China and Korea, as well as additional wins for LCD TV and monitors in Korea. We currently plan to launch a total of more than 50 new products, including 40 new generation power analog solution products in 2025 and more than 55 additional new generation products in 2026. We expect these new generation power products to drive higher revenue and given the smaller die size and yield 22, 30% more die for wafer in our Gumi fab. When fully ramped, these new products are expected to drive higher gross margins compared to the previous generations. Now I will provide more details by business slide. Power analog solution business revenue of 39.9 million was up .1% every year and down .3% quarter of quarter. Power analog solution represented nearly 90% of Q1 consolidated revenue from continuing operations. The sequential decline was mostly due to seasonality in each of our major segments, except in communications where we enjoyed quarter on quarter growth. The year over year increase was primarily driven by the communication market and more specifically deeper penetration in smartphone and customer in Korea. While a smaller portion overall, the automotive business shows strong growth and had new design wins in the European and American and customer automotive markets. By segment, industrial revenue declined .7% of year over year, representing approximately one third of power analog solutions revenue. The decline stems from slower e-bike and e-motor revenue offset by strengths from Lightning, 5G better managed systems, power tools and solar. As stated earlier, we are securing initial design wins for our new Super Junction Gen 6 products for China Lighting and e-motor applications. In consumer, revenue increased .6% year over year. Overall, the consumer market accounted for 36% of power analog solutions revenue in Q1. Communication revenue represents 23% of power analog solution revenue in Q1 and increased nearly 64% year over year fueled by design wins for battery fat in mainstream and flagship portable and AI enabled smartphones in Korea. In addition, we still expanded the adoption in wearables such as watches and earbuds. As we mentioned above before, we believe we now have number one market share in battery fat at our major Korean smartphone and customer, including the major share of their flagship smartphone product lines, which will soon utilize our new generation Gen 8 products. Overall, our low voltage MOSFET revenue grew more than 40% year on year in Q1. Representing 7% of analog power analog solution revenue, the computing segment. So a 10% year over year decline in Q1 due to self-pricing and weaker demand from China for PC and laptop power adapters. We are leveraging our new Super Junction Gen 6 products to penetrate more PC power in Taiwan and expect to benefit from new notebook adapter design when moving into mass production in Q225. While still less than 5% of power analog solutions revenue, the automotive segment saw strong year over year growth through my increased global expansion beyond Korea and Japan with new design wins for vehicle targeting Europe and the USA. The number of automotive application continue to increase and now includes electric oil pumps, cooling fans, power steering and car chargers. We are also seeing strengths for IGBTs from China brands used for positive temperature coefficient or PTC heaters for electric vehicles. Turning to our power IC business, revenue was 4.9 million, an increase of .1% year over year and down .0% sequentially. The power IC business represented 11% of consolidated Q1 revenue from continuing operations. The year over year growth was strong for both TV LED and OLED power ICs. The introduction of 20 new mid to low end TV models by our customer for 2025 also led to strong sequential growth in TV LED in Q1. In summary, Q1 was managed fourth consecutive quarter of year over year growth from continuing operations which expect to continue for fifth consecutive quarter in Q2. We expect inventory levels in the channel to slightly decrease in Q2. The strong performance in power analog solutions in Q1 was driven primarily by market share gains and new products in communications. The auto-vending market also performed well in Q1 given new design wins for vehicles targeted in Europe and the USA and continually broadening applications. Now I'll turn the call over to Shunil to give you more details in our financial performance in the first quarter and provide Q2 and full year 2025 guidance. Shunil.

Thank you, Ajay, and welcome everyone on the call. Let's start with key financial metrics for Q1. Total Q1 consolidated revenue from continuing operations which includes power analog solutions PAS and power IC PIC was $44.7 million which was in line with the midpoint of our guidance range of $42 to $47 million. This was up .1% year over year and down .5% sequentially on an Apple-Sapple basis. This compared with equivalent revenue of $39.9 million in Q1 2024 and $48.9 million in Q4 2024. Revenue from power analog solutions was $39.9 million. This was up .1% year over year and down .3% sequentially primarily reflecting seasonality. Revenue from power IC was $4.9 million. This was up .1% year over year and down 10% sequentially. In Q1 consolidated gross profit margin from continuing operations was .9% exceeding the high end of our guidance range of .5% to .5% up from .6% year over year and down from .2% sequentially on an Apple-Sapple basis. The upside versus guidance and year over year improvement was mostly due to the stronger they expected US dollar against the Korean one. The sequential decline was mainly due to an unfavorable product mix. As we've disclosed previously, the company announced its plan to shut down the display business by the end of the second quarter of 2025. Shutting down the display business includes the liquidation of MagnaChimp Mixed Signal Limited, MMS, the company's wholly owned subsidiary that had operated the discontinued display business. As a result, the display business has been classified as discontinued operations from Q1 2025 and has reported separately on the face of the company's P&L. The prior period conformed to the current period presentation as it appears in our form AK and in the form 10Q and Q1. All the following features reflect results from continuing operations. Q1 SG&A was $9.7 million as compared to equivalent SG&A of $9.5 million in Q1 2024 and $10.4 million in Q4 2024. Q1 R&D was $5.9 million as compared to equivalent R&D of $6.2 million in Q1 2024 and $6.9 million in Q4 2024. Stock compensation charges including operating expenses from continuing operations were $0.8 million in Q1 as compared to $0.8 million in Q1 2024 and $1.6 million in Q4 last year. These charges fluctuate every quarter depending on the timing and size of several work trends. In Q1, we have narrowed operating losses due to a combination of higher revenue and improved gross profit margins as compared with Q1 2024. Q1 operating loss was $6.3 million. This compares to an equivalent operating loss of $9.4 million in Q1 2024 and an equivalent operating loss of $7.8 million in Q4 2024. On a non-DEF basis, the Q1 adjusted operating loss was $5.4 million compared to an equivalent adjusted operating loss of $8.6 million in Q1 2024 and an equivalent adjusted operating loss of $4.5 million in Q4 last year. Loss in Q1 was $5.1 million as compared with an equivalent loss of $14.3 million in Q1 2024 and an equivalent loss of $8.7 million in Q4 last year. Q1 adjusted EBITDA was negative $2.1 million. This compares to an equivalent adjusted EBITDA of negative $4.8 million in Q1 2024 and a negative $0.5 million in Q4 last year. Q1 GAAP diluted loss per share was $0.14 as compared with equivalent dilute loss per share of $0.37 in Q1 2024 and equivalent dilute loss per share of $0.24 in Q4 last year. Q1 non-GAAP diluted loss per share was $0.10. This compares to an equivalent non-GAAP diluted loss per share of $0.26 in Q1 2024 and equivalent non-GAAP diluted earnings per share of $0.12 in Q4 last year. Our weighted average non-GAAP diluted shares outstanding for the quarter were $36.9 million shares and $38.5 million shares in Q1 2024 and $37.7 million shares in Q4 last year. Under our $50 million stock buyback program authorized in July 2023, we repurchased in Q1 2025 approximately 0.3 million shares for an aggregate purchase price of $1.1 million, leaving about 23.5 million remaining authorization as of March 31, 2025. Additionally, we spent $1.9 million in April 2025 and repurchased approximately 0.6 million shares. Moving to the balance sheet. We ended Q1 with cash of $132.7 million and $138.6 million at the end of Q4 2024. Net accounts receivable at the end of the quarter totalled $28.3 million and $28.4 million at the end of Q4 2024. Our daily sales outstanding for Q1 was 47 days and compares to 41 days in Q4 last year. Our average sales inventory for Q1 was 70 days and compares to 60 days in Q4 last year. Inventory net at the end of the quarter totalled $32.6 million and $30.5 million at the end of Q4 2024. Q1 capex was $0.2 million. For the full year 2025, we equate our prior total capex forecast range of $26 to $28 million, which includes approximately $14 to $15 million of grade equity set. We expect the majority of this capex to occur in the second quarter. This $14 to $15 million was part of the previously disclosed 65 to $70 million investment over three years to upgrade the Q1 net. The depreciation cost from the new investment in the Q1 facility will not begin to be reflected in our financial statements until 2027. At the time, we anticipate that a more robust portfolio of new generation power products will at least partially offset the impact. Additionally, we announced previously that we secured the $26.5 million equipment financing to partially support this 65 to $70 million investment to upgrade the equity set. Under the agreed terms and conditions with the lender bank, we expect to fund about a half of the $14 to $15 million using this equipment financing, majority of which will occur in the second quarter 2025. And the remaining half is expected to be funded by the company's cash. This new investment in equity is expected to drive development of the new generation power portfolio and upgrade the new tools to optimize product mix and improve gross profit margin. Lastly, as YJ mentioned above, as a result of strategy changes we are making, we aim to attain a quarterly adjust EBITDA rate even from continuing operations by the end of this year. The actions that are being undertaken by the company in connection with the liquidation process are expected to result in a 30 to 35% reduction in annualized operating expenses, excluding equity compensation charges as compared with 2024. We'll execute all available cost reduction initiatives to align our spending level with a strategy to become a peer-applied power company while enabling us to continue to make progress towards our 333 strategy. Now let me provide finance related comments regarding the discontinued display business. The company is expected to provide limited support for remaining customer obligations, including the Salem End of Life EOL display product, which will be conducted by Magnetic Semicons Limited, the company's wholly owned subsidiary that operates the power business. The Salem 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 to $20 million over a period of approximately two years after the completion of the liquidation, depending upon the demand of customers and outcome of the monetization efforts of the display intellectual property assets. The total estimated cash cost of liquidation is approximately $12 to $15 million, which is expected to be offset by the cash inflow that we will generate as described before. 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 had already been fully accrued in the company's prior period of financial statements. The company expects to recognize substantially all of these charges, excluding the already fully accrued net fixed severance of $4.5 million in the quarter ending June 30, 2025. Now moving to our second quarter and full year 2025 guidance. While actual reserves may vary, for two to 2025, Magnet should currently expect consolidated revenue from continuing operations, which includes power analytics solutions and power IT businesses, to be in the range of $45 to $49 million, of .2% sequentially and up .6% year over year at the midpoint on an equivalent basis. This compares with equivalent revenue of $44.7 million in two to 2025 and $44.1 million in two to 2024. Consolidated growth spruces margin from continuing operations to be in the range of 19.5 to 21.5%. This compares with equivalent growth spruces margin of .9% in two to 2025 and .5% in two to 2024. For the full year 2025, we currently reiterate consolidated revenue from continuing operations to grow mid to high single digit year over year as compared with equivalent revenue of $185.8 million in 2024. Consolidated growth spruces margin from continuing operations between 19.5 to 21.5%, reflecting the fact that we have completed the wind down of transitional laundry services and new generation power products will just begin production in the next year. This is the second half of 2025. The equivalent growth spruces margin was .5% in 2024. Thank you. Now it's time to call back over to Y.J. for his final remarks.

Y.J.? We believe we hit the revenue bottom in Q1 for power for this year. Looking to Q2, we currently forecast mid single digit sequential growth leading to another quarter of mid single digit year over year growth from continuing operations. We currently expect the industrial and computing markets to be relatively strong driven by lighting and battery management system applications in industrial as well as traction PC power from Taiwan in the computing market. The communication segment will likely decline quarter on quarter due to exceptional strong performance in the last two quarters, but is currently expected to show strong year over year growth in excess of 30%. To wrap up the pure play power strategy we announced last quarter focuses on share of the value and prioritizes a return to profitability supported by clearly articulated transparent short term and midterm financial targets. As previously mentioned uncertainty over macroeconomic headwinds will likely pose challenges for our industry over the coming quarters. Our strategic pivot to focus exclusively on power analog solutions and power sheet business is designed to drive both top line growth during new product launches as well as long term structural improvement in operational efficiency. Allowing us to achieve our target of a 300 million revenue in run rate, 30% gross margin in three years. Now I will turn the call back to Steven. Steven.

Great. That concludes our prepared remarks. Let's open the call for any questions that you may have. Operator, please go ahead. Thank you.

To ask a question at this time you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we go through the Q&A roster. Thank you. Our first question coming from the line of Sujitha Silva from Broad Capital. Your line is now open.

Hi, YJ. Hi, Shenyang. Maybe YJ you can start at the high level and talk about the tariffs that are going on here and how MML MagnetChip is positioned for that from a manufacturing footprint and markets you sell to just to understand the opportunity or impact going forward.

Great, thank you. Yeah, so we haven't really seen negative impact on the first half of the year. As we disclosed the analyst day that 94% of our power revenue comes from Asia. And we have very material direct shipment to the US with less than 2.5 million a year. So we are closely monitoring the situation and we think care risk is manageable at the moment but we are really looking at every day.

Okay, all right. Thanks YJ. And maybe on the financial, Shenyang, maybe you talk about the gross margin. What are the drivers going forward for the power-based business? Just understand that generally. And then how much is the Gumi utilization benefit opportunity there? What's the timing of that tailwind?

Thanks, thanks, YJ. So for at least for 2025, because we wind down the transition of boundary services by the end of last year, we said about 20% of our Gumi capacity was for actually for the boundary services. And the new investment, 65 to 70 million investment over like the next three years, that's gonna be to upgrade the GumiFact, convert the portion of the GumiFact to support the new generation power product. So that competition, we're gonna go from like 10% to 70%. So 70. So that we're gonna drive our gross margin in like to achieve the 333 strategy. So it's not really, we are expanding our capacity simply, we are actually converting it, upgrade the GumiFact to support that, the new generation power product. So you're gonna see, and we're gonna see that the improvement coming through like over the next couple of years, when we kind of march toward the 333 strategy, at least for 2025, because of the either capacity and our new generation product we're gonna coming in, probably just to be just to begin to come in in the second half of 2025. And that's why you saw our annual gross margin guidance, already we gave out to the market.

Okay, Shunung, very helpful. And then lastly on the segments, trying to understand the Power IC segment versus the analog segment. Is there a concerted effort there, YJ, to grow that segment in the mix? Does that have favorable margins there? Some products focus on that, or is the Power Analog segment really the focus of the growth near term?

Yes, it's a very good question. So I think we are outline 333 strategy that requires double digit growth for the next few years. So our goal is to grow both segments, whether it's Power Analog or Power IC, double digit over the next few years. So we do have focus on both areas for growth.

Okay, thanks, YJ, thanks, Shunung.

Thank you. Thank you. Thank

you. Our next question coming from the lineup, Nick Doyle from Needham and Company. Your line is now open. Hey guys,

thanks for taking my questions as well. I'll also ask about the tariffs. Do you think any of the consumer or communication strength that you had in the first quarter represented a tariff-related pull forward? And how are your customers communicating order patterns around the tariffs? And I understand that you have the high exposure to Asia. Thank you.

Yes, very good question. So, you know, interesting enough, we only saw one pull-in in Q1. That wasn't Power IC, that's for the TB applications, but it was very small, it's like 0.1 million. Other than that, we did not see any pull-ins at all. And so Q2, they're also very material and we'll provide that detail. So we haven't seen much pull-ins other than that I mentioned right now on the tariffs.

Just to follow up on that, I mean, it is a really small number, but I guess, how are you able to categorize that one specifically as a pull-in?

You could tell by customer telling us, or you can look at change the backlogs from Q2 versus Q3. That's how we noticed. And we said that we shipped 94% to Asia and only 2.5 million or less is direction with the US. We actually monitor the situation very carefully.

Thank you. And as my second question, the OPEX came in kind of at the low end of the guide, better than the expectations. Should we expect that level to hold through the year around the 15 million level or some of these kind of a one-time benefits in the 14.8 million number? Thank you.

So the 15 million that you saw, the actual Q1, the OPEX without the stock-based compensation, that's actually when we strip out the direct cost associated with the display business. So when we kind of shut down the display business and strip out the direct cost, we talk about 30 to 35% cost reduction from the last year's level. But because we are going to, and that's our target to attain just EBW, even quarterly by the end of this year. So if you kind of strip that out and multiply, like annualize, and you will find that it's gonna be a little short. So that's why we said we used to have a, we still have the share service function, which is supported both display and power businesses together. So we're gonna do like all the right sizing, as in like the actions in the, to attain the quarterly just EBW even in like the by the end of this year.

Thank you. Thank you. And there are no further questions. And thank you at this time. We'll now turn the call back over to Stephen for any closing comments.

Great, thank you. Before we conclude, I just wanna give everyone a quick reminder of our upcoming investor conferences. On June 25th and 26th, we will present at the 15th annual ROC London Conference at the Four Seasons Park Lane in London. Attendance at the conference is by invitation only. For interested investors, please contact your respective sales representative to register and schedule -on-one meetings with the management team. Please look for details on our future events on Magnet Ships Investor Relations website. This concludes our Q1 earnings conference call. Thank you and take care.

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