☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 83-0406195 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | MX | New York Stock Exchange | ||
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
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2
Item 1. | Interim Consolidated Financial Statements (Unaudited) |
June 30, 2023 | December 31, 2022 | |||||||
(In thousands of U.S. dollars, except share data) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 172,954 | $ | 225,477 | ||||
Accounts receivable, net | 35,009 | 35,380 | ||||||
Inventories, net | 32,337 | 39,883 | ||||||
Other receivables | 3,498 | 7,847 | ||||||
Prepaid expenses | 9,553 | 10,560 | ||||||
Hedge collateral (Note 6) | 2,120 | 2,940 | ||||||
Other current assets (Note 16) | 19,070 | 15,766 | ||||||
Total current assets | 274,541 | 337,853 | ||||||
Property, plant and equipment, net | 101,067 | 110,747 | ||||||
Operating lease right-of-use | 5,224 | 5,265 | ||||||
Intangible assets, net | 1,706 | 1,930 | ||||||
Long-term prepaid expenses | 7,430 | 10,939 | ||||||
Deferred income taxes | 37,141 | 38,324 | ||||||
Other non-current assets | 16,626 | 11,587 | ||||||
Total assets | $ | 443,735 | $ | 516,645 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 20,367 | $ | 17,998 | ||||
Other accounts payable | 8,473 | 9,702 | ||||||
Accrued expenses (Note 5) | 10,456 | 9,688 | ||||||
Accrued income taxes | 91 | 3,154 | ||||||
Operating lease liabilities | 1,745 | 1,397 | ||||||
Other current liabilities | 4,506 | 5,306 | ||||||
Total current liabilities | 45,638 | 47,245 | ||||||
Accrued severance benefits, net | 20,123 | 23,121 | ||||||
Non-current operating lease liabilities | 3,671 | 4,091 | ||||||
Other non-current liabilities | 10,011 | 14,035 | ||||||
Total liabilities | 79,443 | 88,492 | ||||||
Commitments and contingencies (Note 16) | ||||||||
Stockholders’ equity | ||||||||
Common stock, $0.01 par value, 150,000,000 shares authorized, 56,449,782 shares issued and 40,133,898 outstanding at June 30, 2023 and 56,432,449 shares issued and 43,824,575 outstanding at December 31, 2022 | 564 | 564 | ||||||
Additional paid-in capital | 269,297 | 266,058 | ||||||
Retained earnings | 310,089 | 335,506 | ||||||
Treasury stock, 16,315,884 shares at June 30, 2023 and 12,607,874 shares at December 31, 2022, respectively | (199,248 | ) | (161,422 | ) | ||||
Accumulated other comprehensive loss | (16,410 | ) | (12,553 | ) | ||||
Total stockholders’ equity | 364,292 | 428,153 | ||||||
Total liabilities and stockholders’ equity | $ | 443,735 | $ | 516,645 | ||||
June 30, 2022 | December 31, 2021 | |||||||
(In thousands of U.S. dollars, except share data) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 273,797 | $ | 279,547 | ||||
Accounts receivable, net | 59,817 | 50,954 | ||||||
Inventories, net | 36,168 | 39,370 | ||||||
Other receivables (Note 16) | 14,094 | 25,895 | ||||||
Prepaid expenses | 10,783 | 7,675 | ||||||
Hedge collateral (Note 7) | 6,990 | 3,060 | ||||||
Other current assets (Note 17) | 8,361 | 2,619 | ||||||
Total current assets | 410,010 | 409,120 | ||||||
Property, plant and equipment, net | 96,832 | 107,882 | ||||||
Operating lease right-of-use | 3,322 | 4,275 | ||||||
Intangible assets, net | 1,979 | 2,377 | ||||||
Long-term prepaid expenses | 14,953 | 8,243 | ||||||
Deferred income taxes | 37,825 | 41,095 | ||||||
Other non-current assets | 10,804 | 10,662 | ||||||
Total assets | $ | 575,725 | $ | 583,654 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 38,143 | $ | 37,593 | ||||
Other accounts payable | 14,835 | 6,289 | ||||||
Accrued expenses (Note 6) | 15,426 | 20,071 | ||||||
Accrued income taxes | — | 11,823 | ||||||
Operating lease liabilities | 1,838 | 2,323 | ||||||
Other current liabilities (Notes 7 and 8) | 8,562 | 7,382 | ||||||
Total current liabilities | 78,804 | 85,481 | ||||||
Accrued severance benefits, net | 30,466 | 33,064 | ||||||
Non-current operating lease liabilities | 1,485 | 1,952 | ||||||
Other non-current liabilities | 16,823 | 10,395 | ||||||
Total liabilities | 127,578 | 130,892 | ||||||
Commitments and contingencies (Note 17) | 0 | 0 | ||||||
Stockholders’ equity | ||||||||
Common stock, $0.01 par value, 150,000,000 shares authorized, 56,234,774 shares issued and 44,903,718 outstanding at June 30, 2022 and 55,905,320 shares issued and 45,659,304 outstanding at December 31, 2021 | 562 | 559 | ||||||
Additional paid-in capital | 263,698 | 241,197 | ||||||
Retained earnings | 349,730 | 343,542 | ||||||
Treasury stock, 11,331,056 shares at June 30, 2022 and 10,246,016 shares at December 31, 2021, respectively | (148,523 | ) | (130,306 | ) | ||||
Accumulated other comprehensive loss | (17,320 | ) | (2,230 | ) | ||||
Total stockholders’ equity | 448,147 | 452,762 | ||||||
Total liabilities and stockholders’ equity | $ | 575,725 | $ | 583,654 | ||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||
(In thousands of U.S. dollars, except share data) | (In thousands of U.S. dollars, except share data) | |||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Net sales – standard products business | $ | 91,288 | $ | 103,268 | $ | 185,298 | $ | 216,174 | $ | 51,375 | $ | 91,288 | $ | 102,889 | $ | 185,298 | ||||||||||||||||
Net sales – transitional Fab 3 foundry services | 10,088 | 10,608 | 20,171 | 20,721 | 9,604 | 10,088 | 15,095 | 20,171 | ||||||||||||||||||||||||
Total revenues | 101,376 | 113,876 | 205,469 | 236,895 | 60,979 | 101,376 | 117,984 | 205,469 | ||||||||||||||||||||||||
Cost of sales: | ||||||||||||||||||||||||||||||||
Cost of sales – standard products business | 63,620 | 70,409 | 119,700 | 149,656 | 37,867 | 63,620 | 75,179 | 119,700 | ||||||||||||||||||||||||
Cost of sales – transitional Fab 3 foundry services | 8,811 | 9,497 | 17,828 | 18,887 | 9,574 | 8,811 | 17,173 | 17,828 | ||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||
Total cost of sales | 72,431 | 79,906 | 137,528 | 168,543 | 47,441 | 72,431 | 92,352 | 137,528 | ||||||||||||||||||||||||
Gross profit | 28,945 | 33,970 | 67,941 | 68,352 | 13,538 | 28,945 | 25,632 | 67,941 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 12,736 | 14,001 | 26,899 | 26,635 | 12,137 | 12,736 | 24,302 | 26,899 | ||||||||||||||||||||||||
Research and development expenses | 13,410 | 13,322 | 25,364 | 26,745 | 11,255 | 13,410 | 24,553 | 25,364 | ||||||||||||||||||||||||
Merger-related costs | — | 2,459 | — | 12,290 | ||||||||||||||||||||||||||||
Other charges | 797 | 2,561 | 797 | 3,146 | ||||||||||||||||||||||||||||
Early termination and other charges | 802 | 797 | 9,251 | 797 | ||||||||||||||||||||||||||||
Total operating expenses | 26,943 | 32,343 | 53,060 | 68,816 | 24,194 | 26,943 | 58,106 | 53,060 | ||||||||||||||||||||||||
Operating income (loss) | 2,002 | 1,627 | 14,881 | (464 | ) | (10,656 | ) | 2,002 | (32,474 | ) | 14,881 | |||||||||||||||||||||
Interest income | 2,692 | 1,061 | 5,534 | 1,776 | ||||||||||||||||||||||||||||
Interest expense | (499 | ) | (85 | ) | (610 | ) | (1,126 | ) | (200 | ) | (499 | ) | (456 | ) | (610 | ) | ||||||||||||||||
Foreign currency gain (loss), net | (7,012 | ) | 250 | (7,702 | ) | (4,421 | ) | 1,237 | (7,012 | ) | (2,193 | ) | (7,702 | ) | ||||||||||||||||||
Other income, net | 1,272 | 611 | 2,205 | 1,231 | ||||||||||||||||||||||||||||
Other income (loss), net | 3 | 211 | (32 | ) | 429 | |||||||||||||||||||||||||||
Income (loss) before income tax expense | (4,237 | ) | 2,403 | 8,774 | (4,780 | ) | (6,924 | ) | (4,237 | ) | (29,621 | ) | 8,774 | |||||||||||||||||||
Income tax expense (benefit) | (897 | ) | 2,601 | 2,586 | 2,891 | (2,977 | ) | (897 | ) | (4,204 | ) | 2,586 | ||||||||||||||||||||
Net income (loss) | $ | (3,340 | ) | $ | (198 | ) | $ | 6,188 | $ | (7,671 | ) | $ | (3,947 | ) | $ | (3,340 | ) | $ | (25,417 | ) | $ | 6,188 | ||||||||||
Basic earnings (loss) per common share— | $ | (0.07 | ) | $ | (0.00 | ) | $ | 0.14 | $ | (0.18 | ) | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.60 | ) | $ | 0.14 | ||||||||||
Diluted earnings (loss) per common share— | $ | (0.07 | ) | $ | (0.00 | ) | $ | 0.13 | $ | (0.18 | ) | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.60 | ) | $ | 0.13 | ||||||||||
Weighted average number of shares— | ||||||||||||||||||||||||||||||||
Basic | 44,897,278 | 46,322,027 | 45,248,293 | 43,324,088 | 41,741,310 | 44,897,278 | 42,561,514 | 45,248,293 | ||||||||||||||||||||||||
Diluted | 44,897,278 | 46,322,027 | 46,329,559 | 43,324,088 | 41,741,310 | 44,897,278 | 42,561,514 | 46,329,559 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||
Net income (loss) | $ | (3,947 | ) | $ | (3,340 | ) | $ | (25,417 | ) | $ | 6,188 | |||||
Other comprehensive loss | ||||||||||||||||
Foreign currency translation adjustments | (2,285 | ) | (6,862 | ) | (4,193 | ) | (9,907 | ) | ||||||||
Derivative adjustments | ||||||||||||||||
Fair valuation of derivatives | (375 | ) | (6,477 | ) | (1,510 | ) | (7,741 | ) | ||||||||
Reclassification adjustment for loss on derivatives included in net income (loss) | 1,243 | 1,796 | 1,846 | 2,558 | ||||||||||||
Total other comprehensive loss | (1,417 | ) | (11,543 | ) | (3,857 | ) | (15,090 | ) | ||||||||
Total comprehensive loss | $ | (5,364 | ) | $ | (14,883 | ) | $ | (29,274 | ) | $ | (8,902 | ) | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||
Net income (loss) | $ | (3,340 | ) | $ | (198 | ) | $ | 6,188 | $ | (7,671 | ) | |||||
Other comprehensive income (loss) | ||||||||||||||||
Foreign currency translation adjustments | (6,862 | ) | 109 | (9,907 | ) | (1,949 | ) | |||||||||
Derivative adjustments | ||||||||||||||||
Fair valuation of derivatives | (6,477 | ) | 432 | (7,741 | ) | (1,693 | ) | |||||||||
Reclassification adjustment for loss (gain) on derivatives included in net income (loss) | 1,796 | (475 | ) | 2,558 | (986 | ) | ||||||||||
Total other comprehensive income (loss) | (11,543 | ) | 66 | (15,090 | ) | (4,628 | ) | |||||||||
Total comprehensive loss | $ | (14,883 | ) | $ | (132 | ) | $ | (8,902 | ) | $ | (12,299 | ) | ||||
Additional Paid-In Capital | Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||
Common Stock | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||||||||
(In thousands of U.S. dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
Three Months Ended June 30, 2023: | ||||||||||||||||||||||||||||
Balance at March 31, 2023 | 42,589,315 | $ | 564 | $ | 267,187 | $ | 314,036 | $ | (173,441 | ) | $ | (14,993 | ) | $ | 393,353 | |||||||||||||
Stock-based compensation | — | — | 2,092 | — | — | — | 2,092 | |||||||||||||||||||||
Exercise of stock options | 2,600 | 0 | 18 | — | — | — | 18 | |||||||||||||||||||||
Settlement of restricted stock units | 10,000 | 0 | (0 | ) | — | — | — | — | ||||||||||||||||||||
Acquisition of treasury stock | (2,468,017 | ) | — | — | — | (25,807 | ) | — | (25,807 | ) | ||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (1,417 | ) | (1,417 | ) | |||||||||||||||||||
Net loss | — | — | — | (3,947 | ) | — | — | (3,947 | ) | |||||||||||||||||||
Balance at June 30, 2023 | 40,133,898 | $ | 564 | $ | 269,297 | $ | 310,089 | $ | (199,248 | ) | $ | (16,410 | ) | $ | 364,292 | |||||||||||||
Three Months Ended June 30, 2022: | ||||||||||||||||||||||||||||
Balance at March 31, 2022 | 44,894,385 | $ | 562 | $ | 261,830 | $ | 353,070 | $ | (148,523 | ) | $ | (5,777 | ) | $ | 461,162 | |||||||||||||
Stock-based compensation | — | — | 1,988 | — | — | — | 1,988 | |||||||||||||||||||||
Exercise of stock options | 1,000 | 0 | 5 | — | — | — | 5 | |||||||||||||||||||||
Settlement of restricted stock units | 8,333 | 0 | (125 | ) | — | — | — | (125 | ) | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (11,543 | ) | (11,543 | ) | |||||||||||||||||||
Net loss | — | — | — | (3,340 | ) | — | — | (3,340 | ) | |||||||||||||||||||
Balance at June 30, 2022 | 44,903,718 | $ | 562 | $ | 263,698 | $ | 349,730 | $ | (148,523 | ) | $ | (17,320 | ) | $ | 448,147 | |||||||||||||
Additional Paid-In Capital | Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||
Common Stock | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||||||||
(In thousands of U.S. dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
Six Months Ended June 30, 2023: | ||||||||||||||||||||||||||||
Balance at December 31, 2022 | 43,824,575 | $ | 564 | $ | 266,058 | $ | 335,506 | $ | (161,422 | ) | $ | (12,553 | ) | $ | 428,153 | |||||||||||||
Stock-based compensation | — | — | 3,212 | — | — | — | 3,212 | |||||||||||||||||||||
Exercise of stock options | 4,000 | 0 | 27 | — | — | — | 27 | |||||||||||||||||||||
Settlement of restricted stock units | 13,333 | 0 | (0 | ) | — | — | — | — | ||||||||||||||||||||
Acquisition of treasury stock | (3,708,010 | ) | — | — | — | (37,826 | ) | — | (37,826 | ) | ||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (3,857 | ) | (3,857 | ) | |||||||||||||||||||
Net loss | — | — | — | (25,417 | ) | — | — | (25,417 | ) | |||||||||||||||||||
Balance at June 30, 2023 | 40,133,898 | $ | 564 | $ | 269,297 | $ | 310,089 | $ | (199,248 | ) | $ | (16,410 | ) | $ | 364,292 | |||||||||||||
Six Months Ended June 30, 2022: | ||||||||||||||||||||||||||||
Balance at December 31, 2021 | 45,659,304 | $ | 559 | $ | 241,197 | $ | 343,542 | $ | (130,306 | ) | $ | (2,230 | ) | $ | 452,762 | |||||||||||||
Stock-based compensation | — | — | 3,626 | — | — | — | 3,626 | |||||||||||||||||||||
Exercise of stock options | 152,326 | 1 | 1,785 | — | — | — | 1,786 | |||||||||||||||||||||
Settlement of restricted stock units | 177,128 | 2 | (127 | ) | — | — | — | (125 | ) | |||||||||||||||||||
Acquisition of treasury stock | (53,464 | ) | — | — | — | (1,000 | ) | — | (1,000 | ) | ||||||||||||||||||
Accelerated stock repurchase | (1,031,576 | ) | — | 17,217 | — | (17,217 | ) | — | — | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (15,090 | ) | (15,090 | ) | |||||||||||||||||||
Net income | — | — | — | 6,188 | — | — | 6,188 | |||||||||||||||||||||
Balance at June 30, 2022 | 44,903,718 | $ | 562 | $ | 263,698 | $ | 349,730 | $ | (148,523 | ) | $ | (17,320 | ) | $ | 448,147 | |||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||
(In thousands of U.S. dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
Three Months Ended June 30, 2022: | ||||||||||||||||||||||||||||
Balance at March 31, 2022 | 44,894,385 | $ | 562 | $ | 261,830 | $ | 353,070 | $ | (148,523 | ) | $ | (5,777 | ) | $ | 461,162 | |||||||||||||
Stock-based compensation | — | — | 1,988 | — | — | — | 1,988 | |||||||||||||||||||||
Exercise of stock options | 1,000 | 0 | 5 | — | — | — | 5 | |||||||||||||||||||||
Settlement of restricted stock units | 8,333 | 0 | (125 | ) | — | — | — | (125 | ) | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (11,543 | ) | (11,543 | ) | |||||||||||||||||||
Net loss | — | — | — | (3,340 | ) | — | — | (3,340 | ) | |||||||||||||||||||
Balance at June 30, 2022 | 44,903,718 | $ | 562 | $ | 263,698 | $ | 349,730 | $ | (148,523 | ) | $ | (17,320 | ) | $ | 448,147 | |||||||||||||
Three Months Ended June 30, 2021: | ||||||||||||||||||||||||||||
Balance at March 31, 2021 | 46,257,413 | $ | 555 | $ | 250,829 | $ | 279,361 | $ | (109,407 | ) | $ | (991 | ) | $ | 420,347 | |||||||||||||
Stock-based compensation | — | — | 2,405 | — | — | — | 2,405 | |||||||||||||||||||||
Exercise of stock options | 1,000 | 0 | 11 | — | — | — | 11 | |||||||||||||||||||||
Settlement of restricted stock units | 92,532 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||||
Other comprehensive income, net | — | — | — | — | — | 66 | 66 | |||||||||||||||||||||
Net loss | — | — | — | (198 | ) | — | — | (198 | ) | |||||||||||||||||||
Balance at June 30, 2021 | 46,350,945 | $ | 556 | $ | 253,244 | $ | 279,163 | $ | (109,407 | ) | $ | (925 | ) | $ | 422,631 | |||||||||||||
Six Months Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
(In thousands of U.S. dollars) | ||||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | (25,417 | ) | $ | 6,188 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||
Depreciation and amortization | 8,502 | 7,602 | ||||||
Provision for severance benefits | 4,091 | 3,240 | ||||||
Loss on foreign currency, net | 9,117 | 29,183 | ||||||
Provision for inventory reserves | 1,121 | 5,282 | ||||||
Stock-based compensation | 3,212 | 3,626 | ||||||
Other, net | 450 | 712 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable, net | (342 | ) | (12,377 | ) | ||||
Inventories | 4,911 | (5,486 | ) | |||||
Other receivables | 4,407 | 11,640 | ||||||
Other current assets | 395 | (2,089 | ) | |||||
Accounts payable | 2,880 | 2,429 | ||||||
Other accounts payable | (6,488 | ) | (5,861 | ) | ||||
Accrued expenses | 1,104 | (2,709 | ) | |||||
Accrued income taxes | (2,972 | ) | (11,513 | ) | ||||
Other current liabilities | (471 | ) | (2,153 | ) | ||||
Other non-current liabilities | (214 | ) | 570 | |||||
Payment of severance benefits | (5,728 | ) | (2,934 | ) | ||||
Other, net | (487 | ) | (385 | ) | ||||
Net cash provided by (used in) operating activities | (1,929 | ) | 24,965 | |||||
Cash flows from investing activities | ||||||||
Proceeds from settlement of hedge collateral | 3,335 | 2,805 | ||||||
Payment of hedge collateral | (2,586 | ) | (6,844 | ) | ||||
Purchase of property, plant and equipment | (1,518 | ) | (1,511 | ) | ||||
Payment for intellectual property registration | (163 | ) | (153 | ) | ||||
Payment of guarantee deposits | (6,907 | ) | (1,049 | ) | ||||
Other, net | 1,445 | 14 | ||||||
Net cash used in investing activities | (6,394 | ) | (6,738 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of stock options | 27 | 1,786 | ||||||
Acquisition of treasury stock | (36,840 | ) | (1,826 | ) | ||||
Repayment of financing related to water treatment facility arrangement | (248 | ) | (261 | ) | ||||
Repayment of principal portion of finance lease liabilities | (46 | ) | (32 | ) | ||||
Net cash used in financing activities | (37,107 | ) | (333 | ) | ||||
Effect of exchange rates on cash and cash equivalents | (7,093 | ) | (23,644 | ) | ||||
Net decrease in cash and cash equivalents | (52,523 | ) | (5,750 | ) | ||||
Cash and cash equivalents | ||||||||
Cash and cash equivalents at beginning of period | 225,477 | 279,547 | ||||||
Cash and cash equivalents at end of period | $ | 172,954 | $ | 273,797 | ||||
Supplemental cash flow information | ||||||||
Cash paid for income taxes | $ | 3,599 | $ | 14,022 | ||||
Non-cash investing activities | ||||||||
Property, plant and equipment additions in other accounts payable | $ | 477 | $ | 4,050 | ||||
Non-cash financing activities | ||||||||
Unsettled common stock repurchases | $ | 1,379 | $ | — |
Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||
(In thousands of U.S. dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
Six Months Ended June 30, 2022: | ||||||||||||||||||||||||||||
Balance at December 31, 2021 | 45,659,304 | $ | 559 | $ | 241,197 | $ | 343,542 | $ | (130,306 | ) | (2,230 | ) | $ | 452,762 | ||||||||||||||
Stock-based compensation | — | — | 3,626 | — | — | — | 3,626 | |||||||||||||||||||||
Exercise of stock options | 152,326 | 1 | 1,785 | — | — | — | 1,786 | |||||||||||||||||||||
Settlement of restricted stock units | 177,128 | 2 | (127 | ) | — | — | — | (125 | ) | |||||||||||||||||||
Acquisition of treasury stock | (53,464 | ) | — | — | — | (1,000 | ) | — | (1,000 | ) | ||||||||||||||||||
Accelerated stock repurchase | (1,031,576 | ) | — | 17,217 | — | (17,217 | ) | — | — | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (15,090 | ) | (15,090 | ) | |||||||||||||||||||
Net income | — | — | — | 6,188 | — | — | 6,188 | |||||||||||||||||||||
Balance at June 30, 2022 | 44,903,718 | $ | 562 | $ | 263,698 | $ | 349,730 | $ | (148,523 | ) | $ | (17,320 | ) | $ | 448,147 | |||||||||||||
Six Months Ended June 30, 2021: | ||||||||||||||||||||||||||||
Balance at December 31, 2020 | 35,783,347 | $ | 450 | $ | 163,010 | $ | 286,834 | $ | (108,397 | ) | $ | 3,703 | $ | 345,600 | ||||||||||||||
Stock-based compensation | — | — | 4,051 | — | — | — | 4,051 | |||||||||||||||||||||
Exchange of exchangeable senior notes | 10,144,131 | 101 | 83,639 | 83,740 | ||||||||||||||||||||||||
Exercise of stock options | 176,760 | 2 | 2,547 | — | — | — | 2,549 | |||||||||||||||||||||
Settlement of restricted stock units | 298,162 | 3 | (3 | ) | — | — | — | — | ||||||||||||||||||||
Acquisition of treasury stock | (51,455 | ) | — | — | — | (1,010 | ) | — | (1,010 | ) | ||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (4,628 | ) | (4,628 | ) | |||||||||||||||||||
Net loss | — | — | — | (7,671 | ) | — | — | (7,671 | ) | |||||||||||||||||||
Balance at June 30, 2021 | 46,350,945 | $ | 556 | $ | 253,244 | $ | 279,163 | $ | (109,407 | ) | $ | (925 | ) | $ | 422,631 | |||||||||||||
Six Months Ended | ||||||||
June 30, 2022 | June 30, 2021 | |||||||
(In thousands of U.S. dollars) | ||||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 6,188 | $ | (7,671 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||
Depreciation and amortization | 7,602 | 6,998 | ||||||
Provision for severance benefits | 3,240 | 3,507 | ||||||
Amortization of debt issuance costs and original issue discount | — | 261 | ||||||
Loss on foreign currency, net | 29,183 | 13,353 | ||||||
Provision for inventory reserves | 5,282 | 3,346 | ||||||
Stock-based compensation | 3,626 | 4,051 | ||||||
Other, net | 712 | 266 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable, net | (12,377 | ) | 5,098 | |||||
Inventories | (5,486 | ) | (7,170 | ) | ||||
Other receivables | 11,640 | (4,841 | ) | |||||
Other current assets | (2,089 | ) | 8,623 | |||||
Accounts payable | 2,429 | 1,040 | ||||||
Other accounts payable | (5,861 | ) | (674 | ) | ||||
Accrued expenses | (2,709 | ) | (2,298 | ) | ||||
Accrued income taxes | (11,513 | ) | (10,249 | ) | ||||
Other current liabilities | (2,153 | ) | (102 | ) | ||||
Other non-current liabilities | 570 | (274 | ) | |||||
Payment of severance benefits | (2,934 | ) | (2,836 | ) | ||||
Other, net | (385 | ) | (62 | ) | ||||
Net cash provided by operating activities | 24,965 | 10,366 | ||||||
Cash flows from investing activities | ||||||||
Proceeds from settlement of hedge collateral | 2,805 | 972 | ||||||
Payment of hedge collateral | (6,844 | ) | (585 | ) | ||||
Purchase of property, plant and equipment | (1,511 | ) | (4,866 | ) | ||||
Payment for intellectual property registration | (153 | ) | (288 | ) | ||||
Collection of guarantee deposits | — | 307 | ||||||
Payment of guarantee deposits | (1,049 | ) | (4,960 | ) | ||||
Other, net | 14 | (130 | ) | |||||
Net cash used in investing activities | (6,738 | ) | (9,550 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of stock options | 1,786 | 2,549 | ||||||
Acquisition of treasury stock | (1,826 | ) | (1,653 | ) | ||||
Repayment of financing related to water treatment facility arrangement | (261 | ) | (288 | ) | ||||
Repayment of principal portion of finance lease liabilities | (32 | ) | (33 | ) | ||||
Net cash provided by (used in) financing activities | (333 | ) | 575 | |||||
Effect of exchange rates on cash and cash equivalents | (23,644 | ) | (9,451 | ) | ||||
Net decrease in cash and cash equivalents | (5,750 | ) | (8,060 | ) | ||||
Cash and cash equivalents | ||||||||
Beginning of the period | 279,547 | 279,940 | ||||||
End of the period | $ | 273,797 | $ | 271,880 | ||||
Supplemental cash flow information | ||||||||
Cash paid for interest | $ | — | $ | 2,094 | ||||
Cash paid for income taxes | $ | 14,022 | $ | 11,227 | ||||
Non-cash investing activities | ||||||||
Property, plant and equipment additions in other accounts payable | $ | 4,050 | $ | 3,632 | ||||
Non-cash financing activities | ||||||||
Exchange of exchangeable senior notes into common stock | $ | — | $ | 83,740 |
June 30, 2023 | December 31, 2022 | |||||||
Finished goods | $ | 5,025 | $ | 6,799 | ||||
Semi-finished goods and work-in-process | 35,379 | 40,265 | ||||||
Raw materials | 6,664 | 7,460 | ||||||
Materials in-transit | 14 | 36 | ||||||
Less: inventory reserve | (14,745 | ) | (14,677 | ) | ||||
Inventories, net | $ | 32,337 | $ | 39,883 | ||||
June 30, 2022 | December 31, 2021 | |||||||
Finished goods | $ | 5,397 | $ | 9,594 | ||||
Semi-finished goods and work-in-process | 30,443 | 25,968 | ||||||
Raw materials | 10,305 | 9,443 | ||||||
Materials in-transit | 229 | 95 | ||||||
Less: inventory reserve | (10,206 | ) | (5,730 | ) | ||||
Inventories, net | $ | 36,168 | $ | 39,370 | ||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||
Beginning balance | $ | (5,555 | ) | $ | (5,730 | ) | $ | (6,281 | ) | $ | (5,901 | ) | $ | (14,941 | ) | $ | (14,677 | ) | $ | (5,555 | ) | $ | (5,730 | ) | ||||||||
Change in reserve | ||||||||||||||||||||||||||||||||
Inventory reserve charged to costs of sales | (6,093 | ) | (7,700 | ) | (3,186 | ) | (5,350 | ) | (2,023 | ) | (4,607 | ) | (6,093 | ) | (7,700 | ) | ||||||||||||||||
Sale of previously reserved inventory | 872 | 2,324 | 1,343 | 1,977 | 2,047 | 3,523 | 872 | 2,324 | ||||||||||||||||||||||||
(5,221 | ) | (5,376 | ) | (1,843 | ) | (3,373 | ) | 24 | (1,084 | ) | (5,221 | ) | (5,376 | ) | ||||||||||||||||||
Write off | 84 | 295 | 28 | 930 | 67 | 482 | 84 | 295 | ||||||||||||||||||||||||
Translation adjustments | 486 | 605 | (5 | ) | 243 | 105 | 534 | 486 | 605 | |||||||||||||||||||||||
Ending balance | $ | (10,206 | ) | $ | (10,206 | ) | $ | (8,101 | ) | $ | (8,101 | ) | $ | (14,745 | ) | $ | (14,745 | ) | $ | (10,206 | ) | $ | (10,206 | ) | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Buildings and related structures | $ | 22,663 | $ | 24,273 | ||||
Machinery and equipment | 97,397 | 105,300 | ||||||
Finance lease right-of-use | 289 | 316 | ||||||
Others | 30,554 | 32,396 | ||||||
150,903 | 162,285 | |||||||
Less: accumulated depreciation | (92,527 | ) | (94,119 | ) | ||||
Land | 12,744 | 13,898 | ||||||
Construction in progress | 25,712 | 25,818 | ||||||
Property, plant and equipment, net | $ | 96,832 | $ | 107,882 | ||||
June 30, 2023 | December 31, 2022 | |||||||
Buildings and related structures | $ | 24,048 | $ | 24,780 | ||||
Machinery and equipment | 134,806 | 137,666 | ||||||
Finance lease right-of-use | 702 | 389 | ||||||
Others | 33,689 | 33,890 | ||||||
193,245 | 196,725 | |||||||
Less: accumulated depreciation | (105,929 | ) | (101,502 | ) | ||||
Land | 12,583 | 13,034 | ||||||
Construction in progress | 1,168 | 2,490 | ||||||
Property, plant and equipment, net | $ | 101,067 | $ | 110,747 | ||||
June 30, 2022 | ||||||||||||||||||||||||
June 30, 2023 | ||||||||||||||||||||||||
Gross amount | Accumulated amortization | Net amount | Gross amount | Accumulated amortization | Net amount | |||||||||||||||||||
Intellectual property assets | $ | 8,711 | $ | (6,732 | ) | $ | 1,979 | $ | 8,923 | $ | (7,217 | ) | $ | 1,706 | ||||||||||
Intangible assets | $ | 8,711 | $ | (6,732 | ) | $ | 1,979 | $ | 8,923 | $ | (7,217 | ) | $ | 1,706 | ||||||||||
December 31, 2021 | ||||||||||||||||||||||||
Gross amount | Accumulated amortization | Net amount | ||||||||||||||||||||||
Intellectual property assets | $ | 9,312 | $ | (6,935 | ) | $ | 2,377 | |||||||||||||||||
Intangible assets | $ | 9,312 | $ | (6,935 | ) | $ | 2,377 | |||||||||||||||||
December 31, 2022 | ||||||||||||
Gross amount | Accumulated amortization | Net amount | ||||||||||
Intellectual property assets | $ | 9,111 | $ | (7,181 | ) | $ | 1,930 | |||||
Intangible assets | $ | 9,111 | $ | (7,181 | ) | $ | 1,930 | |||||
Leases | Classification | June 30, 2022 | December 31, 2021 | |||||||||
Assets | ||||||||||||
Operating lease | Operating lease right-of-use assets | $ | 3,322 | $ | 4,275 | |||||||
Finance lease | Property, plant and equipment, net | 87 | 126 | |||||||||
Total lease assets | $ | 3,409 | $ | 4,401 | ||||||||
Liabilities | ||||||||||||
Current | ||||||||||||
Operating | Operating lease liabilities | $ | 1,838 | $ | 2,323 | |||||||
Finance | Other current liabilities | 64 | 68 | |||||||||
Non-current | ||||||||||||
Operating | Non-current operating lease liabilities | 1,485 | 1,952 | |||||||||
Finance | Other non-current liabilities | 34 | 73 | |||||||||
Total lease liabilities | $ | 3,421 | $ | 4,416 | ||||||||
June 30, 2022 | December 31, 2021 | |||||||
Weighted average remaining lease term | ||||||||
Operating leases | 2.2 years | 2.4 years | ||||||
Finance leases | 1.5 years | 2.0 years | ||||||
Weighted average discount rate | ||||||||
Operating leases | 3.99 | % | 4.20 | % | ||||
Finance leases | 7.75 | % | 7.75 | % |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Operating lease cost | $ | 612 | $ | 727 | $ | 1,181 | $ | 1,407 | ||||||||
Finance lease cost | ||||||||||||||||
Amortization of right-of-use | 14 | 16 | 30 | 33 | ||||||||||||
Interest on lease liabilities | 3 | 3 | 5 | 7 | ||||||||||||
Total lease cost | $ | 629 | $ | 746 | $ | 1,216 | $ | 1,447 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||
Operating cash flows from operating leases | $ | 612 | $ | 727 | $ | 1,181 | $ | 1,407 | ||||||||
Operating cash flows from finance leases | 3 | 3 | 5 | 7 | ||||||||||||
Financing cash flows from finance leases | 16 | 17 | 32 | 33 |
Operating Leases | Finance Leases | |||||||
Remainder of 2022 | $ | 1,210 | $ | 35 | ||||
2023 | 1,142 | 69 | ||||||
2024 | 706 | — | ||||||
2025 | 423 | — | ||||||
2026 | 6 | — | ||||||
Total future lease payments | 3,487 | 104 | ||||||
Less: Imputed interest | (164 | ) | (6 | ) | ||||
Present value of future payments | $ | 3,323 | $ | 98 | ||||
June 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
Payroll, benefits and related taxes, excluding severance benefits | $ | 9,794 | $ | 9,548 | $ | 7,210 | $ | 7,620 | ||||||||
Withholding tax attributable to intercompany interest income | 2,871 | 1,950 | 886 | 43 | ||||||||||||
Outside service fees | 1,395 | 1,088 | 1,522 | 1,642 | ||||||||||||
Merger-related costs | 682 | 7,035 | ||||||||||||||
Others | 684 | 450 | 838 | 383 | ||||||||||||
Accrued expenses | $ | 15,426 | $ | 20,071 | $ | 10,456 | $ | 9,688 | ||||||||
Date of transaction | Total notional amount | Month of settlement | Total notional amount | Month of settlement | ||||||||
May 13, 2021 | $ | 9,000 | July 2022 to September 2022 | |||||||||
August 13, 2021 | $ | 30,000 | July 2022 to December 2022 | |||||||||
January 04, 2022 | $ | 39,000 | October 2022 to June 2023 | |||||||||
March 07, 2022 | $ | 24,000 | July 2023 to December 2023 | $ | 24,000 | July 2023 to December 2023 | ||||||
April 27, 2022 | $ | 51,000 | October 2022 to December 2023 | $ | 24,000 | July 2023 to December 2023 | ||||||
March 08, 2023 | $ | 18,000 | July 2023 to December 2023 | |||||||||
April 03, 2023 | $ | 23,000 | December 2023 to June 2024 |
Date of transaction | Total notional amount | Month of settlement | ||||
May 13, 2021 | $ | 39,000 | January 2022 to September 2022 | |||
August 13, 2021 | $ | 48,000 | January 2022 to December 2022 |
Date of transaction | Total notional amount | Month of settlement | ||||
January 04, 2022 | $ | 30,000 | January 2023 to June 2023 | |||
March 07, 2022 | $ | 24,000 | July 2023 to December 2023 | |||
April 27, 2022 | $ | 42,000 | January 2023 to December 2023 |
Derivatives designated as hedging instruments: | June 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | ||||||||||||||||||||
Liability Derivatives: | ||||||||||||||||||||||||
Zero cost collars | Other current liabilities | $ | 5,677 | $ | 2,020 | Other current liabilities | $ | 1,776 | $ | 2,015 | ||||||||||||||
Zero cost collars | Other non-current liabilities | $ | 1,348 | $ | — |
As of June 30, 2022 | Gross amounts of recognized liabilities | Gross amounts offset in the balance sheets | Net amounts of liabilities presented in the balance sheets | Gross amounts not offset in the balance sheets | Net amount | |||||||||||||||||||||||||||||||||||||||||||
Financial instruments | Cash collateral pledged | |||||||||||||||||||||||||||||||||||||||||||||||
As of June 30, 2023 | Gross amounts of recognized liabilities | Gross amounts offset in the balance sheets | Net amounts of liabilities presented in the balance sheets | Gross amounts not offset in the balance sheets | Net amount | |||||||||||||||||||||||||||||||||||||||||||
Financial instruments | Cash collateral pledged | |||||||||||||||||||||||||||||||||||||||||||||||
Liability Derivatives: | ||||||||||||||||||||||||||||||||||||||||||||||||
Zero cost collars | $ | 7,025 | $ | — | $ | 7,025 | $ | — | $ | (5,990 | ) | $ | 1,035 | $ | 1,776 | $ | — | $ | 1,776 | $ | — | $ | (1,120 | ) | $ | 656 |
As of December 31, 2022 | Gross amounts of recognized liabilities | Gross amounts offset in the balance sheets | Net amounts of liabilities presented in the balance sheets | Gross amounts not offset in the balance sheets | Net amount | |||||||||||||||||||
Financial instruments | Cash collateral pledged | |||||||||||||||||||||||
Liability Derivatives: | ||||||||||||||||||||||||
Zero cost collars | $ | 2,015 | $ | — | $ | 2,015 | $ | — | $ | (1,940 | ) | $ | 75 |
As of December 31, 2021 | Gross amounts of recognized liabilities | Gross amounts offset in the balance sheets | Net amounts of liabilities presented in the balance sheets | Gross amounts not offset in the balance sheets | Net amount | |||||||||||||||||||
Financial instruments | Cash collateral pledged | |||||||||||||||||||||||
Liability Derivatives: | ||||||||||||||||||||||||
Zero cost collars | $ | 2,020 | $ | — | $ | 2,020 | $ | — | $ | (2,060 | ) | $ | (40 | ) |
Derivatives in ASC 815 Cash Flow Hedging Relationships | Amount of Income (Loss) Recognized in AOCI on Derivatives | Location/Amount of Gain (Loss) Reclassified from AOCI Into Statement of Operations | Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives | Amount of Loss Recognized in AOCI on Derivatives | Location/Amount of Loss Reclassified from AOCI Into Statement of Operations | Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Zero cost collars | $ | (375 | ) | $ | (6,477 | ) | Net sales | $ | (1,243 | ) | $ | (1,796 | ) | Other income, net | $ | (20 | ) | $ | 184 | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Zero cost collars | $ | (6,477 | ) | $ | 432 | Net sales | $ | (1,796 | ) | $ | 475 | Other income, net | $ | 184 | $ | (58 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
$ | (375 | ) | $ | (6,477 | ) | $ | (1,243 | ) | $ | (1,796 | ) | $ | (20 | ) | $ | 184 | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationships | Amount of Loss Recognized in AOCI on Derivatives | Location/Amount of Gain (Loss) Reclassified from AOCI Into Statement of Operations | Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives | Amount of Loss Recognized in AOCI on Derivatives | Location/Amount of Loss Reclassified from AOCI Into Statement of Operations | Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Zero cost collars | $ | (1,510 | ) | $ | (7,741 | ) | Net sales | $ | (1,846 | ) | $ | (2,558 | ) | Other income (loss), net | $ | (74 | ) | $ | 55 | |||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Zero cost collars | $ | (7,741 | ) | $ | (1,693 | ) | Net sales | $ | (2,558 | ) | $ | 986 | Other income, net | $ | 55 | $ | (144 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
$ | (1,510 | ) | $ | (7,741 | ) | $ | (1,846 | ) | $ | (2,558 | ) | $ | (74 | ) | $ | 55 | ||||||||||||||||||||||||||||||||||||||||||||||||
Counterparty | June 30, 2023 | December 31, 2022 | ||||||
SC | $ | 1,000 | $ | 1,000 | ||||
Total | $ | 1,000 | $ | 1,000 | ||||
Counterparties | June 30, 2022 | December 31, 2021 | ||||||
SC | $ | 1,000 | $ | 1,000 |
Carrying Value June 30, 2023 | Fair Value Measurement June 30, 2023 | Quoted Prices in Active Markets for Identical Liability (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Derivative liabilities (other current liabilities) | $ | 1,776 | $ | 1,776 | — | $ | 1,776 | — |
Carrying Value June 30, 2022 | Fair Value Measurement June 30, 2022 | Quoted Prices in Active Markets for Identical Liability (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Value December 31, 2022 | Fair Value Measurement December 31, 2022 | Quoted Prices in Active Markets for Identical Liability (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Derivative liabilities (other current liabilities) | $ | 5,677 | $ | 5,677 | — | $ | 5,677 | — | $ | 2,015 | $ | 2,015 | — | $ | 2,015 | — | ||||||||||||||||||||||||
Derivative liabilities (other non-current liabilities) | $ | 1,348 | $ | 1,348 | — | $ | 1,348 | — |
Carrying Value December 31, 2021 | Fair Value Measurement December 31, 2021 | Quoted Prices in Active Markets for Identical Liability (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Derivative liabilities (other current liabilities) | $ | 2,020 | $ | 2,020 | — | $ | 2,020 | — |
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||||
Beginning balance | $ | 50,771 | $ | 51,567 | $ | 52,553 | $ | 54,452 | $ | 48,574 | $ | 48,496 | $ | 50,771 | $ | 51,567 | ||||||||||||||||
Provisions | 1,570 | 3,240 | 1,736 | 3,507 | 1,761 | 4,091 | 1,570 | 3,240 | ||||||||||||||||||||||||
Severance payments | (1,545 | ) | (2,934 | ) | (1,343 | ) | (2,836 | ) | (4,857 | ) | (5,728 | ) | (1,545 | ) | (2,934 | ) | ||||||||||||||||
Translation adjustments | (3,210 | ) | (4,287 | ) | 159 | (2,018 | ) | (357 | ) | (1,738 | ) | (3,210 | ) | (4,287 | ) | |||||||||||||||||
47,586 | 47,586 | 53,105 | 53,105 | 45,121 | 45,121 | 47,586 | 47,586 | |||||||||||||||||||||||||
Less: Cumulative contributions to severance insurance deposit accounts | (16,894 | ) | (16,894 | ) | (13,316 | ) | (13,316 | ) | (24,816 | ) | (24,816 | ) | (16,894 | ) | (16,894 | ) | ||||||||||||||||
The National Pension Fund | (44 | ) | (44 | ) | (59 | ) | (59 | ) | (30 | ) | (30 | ) | (44 | ) | (44 | ) | ||||||||||||||||
Group severance insurance plan | (182 | ) | (182 | ) | (210 | ) | (210 | ) | (152 | ) | (152 | ) | (182 | ) | (182 | ) | ||||||||||||||||
Accrued severance benefits, net | $ | 30,466 | $ | 30,466 | $ | 39,520 | $ | 39,520 | $ | 20,123 | $ | 20,123 | $ | 30,466 | $ | 30,466 | ||||||||||||||||
Severance benefit | Severance benefit | |||||||
Remainder of 2022 | $ | 237 | ||||||
2023 | 590 | |||||||
Remainder of 2023 | $ | 168 | ||||||
2024 | 864 | 319 | ||||||
2025 | 1,409 | 739 | ||||||
2026 | 1,973 | 669 | ||||||
2027 | 1,635 | 372 | ||||||
2028 – 2032 | 18,987 | |||||||
2028 | 3,514 | |||||||
2029 – 2033 | 18,215 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Revenues | ||||||||||||||||
Standard products business | ||||||||||||||||
Display Solutions | $ | 9,657 | $ | 28,336 | $ | 20,498 | $ | 57,521 | ||||||||
Power Solutions | 41,718 | 62,952 | 82,391 | 127,777 | ||||||||||||
Total standard products business | 51,375 | 91,288 | 102,889 | 185,298 | ||||||||||||
Transitional Fab 3 foundry services | 9,604 | 10,088 | 15,095 | 20,171 | ||||||||||||
Total revenues | $ | 60,979 | $ | 101,376 | $ | 117,984 | $ | 205,469 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Revenues | ||||||||||||||||
Standard products business | ||||||||||||||||
Display Solutions | $ | 28,336 | $ | 46,601 | $ | 57,521 | $ | 105,496 | ||||||||
Power Solutions | 62,952 | 56,667 | 127,777 | 110,678 | ||||||||||||
Total standard products business | 91,288 | 103,268 | 185,298 | 216,174 | ||||||||||||
Transitional Fab 3 foundry services | 10,088 | 10,608 | 20,171 | 20,721 | ||||||||||||
Total revenues | $ | 101,376 | $ | 113,876 | $ | 205,469 | $ | 236,895 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Gross Profit | ||||||||||||||||
Standard products business | $ | 27,668 | $ | 32,859 | $ | 65,598 | $ | 66,518 | ||||||||
Transitional Fab 3 foundry services | 1,277 | 1,111 | 2,343 | 1,834 | ||||||||||||
Total gross profit | $ | 28,945 | $ | 33,970 | $ | 67,941 | $ | 68,352 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Gross Profit | ||||||||||||||||
Standard products business | $ | 13,508 | $ | 27,668 | $ | 27,710 | $ | 65,598 | ||||||||
Transitional Fab 3 foundry services | 30 | 1,277 | (2,078 | ) | 2,343 | |||||||||||
Total gross profit | $ | 13,538 | $ | 28,945 | $ | 25,632 | $ | 67,941 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
Korea | $ | 14,394 | $ | 31,168 | $ | 30,890 | $ | 62,198 | ||||||||
Asia Pacific (other than Korea) | 35,024 | 56,068 | 66,925 | 114,328 | ||||||||||||
United States | 236 | 2,492 | 1,281 | 5,356 | ||||||||||||
Europe | 1,721 | 1,560 | 3,793 | 3,416 | ||||||||||||
Total | $ | 51,375 | $ | 91,288 | $ | 102,889 | $ | 185,298 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Korea | $ | 31,168 | $ | 30,868 | $ | 62,198 | $ | 57,302 | ||||||||
Asia Pacific (other than Korea) | 56,068 | 69,352 | 114,328 | 153,092 | ||||||||||||
United States | 2,492 | 1,363 | 5,356 | 2,637 | ||||||||||||
Europe | 1,560 | 1,206 | 3,416 | 2,449 | ||||||||||||
Others | — | 479 | — | 694 | ||||||||||||
Total | $ | 91,288 | $ | 103,268 | $ | 185,298 | $ | 216,174 | ||||||||
June 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
Foreign currency translation adjustments | $ | (10,677 | ) | $ | (770 | ) | $ | (15,521 | ) | $ | (11,328 | ) | ||||
Derivative adjustments | (6,643 | ) | (1,460 | ) | (889 | ) | (1,225 | ) | ||||||||
Total | $ | (17,320 | ) | $ | (2,230 | ) | $ | (16,410 | ) | $ | (12,553 | ) | ||||
Three Months Ended June 30, 2023 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | (13,236 | ) | $ | (1,757 | ) | $ | (14,993 | ) | |||
Other comprehensive loss before reclassifications | (2,285 | ) | (375 | ) | (2,660 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 1,243 | 1,243 | |||||||||
Net current-period other comprehensive loss | (2,285 | ) | 868 | (1,417 | ) | |||||||
Ending balance | $ | (15,521 | ) | $ | (889 | ) | $ | (16,410 | ) | |||
Three Months Ended June 30, 2022 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | (3,815 | ) | $ | (1,962 | ) | $ | (5,777 | ) | |||
Other comprehensive income before reclassifications | (6,862 | ) | (6,477 | ) | (13,339 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 1,796 | 1,796 | |||||||||
Net current-period other comprehensive loss | (6,862 | ) | (4,681 | ) | (11,543 | ) | ||||||
Ending balance | $ | (10,677 | ) | $ | (6,643 | ) | $ | (17,320 | ) | |||
Three Months Ended June 30, 2022 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | (3,815 | ) | $ | (1,962 | ) | $ | (5,777 | ) | |||
Other comprehensive loss before reclassifications | (6,862 | ) | (6,477 | ) | (13,339 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 1,796 | 1,796 | |||||||||
Net current-period other comprehensive loss | (6,862 | ) | (4,681 | ) | (11,543 | ) | ||||||
Ending balance | $ | (10,677 | ) | $ | (6,643 | ) | $ | (17,320 | ) | |||
Three Months Ended June 30, 2021 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | 11 | $ | (1,002 | ) | $ | (991 | ) | ||||
Other comprehensive income before reclassifications | 109 | 432 | 541 | |||||||||
Amounts reclassified from accumulated other comprehensive income | — | (475 | ) | (475 | ) | |||||||
Net current-period other comprehensive income (loss) | 109 | (43 | ) | 66 | ||||||||
Ending balance | $ | 120 | $ | (1,045 | ) | $ | (925 | ) | ||||
Six Months Ended June 30, 2023 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | (11,328 | ) | $ | (1,225 | ) | $ | (12,553 | ) | |||
Other comprehensive loss before reclassifications | (4,193 | ) | (1,510 | ) | (5,703 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 1,846 | 1,846 | |||||||||
Net current-period other comprehensive loss | (4,193 | ) | 336 | (3,857 | ) | |||||||
Ending balance | $ | (15,521 | ) | $ | (889 | ) | $ | (16,410 | ) | |||
Six Months Ended June 30, 2022 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | (770 | ) | $ | (1,460 | ) | $ | (2,230 | ) | |||
Other comprehensive loss before reclassifications | (9,907 | ) | (7,741 | ) | (17,648 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 2,558 | 2,558 | |||||||||
Net current-period other comprehensive loss | (9,907 | ) | (5,183 | ) | (15,090 | ) | ||||||
Ending balance | $ | (10,677 | ) | $ | (6,643 | ) | $ | (17,320 | ) | |||
Six Months Ended June 30, 2022 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | (770 | ) | $ | (1,460 | ) | $ | (2,230 | ) | |||
Other comprehensive loss before reclassifications | (9,907 | ) | (7,741 | ) | (17,648 | ) | ||||||
Amounts reclassified from accumulated other comprehensive loss | — | 2,558 | 2,558 | |||||||||
Net current-period other comprehensive loss | (9,907 | ) | (5,183 | ) | (15,090 | ) | ||||||
Ending balance | $ | (10,677 | ) | $ | (6,643 | ) | $ | (17,320 | ) |
Six Months Ended June 30, 2021 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | 2,069 | $ | 1,634 | $ | 3,703 | ||||||
Other comprehensive loss before reclassifications | (1,949 | ) | (1,693 | ) | (3,642 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | — | (986 | ) | (986 | ) | |||||||
Net current-period other comprehensive loss | (1,949 | ) | (2,679 | ) | (4,628 | ) | ||||||
Ending balance | $ | 120 | $ | (1,045 | ) | $ | (925 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
(In thousands of U.S. dollars, except share data) | ||||||||||||||||
Basic earnings (loss) per share | ||||||||||||||||
Net income (loss) | $ | (3,947 | ) | $ | (3,340 | ) | $ | (25,417 | ) | $ | 6,188 | |||||
Basic weighted average common stock outstanding | 41,741,310 | 44,897,278 | 42,561,514 | 45,248,293 | ||||||||||||
Basic earnings (loss) per common share | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.60 | ) | $ | 0.14 | |||||
Diluted earnings (loss) per share | ||||||||||||||||
Net income (loss) | $ | (3,947 | ) | $ | (3,340 | ) | $ | (25,417 | ) | $ | 6,188 | |||||
Basic weighted average common stock outstanding | 41,741,310 | 44,897,278 | 42,561,514 | 45,248,293 | ||||||||||||
Net effect of dilutive equity awards | — | — | — | 1,081,266 | ||||||||||||
Diluted weighted average common stock outstanding | 41,741,310 | 44,897,278 | 42,561,514 | 46,329,559 | ||||||||||||
Diluted earnings (loss) per share | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.60 | ) | $ | 0.13 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
(In thousands of U.S. dollars, except share data) | ||||||||||||||||
Basic earnings (loss) per share | ||||||||||||||||
Net income (loss) | $ | (3,340 | ) | $ | (198 | ) | $ | 6,188 | $ | (7,671 | ) | |||||
Basic weighted average common stock outstanding | 44,897,278 | 46,322,027 | 45,248,293 | 43,324,088 | ||||||||||||
Basic earnings (loss) per common share | $ | (0.07 | ) | $ | (0.00 | ) | $ | 0.14 | $ | (0.18 | ) | |||||
Diluted earnings (loss) per share | ||||||||||||||||
Net income (loss) | $ | (3,340 | ) | $ | (198 | ) | $ | 6,188 | $ | (7,671 | ) | |||||
Basic weighted average common stock outstanding | 44,897,278 | 46,322,027 | 45,248,293 | 43,324,088 | ||||||||||||
Net effect of dilutive equity awards | — | — | 1,081,266 | — | ||||||||||||
Diluted weighted average common stock outstanding | 44,897,278 | 46,322,027 | 46,329,559 | 43,324,088 | ||||||||||||
Diluted earnings (loss) per share | $ | (0.07 | ) | $ | (0.00 | ) | $ | 0.13 | $ | (0.18 | ) |
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||
Options | 1,145,551 | 1,470,421 | 130,000 | 1,470,421 | 903,558 | 1,145,551 | 903,558 | 130,000 | ||||||||||||||||||||||||
Restricted Stock Units | 1,121,574 | 1,012,197 | — | 1,012,197 | 1,538,791 | 1,121,574 | 1,538,791 | — |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the related notes included elsewhere in this Report.
Overview
We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT applications, consumer, computing, industrial and automotive applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 1,100 registered patents and pending applications and extensive engineering and manufacturing process expertise.
Our standard products business includes our Display Solutions and Power Solutions business lines.
Our Display Solutions line of products provide flat panel display solutions to major suppliers of large and small flat panel displays. These products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in mobile communications, automobiles,automotives, entertainment devices, IT applications such as monitors, notebook PCs, monitorstablet PC and TVs applied with liquid crystal display (LCD), organic light emitting diodes (OLED) and Micro light emitting diode (Micro LED) televisions. Our Display Solutions products support some of the industry’s most advanced display technologies, such as OLEDs, low temperature polysilicons thin film transistors (LTPS TFTs), as well as high-volume display technologies such as amorphous silicon thin film transistors
Our Power Solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),
Our wide variety of analog and mixed-signal semiconductor products combined with our mature technology platform allow us to address multiple high-growth end markets and rapidly develop and introduce new products and services in response to market demands. Our design center in Korea and substantial manufacturing operation in Koreaoperations place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers. Certain of our OLED products are produced using external
To maintain and increase our profitability, we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce. We must understand our customers’ needs as well as the likely end market trends and demand in the markets they serve. We must also invest in relevant research and development activities and purchase necessary materials on a timely basis to meet our customers’ demand while maintaining our target margins and cash flow.
The semiconductor markets in which we participate are highly competitive. The prices of our products tend to decrease regularly over their useful lives, and such price decreases can be significant as new generations of products are introduced by us or our competitors. We strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence.
Demand for our products and services is driven by overall demand for communications, IoT, consumer and industrial products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers. In order to mitigate the impact of market volatility on our business, we continually strive to diversify our portfolio of products, customers, and target applications. We also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services. While we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history, existing manufacturing capacity and our worldwide customer base, if we are not effective in competing in these markets, our operating results may be adversely affected.
22
Net sales for our standard products business are driven by design wins in which we are selected by an electronics original equipment manufacturer (OEM) or other potential customer to supply its demand for a particular product. A customer will often have more than one supplier designed into multi-source components for a particular product line. Once we have design wins and the products enter into mass production, we often specify the pricing of a particular product for a set period of time, with periodic discussions and renegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the
In contrast to completely fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over certain manufacturing costs and the ability to implement process and production improvements for our internally manufactured products, which can favorably impact gross profit margins. Our internal manufacturing capacity also allows for better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these internally manufactured products. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins, particularly during downturns in the semiconductor industry.
Our standard products business requires investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment. Many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. In addition, we are less likely to experience significant industry overcapacity, which can cause product prices to decline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time. In addition, we outsource manufacturing of those products which do require advanced technology and
Since 2007, we had designed and manufactured OLED display driver ICs in our internal manufacturing facilities. As we expanded our design capabilities to products that require lower geometries unavailable at our existing manufacturing facilities, we began outsourcing manufacturing of certain OLED display driver ICs to external
Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities, market and technology trends and improve our ability to adapt and grow successfully.
23
Recent Developments
New Stock Repurchase Program
On July 19, 2023, our Board of Directors authorized a new $50 million stock buyback program. Purchases may be made in demand for semiconductor products may resultthe open market or in a global shortageprivately negotiated transactions, depending upon market conditions and other factors. The actual number of manufacturing capacity. As a result, we may experience increased costs to manufactureshares purchased, and the timing of purchases, will be at our products and may not be able to manufacture and deliver alldiscretion.
Prior Expanded Stock Repurchase Program
On August 31, 2022, our Board of Directors authorized an expansion of the orders placed bypreviously announced stock repurchase program from $75.0 million to $87.5 million of our customers. Specifically, if we are unable to secure manufacturing capacity fromcommon stock. We repurchased shares worth $37.5 million under the external foundries we relyprior program through an accelerated stock repurchase agreement on our ability to deliver products to our customers may be negatively impacted. Also, shortage of manufacturing capacity may lead to an increase in our manufacturing costs. Our principal pricing strategy is to pass on the increased manufacturing costs to our customers; however, we may not be fully able to do this in all cases. Total revenues for the three and six months ended June 30, 2022 were severely impacted by these persisting supply shortages, in particular for 28nm
In June 2023, we completed the repurchase of our reputationcommon stock under the prior expanded stock repurchase program using the remaining $50 million through open market purchases.
From September 2022 to December 2022, we repurchased 1,235,650 shares of our common stock in the open market for an aggregate purchase price of $12.5 million and competitive position, resultinga price per share of $10.13 under the prior expanded stock repurchase program.
During the first half of 2023, we repurchased 3,705,443 shares of our common stock in the open market for an aggregate purchase price of $37.4 million and a negative impact on resultsprice per share of operations.
COVID-19
Many of manufacturing capacity will subside. A prolonged global supply shortage could negatively impact our financial condition, potentially resulting in a need for additional capital to fund strategic initiatives or operating activities.
Macroeconomic Industry Conditions
The semiconductor industry continues to face a number of macroeconomic challenges, including rising inflation, increased interest rates, supply chain disruptions, capacity constraints, inventory corrections, shifting customer and end-user demand, and fluctuations in currency rates, any one and all of which can cause volatility and unpredictability in the market. The length and severity of these macroeconomic events and their overall impact on our business, results of operations and financial condition remain uncertain.
Developments in Export Control Regulations
On October 7, 2022, the Bureau of Industry and may take further actions alteringSecurity of the U.S. Department of Commerce published changes to U.S. export control regulations (U.S. Export Regulations), including new restrictions on Chinese entities’ ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. Further, on October 12, 2022, a new rule went into effect requiring U.S. persons to obtain a license prior to engaging in certain activities that could “support” certain end-uses and end-users, including those related to weapons of mass destruction. Additionally, on October 21, 2022, the Bureau of Industry and Security brought into effect a series of new Foreign Direct Product (FDP) rules and various new controls on advanced computing items, significantly expanding the scope of items that are subject to export control under the U.S. Export Regulations. Based on our business operationsunderstanding of the current U.S. Export Regulations and managingrelated rules, we do not anticipate that they will have a material impact on our costsbusiness. Additional changes to the U.S. Export Regulations are expected, but the scope or timing of such changes is unknown. We will continue to monitor such developments, including potential additional trade restrictions, and liquidity that we deem necessaryother regulatory or appropriate to respond to this ongoingpolicy changes by the U.S. and uncertain global health crisis and the resulting global economic consequences.foreign governments.
24
Explanation and Reconciliation of
Adjusted EBITDA, Adjusted Operating Income (Loss) and Adjusted Net Income
We use the terms Adjusted EBITDA, Adjusted Operating Income (Loss) and Adjusted Net Income (Loss) (including on a per share basis) in this Report. Adjusted EBITDA, as we define it, is a
See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of our performance because:
• | we believe that Adjusted EBITDA, by eliminating the impact of a number of items that we do not consider to be indicative of our core ongoing operating performance, provides a more comparable measure of our operating performance from period-to-period and may be a better indicator of future performance; |
we believe that Adjusted EBITDA is commonly requested and used by securities analysts, investors and other interested parties in the evaluation of a company as an enterprise level performance measure that eliminates the effects of financing, income taxes and the accounting effects of capital spending, as well as other one time or recurring items described above; and
• | we believe that Adjusted EBITDA is useful for investors, among other reasons, to assess a company’s period-to-period core operating performance and to understand and assess the manner in which management analyzes operating performance. |
We use Adjusted EBITDA in a number of ways, including:
for planning purposes, including the preparation of our annual operating budget;
to evaluate the effectiveness of our enterprise level business strategies;
in communications with our Board of Directors concerning our consolidated financial performance; and
in certain of our compensation plans as a performance measure for determining incentive compensation payments.
We encourage you to evaluate each adjustment and the reasons we consider them appropriate. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Adjusted EBITDA is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to net income from continuing operations,or any other performance measure derived in accordance with U.S GAAP, or as an alternative to cash flows from operating activities or net income, as determined in accordance with U.S. GAAP.a measure of liquidity. A reconciliation of net income (loss) to Adjusted EBITDA is as follows:
Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net income (loss) | $ | (3.9 | ) | $ | (25.4 | ) | $ | (3.3 | ) | $ | 6.2 | |||||
Interest income | (2.7 | ) | (5.5 | ) | (1.1 | ) | (1.8 | ) | ||||||||
Interest expense | 0.2 | 0.5 | 0.5 | 0.6 | ||||||||||||
Income tax expense (benefit) | (3.0 | ) | (4.2 | ) | (0.9 | ) | 2.6 | |||||||||
Depreciation and amortization | 4.1 | 8.5 | 3.7 | 7.6 | ||||||||||||
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EBITDA | $ | (5.3 | ) | $ | (26.2 | ) | $ | (1.1 | ) | $ | 15.2 | |||||
Adjustments: | ||||||||||||||||
Equity-based compensation expense(a) | 2.1 | 3.2 | 2.0 | 3.6 | ||||||||||||
Foreign currency loss (gain), net(b) | (1.2 | ) | 2.2 | 7.0 | 7.7 | |||||||||||
Derivative valuation loss (gain), net(c) | 0.0 | 0.1 | (0.2 | ) | (0.1 | ) | ||||||||||
Early termination and other charges(d) | 0.8 | 9.3 | 0.8 | 0.8 | ||||||||||||
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Adjusted EBITDA | $ | (3.6 | ) | $ | (11.5 | ) | $ | 8.5 | $ | 27.3 | ||||||
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25
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Net income (loss) | $ | (3.3 | ) | $ | 6.2 | $ | (0.2 | ) | $ | (7.7 | ) | |||||
Interest income, net | (0.6 | ) | (1.2 | ) | (0.5 | ) | (0.1 | ) | ||||||||
Income tax expense (benefit) | (0.9 | ) | 2.6 | 2.6 | 2.9 | |||||||||||
Depreciation and amortization | 3.7 | 7.6 | 3.5 | 7.0 | ||||||||||||
EBITDA | $ | (1.1 | ) | $ | 15.2 | $ | 5.5 | $ | 2.1 | |||||||
Adjustments: | ||||||||||||||||
Equity-based compensation expense(a) | 2.0 | 3.6 | 2.4 | 4.1 | ||||||||||||
Foreign currency loss (gain), net(b) | 7.0 | 7.7 | (0.2 | ) | 4.4 | |||||||||||
Derivative valuation loss (gain), net(c) | (0.2 | ) | (0.1 | ) | 0.1 | 0.1 | ||||||||||
Merger-related costs(d) | — | — | 2.5 | 12.3 | ||||||||||||
Other charges(e) | 0.8 | 0.8 | 2.6 | 3.1 | ||||||||||||
Adjusted EBITDA | $ | 8.5 | $ | 27.3 | $ | 12.7 | $ | 26.2 | ||||||||
(a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incurnon-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of thesenon-cash expenses as supplemental information. |
(b) | This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarilynon-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. |
(c) | This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance. |
(d) | For the six months ended June 30, 2023, this adjustment eliminates the termination related charges of $8.4 million in connection with the 2023 Resignation Program that we offered to certain employees during the first quarter of 2023. For the three and six months ended June 30, |
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
• | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; |
Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;
Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and
other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.
26
We present Adjusted Operating Income (Loss) as supplemental measures of our performance. We prepare Adjusted Operating Income (Loss) by adjusting operating income (loss) to eliminate the impact of equity-based compensation expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Operating Income (Loss) is useful to investors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations.
Adjusted Operating Income (Loss) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to operating income income from continuing operations, cash flows from operating activities or net income, as determinedany other performance measure derived in accordance with U.S.U.S GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Operating Income (Loss) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Operating Income, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Operating Income (Loss) for the periods indicated as operating income adjusted to exclude (i) equity-based compensation expense and (ii) Merger-related costsearly termination and (iii) other charges.
The following table summarizes the adjustments to operating income (loss) that we make in order to calculate Adjusted Operating Income (loss)(Loss) for the periods indicated:
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Operating income (loss) | $ | 2.0 | $ | 14.9 | $ | 1.6 | $ | (0.5 | ) | |||||||
Adjustments: | ||||||||||||||||
Equity-based compensation expense(a) | 2.0 | 3.6 | 2.4 | 4.1 | ||||||||||||
Merger-related costs(b) | — | — | 2.5 | 12.3 | ||||||||||||
Others charges(c) | 0.8 | 0.8 | 2.6 | 3.1 | ||||||||||||
Adjusted Operating Income | $ | 4.8 | $ | 19.3 | $ | 9.1 | $ | 19.0 | ||||||||
Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Operating income (loss) | $ | (10.7 | ) | $ | (32.5 | ) | $ | 2.0 | $ | 14.9 | ||||||
Adjustments: | ||||||||||||||||
Equity-based compensation expense(a) | 2.1 | 3.2 | 2.0 | 3.6 | ||||||||||||
Early termination and other charges(b) | 0.8 | 9.3 | 0.8 | 0.8 | ||||||||||||
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Adjusted Operating Income (Loss) | $ | (7.8 | ) | $ | (20.0 | ) | $ | 4.8 | $ | 19.3 | ||||||
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(a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incurnon-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of thesenon-cash expenses as supplemental information. |
(b) | For the six months ended June 30, 2023, this adjustment eliminates the termination related charges of $8.4 million in connection with the 2023 Resignation Program that we offered to certain employees during the first quarter of 2023. For the three and six months ended June 30, |
27
We present Adjusted Net Income (Loss) (including on a per share basis) as a further supplemental measure of our performance. We prepare Adjusted Net Income (Loss) (including on a per share basis) by adjusting net income (loss) to eliminate the impact of a number of
• | we use Adjusted Net Income (Loss) (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of non-cash expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and |
• | we believe that reporting Adjusted Net Income (Loss) (including on a per share basis) is useful to readers in evaluating our core operating results because it eliminates the effects of non-cash expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantly from period to period. |
Adjusted Net Income (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of
The following table summarizes the adjustments to net income (loss) that we make in order to calculate Adjusted Net Income (Loss) (including on a per share basis) from continuing operations for the periods indicated:
Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | |||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||
Net income (loss) | $ | (3.9 | ) | $ | (25.4 | ) | $ | (3.3 | ) | $ | 6.2 | |||||
Adjustments: | ||||||||||||||||
Equity-based compensation expense(a) | 2.1 | 3.2 | 2.0 | 3.6 | ||||||||||||
Foreign currency loss (gain), net(b) | (1.2 | ) | 2.2 | 7.0 | 7.7 | |||||||||||
Derivative valuation loss (gain), net(c) | 0.0 | 0.1 | (0.2 | ) | (0.1 | ) | ||||||||||
Early termination and other charges(d) | 0.8 | 9.3 | 0.8 | 0.8 | ||||||||||||
Income tax effect on non-GAAP adjustments(e) | (0.2 | ) | (2.2 | ) | 4.3 | 5.2 | ||||||||||
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Adjusted Net Income (Loss) | $ | (2.5 | ) | $ | (12.8 | ) | $ | 10.6 | $ | 23.5 | ||||||
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Reported earnings (loss) per share – basic | $ | (0.09 | ) | $ | (0.60 | ) | $ | (0.07 | ) | $ | 0.14 | |||||
Reported earnings (loss) per share – diluted | $ | (0.09 | ) | $ | (0.60 | ) | $ | (0.07 | ) | $ | 0.13 | |||||
Weighted average number of shares – basic | 41,741,310 | 42,561,514 | 44,897,278 | 45,248,293 | ||||||||||||
Weighted average number of shares – diluted | 41,741,310 | 42,561,514 | 44,897,278 | 46,329,559 | ||||||||||||
Adjusted earnings (loss) per share – basic | $ | (0.06 | ) | $ | (0.30 | ) | $ | 0.24 | $ | 0.52 | ||||||
Adjusted earnings (loss) per share – diluted | $ | (0.06 | ) | $ | (0.30 | ) | $ | 0.23 | $ | 0.51 | ||||||
Weighted average number of shares – basic | 41,741,310 | 42,561,514 | 44,897,278 | 45,248,293 | ||||||||||||
Weighted average number of shares – diluted | 41,741,310 | 42,561,514 | 45,937,515 | 46,329,559 |
28
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | |||||||||||||
(Dollars in millions, except per share data) | ||||||||||||||||
Net income (loss) | $ | (3.3 | ) | $ | 6.2 | $ | (0.2 | ) | $ | (7.7 | ) | |||||
Adjustments: | ||||||||||||||||
Equity-based compensation expense(a) | 2.0 | 3.6 | 2.4 | 4.1 | ||||||||||||
Foreign currency loss (gain), net(b) | 7.0 | 7.7 | (0.2 | ) | 4.4 | |||||||||||
Derivative valuation loss (gain), net(c) | (0.2 | ) | (0.1 | ) | 0.1 | 0.1 | ||||||||||
Merger-related costs(d) | — | — | 2.5 | 12.3 | ||||||||||||
Other charges(e) | 0.8 | 0.8 | 2.6 | 3.1 | ||||||||||||
Income tax effect on non-GAAP adjustments(f) | 4.3 | 5.2 | — | — | ||||||||||||
Adjusted Net Income | $ | 10.6 | $ | 23.5 | $ | 7.0 | $ | 16.4 | ||||||||
Reported earnings (loss) per share – basic | $ | (0.07 | ) | $ | 0.14 | $ | (0.00 | ) | $ | (0.18 | ) | |||||
Reported earnings (loss) per share – diluted | $ | (0.07 | ) | $ | 0.13 | $ | (0.00 | ) | $ | (0.18 | ) | |||||
Weighted average number of shares – basic | 44,897,278 | 45,248,293 | 46,322,027 | 43,324,088 | ||||||||||||
Weighted average number of shares – diluted | 44,897,278 | 46,329,559 | 46,322,027 | 43,324,088 | ||||||||||||
Adjusted earnings per share – basic | $ | 0.24 | $ | 0.52 | $ | 0.15 | $ | 0.38 | ||||||||
Adjusted earnings per share – diluted | $ | 0.23 | $ | 0.51 | $ | 0.15 | $ | 0.36 | ||||||||
Weighted average number of shares – basic | 44,897,278 | 45,248,293 | 46,322,027 | 43,324,088 | ||||||||||||
Weighted average number of shares – diluted | 45,937,515 | 46,329,559 | 47,846,217 | 47,685,875 |
(a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incurnon-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of thesenon-cash expenses as supplemental information. |
(b) | This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarilynon-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. |
(c) | This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance. |
(d) | For the six months ended June 30, 2023, this adjustment eliminates the termination related charges of $8.4 million in connection with the 2023 Resignation Program that we offered to certain employees during the first quarter of 2023. For the three and six months ended June 30, |
(e) | For the three and six months ended June 30, 2023 and 2022, |
Korean subsidiary. For the three and six months ended June 30, 2022, this adjustment eliminates the income tax effect on subsidiary.non-GAAP adjustments of $4.3 million and $5.2 million, respectively, which mainly related to our Korean |
We believe that all adjustments to net income (loss) used to calculate Adjusted Net Income (Loss) was applied consistently to the periods presented.
Adjusted Net Income (Loss) has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
Adjusted Net Income (Loss) does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted Net Income (Loss) does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;
Adjusted Net Income (Loss) does not reflect the costs of holding certain assets and liabilities in foreign currencies; and
other companies in our industry may calculate Adjusted Net Income (Loss) differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted Net Income (Loss) should not be considered as a measure of profitability of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted Net Income (Loss) only as a supplement.
29
Factors Affecting Our Results of Operations
Net
We recognize revenue when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. For the six months ended June 30, 20222023 and 2021,2022, we sold products to 158138 and 165158 customers, respectively, and our net sales to our ten largest customers represented 72%70% and 81%72% of our net sales—standard products business, respectively.
We will provide the Transitional Fab 3 Foundry Services up to September 1, 2023 at an agreed upon cost plus a
Gross Profit.
Average
Material Costs.
Labor
Depreciation Expense.
Selling
General
Research
30
Impact of Foreign Currency Exchange Rates on Reported Results of Operations.
From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary enters into foreign currency zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean won exchange rate fluctuations on our operating results. Obligations under these foreign currency zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These zero cost collar contracts may be terminated by a counterparty in a number of circumstances, including if our total cash and cash equivalents is less than $30.0 million at the end of a fiscal quarter unless a waiver is obtained from the counterparty. We cannot assure that any hedging technique we implement will be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on our results of operations. See “Note 7. Derivative Financial Instruments” to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements” for additional information regarding our foreign exchange hedging activities.
Foreign Currency Gain or Loss.
Income Taxes.
We are subject to income- or
Capital
Inventories.
31
Results of Operations – Comparison of Three Months Ended June 30, 20222023 and 2021
The following table sets forth consolidated results of operations for the three months ended June 30, 20222023 and 2021:2022:
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Total Revenues | Amount | % of Total Revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | $ | 51.4 | 84.3 | % | $ | 91.3 | 90.0 | % | $ | (39.9 | ) | |||||||||
Net sales – transitional Fab 3 foundry services | 9.6 | 15.7 | 10.1 | 10.0 | (0.5 | ) | ||||||||||||||
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Total revenues | 61.0 | 100.0 | 101.4 | 100.0 | (40.4 | ) | ||||||||||||||
Cost of sales | ||||||||||||||||||||
Cost of sales – standard products business | 37.9 | 62.1 | 63.6 | 62.8 | (25.8 | ) | ||||||||||||||
Cost of sales – transitional Fab 3 foundry services | 9.6 | 15.7 | 8.8 | 8.7 | 0.8 | |||||||||||||||
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Total cost of sales | 47.4 | 77.8 | 72.4 | 71.4 | (25.0 | ) | ||||||||||||||
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Gross profit | 13.5 | 22.2 | 28.9 | 28.6 | (15.4 | ) | ||||||||||||||
Selling, general and administrative expenses | 12.1 | 19.9 | 12.7 | 12.6 | (0.6 | ) | ||||||||||||||
Research and development expenses | 11.3 | 18.5 | 13.4 | 13.2 | (2.2 | ) | ||||||||||||||
Other charges | 0.8 | 1.3 | 0.8 | 0.8 | 0.0 | |||||||||||||||
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Operating income (loss) | (10.7 | ) | (17.5 | ) | 2.0 | 2.0 | (12.7 | ) | ||||||||||||
Interest income | 2.7 | 4.4 | 1.1 | 1.0 | 1.6 | |||||||||||||||
Interest expense | (0.2 | ) | (0.3 | ) | (0.5 | ) | (0.5 | ) | 0.3 | |||||||||||
Foreign currency gain (loss), net | 1.2 | 2.0 | (7.0 | ) | (6.9 | ) | 8.2 | |||||||||||||
Others, net | 0.0 | 0.0 | 0.2 | 0.2 | (0.2 | ) | ||||||||||||||
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3.7 | 6.1 | (6.2 | ) | (6.2 | ) | 10.0 | ||||||||||||||
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Loss before income tax expense | (6.9 | ) | (11.4 | ) | (4.2 | ) | (4.2 | ) | (2.7 | ) | ||||||||||
Income tax benefit | (3.0 | ) | (4.9 | ) | (0.9 | ) | (0.9 | ) | (2.1 | ) | ||||||||||
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Net loss | $ | (3.9 | ) | (6.5 | ) | $ | (3.3 | ) | (3.3 | ) | $ | (0.6 | ) | |||||||
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Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Total Revenues | Amount | % of Total Revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | ||||||||||||||||||||
Display Solutions | $ | 9.7 | 15.8 | % | $ | 28.3 | 28.0 | % | $ | (18.7 | ) | |||||||||
Power Solutions | 41.7 | 68.4 | 63.0 | 62.0 | (21.2 | ) | ||||||||||||||
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Total standard products business | 51.4 | 84.3 | 91.3 | 90.0 | (39.9 | ) | ||||||||||||||
Net sales – transitional Fab 3 foundry services | 9.6 | 15.7 | 10.1 | 10.0 | (0.5 | ) | ||||||||||||||
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Total revenues | $ | 61.0 | 100.0 | % | $ | 101.4 | 100.0 | % | $ | (40.4 | ) | |||||||||
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Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Net Sales | Amount | % of Net Sales | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Gross Profit | ||||||||||||||||||||
Gross profit – standard products business | $ | 13.5 | 26.3 | % | $ | 27.7 | 30.3 | % | $ | (14.2 | ) | |||||||||
Gross profit – transitional Fab 3 foundry services | 0.0 | 0.3 | 1.3 | 12.7 | (1.2 | ) | ||||||||||||||
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Total gross profit | $ | 13.5 | 22.2 | % | $ | 28.9 | 28.6 | % | $ | (15.4 | ) | |||||||||
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Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Total revenues | Amount | % of Total revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | $ | 91.3 | 90.0 | % | $ | 103.3 | 90.7 | % | $ | (12.0 | ) | |||||||||
Net sales – transitional Fab 3 foundry services | 10.1 | 10.0 | 10.6 | 9.3 | (0.5 | ) | ||||||||||||||
Total revenues | 101.4 | 100.0 | 113.9 | 100.0 | (12.5 | ) | ||||||||||||||
Cost of sales | ||||||||||||||||||||
Cost of sales – standard products business | 63.6 | 62.8 | 70.4 | 61.8 | (6.8 | ) | ||||||||||||||
Cost of sales – transitional Fab 3 foundry services | 8.8 | 8.7 | 9.5 | 8.3 | (0.7 | ) | ||||||||||||||
Total cost of sales | 72.4 | 71.4 | 79.9 | 70.2 | (7.5 | ) | ||||||||||||||
Gross profit | 28.9 | 28.6 | 34.0 | 29.8 | (5.0 | ) | ||||||||||||||
Selling, general and administrative expenses | 12.7 | 12.6 | 14.0 | 12.3 | (1.3 | ) | ||||||||||||||
Research and development expenses | 13.4 | 13.2 | 13.3 | 11.7 | 0.1 | |||||||||||||||
Merger-related costs | — | — | 2.5 | 2.2 | (2.5 | ) | ||||||||||||||
Other charges | 0.8 | 0.8 | 2.6 | 2.2 | (1.8 | ) | ||||||||||||||
Operating income | 2.0 | 2.0 | 1.6 | 1.4 | 0.4 | |||||||||||||||
Interest expense | (0.5 | ) | (0.5 | ) | (0.1 | ) | (0.1 | ) | (0.4 | ) | ||||||||||
Foreign currency gain (loss), net | (7.0 | ) | (6.9 | ) | 0.3 | 0.2 | (7.3 | ) | ||||||||||||
Others, net | 1.3 | 1.3 | 0.6 | 0.5 | 0.7 | |||||||||||||||
(6.2 | ) | (6.2 | ) | 0.8 | 0.7 | (7.0 | ) | |||||||||||||
Income (loss) before income tax expense | (4.2 | ) | (4.2 | ) | 2.4 | 2.1 | (6.6 | ) | ||||||||||||
Income tax expense (benefit) | (0.9 | ) | (0.9 | ) | 2.6 | 2.3 | (3.5 | ) | ||||||||||||
Net loss | $ | (3.3 | ) | (3.3 | ) | $ | (0.2 | ) | (0.2 | ) | $ | (3.1 | ) | |||||||
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Total revenues | Amount | % of Total revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | ||||||||||||||||||||
Display Solutions | $ | 28.3 | 28.0 | % | $ | 46.6 | 40.9 | % | $ | (18.3 | ) | |||||||||
Power Solutions | 63.0 | 62.0 | 56.7 | 49.8 | 6.3 | |||||||||||||||
Total standard products business | 91.3 | 90.0 | 103.3 | 90.7 | (12.0 | ) | ||||||||||||||
Net sales – transitional Fab 3 foundry services | 10.1 | 10.0 | 10.6 | 9.3 | (0.5 | ) | ||||||||||||||
Total revenues | $ | 101.4 | 100.0 | % | $ | 113.9 | 100.0 | % | $ | (12.5 | ) | |||||||||
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Net sales | Amount | % of Net sales | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Gross Profit | ||||||||||||||||||||
Gross profit – standard products business | $ | 27.7 | 30.3 | % | $ | 32.9 | 31.8 | % | $ | (5.2 | ) | |||||||||
Gross profit – transitional Fab 3 foundry services | 1.3 | 12.7 | 1.1 | 10.5 | 0.2 | |||||||||||||||
Total gross profit | $ | 28.9 | 28.6 | % | $ | 34.0 | 29.8 | % | $ | (5.0 | ) | |||||||||
Revenues
Total revenues were $61.0 million for the three months ended June 30, 2023, a $40.4 million, or 39.8%, decrease compared to $101.4 million for the three months ended June 30, 2022, a $12.5 million, or 11.0%, decrease compared to $113.9 million for the three months ended June 30, 2021.2022. This decrease was primarily due to a decrease in revenue related to our standard products business as described below.
The standard products business.
The transitional Fab 3 foundry services.
Gross Profit
Total gross profit was $13.5 million for the three months ended June 30, 2023 compared to $28.9 million for the three months ended June 30, 2022, compared to $34.0 million for the three months ended June 30, 2021, a $5.0$15.4 million, or 14.8%53.2%, decrease. Gross profit as a percentage of net sales for the three months ended June 30, 20222023 decreased to 28.6%22.2% compared to 29.8%28.6% for the three months ended June 30, 2021.2022. The decrease in both gross profit and gross profit as a percentage of net sales was primarily due to our standard products business as further described below.
The standard products business.
33
Net Sales – Standard Products Business by Geographic Region
We report net sales – standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net sales—standard products business by geographic region and the percentage of total net sales—standard products business represented by each geographic region for the three months ended June 30, 20222023 and 2021:
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Net sales – standard products business | Amount | % of Net sales – standard products business | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Korea | $ | 31.2 | 34.1 | % | $ | 30.9 | 29.9 | % | $ | 0.3 | ||||||||||
Asia Pacific (other than Korea) | 56.1 | 61.4 | 69.4 | 67.2 | (13.3 | ) | ||||||||||||||
United States | 2.5 | 2.7 | 1.4 | 1.3 | 1.1 | |||||||||||||||
Europe | 1.6 | 1.7 | 1.2 | 1.2 | 0.4 | |||||||||||||||
Others | — | — | 0.5 | 0.5 | (0.5 | ) | ||||||||||||||
$ | 91.3 | 100.0 | % | $ | 103.3 | 100.0 | % | $ | (12.0 | ) | ||||||||||
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Net Sales – standard products business | Amount | % of Net Sales – standard products business | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Korea | $ | 14.4 | 28.0 | % | $ | 31.2 | 34.1 | % | $ | (16.8 | ) | |||||||||
Asia Pacific (other than Korea) | 35.0 | 68.2 | 56.1 | 61.4 | (21.0 | ) | ||||||||||||||
United States | 0.2 | 0.5 | 2.5 | 2.7 | (2.3 | ) | ||||||||||||||
Europe | 1.7 | 3.3 | 1.6 | 1.7 | 0.2 | |||||||||||||||
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$ | 51.4 | 100.0 | % | $ | 91.3 | 100.0 | % | $ | (39.9 | ) | ||||||||||
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Net sales – standard products business in Korea for the three months ended June 30, 2022 increased2023 decreased from $30.9$31.2 million to $31.2$14.4 million compared to the three months ended June 30, 2021,2022, or by $0.3$16.8 million, or 1.0%53.8%, primarily due to a higher demand for OLED TV display driver ICs, which was offset by weakerlower demand for power products such as MOSFETs, including
Net sales – standard products business in Asia Pacific (other than Korea) for the three months ended June 30, 20222023 decreased to $56.1$35.0 million from $69.4$56.1 million in the three months ended June 30, 2021,2022, or by $13.3$21.0 million, or 19.2%37.5%, primarily due to a decrease in revenue from our mobile OLED display driver ICs stemming from a continuing severe shortage in manufacturing capacity (in particular for 28nm
Operating Expenses
Selling,
ResearchandDevelopmentExpenses. Research and development expenses were $11.3 million, or 18.5% of total revenues, for the three months ended June 30, 2021. The decrease of $1.3 million, or 9.0%, was primarily attributable2023, compared to a decrease in professional fees mainly comprised of legal and consulting fees. This decrease was also resulted from certain
Other Charges.For the three months ended June 30, 2021,2023, we recorded $2.5$0.8 million of professional service fees and expenses incurred in connection with the contemplated Merger transaction.
Operating Income
As a result of the foregoing, operating loss of $10.7 million was recorded for the three months ended June 30, 2023 compared to operating income wasof $2.0 million for the three months ended June 30, 2022 compared to operating income of $1.6 million the three months ended June 30, 2021.2022. As discussed above, the increasedecrease in operating income of $0.4$12.7 million resulted primarily from a $2.5$15.4 million decrease in Merger-related costs,gross profit, which was offset in part by a $1.8$2.2 million decrease in other chargesresearch and development expenses and a $1.3$0.6 million decrease in selling, general and administrative expenses. This increase was offset in part by a $5.0 million decrease in gross profit.
34
Other Income (Expense)
Interest
InterestExpense. Interest expense was $0.2 million compared to net foreign currency gain of $0.3and $0.5 million for the three months ended June 30, 2021. The net foreign currency loss for the three months ended2023 and June 30, 2022, was due to the depreciation in value of the Korean won relative to the U.S. dollar during the period. The netrespectively.
ForeignCurrency Gain(Loss),Net. Net foreign currency gain for the three months ended June 30, 20212023 was due$1.2 million compared to net foreign currency loss of $7.0 million for the appreciation in value of the Korean won relative to the U.S. dollar during the period.
A substantial portion of our net foreign currency gain or loss is
Income Tax Benefit
Income tax benefit was $3.0 million for the three months ended June 30, 2022 and June 30, 20212023, which was $1.3 million and $0.6 million, respectively.
Income tax benefit was $0.9 million for the three months ended June 30, 2022, which was primarily attributable to a decrease in our Korean subsidiary’s pre-tax income for the respective period due to the foreign currency translation loss recorded in our Korean subsidiary in connection with intercompany loans. Income tax expense was $2.6 million for the three months ended June 30, 2021, which was primarily attributable to interest on intercompany loan balances, and certain income-based tax assessments of $0.6 million as a result of a regular tax examination completed for our Korean subsidiary for multiple tax years.
Net Loss
As a result of the foregoing, a net loss of $3.3$3.9 million was recorded for the three months ended June 30, 20222023 compared to a net loss of $0.2$3.3 million for the three months ended June 30, 2021.2022. As discussed above, the $3.1$0.6 million increase in net loss was primarily attributable to a $7.3$12.7 million increasedecrease in net foreign currency loss,operating income, which was offset in part by an $8.2 million improvement in net foreign currency loss, a $3.5$2.1 million decreaseincrease in income tax expensebenefit and a $0.4$1.6 million increase in operatinginterest income.
35
Results of Operations – Comparison of Six Months Ended June 30, 20222023 and 2021
The following table sets forth consolidated results of operations for the six months ended June 30, 20222023 and 2021:2022:
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Total Revenues | Amount | % of Total Revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | $ | 102.9 | 87.2 | % | $ | 185.3 | 90.2 | % | $ | (82.4 | ) | |||||||||
Net sales – transitional Fab 3 foundry services | 15.1 | 12.8 | 20.2 | 9.8 | (5.1 | ) | ||||||||||||||
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Total revenues | 118.0 | 100.0 | 205.5 | 100.0 | (87.5 | ) | ||||||||||||||
Cost of sales | ||||||||||||||||||||
Cost of sales – standard products business | 75.2 | 63.7 | 119.7 | 58.3 | (44.5 | ) | ||||||||||||||
Cost of sales – transitional Fab 3 foundry services | 17.2 | 14.6 | 17.8 | 8.7 | (0.7 | ) | ||||||||||||||
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Total cost of sales | 92.4 | 78.3 | 137.5 | 66.9 | (45.2 | ) | ||||||||||||||
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Gross profit | 25.6 | 21.7 | 67.9 | 33.1 | (42.3 | ) | ||||||||||||||
Selling, general and administrative expenses | 24.3 | 20.6 | 26.9 | 13.1 | (2.6 | ) | ||||||||||||||
Research and development expenses | 24.6 | 20.8 | 25.4 | 12.3 | (0.8 | ) | ||||||||||||||
Early termination and other charges | 9.3 | 7.8 | 0.8 | 0.4 | 8.5 | |||||||||||||||
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Operating income (loss) | (32.5 | ) | (27.5 | ) | 14.9 | 7.2 | (47.4 | ) | ||||||||||||
Interest income | 5.5 | 4.7 | 1.8 | 0.9 | 3.8 | |||||||||||||||
Interest expense | (0.5 | ) | (0.4 | ) | (0.6 | ) | (0.3 | ) | 0.2 | |||||||||||
Foreign currency loss, net | (2.2 | ) | (1.9 | ) | (7.7 | ) | (3.7 | ) | 5.5 | |||||||||||
Others, net | (0.0 | ) | (0.0 | ) | 0.4 | 0.2 | (0.5 | ) | ||||||||||||
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2.9 | (2.4 | ) | (6.1 | ) | (3.0 | ) | 9.0 | |||||||||||||
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Income (loss) before income tax expense | (29.6 | ) | (25.1 | ) | 8.8 | 4.3 | (38.4 | ) | ||||||||||||
Income tax expense (benefit) | (4.2 | ) | (3.6 | ) | 2.6 | 1.3 | (6.8 | ) | ||||||||||||
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Net income (loss) | $ | (25.4 | ) | (21.5 | ) | $ | 6.2 | 3.0 | $ | (31.6 | ) | |||||||||
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Amount | % of Total Revenues | Amount | % of Total Revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | ||||||||||||||||||||
Display Solutions | $ | 20.5 | 17.4 | % | $ | 57.5 | 28.0 | % | $ | (37.0 | ) | |||||||||
Power Solutions | 82.4 | 69.8 | 127.8 | 62.2 | (45.4 | ) | ||||||||||||||
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Total standard products business | 102.9 | 87.2 | 185.3 | 90.2 | (82.4 | ) | ||||||||||||||
Net sales – transitional Fab 3 foundry services | 15.1 | 12.8 | 20.2 | 9.8 | (5.1 | ) | ||||||||||||||
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Total revenues | $ | 118.0 | 100.0 | % | $ | 205.5 | 100.0 | % | $ | (87.5 | ) | |||||||||
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Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Net Sales | Amount | % of Net Sales | Change Amount | ||||||||||||||||
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Gross Profit | ||||||||||||||||||||
Gross profit – standard products business | $ | 27.7 | 26.9 | % | $ | 65.6 | 35.4 | % | $ | (37.9 | ) | |||||||||
Gross profit – transitional Fab 3 foundry services | (2.1 | ) | (13.8 | ) | 2.3 | 11.6 | (4.4 | ) | ||||||||||||
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Total gross profit | $ | 25.6 | 21.7 | % | $ | 67.9 | 33.1 | % | $ | (42.3 | ) | |||||||||
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Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Total revenues | Amount | % of Total revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | $ | 185.3 | 90.2 | % | $ | 216.2 | 91.3 | % | $ | (30.9 | ) | |||||||||
Net sales – transitional Fab 3 foundry services | 20.2 | 9.8 | 20.7 | 8.7 | (0.6 | ) | ||||||||||||||
Total revenues | 205.5 | 100.0 | 236.9 | 100.0 | (31.4 | ) | ||||||||||||||
Cost of sales | ||||||||||||||||||||
Cost of sales – standard products business | 119.7 | 58.3 | 149.7 | 63.2 | (30.0 | ) | ||||||||||||||
Cost of sales – transitional Fab 3 foundry services | 17.8 | 8.7 | 18.9 | 8.0 | (1.1 | ) | ||||||||||||||
Total cost of sales | 137.5 | 66.9 | 168.5 | 71.1 | (31.0 | ) | ||||||||||||||
Gross profit | 67.9 | 33.1 | 68.4 | 28.9 | (0.4 | ) | ||||||||||||||
Selling, general and administrative expenses | 26.9 | 13.1 | 26.6 | 11.2 | 0.3 | |||||||||||||||
Research and development expenses | 25.4 | 12.3 | 26.7 | 11.3 | (1.4 | ) | ||||||||||||||
Merger-related costs | — | — | 12.3 | 5.2 | (12.3 | ) | ||||||||||||||
Other charges | 0.8 | 0.4 | 3.1 | 1.3 | (2.3 | ) | ||||||||||||||
Operating income (loss) | 14.9 | 7.2 | (0.5 | ) | (0.2 | ) | 15.3 | |||||||||||||
Interest expense | (0.6 | ) | (0.3 | ) | (1.1 | ) | (0.5 | ) | 0.5 | |||||||||||
Foreign currency loss, net | (7.7 | ) | (3.7 | ) | (4.4 | ) | (1.9 | ) | (3.3 | ) | ||||||||||
Others, net | 2.2 | 1.1 | 1.2 | 0.5 | 1.0 | |||||||||||||||
(6.1 | ) | (3.0 | ) | (4.3 | ) | (1.8 | ) | (1.8 | ) | |||||||||||
Income (loss) before income tax expense | 8.8 | 4.3 | (4.8 | ) | (2.0 | ) | 13.6 | |||||||||||||
Income tax expense | 2.6 | 1.3 | 2.9 | 1.2 | (0.3 | ) | ||||||||||||||
Net income (loss) | $ | 6.2 | 3.0 | $ | (7.7 | ) | (3.2 | ) | $ | 13.9 | ||||||||||
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Total revenues | Amount | % of Total revenues | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | ||||||||||||||||||||
Display Solutions | $ | 57.5 | 28.0 | % | $ | 105.5 | 44.5 | % | $ | (48.0 | ) | |||||||||
Power Solutions | 127.8 | 62.2 | 110.7 | 46.7 | 17.1 | |||||||||||||||
Total standard products business | 185.3 | 90.2 | 216.2 | 91.3 | (30.9 | ) | ||||||||||||||
Net sales – transitional Fab 3 foundry services | 20.2 | 9.8 | 20.7 | 8.7 | (0.6 | ) | ||||||||||||||
Total revenues | $ | 205.5 | 100.0 | % | $ | 236.9 | 100.0 | % | $ | (31.4 | ) | |||||||||
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Net sales | Amount | % of Net sales | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Gross Profit | ||||||||||||||||||||
Gross profit – standard products business | $ | 65.6 | 35.4 | % | $ | 66.5 | 30.8 | % | $ | (0.9 | ) | |||||||||
Gross profit – transitional Fab 3 foundry services | 2.3 | 11.6 | 1.8 | 8.9 | 0.5 | |||||||||||||||
Total gross profit | $ | 67.9 | 33.1 | % | $ | 68.4 | 28.9 | % | $ | (0.4 | ) | |||||||||
Revenues
Total revenues were $118.0 million for the six months ended June 30, 2023, an $87.5 million, or 42.6%, decrease compared to $205.5 million for the six months ended June 30, 2022, a $31.4 million, or 13.3%, decrease compared to $236.9 million for the six months ended June 30, 2021.2022. This decrease was primarily due to a decrease in revenue related to our standard products business as described below.
The standard products business.
The transitional Fab 3 foundry services.
Gross Profit
Total gross profit was $25.6 million for the six months ended June 30, 2023 compared to $67.9 million for the six months ended June 30, 2022, compared to $68.4 million for the six months ended June 30, 2021, a $0.4$42.3 million, or 0.6%62.3%, decrease. Gross profit as a percentage of net sales for the six months ended June 30, 2022 increased2023 decreased to 33.1%21.7% compared to 28.9%33.1% for the six months ended June 30, 2021.2022. The increasedecrease in gross profit and gross profit as a percentage of net sales was primarily due to our standard products business as further described below.
The standard products business.
37
Net Sales – Standard Products Business by Geographic Region
We report net sales – standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net sales—standard products business by geographic region and the percentage of total net sales—standard products business represented by each geographic region for the six months ended June 30, 20222023 and 2021:
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||||||
Amount | % of Net sales – standard products business | Amount | % of Net sales – standard products business | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Korea | $ | 62.2 | 33.6 | % | $ | 57.3 | 26.5 | % | $ | 4.9 | ||||||||||
Asia Pacific (other than Korea) | 114.3 | 61.7 | 153.1 | 70.8 | (38.8 | ) | ||||||||||||||
United States | 5.4 | 2.9 | 2.6 | 1.2 | 2.7 | |||||||||||||||
Europe | 3.4 | 1.8 | 2.4 | 1.1 | 1.0 | |||||||||||||||
Others | — | — | 0.7 | 0.3 | (0.7 | ) | ||||||||||||||
$ | 185.3 | 100.0 | % | $ | 216.2 | 100.0 | % | $ | (30.9 | ) | ||||||||||
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||
Amount | % of Net Sales – standard products business | Amount | % of Net Sales – standard products business | Change Amount | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Korea | $ | 30.9 | 30.0 | % | $ | 62.2 | 33.6 | % | $ | (31.3 | ) | |||||||||
Asia Pacific (other than Korea) | 66.9 | 65.0 | 114.3 | 61.7 | (47.4 | ) | ||||||||||||||
United States | 1.3 | 1.2 | 5.4 | 2.9 | (4.1 | ) | ||||||||||||||
Europe | 3.8 | 3.7 | 3.4 | 1.8 | 0.4 | |||||||||||||||
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$ | 102.9 | 100.0 | % | $ | 185.3 | 100.0 | % | $ | (82.4 | ) | ||||||||||
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Net sales – standard products business in Korea for the six months ended June 30, 2022 increased2023 decreased from $57.3$62.2 million to $62.2$30.9 million compared to the six months ended June 30, 2021,2022, or by $4.9$31.3 million, or 8.5%50.3%, primarily due to an increase in revenue from our mobile OLED display driver ICs and OLED TV display driver ICs. This increase was also favorably affected by a stronglower demand for power products such as MOSFETs, including
Net sales – standard products business in Asia Pacific (other than Korea) for the six months ended June 30, 20222023 decreased to $114.3$66.9 million from $153.1$114.3 million in the six months ended June 30, 2021,2022, or by $38.8$47.4 million, or 25.3%41.5%, primarily due to a decrease in revenue from our mobile OLED display driver ICs stemming from a continuing severe shortage in manufacturing capacity (in particular for 28nm
Operating Expenses
Selling,
ResearchandDevelopmentExpenses. Research and development expenses were $24.6 million, or 20.8% of total revenues, for the six months ended June 30, 2021. The increase of $0.3 million, or 1.0%, was primarily attributable2023, compared to an increase in employee compensation including certain incentive and benefit related accruals. This increase was offset in part by a decrease in professional fees mainly comprised of legal and consulting fees, and certain
Early Termination and Other Charges.For the six months ended June 30, 2021,2023, we recorded $12.3$8.4 million of professional service fees and expenses incurredtermination related charges in connection with the contemplated Merger transaction.
Operating Income (Loss)
As a result of the foregoing, operating loss of $32.5 million was recorded for the six months ended June 30, 2023 compared to operating income wasof $14.9 million for the six months ended June 30, 2022 compared to operating loss of $0.5 million the six months ended June 30, 2021.2022. As discussed above, the increasedecrease in operating income of $15.3$47.4 million resulted primarily from a $12.3$42.3 million decrease in Merger-related costs,gross profit and an $8.5 million increase in early termination and other charges, which were offset in part by a $2.3$2.6 million decrease in other chargesselling, general and administrative expenses and a $1.4$0.8 million decrease in research and development expenses. This increase was offset in part by a $0.4 million decrease in gross profit and a $0.3 million increase in in selling, general and administrative expenses.
38
Other Income (Expense)
Interest
InterestExpense. Interest expense was $0.5 million and $0.6 million for the six months ended June 30, 2023 and June 30, 2022, respectively.
Foreign
A substantial portion of our net foreign currency gain or loss is
Income Tax Expense (Benefit)
Income tax benefit was $4.2 million for the six months ended June 30, 2022 and June 30, 20212023, which was $2.2 million and $1.2 million, respectively.
Income tax expense was $2.6 million and $2.9 million for the six months ended June 30, 2022, and 2021, respectively, andwhich was primarily attributable to interest on intercompany loan balances and income tax in our Korean subsidiary and the U.S. parent entity based on the estimated taxable income for the respective period.
Net Income (Loss)
As a result of the foregoing, a net incomeloss of $6.2$25.4 million was recorded for the six months ended June 30, 20222023 compared to a net lossincome of $7.7$6.2 million for the six months ended June 30, 2021.2022. As discussed above, the $13.9$31.6 million increasedecrease in net income was primarily attributable to a $15.3$47.4 million increasedecrease in operating income, which was offset in part by a $3.3$6.8 million increase in income tax benefit, a $5.5 million improvement in net foreign currency loss.loss and a $3.8 million increase in interest income.
39
Liquidity and Capital Resources
Our principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, and to fund working capital needs. We calculate working capital as current assets less current liabilities.
Our principal sources of liquidity are our cash, cash equivalents, cash flows from operations and financing activities. Our ability to manage cash and cash equivalents may be limited, as our primary cash flows are dictated by the terms of our sales and supply agreements, contractual obligations, debt instruments and legal and regulatory requirements. From time to time, we may sell accounts receivable to third parties under factoring agreements or engage in accounts receivable discounting to facilitate the collection of cash. In addition, from time to time, we may make payments to our vendors on extended terms with their consent. As of June 30, 2022,2023, we did not have any accounts payable on extended terms or payment deferment with our vendors.
As of June 29, 2018, our Korean subsidiary entered into an arrangement whereby it (i) acquired a water treatment facility from SK hynix for $4.2 million to support our fabrication facility in Gumi, Korea, and (ii) subsequently sold the water treatment facility for $4.2 million to a third party management company that we engaged to run the facility for a
As of June 30, 2022,2023, cash and cash equivalents held by our Korean subsidiary were $264.5$166.3 million, which represents 97%96% of our total cash and cash equivalents on a consolidated basis. We currently believe that we will have sufficient cash reserves from cash on hand and expected cash from operations to fund our operations as well as capital expenditures for the next 12 months and the foreseeable future.
Working Capital
Our working capital balance as of June 30, 20222023 was $331.2$228.9 million compared to $323.6$290.6 million as of December 31, 2021.2022. The $7.6$61.7 million increasedecrease was primarily attributable to an $8.9 million increase in account receivables, net and a $4.4 million increase in advance payments to certain suppliers, including external foundries to meet our planned production, which was offset in part by a decrease in a $5.8$52.5 million decrease in cash and cash equivalents.
Cash Flows from Operating Activities
Cash inflow provided byoutflow used in operating activities totaled $25.0$1.9 million for the six months ended June 30, 2022,2023, compared to $10.4$25.0 million of cash inflow provided by operating activities for the six months ended June 30, 2021.2022. The net operating cash inflowoutflow for the six months ended June 30, 20222023 reflects our net incomeloss of $6.2$25.4 million, as adjusted favorably by $49.6$26.5 million, which mainly consisted of depreciation and amortization, provision for severance benefits, stock-based compensation and net foreign currency loss, and net unfavorable impact of $30.9$3.0 million from changes of operating assets and liabilities.
Cash Flows from Investing Activities
Cash outflow used in investing activities totaled $6.7$6.4 million for the six months ended June 30, 2022,2023, compared to $9.6$6.7 million of cash outflow used in investing activities for the six months ended June 30, 2021.2022. The $2.8$0.3 million decrease was primarily attributable to a $3.6$4.8 million net decrease in guarantee deposits and a $3.4 million decrease in purchase of property, plant and equipment,hedge collateral, which was offset in part by a $4.4 million net increase in hedge collateral.
Cash Flows from Financing Activities
Cash outflow used in financing activities totaled $0.3$37.1 million for the six months ended June 30, 2022,2023, compared to $0.6$0.3 million of cash inflow provided byoutflow used in financing activities for the six months ended June 30, 2021.2022. The financing cash outflow for the six months ended June 30, 2023 was primarily attributable to a payment of $36.4 million for the repurchases of our common stock pursuant to our expanded stock repurchase program and a payment of $0.4 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units. The financing cash outflow for the six months ended June 30, 2022 was primarily attributable to a payment of $1.8 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units, which was offset entirely by $1.8 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. The financing cash inflow for the six months ended June 30, 2021 was primarily attributable to $2.5 million of proceeds received from the issuance of common stock in connection with the exercise of stock options, which was offset in part by a payment of $1.7 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units.
Capital Expenditures
We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facility and reinforcement of our global research and development capability. For the six months ended June 30, 2022,2023, capital expenditures for property, plant and equipment were $1.5 million, a $3.4 million, or 68.9%, decrease from $4.9which remained flat, compared to $1.5 million for the six months ended June 30, 2021.2022. The capital expenditures for the six months ended June 30, 20222023 and 20212022 were related to meeting our customer demand and supporting technology and facility improvement at our fabrication facility.
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Critical Accounting Policies and Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our consolidated financial statements and accompanying notes.
We believe that our significant accounting policies, which are described further in Note 1 to our consolidated financial statements in our Annual Report on Form
A description of our critical accounting policies that involve significant management judgement appears in our 20212022 Form
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to the market risk that the value of a financial instrument will fluctuate due to changes in market conditions, primarily from changes in foreign currency exchange rates. In the normal course of our business, we are subject to market risks associated with currency movements on our assets and liabilities.
Foreign Currency Exposures
We have exposure to foreign currency exchange rate fluctuations on net income from our subsidiaries denominated in currencies other than U.S. dollars, as our foreign subsidiaries in Korea, Taiwan, China, Japan and Hong Kong use local currency as their functional currency. From time to time these subsidiaries have cash and financial instruments in local currency. The amounts held in Japan, Taiwan, Hong Kong and China are not material in regards to foreign currency movements. However, based on the cash and financial instruments balance at June 30, 20222023 for our Korean subsidiary, a 10% devaluation of the Korean won against the U.S. dollar would have resulted in a decrease of $2.2$0.4 million in our U.S. dollar financial instruments and cash balances.
See “Note 7.6. Derivative Financial Instruments” to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations—Impact of Foreign Currency Exchange Rates on Reported Results of Operations” for additional information regarding our foreign exchange hedging activities.
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Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Report, we carried out an evaluation under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of June 30, 2022,2023, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
For a discussion of legal proceedings, see “Part I: Item 3. Legal Proceedings” of our 2021
See also “Item 1A. Risk Factors” in this Report and “Part I: Item 1A. Risk Factors” of our 2021
Item 1A. | Risk Factors |
The Company is subject to risks and uncertainties, any of which could have a significant or material adverse effect on our business, financial condition, liquidity or consolidated financial statements.
In particular, the Company has been exposedaddition to the risks and uncertainties associated with adverse changes in global, regional or local economic and business conditions, including: inflation; higher interest rates; currency exchange rate fluctuations; changes or uncertainty in fiscal, monetary or trade policies; the
Expanded trade restrictions imposed by Korea may further restrict our ability to sell to certain customers or engage in potential strategic opportunities.
Korea has been expanding its trade restrictions on the export (including various means of outflow, such as sale, transfer or certain licensing outside Korea) of technologies in order to support and foster technologies important to Korea’s economy and national security, which may prevent us from achieving our business objectives or may adversely affect our business.
On July 14, 2021, Form
In the ordinary course of business, our Korean subsidiary may provide certain information relating to its products, including the OLED DDI, to customers, suppliers and vendors, and such disclosure of information may be subject to both the NCT and NHST trade restrictions. Since the addition of the OLED DDI design technology to the NCT list in July 2021, we have filed prior-reports with the MOTIE for the export of our OLED DDI product-related information to certain overseas vendors that manufacture our products, and all such reports have thus far been accepted by the MOTIE. There is no assurance, however, that prior-reports for the export of our product-related information will be continue to be accepted by the MOTIE in the future. In the event that any such prior-report is not accepted, we may be unable to continue our business with the overseas customers, suppliers or vendors, including the manufacturing and delivery of our OLED DDI products.
In addition, our Korean subsidiary is required to obtain approval from the MOTIE in the event that there is any M&A transaction with respect to our Korean subsidiary that results in non-Korean ownership of 50% or more, or the exertion of control over the appointment of officers by a non-Korean person or entity as the largest shareholder. There is no assurance that the MOTIE will approve if such transaction is pursued in the future.
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Item 2. | Unregistered Sales of Equity Securities and Use of |
The following table shows the monthly activity related to our repurchases of common stock for the quarter ended June 30, 2023.
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Approximate dollar value of Shares that may yet be Purchased under the Plans or Programs (in thousands)(2) | ||||||||||||
April 2023 | 325,501 | $ | 9.15 | 325,501 | $ | 22,622 | ||||||||||
May 2023 | 706,634 | $ | 9.58 | 706,634 | $ | 15,849 | ||||||||||
June 2023(1) | 1,435,882 | $ | 11.00 | 1,434,836 | — | |||||||||||
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Total | 2,468,017 | $ | 10.35 | 2,466,971 | — | |||||||||||
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(1) | Includes 1,046 shares withheld to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued under our equity incentive plans. |
(2) | On August 31, 2022, the Company’s Board of Directors authorized an expansion of the Company’s previously announced stock repurchase program from $75 million to $87.5 million of the Company’s common stock. The Company has already repurchased shares worth $37.5 million under the program through an accelerated stock repurchase agreement on December 21, 2021 with JPMorgan Chase Bank, National Association. The remaining $50.0 million of the expanded $87.5 million program was expected to be repurchased in the open market or through privately negotiated transactions. In June 2023, the Company completed the repurchase of its common stock under the prior expanded stock repurchase program using remaining $50 million through open market purchases. |
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
Securities Trading Plans of Directors and Executive Officers
During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.
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Item 6. | Exhibits. |
Footnotes:
# | Filed herewith |
† | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MAGNACHIP SEMICONDUCTOR CORPORATION (Registrant) | ||||||
Dated: August | By: | /s/ Young-Joon Kim | ||||
Young-Joon Kim | ||||||
Chief Executive Officer (Principal Executive Officer) | ||||||
Dated: August | By: | /s/ Shin Young Park | ||||
Shin Young Park | ||||||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
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