MAGNACHIP SEMICONDUCTOR Corp

Previous wording

We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communication, Internet of Things (“IoT”), 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.

Current wording

We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communication, Internet of Things (“IoT”), consumer, computing, industrial and automotive applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 1,050 registered patents and pending applications and extensive engineering and manufacturing process expertise.

Previous wording

During the first quarter of 2024, we repurchased 626,279 shares of our common stock in the open market for an aggregate purchase price of $4.1 million and a weighted average price per share of $6.57 under the new stock repurchase program.

Current wording

During the first half of 2024, we repurchased 1,097,435 shares of our common stock in the open market for an aggregate purchase price of $6.4 million and a weighted average price per share of $5.86 under the new stock repurchase program.

Previous wording

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 anon-U.S. GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss (gain), net and (iv) early termination charges. EBITDA for the periods indicated is defined as net income (loss) before interest income, interest expense, income tax benefit, and depreciation and amortization.

Current wording

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 anon-U.S. GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss (gain), net, (iii) derivative valuation loss (gain), net and (iv) early termination and other charges. EBITDA for the periods indicated is defined as net income (loss) before interest income, interest expense, income tax benefit, and depreciation and amortization.

Previous wording

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 (loss) or any other performance measure derived in accordance with 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 (Loss), 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 (loss) adjusted to exclude (i) equity-based compensation expense and (ii) early termination charges.

Current wording

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 (loss) or any other performance measure derived in accordance with 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 (Loss), 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 (loss) adjusted to exclude (i) equity-based compensation expense and (ii) early termination and other charges.

Previous wording

Adjusted Net Income (Loss) (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to net income (loss) or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of liquidity. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (Loss) (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (Loss) (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (Loss) (including on a per share basis); for the periods indicated as net income (loss), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss (gain), net, (iv) early termination charges and (v) income tax effect onnon-GAAP adjustments.

Current wording

Adjusted Net Income (Loss) (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to net income (loss) or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of liquidity. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (Loss) (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (Loss) (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (Loss) (including on a per share basis); for the periods indicated as net income (loss), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss (gain), net, (iii) derivative valuation loss (gain), net, (iv) early termination and other charges and (v) income tax effect onnon-GAAP adjustments.

Previous wording

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 three months ended March 31, 2024 and 2023, we sold products to 129 and 120 customers, respectively, and our net sales to our ten largest customers represented 74% and 71% of our net sales—standard products business, respectively.

Current wording

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, 2024 and 2023, we sold products to 145 and 138 customers, respectively, and our net sales to our ten largest customers represented 73% and 70% of our net sales—standard products business, respectively.

Previous wording

We are currently in the process of winding down the Transitional Fab 3 Foundry Services, which represented 7.2% and 9.6% of our total revenues for the three months ended March 31, 2024 and 2023, respectively.

Current wording

We are currently in the process of winding down the Transitional Fab 3 Foundry Services, which represented 4.4% and 5.7% of our total revenues for the three and six months ended June 30, 2024, respectively.

Previous wording

Impact of Foreign Currency Exchange Rates on Reported Results of Operations. Historically, a portion of our revenues and cost of sales and greater than the majority of our operating expenses have been denominated innon-U.S. currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars converted from ournon-U.S. revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative to Korean won, depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.S. dollar were to appreciate relative to the Korean won. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the U.S. dollar as a substantial portion ofnon-cash translation gain or loss is associated with the intercompany long-term loans to one of our Korean subsidiaries, Magnachip Semiconductor, Ltd. or MSK, which is denominated in U.S. dollars. As of March 31, 2024, the outstanding intercompany loan balance including accrued interest between MSK and our Dutch subsidiary was $258.3 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected.

Current wording

Impact of Foreign Currency Exchange Rates on Reported Results of Operations. Historically, a portion of our revenues and cost of sales and greater than the majority of our operating expenses have been denominated innon-U.S. currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars converted from ournon-U.S. revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative to Korean won, depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.S. dollar were to appreciate relative to the Korean won. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the U.S. dollar as a substantial portion ofnon-cash translation gain or loss is associated with the intercompany long-term loans to one of our Korean subsidiaries, Magnachip Semiconductor, Ltd. or MSK, which is denominated in U.S. dollars. As of June 30, 2024, the outstanding intercompany loan balance including accrued interest between MSK and our Dutch subsidiary was $261.5 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected.

Previous wording

The standard products business. Net sales from our standard products business were $45.5 million for the three months ended March 31, 2024, a $6.0 million, or 11.6%, decrease compared to $51.5 million for the three months ended March 31, 2023.

Current wording

The standard products business. Net sales from our standard products business were $50.8 million for the three months ended June 30, 2024, a $0.5 million, or 1.1%, decrease compared to $51.4 million for the three months ended June 30, 2023.

Previous wording

Net sales from our Mixed-Signal Solutions business line decreased from $12.8 million for the three months ended March 31, 2023 to $9.0 million for the three months ended March 31, 2024. The decrease in net sales from our Mixed-Signal Solutions business line was primarily attributable to a decrease in revenue from our mobile OLED display driver ICs stemmed from slower than expected new design-wins and lower customer demand for legacy products, and weak demand for ourauto-LCD display driver ICs also had an unfavorable impact on net sales. This decrease was offset in part by a higher demand for our Power IC products, primarily for televisions.

Current wording

Net sales from our Mixed-Signal Solutions business line decreased from $12.4 million for the three months ended June 30, 2023 to $11.6 million for the three months ended June 30, 2024. The decrease in net sales from our Mixed-Signal Solutions business line was primarily attributable to a decrease in revenue from our mobile OLED display driver ICs stemmed from slower than expected new design-wins and lower customer demand for legacy products, and weak demand for ourauto-LCD display driver ICs also had an unfavorable impact on net sales. This decrease was offset in part by a higher demand for our Power IC products, primarily for televisions and OLED IT devices.

Previous wording

The transitional Fab 3 foundry services. Net sales from the transitional Fab 3 foundry services were $3.5 million and $5.5 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The transitional Fab 3 foundry services. Net sales from the transitional Fab 3 foundry services were $2.3 million and $9.6 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Total gross profit was $9.0 million for the three months ended March 31, 2024 compared to $12.1 million for the three months ended March 31, 2023, a $3.1 million, or 25.8%, decrease. Gross profit as a percentage of net sales for the three months ended March 31, 2024 decreased to 18.3% compared to 21.2% for the three months ended March 31, 2023. The decrease in gross profit and gross profit as a percentage of net sales was primarily due to our standard products business as further described below.

Current wording

Total gross profit was $11.6 million for the three months ended June 30, 2024 compared to $13.5 million for the three months ended June 30, 2023, a $1.9 million, or 14.3%, decrease. Gross profit as a percentage of net sales for the three months ended June 30, 2024 decreased to 21.8% compared to 22.2% for the three months ended June 30, 2023. The decrease in gross profit and gross profit as a percentage of net sales was primarily due to our standard products business as further described below.

Previous wording

Gross profit from our Power Analog Solutions business line was $5.6 million for the three months ended March 31, 2024, which represented a $4.7 million, or 45.5%, decrease from gross profit of $10.3 million for the three months ended March 31, 2023. Gross profit as a percentage of net sales for the three months ended March 31, 2024 decreased to 15.4% compared to 26.7% for the three months ended March 31, 2023. The year-over-year decrease in gross profit as a percentage of net sales was primarily attributable to a lower utilization rate of our internal fabrication facility in Gumi and an unfavorable product mix.

Current wording

Gross profit from our Power Analog Solutions business line was $7.7 million for the three months ended June 30, 2024, which represented a $1.3 million, or 14.4%, decrease from gross profit of $9.0 million for the three months ended June 30, 2023. Gross profit as a percentage of net sales for the three months ended June 30, 2024 decreased to 19.7% compared to 23.1% for the three months ended June 30, 2023. The year-over-year decrease in gross profit as a percentage of net sales was primarily attributable to a lower utilization rate of our internal fabrication facility in Gumi from the wind-down of transitional foundry services and an unfavorable product mix.

Previous wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $11.3 million, or 23.0% of total revenues, for the three months ended March 31, 2024, compared to $12.2 million, or 21.3% of total revenues, for the three months ended March 31, 2023. The decrease of $0.9 million, or 7.4%, was primarily attributable to a decrease in employee compensation including certain incentives and benefit related accruals.

Current wording

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $11.7 million, or 22.1% of total revenues, for the three months ended June 30, 2024, compared to $12.1 million, or 19.9% of total revenues, for the three months ended June 30, 2023. The decrease of $0.4 million, or 3.3%, was primarily attributable to a decrease in employee compensation including certain incentives and benefit related accruals, which was offset in part by an increase in professional fees mainly comprised of legal and consulting fees.

Previous wording

Research and Development Expenses. Research and development expenses were $11.2 million, or 22.8% of total revenues, for the three months ended March 31, 2024, compared to $13.3 million, or 23.3% of total revenues, for the three months ended March 31, 2023. The decrease of $2.1 million, or 16.1%, was primarily attributable to a decrease in material costs for our 28-nanometer OLED display driver ICs based on the timing of development activities.

Current wording

Research and Development Expenses. Research and development expenses were $12.7 million, or 23.9% of total revenues, for the three months ended June 30, 2024, compared to $11.3 million, or 18.5% of total revenues, for the three months ended June 30, 2023. The increase of $1.4 million, or 12.8%, was primarily attributable to an increase in material costs for our 28-nanometer OLED display driver ICs based on the timing of development activities.

Previous wording

Interest Income. Interest income was $2.2 million and $2.8 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

Current wording

Interest Income. Interest income was $2.2 million and $2.7 million for the three months ended June 30, 2024 and June 30, 2023, respectively.

Previous wording

Interest Expense. Interest expense was $0.2 million and $0.3 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

Current wording

Interest Expense. Interest expense was $0.6 million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively.

Previous wording

A substantial portion of our net foreign currency gain or loss isnon-cash translation gain or loss associated with intercompany long-term loans to one of our Korean subsidiaries, which are denominated in U.S. dollars, and are affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of March 31, 2024 and March 31, 2023, the outstanding intercompany loan balances, including accrued interest between our Korean subsidiary, Magnachip Semiconductor, Ltd., and our Dutch subsidiary, were $258.3 million and $301.9 million, respectively. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income (loss) since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.

Current wording

A substantial portion of our net foreign currency gain or loss isnon-cash translation gain or loss associated with intercompany long-term loans to one of our Korean subsidiaries, which are denominated in U.S. dollars, and are affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of June 30, 2024 and June 30, 2023, the outstanding intercompany loan balances, including accrued interest between our Korean subsidiary, Magnachip Semiconductor, Ltd., and our Dutch subsidiary, were $261.5 million and $293.1 million, respectively. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income (loss) since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.

Previous wording

Income tax benefit was $1.2 million for the three months ended March 31, 2023, which was primarily attributable to the estimated taxable loss in our then primary operating entity in Korea for the respective period.

Current wording

Income tax benefit was $3.0 million for the three months ended June 30, 2023, which was primarily attributable to the estimated taxable loss in our then primary operating entity in Korea for the respective period.

Previous wording

Net sales from our Power Analog Solutions business line decreased from $38.7 million for the three months ended March 31, 2023 to $36.5 million for the three months ended March 31, 2024. The decrease in net sales from our Power Analog Solutions business line was attributable to lower demand for power products such ashigh-end MOSFETs and IGBTs in the industrial segment, especially solar inverter and LED lighting. This decrease was offset in part by a higher demand for power products such as MOSFETs in the communication segment.

Current wording

Net sales from our Power Analog Solutions business line decreased from $77.7 million for the six months ended June 30, 2023 to $75.8 million for the six months ended June 30, 2024. The decrease in net sales from our Power Analog Solutions business line was attributable to lower demand for premium power products such ashigh-end MOSFETs and IGBTs in the industrial application, especially solar inverter and LED lighting. This decrease was offset in part by a higher demand for power products such as MOSFETs in the communication application.

Previous wording

Gross profit from our Mixed-Signal Solutions business line was $4.0 million for the three months ended March 31, 2024, which represented a $0.2 million, or 3.9%, increase from gross profit of $3.9 million for the three months ended March 31, 2023. Gross profit as a percentage of net sales for the three months ended March 31, 2024 increased to 44.6% compared to 30.2% for the three months ended March 31, 2023. The year-over-year increase in gross profit as a percentage of net sales was primarily attributable to a reversal of certain inventory charge as such reserved inventory was subsequently sold to certain other customers.

Current wording

Gross profit from our Mixed-Signal Solutions business line was $8.0 million for the six months ended June 30, 2024, which represented a $0.3 million, or 4.0%, decrease from gross profit of $8.4 million for the six months ended June 30, 2023. Gross profit as a percentage of net sales for the six months ended June 30, 2024 increased to 39.0% compared to 33.2% for the six months ended June 30, 2023. The year-over-year increase in gross profit as a percentage of net sales was primarily attributable to a reversal of certain inventory write-down as such reserved inventory was subsequently sold to a certain other customer.

Previous wording

Net sales – standard products business in Korea increased from $16.5 million for the three months ended March 31, 2023 to $18.1 million for the three months ended March 31, 2024, or by $1.6 million, or 10.0%, primarily due to a higher demand for power products such as MOSFETs, primarily for smartphone applications, which was offset in part by a lower demand forhigh-end MOSFETS, primary for televisions. A higher demand for our Power IC products, primarily for televisions, also had a favorable impact on net sales.

Current wording

Net sales – standard products business in Korea increased from $30.9 million for the six months ended June 30, 2023 to $38.2 million for the six months ended June 30, 2024, or by $7.3 million, or 23.6%, primarily due to a higher demand for power products such as MOSFETs, primarily for smartphone applications, which was offset in part by a lower demand for our mobile OLED display driver ICs. A higher demand for our Power IC products, primarily for televisions and OLED IT devices, also had a favorable impact on net sales.

Previous wording

Net sales – standard products business in Asia Pacific (other than Korea) decreased from $31.9 million in the three months ended March 31, 2023 to $25.7 million for the three months ended March 31, 2024, or by $6.2 million, or 19.5%, primarily due to a decrease in revenue from our mobile OLED display driver ICs stemmed from slower than expected new design-wins and lower customer demand for legacy products. The decreased demand for our power products such as IGBTs mainly for solar inverters in the industrial segment also had an unfavorable impact on net sales.

Current wording

Net sales – standard products business in Asia Pacific (other than Korea) decreased from $66.9 million in the six months ended June 30, 2023 to $54.9 million for the six months ended June 30, 2024, or by $12.0 million, or 18.0%, primarily due to a decrease in revenue from our mobile OLED display driver ICs andauto-LCD display driver ICs. The decreased demand for our power products such as MOSFETs, mainly fore-bikes, and IGBTs, primarily for solar inverters, also had an unfavorable impact on net sales.

Previous wording

Early Termination Charges. For the three months ended March 31, 2023, we recorded in our consolidated statement of operations $8.4 million of termination related charges in connection with the Program that we offered to certain employees during the first quarter of 2023.

Current wording

Early Termination and Other Charges. For the six months ended June 30, 2023, we recorded $8.4 million of termination related charges in connection with the Program that we offered to certain employees during the first quarter of 2023. During the same period, we also recorded $0.8 million ofone-time employee incentives.

Previous wording

As a result of the foregoing, operating loss of $13.5 million was recorded for the three months ended March 31, 2024 compared to operating income of $21.8 million for the three months ended March 31, 2023. As discussed above, the decrease in operating loss of $8.4 million resulted primarily from an $8.4 million decrease in early termination charges, a $2.1 million decrease in research and development expenses and a $0.9 million decrease in selling, general and administrative expenses. This decrease in operating loss was offset in part by a $3.1 million decrease in gross profit.

Current wording

As a result of the foregoing, operating loss of $26.3 million was recorded for the six months ended June 30, 2024 compared to operating loss of $32.5 million for the six months ended June 30, 2023. As discussed above, the decrease in operating loss of $6.2 million resulted primarily from a $9.3 million decrease in early termination and other charges, a $1.3 million decrease in selling, general and administrative expenses and a $0.7 million decrease in research and development expenses, which was offset in part by a $5.1 million decrease in gross profit.

Previous wording

Foreign Currency Loss, Net. Net foreign currency loss for the three months ended March 31, 2024 was $5.0 million compared to net foreign currency loss of $3.4 million for the three months ended March 31, 2023. The net foreign currency loss for the three months ended March 31, 2024 and March 31, 2023 was due to the depreciation in value of the Korean won relative to the U.S. dollar during the period.

Current wording

Foreign Currency Loss, Net. Net foreign currency loss for the six months ended June 30, 2024 was $8.6 million compared to net foreign currency loss of $2.2 million for the six months ended June 30, 2023. The net foreign currency loss for the six months ended June 30, 2024 and June 30, 2023 was due to the depreciation in value of the Korean won relative to the U.S. dollar during the period.

Previous wording

Income tax benefit was $1.0 million for the three months ended March 31, 2024, which was primarily attributable to the estimated taxable loss in one of our Korean subsidiaries for the respective period.

Current wording

Income tax benefit was $4.2 million for the six months ended June 30, 2023, which was primarily attributable to the estimated taxable loss in our then primary operating entity in Korea for the respective period.

Previous wording

As a result of the foregoing, a net loss of $15.4 million was recorded for the three months ended March 31, 2024 compared to a net loss of $21.5 million for the three months ended March 31, 2023. As discussed above, the $6.1 million improvement in net loss was primarily attributable to an $8.4 million decrease in operating loss, which was offset in part by a $1.6 million increase in net foreign currency loss and a $0.6 million decrease in interest income.

Current wording

As a result of the foregoing, a net loss of $28.4 million was recorded for the six months ended June 30, 2024 compared to a net loss of $25.4 million for the six months ended June 30, 2023. As discussed above, the $3.0 million increase in net loss was primarily attributable to a $6.4 million increase in net foreign currency loss, a $1.6 million decrease in income tax benefit and a $1.1 million decrease in interest income, which was offset in part by a $6.2 million decrease in operating loss.

Previous wording

As of June 29, 2018, our Korean subsidiary, Magnachip Semiconductor, Ltd., 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 10-year term beginning July 1, 2018. As of March 31, 2024, the outstanding obligation of this arrangement is approximately $18.5 million for remaining service term through 2028.

Current wording

As of June 29, 2018, our Korean subsidiary, Magnachip Semiconductor, Ltd., 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 10-year term beginning July 1, 2018. As of June 30, 2024, the outstanding obligation of this arrangement is approximately $17.1 million for remaining service term through 2028.

Previous wording

On March 26, 2024, our Korean subsidiary, Magnachip Semiconductor, Ltd., executed a Standard Credit Agreement (together with its General Terms and Conditions, the “Loan Agreement”) with Korea Development Bank (“KDB”). The Loan Agreement provides for a working capital term loan (the “Term Loan”) of KRW 40,000,000,000 (approximately $29.7 million based on the KRW/USD exchange rate of 1,346.8:1 as of March 31, 2024 as quoted by KEB Hana Bank). The Term Loan requires monthly interest-only payments and matures on March 26, 2027, at which time the full principal balance will be due and payable.

Current wording

On March 26, 2024, our Korean subsidiary, Magnachip Semiconductor, Ltd., executed a Standard Credit Agreement (together with its General Terms and Conditions, the “Loan Agreement”) with Korea Development Bank (“KDB”). The Loan Agreement provides for a working capital term loan (the “Term Loan”) of KRW 40,000,000,000 (approximately $28.8 million based on the KRW/USD exchange rate of 1,389.2:1 as of June 30, 2024 as quoted by KEB Hana Bank). The Term Loan requires monthly interest-only payments and matures on March 26, 2027, at which time the full principal balance will be due and payable.

Previous wording

As of March 31, 2024, cash and cash equivalents held by our Korean subsidiaries were $154.5 million, which represents 90% 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.

Current wording

As of June 30, 2024, cash and cash equivalents held by our Korean subsidiaries were $117.6 million, which represents 89% of our total cash and cash equivalents on a consolidated basis. We also have invested $30.0 million in short-term financial instruments, which has a maturity date in November 2024. We currently believe that we will have sufficient cash reserves from cash on hand and from a short-term investment to fund our operations as well as capital expenditures for the next 12 months and the foreseeable future.

Previous wording

Our working capital balance as of March 31, 2024 was $213.3 million compared to $198.5 million as of December 31, 2023. The increase in working capital balance was mainly attributable to a $13.5 million increase in cash and cash equivalents resulted mainly from $29.7 million of Term Loan with KDB, which was funded in full to MSK on March 26, 2024. This increase in cash and cash equivalents was offset in part by a $4.1 million of continued execution of stock repurchase program.

Current wording

Our working capital balance as of June 30, 2024 was $203.7 million compared to $198.5 million as of December 31, 2023. The increase in working capital balance was mainly attributable to a $4.4 million increase in cash and cash equivalents and short-term financial instruments, resulted mainly from $29.7 million of Term Loan with KDB, which was funded in full to MSK on March 26, 2024. This increase in cash and cash equivalents along with an increase in short-term financial instruments was offset in part by a $6.4 million of continued execution of stock repurchase program.

Previous wording

Cash outflow used in operating activities totaled $4.0 million for the three months ended March 31, 2024, compared to $7.9 million of cash inflow provided by operating activities for the three months ended March 31, 2023. The net operating cash outflow for the three months ended March 31, 2024 reflects our net loss of $15.4 million, as adjusted favorably by $17.3 million, which mainly consisted of depreciation and amortization, provision for severance benefits, provision for inventory reserves, net foreign currency loss and stock-based compensation, and net unfavorable impact of $5.8 million from changes of operating assets and liabilities.

Current wording

Cash outflow used in operating activities totaled $5.1 million for the six months ended June 30, 2024, compared to $1.9 million of cash outflow used in operating activities for the six months ended June 30, 2023. The net operating cash outflow for the six months ended June 30, 2024 reflects our net loss of $28.4 million, as adjusted favorably by $32.6 million, which mainly consisted of depreciation and amortization, provision for severance benefits, provision for inventory reserves, net foreign currency loss and stock-based compensation, and net unfavorable impact of $9.3 million from changes of operating assets and liabilities.

Previous wording

Cash outflow used in investing activities totaled $1.5 million for the three months ended March 31, 2024, compared to $3.6 million of cash outflow used in investing activities for the three months ended March 31, 2023. The $2.1 million decrease was primarily attributable to a $2.7 million net decrease in guarantee deposits, which was offset in part by a $0.5 million increase in purchase of property, plant and equipment.

Current wording

Cash outflow used in investing activities totaled $33.1 million for the six months ended June 30, 2024, compared to $6.4 million of cash outflow used in investing activities for the six months ended June 30, 2023. The $26.7 million increase in cash outflow was primarily attributable to a $30.0 million increase in short-term financial instruments, which was offset in part by a $4.7 million net decrease in guarantee deposits.

Previous wording

Cash inflow provided by financing activities totaled $25.2 million for the three months ended March 31, 2024, compared to $12.4 million of cash outflow used in financing activities for the three months ended March 31, 2023. The financing cash inflow for the three months ended March 31, 2024 was primarily attributable to the $30.1 million of proceeds received from the new Term Loan with KDB, which was offset in part by a payment of $4.1 million for the repurchases of our common stock pursuant to our stock repurchase program and a payment of $0.5 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 three months ended March 31, 2023 was primarily attributable to a payment of $11.9 million for the repurchases of our common stock pursuant to our 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.

Current wording

Cash inflow provided by financing activities totaled $22.9 million for the six months ended June 30, 2024, compared to $37.1 million of cash outflow used in financing activities for the six months ended June 30, 2023. The financing cash inflow for the six months ended June 30, 2024 was primarily attributable to the $30.1 million of proceeds received from the new Term Loan with KDB, which was offset in part by a payment of $6.3 million for the repurchases of our common stock pursuant to our stock repurchase program and a payment of $0.5 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, 2023 was primarily attributable to a payment of $36.4 million for the repurchases of our common stock pursuant to our 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.

Previous wording

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 three months ended March 31, 2024, capital expenditures for property, plant and equipment were $0.7 million, a $0.5 million, or 394.8%, increase from $0.1 million for the three months ended March 31, 2023. The capital expenditures for the three months ended March 31, 2024 and 2023 were related to meeting our customer demand and supporting technology and facility improvement at our fabrication facility.

Current wording

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, 2024, capital expenditures for property, plant and equipment were $1.6 million, which remained almost flat, compared to $1.5 million for the six months ended June 30, 2023. The capital expenditures for the six months ended June 30, 2024 also included expenditures related to setting up our newly established operating entity in China.