MagnaChip Semiconductor (NYSE:MX) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

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Summary

MagnaChip Semiconductor reported Q1 2026 revenue of $46.2 million, showing both sequential and year-over-year growth, influenced by a one-time sales incentive program.

The company is executing a multi-year transformation strategy focusing on product competitiveness and has launched 55 new generation products in 2025, aiming for another 55 in 2026.

Guidance for Q2 2026 anticipates consolidated revenue between $44.5 million and $48.5 million, with gross profit margins expected to be 17-19%.

Full Transcript

OPERATOR

Thank you for standing by and welcome to MagnaChip Semiconductor first quarter 2026 earning conference call at this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mike Bishop from Investor Relations. Please go ahead, sir.

Jonathan

Thank you. Jonathan hello everyone and thank you for joining us to discuss MagnaChip's financial results for the first quarter ended March 31, 2026. The first quarter earnings release that was issued today after the close of market can be found on the company's investor Relations website. The webcast replay of today's call will be archived on our website shortly afterwards. Joining me today are Camilla Martino, MagnaChip's Chief Executive Officer in Sinyoung Park, our Chief Financial Officer. Camilla will discuss the company's recent operating performance and business overview and Shinyoung will review the financial results for the quarter and provide guidance for the second quarter of 2026. There will be a Q and A session following the prepared remarks. During the course of this conference call, we may make forward looking statements about MagnaChip's business outlook and expectations. Our forward looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today, and therefore are subject to inherent risks and uncertainties as described in the Safe harbor statement found in our SEC filing. Such statements are based upon information available to the Company as of the date here and are subject to change for future developments. Except as otherwise required by law, the Company does not undertake any obligations to update these statements. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles (GAAP), but are intended as supplemental measures of MagnaChip's operating performance that may be useful to investors. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our first quarter earnings release in the Investor Relations section of our website. And with that, I'll now turn the call over to Camilla Martino.

Camilla Martino (Chief Executive Officer)

Camilla thanks Mike. Good afternoon everyone and thank you for joining us. I am very happy to be here today for my third earnings call with MagnaChip Semiconductor. Let me reiterate a point that I've made consistently over the past several quarters. Specifically, MagnaChip Semiconductor has a strong technical foundation with a long history in power semiconductors and deep relationships with important customers. We are building on that foundation to execute a multi year transformation to return the company to profitable growth. Although we are in the early stages of this transition, I believe that we are making good progress. Let me address the quarter directly from a revenue standpoint. the first quarter came in stronger than typical seasonality would suggest with both sequential and year over year growth. Allow me to provide some clarity on how to interpret that result. A portion of the strength was driven by actions we took in prior quarters. Specifically our previously communicated one time sales incentive program to reduce channel inventory. This action was necessary to improve the health of the sales channel, but it also creates some short term variability in revenue. While the top line growth is encouraging, we are still operating in a challenging competitive environment consistent with our communications in prior quarters. We continue to face pricing pressure on legacy products, particularly in China. And as we have said before, product competitiveness is the key to winning. Where we have competitive products, we can win. Where we do not, it is difficult to win in this market. On gross margin we saw sequential improvement. We feel good about our progress and we are at the beginning of a multi year journey to substantially improve gross margin. Let me just now step back and reconnect this quarter to our broader strategy. As you may recall, last quarter we articulated a new strategy comprising six foundational pillars for the company's longer term recovery and profitable growth. We are actively executing on all of them. I will not go through each one of them in detail today, but I would like to reinforce a few key points. As we have consistently said, at the center of everything we are doing is improving product competitiveness by developing new generation products. These are all critical to our long term success. We have focused our efforts on accelerating our R and D and launching new products. We launched 55 new generation products in 2025 and we are now aiming for another 55 new generation products in 2026 after launching only four new generation products in 2024 and zero in 2023. We believe that the launch of many new generation products on a consistent basis will have a meaningful contribution to our financial recovery efforts. Some of these new generation products include those we mentioned in our recent press release, including our newest eighth generation of products for the battery set as well as for MD mosfets. While it takes some time for our customers to qualify a new product and subsequently drive revenue, we believe that over time these new products will return the company to revenue growth and improve margins consistent with our comments last quarter, we expect new generation products to comprise approximately 10% of our total revenue in the fourth quarter of 2026, up from only 2% for the full year 2025. In parallel, we expect to continue deepening our relationships with important industry leaders in our target market segments. This will be crucial to returning to growth. I would like to address our Power IC business as that is an area of opportunity and is also critical to our long term success. It is a smaller portion of our business right now and we expect it to remain so through 2026. At the same time, we do see significant opportunity for our Power IC business in the coming years. We continue to align our Power IC products as well as their future gate driver IC products with our Power discrete product roadmap such as MOSFETs and IGBTS. The longer term alignment of our discrete MOSFETs and their product IC products will enable Magnitude to launch higher value added integrated power modules in the future as well. We believe MagnaChip Semiconductor's longer term potential is substantial and the accelerated launch of new generation products are building initial successes. So while we are confident in the direction the financial improvement will be gradual. Let me turn over to Shinya Shinya

Shinyoung

thank you Camilla and welcome everyone on the call. Start with key financial metrics for Q1 total Q1 consolidated revenue from continuing operations, which includes Power Analytics Solutionsegment was $46.2 million around the midpoint of our guidance range of 44 to $48 million. This was up 3.3% year over year and up 13.9% sequentially, compared to $44.7 million in Q1 2025 and $40.6 million in Q4 2025. Revenue from Power Analog Solutions in Q1 was $41.6 million, up 4.5% year over year and up 13.1% sequentially. The sequential improvement was primarily driven by the $2.7 million of one time sales incentive that was recognized as a reduction in revenue in Q4 2025 as part of our efforts to reduce elevated channel inventory. Revenue from Power IC in Q1 was $4.6 million, down 6.2% year over year, but up 21.3% sequentially in Q1. Consolidated gross profit margin from continuing operations was 50% above the midpoint of our guidance range of 14 to 16%. This compares to 20.9% in Q1 2025 and 9.3% in Q4 2025. Year over year decline was primarily attributable to an unfavorable product mix driven mainly by ASP version, particularly in China. As a reminder, the $2.7 million of one time sales incentive was recorded in Q4 2025. Excluding this item, Q4 gross profit margin would have been 15% on that basis. Gross profit margin improved by 60 basis points quarter over quarter primarily due to higher utilization rates. Moving to operating expenses, SGNA was $7.7 million in Q1 compared to $9.2 million in Q1 2025 and $8.6 million in Q4 2025. As mentioned in our prior earnings call, we expect to see annual OPEX savings of approximately $2.5 million beginning in Q4 2025 from our cost reduction efforts primarily related to the voluntary rejuvenation program implemented in Q3 last year. Stock based compensation charges including SGNA award $0.6 million in Q1 compared to $0.8 million in Q1 2025 and $0.4 million in Q4 2025. R&D expenses were $6.7 million in Q1 compared to $5.4 million in Q1 2025 and $7.6 million in Q4 2025. Year over year increase reflects the acceleration of product development. As Camilo noted earlier, we are now aiming for 55 new generation products in 2026. Before turning to our non GAAP results, please note that our GAAP financial results are available in our Form 8K filing with our first quarter earnings release. Our non GAAP results are as follows. Adjusted operating loss was $6.5 million in Q1 compared to a loss of $4.4 million in Q1 2025 and a loss of $11.9 million in Q4 2025. Adjusted EBITDA was negative $3.6 million in Q1 compared to negative $1.2 million in Q1 2025 and negative $8.9 million in Q4 2024. The quarter over quarter improvement in both adjusted operating loss and adjusted EBITDA was primarily driven by higher gross Prof. Profit along with lower operating expenses. As discussed earlier, Q1 non GAAP diluted loss per share was $0.11 compared to a loss per share of $0.08 in both Q1 2025 and Q4 2025. Weighted average non GAAP diluted shares outstanding for the quarter were $36.4 million compared to 36.9 million in Q1 25 and 36 million in Q4 2025. Moving to the balance sheets, we ended Q1 with cash of $94.6 million compared to 1 of $3.8 million at the end of Q4 2025. The decrease was primarily driven by $3.9 million in capital expenditures, with a remaining change largely attributable to operating cash outflows. At the end of Q1 total borrowings were $42.3 million, including $15.9 million of liquidity loan. Of this amount, $26.4 million associated with the term loan was reclassified to short term during the quarter due to its maturity in March 2027. Treatment Our lender is aware of the maturity profile and we expect to be able to extend the maturity date beyond March 2027. I will address it in the ordinary course of business consistent with typical market pressures in Korea. Now moving to our second quarter 2026 guidance. Consistent with Camilo's earlier comment, Q1 revenue came in stronger than typical seasonality due to the one time sales incentive program. While actual results May vary for Q2 2026 magnitude currently expects consolidated revenue from continuing operations, which includes Power Analog Solutions and Power IC businesses, to be in the range of $44.5 million to $48.5 million, roughly flat sequentially and a decrease of 2.3% year over year at the midpoint. This compares with $46.2 million in Q1 2026 and $47.6 million in Q2 2025. Consolidated gross profit margin from continuing operations to be in the range of 17 to 19%, up from 15.6% in Q1 2026, but down from 20.4% in Q2 2025. Finally, I'd like to note that a planned upgrade to the electrical substation by a service provider in Coomi is expected in Q3 and will have an impact on our Fast3 operations. To mitigate any potential customer disruptions, we plan to build some additional inventory in Q2 and into Q3. As a result, we would expect our factory utilization rate to be somewhat higher in Q2 followed by lower utilization in Q3. Since utilization is main driver of gross margin, we expect our Gross margin in Q2 will likely be higher. As implied by our guidance, gross margins are expected to decline in Q3 and decline further in Q4 as a result of the planned upcoming thank you and now I'll turn the call over to Camilo for his final remarks. Camilo, thank you.

Camilla Martino (Chief Executive Officer)

Xiyun, Allow me to reiterate that we are committed to executing on our turnaround strategy and in particular the six foundational pillars that we articulated a quarter ago. While we proceed through this multi year journey. We are pleased to see the initial signs of success. Ultimately, this new strategy should drive long term shareholder value.. I want to thank our employees for their continued hard work and dedication and our investors and partners for their patience and support. As we return the company to growth, we will continue to be transparent, disciplined and focused execution, I will now turn the call to the operator and open the call for questions.

OPERATOR

Certainly. And our first question for today comes from the line of Suji dasilva from Wath Capital. Your question please.

Suji dasilva

Hi Camilla, Hi Shinyoung. Could you please start first with maybe the gross margins by segment and how they vary. And is one more manufacturer exposed than the other? Any details that would be helpful.

Camilla Martino (Chief Executive Officer)

You're asking for this quarter, Sujit, right? Yeah. You had the gross margins in the press release by segment and they were very different. I was just curious what the driver of one versus the other was.

Shinyoung

And then. Yeah, so we have a discord business which we call the power analog solutions and power IT businesses. So we've been kind of broken them down into those and power ic, that's the ic, the custom chip. So that the gross margin has been hovering around like 40 percentage and it used to be a little over but depending on the product mix. So that business, I mean relatively revenue size is relatively small compared to the total company's revenue. But the margin has been pretty, I mean a lot higher than the normal corporate gross margin and the other power analog solutions gross margin, that's kind of. That's the product we are producing in our Gumi fab. So there are multiple factors that go into the gross margin calculation, meaning utilization and fixed cost. And all of those kind of put into that the grooming effect and cost profile that we're going to dictate how the gross margin can kind of vary quarter over quarter of that product line.

Suji dasilva

And as Shikyong mentioned, utilization is a key factor that's driving. Okay, thank you. And then can you talk about the products you're expecting in 26 and what kind of gross margin trend we can expect above the products you've already introduced in 25?

Camilla Martino (Chief Executive Officer)

Yes, sure. The products that we have mentioned that we mentioned today, the 55, that's the plan for this year. New generation products, they are across the board. They are medium voltage, low voltage, IGBTs, for example, superjunction. So we are. There's a whole bunch of new products right across the board. We're excited about that. That will have an impact on gross margin. But as we communicated on the call, it does take time to have an impact this. I think we said that in Q4 we expect that new generation products to contribute approximately 10% of the total revenue. But at the same time, you need to offset that with Shinyoung Park's comments on the planned upgrade to the electrical substation, because that will have an impact on Q4 margin as well in the other direction. So there's a few factors going into the second half.

Suji dasilva

Okay, great, Camilla. Thanks. And lastly, can you update us on where the manufacturing is from filling back into the manufacturing services capacity you had before.

Shinyoung

Thanks. Manufacturing services for the before when you had a contract where you were providing manufacturing services at cost. And now how you're filling that in now today. Thanks. Sure. That's the foundry services that we provided to the buyer of our foundry business and the factory that we used to own them. So there are certain margin on that one, although that's actually lower than our corporate margin in the past. You see that margin profile. So that foundry service actually ended in the beginning of the last year, so not in 2026 and 2025. So that's what we are dealing with. The idle capacity, approximately 20% of our Gumi factory is actually was dedicated for the foundry service. And now that's kind of idle. So like you see that our gross margin has been suppressed because of that idle capacity. So that whole kind of capex that we announced, we spent not all of them, but we cut them half and we are spending it. That's to upgrade our equipment to support this new generation power product rather than kind of convert that idle capacity for the power product simply. I mean, that's because of the pace of our product development. Also the revenue, it takes some time to do it. And also the softness of the. I mean our legacy product environment. So we are kind of being prudent to spend the CapEx to support that. So it's really not overtime overnight kind of transition or the conversion from the foundry capacity to the power capacity. But as we said previously, we're going to be very cautiously assessed what's going to be the best for the company, like from the cash and also the profitability standpoint, how we're going to convert the capacity for the power.

Suji dasilva

Okay, thank you Cheyenne. Thank you, Mellas.

OPERATOR

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

Mike Bishop (Investor Relations)

Thank you everyone for participating on our call today. We appreciate your support of MagnaChip Semiconductor. This concludes the call.

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.