Magnachip Semiconductor Corporation

Thank you for standing by and welcome to the Magna Chips Semiconductors Corporation's fourth quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mike Bishop with Investor Relations. Please go ahead, sir.

Thank you.

Hello, everyone.

And thank you for joining us to discuss Magnet Chip's financial results for the fourth quarter and year end, December 31, 2025. The fourth quarter earnings release that was issued today after the close of market can be found on the company's Investor Relations websites. The webcast replay of today's call will be archived and available on our website shortly afterwards. Joining me today are Camilo Martino, Magnetip's Chief Executive Officer, and Shin Young Park, our Chief Financial Officer. Camilo will discuss the company's recent operating performance and business overview, and Shin Young will review the results for the quarter and provide guidance for the first quarter of 2026. 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 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 developments. Except as otherwise required by law, the company does not undertake any obligation to update these statements. During the call, we'll also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended as supplemental measures of MagnetShip'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 fourth quarter earnings release in the investor relations sections of our website. With that, I'll now turn the call over to Camilo Martino. Camilo?

Thank you, Mike, and good afternoon, everyone. I would like to open with a comment I made last quarter. Specifically, management has a strong foundation, a strong history and power, a reputation for reliability and quality, and relationships with customers who care about performance and execution. Looking back at 2025, we have implemented many changes to lay the foundation to improve the financial and go-to-market fundamentals, which we believe will result in a positive and consistent recovery over time. We are investing responsibly in areas where we see great potential while staying disciplined and realistic about what it takes to turn a power semiconductor business around. I would like to look back on Q4 and 2025, highlighting what we have completed and we will provide more detail on our go-forward operating strategy. First, a quick review of the quarter. For Q4, revenue was $40.6 million and gross margin was 9.3%. For the full year, revenue was $178.9 million and gross margins were 17.6%. Consistent with our comments from our last earnings call, our results continue to reflect three realities. Pricing pressure on legacy products remains intense, especially in China. Factory loading and utilization was a headwind, although we saw utilization slightly above in Q4 what we had said during last quarter's earnings call. We need highly competitive products to win. This is a very important reality, and when we do have competitive products, we can absolutely win. That's the core point behind our product strategy. Jinyoung will walk through the financial details and guidance later, moving to the more important changes that we have made during 2025. Over the past year, and especially over the past several months, we have taken three meaningful actions. Firstly, we significantly reduced our cost structure. We exited the display business and we resized the organization accordingly. We also executed workforce actions and cost reduction programs to reduce OpEx and to focus the company exclusively on the power of business. Secondly, we reorganized and focused our sales and marketing teams on specific market segments and customers. This is important because winning in power semis is not a one-size-fits-all. It is segment by segment and customer by customer. Thirdly, we increased our investment in R&D to significantly improve our mid- to longer-term product competitiveness. In 2025, we launched 55 new generation products versus a total of four for the entire 2024 year. This is a massive acceleration by our engineering team and reflects targeted investment for longer term growth. These new generation products are designed to improve our competitiveness and improve our product margin structure over time. So those three definitive changes have already been made. With respect to our go-forward operating strategy, I would now like to highlight six foundational pillars that we believe are fundamental to the successful recovery and longer-term profitable growth in our power business. Number one, focus market segments. We are investing in the priority end markets where we believe we can earn better margins and build durable customer positions. The markets are the following, automotive, industrial motor control, solar and energy related applications, and server data infrastructure. And in the future, we expect to be delivering advanced power solutions to the robotics market as well. We are not going to chase every end market. We are going to concentrate on segments where our technology roadmap and proximity to significant and strategically important customers can translate into sustainable share and better economics. Number two, our product competitiveness. At the heart of our turnaround strategy is product competitiveness. This is a comment that we have made many times previously. We are continuing to accelerate our product development activities. Our plan is to deliver more than 40 new generation products in 2026. This is in addition to the 55 new generation products launched in 2025. This compares to a total of only four new generation products launched in 2024 and none at all in 2023. Again, this is the result of a targeted investment with a specific aim to increase revenue, utilization, and product margins over time. These products are designed to be meaningfully better, not incremental. Number three is our power IC business. As we expand our focus on certain market segments, we will begin to develop key systems expertise that will align power ICs and gate driver ICs with our future power product program, and it will augment MagnaChip's revenue generation potential. Number four, modules. We are also expanding how we go to market with customers through a module strategy. A module allows us to combine multiple dives, sometimes our own, sometimes third-party, into a package solution that should increase our product content per application. Our aim is to increase sales efficiency, drive higher revenue, and better target margins in markets where customers want integration and where the economics support it. Number five, technology roadmap. To continue to support and offer greater value to our key customers, we are actively evaluating offering silicon carbide product solutions to them. Our entry into the silicon carbide market will be thoughtful and deliberately targeting markets where we can have longer-term revenue visibility and in which return on investment capital and payback are demonstrably attractive. We believe our reputation and geographical location should enable us to access such attractive market segments. Finally, number six, strategic partnerships. Our position as a trusted power semiconductor company in Korea places us in a strong position to establish mutually beneficial relationships with key customers and technology partners who value our local access, security of supply, expertise, and reputation. Building stronger and deeper customer relationships in our focus market segments is critical, and we believe having multiple anchored customers that adopt a broad range of our products will be highly beneficial and a testament to our value proposition. Likewise, partnerships with technology leaders who recognize our value as a trusted partner in a strategically important market will accelerate our product board maps while expanding our market reach in a capital efficient manner. We believe developing these close relationships with anchored customers and technology partners will provide a foundation for significant value creation over time. We believe the strategic customer relationships we are developing, the focused market segments we are pursuing, and the advanced technology we are developing, including silicon carbide, will significantly expand Magnetrix TAN and SAN. Selling modules and higher value-added Power SEs will further expand our TAM to approximately double over the next five years. Even more importantly, our SAN is expected to nearly triple over the next five years. We are building a more balanced, resilient business, one where customer relationships support investment decisions and value creation over a multi-year horizon. Now let me address some recent board-level activities. We recently announced that Cristiano Amoruso, Chief Investment Officer of BeerFurge, has joined the board as a director. His firm became a significant shareholder of Magnachip because it believes in Magnachip's ability to create significant long-term value for its customers, shareholders, and employees. The board also believes the company is significantly undervalued relative to its long-term value creation potential and believes that focused execution and the strategic realignments we are implementing, product competitiveness, market focus, technology roadmap, and customer technology partnerships can turn the company to growth and create significant long-term shareholder value. In line with its fiduciary responsibilities, the board will responsibly and carefully evaluate any actionable opportunities that can accelerate and de-risk shareholder value creation and compare it with all other options available to the company. Looking forward, allow me to set the expectations clearly. This turnaround will take time. We believe that great products and great customer partnerships will turn Magnetship around. At the same time, and as we discussed previously, new generation products take time to qualify, to ramp, and to contribute meaningfully towards revenue. In 2026, we still expect legacy products to represent the vast majority of revenue, and pricing pressure affecting these products will continue. We expect new generation products to comprise approximately 10% of our total revenue in the fourth quarter of 2026, up from 2% for the full year 2025. So, 2026 will remain a challenging period, especially for gross margin, as we transition to portfolio and scale new generation products. We believe we are taking the right corrective actions to improve our competitive position and create a path to meaningful value creation. We will continue to be transparent, prioritize cash discipline, and execute the product roadmap with urgency. With that, I'll turn over the call to Xinyang to walk through the quarterly financial results and their output. Xinyang?

Thank you, Camilo, and welcome everyone on the call. Let's start with key financial metrics for Q4 and full year 2025. Quarter Q4 consolidated revenue from continuing operations, which includes power analog solutions and power IC, was $40.6 million. Approximately at the midpoint of our guidance range of $38.5 to $42.5 million. This was down 17% the over year and down 11.7% sequentially on an apple step basis. This compared with the equivalent revenue of $48.9 million in Q4 2024 and $45.9 million in Q3 2025. For the full year 2025, total consolidated revenue from continuing operations was $178.9 million, compared with $185.8 million in 2024, representing a 3.7% year-over-year decline. This result was consistent with our prior guidance, which anticipated an approximately 3.8% year-over-year decrease. Revenue from power analog solutions in Q4 was $36.8 million, down 15.3% year-over-year and down 11.4% sequentially, primarily due to competitive pricing pressure on our older generation products, which was especially intense in China. The $2.7 million one-time sales incentive was recognized as a reduction in revenue in Q4 2025, as part of our effort to reduce elevated inventory levels in the channel, primarily in China. For the full year 2025, revenue from power analog solutions was $160.5 million, compared with $166.8 million in 2024. This 3.8% year-over-year decline was primarily due to intensified pricing pressure on our older generation products, partially offset by revenue growth in low-voltage MOSFETs attributable to market share gains. Revenue from PowerIC in Q4 was $3.8 million. This was down 30.4% year-over-year and down 14.5% sequentially. The sequential decline was due mainly to customer order pull-ins in Q3 from Q4. Revenue from PowerIC for the full year 2025 was $18.4 million, down 3.4% year-over-year, compared with $19 million in 2024. In Q4, consolidated gross profit margin from continuing operations was 9.3%. within the guidance range of 8% to 10% compared with 23.2% in Q4 2024 and 18.6% in Q3 2025 on an apples-to-apples basis. The previously mentioned one-time sales incentive had a 560 basis point negative impact on the gross profit margin. Year-over-year and sequential decline was primarily attributable to an unfavorable product mix driven mainly by ASP version, particularly in China, and filling our FAB with lower margin products and a lower utilization rate. For the full year 2025, consolidated gross profit margin from continuing operations was 17.6% within our annual guidance range of 17 to 18% compared with 21.5% in 2024. Year-over-year change was primarily driven by continuing pricing pressure. Continued pricing pressure lower margin products loaded in our FAP, and a lower FAP utilization rate. The company's display business has been classified as a discontinued operation in 2025. Accordingly, all of the following figures reflect results from continuing operations, and prior periods have been recast on a comparable basis. Q4 SG&A was $8.6 million, compared with equivalent SG&A of $9.8 million in Q4 24, and $8.3 million in Q3 2025. We expect to see annual OPEC savings of more than $2 million beginning in Q4 2025 from our cost reduction efforts, including the execution of the voluntary resignation program primarily for shared function employees in Q3. Stock-based compensation charges including SG&A were $0.4 million in Q4 as compared with $1.6 million in Q4 2024 and negative $28,000 in Q3 2025. Both in Q3 and Q4, we recorded adjustments to stock-based compensation expense related to the separation of certain executives and associated forfeiture of their equity grounds. For the full year 2025, SG&A was $35.1 million compared with $38.1 million in 2024. Stock-based compensation charges including SG&A were $1.9 million in 2025 and $4.8 million in 2024. Q4 R&D was $7.6 million compared with equivalent R&D of $6.6 million in Q4 2024 and $7.8 million in Q3 2025. R&D in Q4 increased year-over-year due to the acceleration of new product developments. We introduced 65 new generation products in 2025, of which 44% were introduced in Q4. This compares to four in all of 2024. For the full year 2025, R&D was $27.3 million compared to $25 million in the prior year. Before I go into the details of our non-GAAP results, please note that our GAAP financial results are available in our Form 8K filing with our fourth quarter earnings release. Our non-GAAP results are as follows. Q4 adjusted operating loss was $11.9 million compared with an equivalent adjusted operating loss of $3.5 million in Q4 2024 and adjusted operating loss of $7.4 million in Q3 2025. Q4 adjusted EBITDA was negative $8.9 million compared with an equivalent adjusted EBITDA of $0.3 million in Q4 2024 and negative $4 million in Q3 2025. For the full year 2025, adjusted operating loss was $28.5 million, compared with an equivalent adjusted operating loss of $19.1 million in 2024. Adjusted EBITDA in 2025 was negative $15.6 million, compared with an equivalent adjusted EBITDA of negative $4.2 million in 2024. Adjusted operating loss and adjusted EBITDA deteriorated year-over-year, primarily due to lower gross profit and higher R&D expenses, as explained above. Our Q4 non-GAAP diluted loss per share was 8 cents, compared with equivalent non-GAAP diluted earnings per share of 15 cents in Q4 2024 and non-GAAP diluted loss per share of 1 cent in Q3 2025. Our weighted average non-GAAP diluted shares outstanding for the quarter were 36 million, 37.7 million in Q4 2024, and 35.9 million shares in Q3 2025. For the full year 2025, non-GAAP diluted loss per share was 22 cents, compared with 22 cents in 2024. Weighted average non-GAAP diluted shares outstanding for 2025 were 36.2 million, compared with $37.8 million in 2024. Moving to the balance sheet. Previously, we had expected our cash at the end of 2025 to be in the mid-$90 million range. However, we ended Q4 with cash of $103.8 million, and this compared with $138.6 million at the end of Q4 2024. The main cash outflow during 2025 included $13 million in net cash capex, $4 million related to package costs and statutory severance associated with the voluntary resignation program executed in Q3, and $3.6 million spent on share repurchases, primarily in the first half of 2025. The remaining gap was primarily attributable to net cash loss from operations. At the end of Q4, our long-term borrowing totaled $44.6 million, which included $16.7 million of the equipment loan. Including maintenance capex, our total capex for the full year 2025 was $30 million. However, the net cash impact was $13 million due to partial funding through the equipment loan. Now moving to our first quarter 2026 guidance. While actual results may vary, for Q1 2026, Magnus currently expects consolidated revenue from continuing operations, which include power analog solutions and power IC businesses, to be in the range of $44 to $48 million, up 13.4% sequentially, and up 2.9% year-over-year at the midpoint. This compares with $40.6 million in Q4 2025 and $44.7 million in Q1 2025. Consolidated growth market margin from continuing operations to be in the range of 14% to 16%, up from 9.3% in Q4 2025, but down from 20.9% in Q1 2025. Finally, I'd like to add that on a reported basis and excluding stock-based compensation and one-time charges, total operating expenses SG&A and R&D together decreased by 35% in 2025 compared with 2024. Also, as a result of our cost reduction efforts, we expect more than $2 million of annualized SG&A savings. That started in the fourth quarter of 2025. On the other hand, to support the go-forward operating strategy Camilo discussed earlier, we expect to increase, we plan to increase our investment in R&D in 2026. Thank you, and now I'll turn the call over to Camilo for his final remarks. Camilo?

Thank you, Shinya. We are committed to executing on the six foundational pillars we emphasized earlier. We have implemented a new go-forward strategy and many of the necessary changes to position Managip for future success and value creation. I want to thank our employees for their continued hard work and dedication and our investors and partners for their patience and support as we return the company to growth. I will turn the call to the operator to open the call for questions. Operator?

Certainly. And our first question for today comes from the line of Suji Da Silva from Roth Capital. Your question, please.

Hi, Camilo. Hi, Shin Young. First, a question on the gross margin guidance. I know there was a gross margin inventory reserve hit in 4Q. Are you assuming an impact, Shin Young, in 1Q, or is that 14 to 16 range a pure range without

No, that did not include the one-time incentive that we did execute it in Q4-25. So, had we excluded Q4's one-time impact, Q4 margin would be like 15%. So, like we are expecting the Q1-2026 to be the similar range and that's mainly driven by the utilization and also the The pricing pressure, so that's actually affecting our gross margin at this time. Our revenue, still the best majority of that is older generation product. We're still feeling the pricing pressure, especially in China.

Understood. Okay, that helps. And then on the operating expense savings from the restructuring, it'll flow through, I think you said SG&A, right, the 2 million run rate, and that would be, we'd see that benefit toward the end of 26, or when would that step down? What's the linearity of that step down?

Well, that's actually going to be the continuing basis. So it started in Q4 2025. I just quantified the annualized impact is like 2 million plus, and we are going to see the full impact in 2026. And I'm hoping that that's going to minimize the investment that we are going to do in R&D to support the go-forward strategy operating system, the strategy.

Okay. And then a question for yourself or maybe Camilo. The geographic exposure is, As you bring these new products to market and the new focus segments, does that move your business out of China where it's competitive price-wise, or does it stay in China in less-priced competitive markets? What's the shift there as you go to new products and new markets versus the competitive China market you're in now?

Look, it's very clear that we have some very, very important, strategically important and very large customers right here in Korea. And so I think it's important that we do an excellent job in servicing their needs for the next many, many years. So to me, They're here, they're in that backyard, let's deliver the value that we can realize together. It's not a strategy of moving away necessarily from any one country. It's more about focusing more on Korea because we're right here. And clearly, at the same time, we are a global company. We have sales offices in every country, every major country around the world, and so we're going to continue to service them as well. But frankly, I would expect to have a higher percentage of our revenue coming from Korea because they're very close to us, very, very close, and we want to really service them extremely well.

Okay, that's very helpful, Camilo. And then last question, on the silicon carbide effort, can you tell us where you are in that? Is that in development effort? Do you have the technologies in-house that you need? Do you have to invest or partner to get there? And what products and markets might you target with silicon carbide?

So I don't want to disclose what products we're developing. I would say that we're in development. We are in development, absolutely. We're building the team as well as we're speaking. And to some of our key customers, we're sharing some of that information with them under NDA. At the same time, I would say that this is a long-term plan. This is not a 12-month plan. Clearly, your silicon carbide is going to take many years first to develop and then potentially we're going to look for ways to potentially manufacture it either in-house or maybe in the short term we may go to an outside fabric in the short term. So we're looking at everything there, but very clearly, as I stated in my prepared remarks, silicon carbide is a very, very important part of our future roadmap. If you look at the market segments that we are pursuing, if you look at the key customers that we are deepening our relationships with, silicon carbide is very, very important for that.

Okay. Appreciate the call there, Camillo. Thanks, Camillo. Thanks, Danielle. All right, thank you.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Mike Bishop for any further remarks.

Thank you, everyone, for participating on today's call. We appreciate your support of mentorship. Operator?

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.