Q1 2018 Summary
- Revenue of $165.8 million exceeded the high-end of $158-164 million guidance range; revenue increased 2.5% YoY
- OLED display driver revenue of $34.3 million increased 112% YoY and 141% from Q4 2017; achieved 10 new design wins for OLED display drivers
- Gross profit margin of 26.9% in line with 26-28% guidance range; gross profit margin increased by 1.2 percentage points YoY and gross profit dollars increased 7.2% YoY
- Operating income of $7.4 million increased 15.9% YoY
- Adjusted EBITDA of $15.5 million increased 18.4% YoY
CEO Comments: "Revenue in the first quarter exceeded expectations, fueled by a sharp rebound in demand for our mobile OLED display drivers from smartphone makers, primarily in China," said YJ Kim, Chief Executive Officer. "When we reported Q4 2017 financial results in February, we stated that OLED revenue in Q1 2018 had the potential to increase sequentially by more than 75%, and expressed confidence that OLED revenue was on track to exceed 50% growth in 2018 as compared to 2017 or clearly exceed $100 million for the full year. In fact, our OLED revenue in Q1 increased 141% sequentially and, based upon our current business visibility, we now anticipate OLED revenue growth in 2018 will surpass our previous targets." CEO Kim added, "During Q1, MagnaChip secured a total of 10 new OLED design wins from smartphone makers in China and elsewhere in Asia, and sampled a new third-generation 40-nanometer rigid bezel-less OLED display driver that already has won design-in by a leading smartphone maker for a device targeted to the mainstream market in the second half of 2018."
CFO Comments: "Key financial indicators in the first quarter compared favorably with results achieved in the same year-ago period despite previously disclosed headwinds, including higher raw wafer costs and typical seasonal weakness." said Jonathan Kim, Chief Financial Officer. Revenue in Q1 2018 increased 2.5% as compared to Q1 2017, gross profit margin improved by 1.2 percentage points, gross margin dollars increased by 7.2%, operating income rose 15.9% and Adjusted EBITDA was higher by 18.4% as compared to the first quarter a year ago. Revenue from lower-margin products in the non-OLED portion of the Display business line decreased in Q1 due to a strategic portfolio optimization initiative to improve product mix and profitability over time. CFO Kim added, "Our results in Q1 demonstrated our ongoing commitment to focus on achieving profitable growth."
First Quarter Financial Review
Total Revenue
Total revenue in the first quarter of 2018 was $165.8 million, up 2.5% as compared to $161.7 million from the first quarter of 2017, and down 5.0% from the fourth quarter of 2017.
Segment Revenue and Segment Adjustments
In January 2018, as part of the Company's ongoing portfolio optimization effort to realign business processes and streamline the organizational structure, the Company transferred a portion of the non-OLED Display business, which was $4.4 million for Q1 2018, from the Standard Products Group to the Foundry Services Group. The transferred non-OLED Display business has characteristics more closely aligned with the Foundry business than with Standard Products and resided within the Display business line primarily as a result of a long standing customer relationship established many years ago. The historical financial results below are discussed both on an as reported and as adjusted basis for comparative purposes.
Foundry Services Group revenue in the first quarter was $77.4 million, about flat with reported revenue of $77.5 million from the first quarter of 2017, and down 4.0% from the fourth quarter of 2017 on an as reported basis; and down 7.3% from the first quarter of 2017, and down 14.2% from the fourth quarter of 2017 on an as adjusted basis.
Following the strategic realignment and portfolio optimization discussed above, Standard Products Group revenue in the first quarter of 2018 was $88.4 million, up 5.0% year-over-year and down 5.9% sequentially on an as reported basis; and up 13.1% year-over-year and up 4.8% sequentially on an as adjusted basis. The improved results in the Standard Products Group reflected an improvement in mobile OLED driver revenue in connection with the introduction of new OLED smartphones from China manufacturers, higher demand for MOSFETS for mobile battery and television products, despite lower LCD display driver revenue. The sequential revenue decline in Q1 2018 as compared with the fourth quarter of 2017 stemmed primarily from a previously announced strategic plan to reduce business from lower-margin LCD display drivers in the Standard Products Group.
Total Gross Profit and Gross Profit Margin
Total gross profit in the first quarter of 2018 was $44.6 million or 26.9% as a percentage of sales as compared with gross profit of $41.6 million or 25.7% gross profit margin in the first quarter of 2017, and $49.4 million or 28.3% gross profit margin for the fourth quarter of 2017.
Segment Gross Profit Margin
Foundry Services Group gross profit margin was 26.7% in the first quarter of 2018 as compared with, on an as reported basis, 28.5% in the first quarter of 2017 and 31.7% in the fourth quarter of 2017. The Foundry Services Group gross profit margin was, on an as adjusted basis, 27.9% in the first quarter of 2017 and 30.4% in the fourth quarter of 2017. The Standard Products Group gross profit margin was 27.2% in the first quarter of 2018 as compared with, on an as reported basis, 23.1% in the first quarter of 2017, and 25.3% in the fourth quarter of 2017. The Standard Products Group gross profit margin was, on an adjusted basis, 23.3% in the first quarter of 2017, and 26.0% in the fourth quarter of 2017.
Operating Income, Net Income, Adjusted Net Income, Adjusted EBITDA
Operating income, on a GAAP basis, for the first quarter was $7.4 million, as compared with $6.4 million in the first quarter of 2017, and $7.6 million in the fourth quarter of 2017.
Net income, on a GAAP basis, for the first quarter was $2.8 million or $0.08 per basic share and diluted share, as compared with net income on a GAAP basis of $43.7 million or $1.30 per basic share and $1.05 per diluted share in the first quarter of 2017, and compared with net income of $43.7 million or $1.28 per basic share and $0.99 per diluted share in the fourth quarter of 2017.
