Magnachip Semiconductor Corporation

Good day and thank you for standing by. Welcome to the Magnetib Semiconductor Second Quarter 2026 Earnings Conference Call. At this time, all participants are on the 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 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to his first speaker today, Mike Bishop of Investor Relations. Please go ahead.

Thank you. Hello, everyone, and thank you for joining us to discuss MagnetShip's financial results for the second quarter ended June 30, 2026. The second quarter earnings release that was issued today after the market closed 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 Camila Martino, Megatips Chairman, recently appointed CEO, Chae Lee, and Shin Young Park, our Chief Financial Officer. We will discuss the company's recent operating performance and business overview, followed by a review of the financial results for the quarter, and provide guidance for the third 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 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 filing. Such statements are based on 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 financial measures are not prepared in accordance with generally accepted accounting principles but are intended as supplemental measures of magnitude operating performance Thank you, Mike, and good afternoon, everyone.

Before discussing the quarter, I'd like to take a moment to welcome Che Lee to his first earnings call as Chief Executive Officer of Magnature. On behalf of our board of directors, I want to say how pleased we are to have Che leading our company. The board conducted an extensive search for this new CEO position, and Che distinguished himself through his deep experience in power semiconductors His proven track record of building successful businesses and his vision for where Magnaship can create value over the longer term. Over the past several months, we've taken important steps to reposition Magnaship as a pure play power semiconductor company. We believe Che is the right leader to build on that foundation, accelerate our product strategy, and strengthen our competitive position Thank you very much. and I look forward to continue working closely with Che as the chairman of the company. With that, it is my pleasure to introduce Magnoship's Chief Executive Officer, Che Lee.

Thank you, Carmelo. Good afternoon, everyone, and thank you for joining us today. It is an honor to speak with you for the first time as Chief Executive Officer of Magnoship. Although I joined, officially joined the company just a month ago. It feels as though I've been here much longer. During that time, I spend my days listening and learning, meeting with our engineering teams, speaking with employees across the organization, reviewing our technology roadmap, and engaging with customers. What has impressed me the most is the quality of our people. Magnetship has talented engineers These are important strengths that provide a solid foundation for future growth. At the same time, I recognize that our recent financial performance has not reflected the strength of those assets. Our shareholders have been patient, and they rightly expect better execution and improved results. And my focus is to deliver on those results. One of the things that attracted me to MagnetShift was the work already underway to reposition the company as a pure, clay-powered semiconductor company. I want to thank Carmelo, the board, and the management team for the important progress they have made over the past several months. Rather than changing direction, my objective is to build on that foundation and accelerate our pace of innovation and execution. As I think about the future of MagnetShip, one ideal stands above all others. Our goal is to transition from being a follower to becoming a leader. I believe we have the capability to drive innovation, launch differentiated technology, and become a stronger player in Power Semiconductor Industries. That does not necessarily mean being, you know, becoming the largest company in every market we serve. Rather, it means developing differentiated products that solve meaningful customer problems, creating solutions that customers actively seek out, and competing on innovation instead of price alone. Much of today's power semiconductor market, particularly for legacy products, has become increasingly commoditized. Competing primarily on price is not a sustainable strategy, especially in today's environment. Instead, we intend to focus our resources on products that offer greater differentiation, deliver higher customer value, and generate stronger long-term profitability. Our marketing and engineering organizations are already moving in that direction. While I cannot discuss specific products today, we are actively developing differentiated application-specific solutions that leverage our strengths, empower semiconductor technology to solve customer problems that are not adequately addressed by standard commodity products. There is a renewed sense of purpose throughout the organization, and our teams are energized by the opportunity to develop industry-leading products that create meaningful value for our customers. Of course, this transformation will not happen overnight, but we are well on our way from being a follower to becoming a leader. To accelerate that journey, last week, we announced a strategic partnership with Navitas Semiconductor that advances two key pillars of our growth strategy, technology expansion and strategic partnerships. Under the agreement, we will license Navitas' proven Gen 6, Gen 4, Gen 5 technology Covering 1200 volts, 2300 volts, 3300 volts and higher voltage applications while also gaining access to its established silicon carbide supply chain ecosystem. This partnership provides magnitude with a capital efficient path to accelerate our entry into the high voltage and ultra high voltage silicon carbide market. We plan to port We believe this partnership will significantly expand our addressable market and strengthen our ability to serve customers in energy and grid infrastructure, industrial electrification, automotive, renewable energy, and other high-powered applications. He also positions MagniChip to participate in some of the fastest-growing and highest-value segments of the silicon carbide power semiconductor market. Statistically, this partnership brings together novelties industries, proven silicon carbide technology with MagniChip's expertise in silicon IGBT and MOSFET technologies and advanced manufacturing capabilities. Together, these complementary strengths create a strong foundation for future innovation across a broad range of high-tech solutions, accelerate our technology roadmap, expand our market opportunity, strengthen our competitive position, and create long-term value for our shareholders. Turning now to our quarterly results, our second quarter performance reflects our heavy dependence on legacy products with limited differentiation. While pricing pressure in our legacy product portfolio will continue for some time, we are also starting to see strength from our recently introduced new generation products that carry higher margins. While it's still early, we believe this is an encouraging sign that our product strategy is beginning to gain traction. As we look ahead, our priorities are straightforward and remain aligned with the six strategic pillars Camillo described on prior calls. Our highest priority is disciplined R&D execution while continuing to develop innovative, differentiated solutions. While we still have significant work ahead, we believe these early results reinforce that we are moving in the right direction. I am excited about the opportunities ahead. Thank you. Thank you. I turn the call over to our Chief Financial Officer, Shin Young Park, to review our financial results and provide current quarter outlook.

Thank you, Chen, and welcome, everyone. Let me begin with our key financial reserves for Q2. Quarter Q2 consolidated revenue from continuing operations, which includes power and outlook solutions and power AC, was $44.7 million, within the guidance range of $44.5 to $48.5 million. Revenue was down 6.1% year-over-year and down 3.3% sequentially, compared with $47.6 million in Q2 2025 and $46.2 million in Q1 2026. Year-over-year revenue decline was primarily driven by weaker demand for our legacy products, resulting from intensified pricing competition. Sequentially, revenue decline mainly due to seasonal softness in the communication segment. As we noted last quarter, Q1 revenue was stronger than typical seasonality, benefiting from a one-time sales incentive program that reduced channel inventory levels. In Q2, consolidated gross profit margin from continuing operations improved to 19.3%, exceeding the high end of our guidance range of 17 to 19%. This compares with 20.4% in Q2 2025 and 15.6% in Q1 2026. EOBR decline in gross profit margin was primarily attributable to an unfavorable pattern mix driven mainly by AUC erosion, particularly in China. Frequently, gross profit margin improved primarily due to the one-quarter lag benefit from higher utilization rate in Q1 2026. Moving to operating expenses. SG&A expense was $8.7 million in Q2, compared with $9 million in Q2 2025 and $7.7 million in Q1 2026. Stock-based compensation included in SG&A was $0.8 million in Q2, compared with $0.8 million in Q2 2025 and $0.6 million in Q1 2026. Our end expense was $7.9 million in Q2, compared with $6.5 million in Q2 2025 and $6.7 million in Q1 2026. The year-over-year and sequential increase primarily reflects the timing of continued investment in our new generation product development activities. As we mentioned on our prior earnings call, we remain on track to deliver our target of 55 new generation products in 2026. Before turning to our non-GAAP results, please note that our GAAP financial reserves are available in our Form 8K filing with our second quarter earnings release. Our non-GAAP results are as follows. Adjusted operating loss was $7 million in Q2 compared with a loss of $4.8 million in Q2 2025 and a loss of $6.5 million in Q1 2026. Adjusted EBITDA was negative $4.2 million in Q2, compared with negative $1.5 million in Q2 2025 and negative $3.6 million in Q1 2026. The quarter-over-quarter decline in our non-GED results was primarily driven by higher operating expenses, such as GNN and R&D expenses, as discussed earlier. Q2 non-GET diluted loss per share was $0.13 compared to a loss per share of $0.05 in Q2 2025 and a loss per share of $0.11 in Q1 2026. Weighted average non-GET diluted shares outstanding for the quarter were $36.5 million compared to $36.1 million in Q2 2025 and $36.4 million in Q1 2026. Moving to the balance sheet. We ended Q2 with cash of $83.9 million compared to $94.6 million at the end of Q1. The decrease was primarily driven by operating cash outflows and $1.3 million of capital expenditures. At the end of Q2, total borrowings were $41.5 million, including $15.6 million of deployment loans. During the quarter, we established a $50 million at-the-market offering program, which provides us with additional financial flexibility if and when we choose to utilize it in the future. Now moving to our third quarter 26 guidance. While actual results may vary, for Q3 2026, we currently expect consolidated revenue from continuing operations, which includes power analog solutions and power IT businesses, to be in the range of $41.5 million to $45.5 million, a decrease of 2.7% sequentially, and down 5.2% year-over-year at the midpoint. This compares with $44.7 million in Q2 26 and $45.9 million in Q3 2025. Consolidated gross profit margin from continuing operations to be in the range of 17% to 19%. Thank you for joining us today. Nevertheless, we expect third quarter revenue to decline sequentially due to three near-term factors. Firstly, packaging constraints in our supply chain that are limiting our ability to fully satisfy demand. Secondly, our customer volumes in certain customer applications are lower than their earlier plans. And finally, an unfavorable product mix resulting from continued pricing pressure on our legacy products. These sectors will affect our third quarter results. We remain focused on executing our multi-year portfolio transformation and increasing the contribution from differentiated new generation products, which we believe will strengthen our competitive position and support improved financial performance over time. We continue to expect new generation products to contribute at least 10% of our revenue in the fourth quarter of 2026. Thank you. I'll now turn the call over to Che for his final remarks. Che? Thank you, Shin Young.

The financial results we reported today reflect the company that is still in the early stages of our transition. While we deliver results within our guidance, there is still significant work ahead to improve our financial performance. We are not satisfied with where we are today, although I am encouraged by what I have seen during my first month at Magnetship and our recent partnerships with Navitas. We have a talented team, a focused strategy, and a product roadmap that I believe can ultimately lead the industry. Our priorities are clear. Execute with discipline. Develop differentiated products that create greater value for our customers and steadily improve our financial performance. We understand that ultimately we will be judged by our results and we are committed to earning the confidence of our shareholders through consistent execution. With that, operator, We would now be happy to take your questions.

Thank you. And as a reminder, to ask a question at this time, please press star 11 on your touch-tone cell phone. We'll give it a moment to compile the Q&A last term. And if there are no questions in the queue at this time, I will now turn the call back over to Mike Bishop.

Thank you everyone for supporting our call today, for participating on our call today. We appreciate your support. And with that, this concludes the call. Operator?

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