Magnachip Semiconductor Corporation

Good day, everyone, and thank you for standing by. Welcome to the MagnaChip 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 1-1 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 Investor Relations, please go ahead.

Great. Hello, everyone. Thank you for joining us to discuss MagnaCHIP'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 Y.J. Kim, MagnaCHIP'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 will be a Q&A session following the prepared remarks. During the course of this conference call, we may make forward-looking statements about MagnetShip'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 MagnaCHIP's operating performance that may be useful to investors, a reconciliation of the non-GAAP financial measures to the most directly comparable gap 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 Y.J. Kim. Y.J.?

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 discontinued operations when it reports Q1 results in order to focus as a pure-play power semiconductor company. Shin-young will provide details in her section. As a result, the power analog solutions and power IC businesses, which accounted for $186 million in revenue in 2024, represent magnet chips going forward continuing operations. Our strategic pivot 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 U.S., but we are monitoring the tariff situation closely. However, our aim is still to attain a quarterly adjusted EBITDA break-even from continuing operations by 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 Analytics Solutions and PowerIC and excludes our former display business, was 44.7 million, up 12.1% year-over-year and down 8.5% sequentially on an apples-to-apples 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 20.9% was up 3.3 percentage points year-over-year, but down 2.3 percentage points sequentially. Consolidated Q1 gross profit margin from continuing operations exceeded the high end of our guidance range of 18.5% to 20.5%. Shin Young will provide more details in her 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 PowerIC. We released 27 new generation power analog solution 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 managed future product mix in 2028, up from 37% in 2024. We already have ongoing engagement to penetrate other 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 solution 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 13.6% 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 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 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 PowerIC, we secured design wins in Q1 with leading notebook manufacturing 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 and electric 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 20 to 30% more die for vapor in our Gumi Fab. When fully ramped, these new products are expected to drive higher growth margins compared to the previous generations. Now, I will provide more details by business slide. Power and Outlook Solutions business revenue of $39.9 million was up 9.1% year-over-year and down 8.3% quarter-over-quarter. Our 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 smartphones and customers in Korea. While a smaller portion overall, the automotive business shows strong growth and had new design wins in the European and American end-customer automotive markets. By segment, industrial revenue declined 8.7% year-over-year, representing approximately one-third of power and luxury solutions revenue. The decline stems from slower e-bike and e-moto revenue, offset by strengths from Lightning. 5G battery-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-model applications. In consumer, revenue increased 4.6% year-over-year. Overall, the consumer market accounted for 36% of power and energy 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 effect in mainstream and flagship portable and AI-enabled smartphones in Korea. In addition, we saw expanded adoption in wearables such as watches and earbuds. As we mentioned before, we believe we now have number one market share in battery effect, at our major Korean smartphone end customer, including the major share of their flagship smartphone product line, 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 and analog solution revenue, the computing segment, so a 10% year-over-year decline in Q1 due to software 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 Q2 2025. While still less than 5% of power analog solutions revenue, the automotive segment saw strong year-over-year growth driven by increased global expansion beyond Korea and Japan with new design wins for vehicles targeting Europe and the USA. The number of automotive applications continued 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 seed business, revenue was $4.9 million, an increase of 44.1% year-over-year and down 10.0% sequentially. The PowerIC business represented 11% of consolidated Q1 revenue from continuing operations. The year-over-year growth was strong for both TV LED and OLED PowerICs. The introduction of 20 new mid- to low-end TV models by our customers for 2025 also led to strong sequential growth in TV LED in Q1. In summary, Q1 was MagnetShift's fourth consecutive quarter of a year-on-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 Xinyu to give you more details in our financial performance in the first quarter and provide Q2 and full year 2025 guidance. Xinyu?

Thank you, IJ, 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 IEC, PIEC, was $44.7 million, which was in line with the midpoint of our guidance range of $42 to $47 million. This was up 12.1% year-over-year and down 8.5% sequentially on an apple-to-apple basis. just 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 9.1% year-over-year and down 8.3% sequentially, primarily reflecting seasonality. Revenue from Power IC was $4.9 million. This was up 44.1% year-over-year and down 10% sequentially. In Q1, consolidated gross profit margin from continuing operations was 20.9%, exceeding the high end of our guidance range of 18.5% to 20.5%, up from 17.6% year-over-year and down from 23.2% sequentially on an apple-to-apple basis. The upside versus guidance and year-over-year improvement was mostly due to the stronger-than-expected U.S. 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 MagnaChim 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 8K and in the Form 10Q and Q1. All the following figures reflect research 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 $6.8 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 subaward grants. 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-debt 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 14 cents as compared with equivalent dilute loss per share of 37 cents in Q1 2024 and equivalent dilute loss per share of 24 cents in Q4 last year. Q1 non-GAAP diluted loss per share was 10 cents. This compares with equivalent non-GAAP diluted loss per share of 26 cents in Q1 2024 and equivalent non-GAAP diluted earnings per share of 12 cents 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 June 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 totaled $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 days in inventory for Q1 was 70 days and compares to 60 days in Q4 last year. Inventories net at the end of the quarter totaled $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 evaluate our prior total CapEx forecast range of $26 to $28 million which includes approximately $14 to $15 million to upgrade the CUNY 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 CUNY set. The depreciation cost from the new investment in the CUNY 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 a $26.5 million in equipment financing to partially support this $65 to $70 million investment to upgrade the equipment lab. 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 of 2025. And the remaining half is expected to be funded by the company's cash. This new investment agreement 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 the strategy changes we are making, we aim to attain a quarterly adjusted 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 pure play 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 sale of end-of-life EOL display products. which will be conducted by Magnetic Semiconductor Limited, the company's wholly owned subsidiary that operates the power business. The sale of the UR 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 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 these estimated total cash costs, 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 statutory 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 due to 2025, Magnet should currently expect consolidated revenue from continuing operations, which includes power analog solutions and power IC businesses, to be in the range of $45 to $49 million, up 5.2% sequentially and up 6.6% year-over-year at the midpoint on an equivalent basis. This compares with equivalent revenue of $44.7 million in June 2025 and $44.1 million in June 2024. Consolidated gross profit margin from continuing operations to be in the range of 19.5% to 21.5%. This compares with equivalent gross profit margin of 20.9% in June 2025 and 22.5% in June 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 gross profit margin from continuing operations is 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 second half of 2025. The equivalent gross profit margin was 21.5% in 2024. Thank you. Now it's time to call back over to YJ for his final remarks.

YJ? 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 sanctioned PC power from Taiwan in the computing market. The communications 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 shareholder value and prioritizes a return to profitability, supported by clearly articulated transparent short-term and mid-term 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 and run rate, 30% gross margin in three years. Now, I will turn the call back to Stephen. Stephen?

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 1-1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question coming from the line of Sujit De Silva from Broad Capital. Your line is now open.

Hi, Y.J. Hi, Shin Young. Maybe, Y.J., you can start at the high level and talk about the tariffs that are going on here and how Magneship 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. Yes, so, you know, we haven't really seen negative impact on the first half of the year. As we disclosed it, the annual, the analyst say that 94% of our power revenue comes from Asia. And we have very material direct treatment to the U.S. 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, you know, every day.

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

Thanks, Sujie. So at least for 2025, because we wind down the transition of foundry services by the end of last year, we said about 20% of our Gumi capacity was actually for the foundry services. And the new investment, 65 to 70 million investment over the next three years, that's going to be to upgrade the Gumi effect, convert the portion of the Gumi effect to support the new generation power product. So that composition, we're going to go from like 10% to 70%. So 70 so that that we're going to 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 and upgrading to support that the new generation power product. So you're, you're going to see and we're going to see that the improvement coming through, like, over the next couple years when we kind of march toward the 333 strategy. at least for 2025 because of this IDA capacity and our new generation product we're gonna coming in probably just to begin to come in in the second half of 2025. And that's why you saw our kind of annual gross margin guidance already we gave out to the market.

Okay, Sunung, very helpful. And then lastly on the segments, trying to understand the PowerIC 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. I think we outline a 3-3-3 strategy that requires double-digit growth for the next few years. Our goal is to grow both segments, whether it's power analog or power IC, double-digit over the next few years. We do have focus on both areas for growth.

Okay. Thanks, Wajid. Thanks, Shanu.

Thank you. Thank you.

Thank you. Our next question, coming from the lineup, Nick Doyle from Needham & 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 communications 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 PowerIC, 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 will provide that detail. So we haven't seen much pull-ins other than that I measure right now on the tariffs.

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

You know, you could tell by, you know, 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 U.S. So we actually monitor the situation very carefully.

Thank you. And as my second question, OPEX, the OPEX came in kind of at the low end of the guide, you know, 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 EBITDA break-even quarterly by the end of this year. So if you kind of strip that out and multiply, like annualize them, you will find that it's going to 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 going to do like all the right sizing, like the actions to attain the quarterly EBITDA break-even quarterly. by the end of this year.

Thank you.

Thank you. And there are no further questions in the queue 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 want to give everyone a quick reminder of our upcoming investor conferences. On June 25th and 26th, we'll present at the 15th Annual Roth 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 one-on-one meetings with the management team. Please look for details on our future events on Magnet Ship's investor relations website. This concludes our Q1 earnings conference call. Thank you and take care.

Thank you for your participation in today's conference. This concludes today's conference call and you may now disconnect.