Good day, everyone, and thank you for joining us. I would like to welcome you to the Quarter 3 2020 MagnaChip Semiconductor Corporation Earnings Conference Call. It is now my pleasure to turn the call over to Ms. So-Yeon Jeong. Please go ahead.

Thank you. And thank you, everyone, for joining us to discuss MagnaChip's financial results for the third quarter ended September 30, 2020. The third quarter earnings release that was filed today after the stock market closed can be found on the company's Investor Relations website. A telephone replay of today's call will be available shortly after the completion of the call, and the webcast will be archived on our website for one year. Access information is provided in the earnings press release. Joining me today are YJ Kim, MagnaChip's Chief Executive Officer, and Young Woo, our Chief Financial Officer. YJ will discuss the company's recent operating performance and business overview, and Young will review financial results for the quarter and provide guidance for the fourth quarter. There will be a Q&A session following the prepared remarks. During the course of this conference call, we may make forward-looking statements about 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 risks and uncertainties as described in the safe harbor discussion found in our SEC filings. During the call, we also will discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate an alternative measure of MagnaChip's operating performance that may be useful. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our third quarter earnings release available on our website under Investor Relations at www.magnachip.com. I now will turn the call over to YJ Kim. YJ?

Hello, everyone. Thank you for joining our call today. COVID-19 indeed changed the way we live, work, and think. Our team members at MagnaChip have been actively adapting to the new normal by adhering to our multiple safety protocols and business continuity plan. We hope that you and your family are all healthy and well. We successfully completed the sale of the foundry business and Fab 4, slightly ahead of our internal schedule for a purchase price of about $350.6 million. We used $227.4 million of the proceeds to fully redeem all of the 6.625% senior notes due 2021 on October 2, 2020, lowering the future interest expense by approximately $16 million annually. This sets our new chapter as a fab-lite, pure-play standard product company, generating substantial and sustainable cash flow. In Q3, we achieved solid quarterly results with a 5% sequential revenue growth, which came in above the high end of the guidance range, as well as a healthy bottom line. This was achieved despite the backdrop of market disruptions caused by the global pandemic, escalated U.S.-China trade tensions, and a supply-constrained environment. Gross profit margin was largely impacted by two one-time items, including the delayed recovery from the power outage of Fab 3 and the display's excess inventory charge related to the U.S. government's export restrictions to Huawei. These two one-time items together negatively impacted our gross profit margin by three percentage points. Adjusted for the impact of these one-time factors, we delivered non-GAAP diluted earnings per share of $0.14. Now let's take a closer look at our product business, starting with the display business. I remind you that we have completely exited the non-auto LCD business in Q2 2020. As a reference point, our display revenue in Q3 of 2019 was $90.6 million, which included about $10.4 million of non-automotive LTD business. Our display revenue was $69.6 million for the third quarter, up 0.6% sequentially and down about 14% year-over-year, adjusting for the nonautomotive LCD revenue in 2019. Q3 OLED drive IC revenue was $67.6 million, up 0.9% sequentially and down 13.7% year-over-year. In September, we recorded a $2.3 million excess inventory charge driven by our display customers' last minute business decision based on the U.S. government export restrictions on Huawei. Our panel customers have de-risked the Huawei business, and we don't expect further impact from the Huawei ban other than this unusual excess inventory charge. Please note that our Q4 guidance does not include any of the Huawei business. Now let me highlight three key takeaways for our display business. First, starting with demand. During our last earnings call, we mentioned an upswing in demand for our OLED product, which was outstripping our supply capability in Q3 due to the recent longer lead times. The strong demand continued throughout the quarter and to date. We are working very closely and diligently with our foundry partners to be able to continue to serve our customers' strong ramp schedule in Q4 and beyond. We remain confident and excited about the long-term growth trajectory of the overall OLED DDIC market and our leading market position as one of the pioneers. Second, both our revenue and design activities were driven by a major Korean smartphone OEM and Chinese OEMs. One of the notable achievements that we are very excited about is that a major Korean smartphone OEM has launched a new key model with our display driver in early October. This end customer's model is being well adapted in the market as it keeps the flagship features that consumers want while hitting the price point that consumers need, and we expect the momentum to continue in the remaining part of 2020. In addition, design activities from major Chinese smartphone OEMs have been very strong in Q3, and we expect these design wins to support our revenue growth in Q4 as well as in 2021. MagnaChip's top market position as a non-captive supplier in the OLED DDIC market reflects that our advanced technology and distinctive portfolio resonate with our customers. We continue to focus on empowering our customers through relentless innovation and unparalleled support. Last but not least, the 5G momentum. We are enjoying the booming 5G smartphone industry, especially with our High Frame Rate, HFR, OLED driver ICs. In Q3, we were awarded eight new design wins, and seven of them were for 5G and HFR models using a 28-nanometer process. You may recall that our revenue from 5G smartphones accounted for about 20% of the total OLED revenue in the first half of 2020. In Q3, 5G revenue represented about 40% of the OLED revenue. According to the market data, the global 5G smartphone shipment in 2020 will be about 200 million units, and it will likely be more than double in 2021. The emerging global 5G trend bodes well with the underlying strength in our product portfolio. Now let's turn to the Power business. The Power revenue came in at $46.7 million, up 17.3% sequentially and down 4.2% year-over-year. The complete recovery from the power outage took longer than we anticipated, which limited Fab 3 output at full capacity, resulting in a lower utilization during Q3. Despite this handicap, we achieved double-digit sequential growth and managed the production. The market momentum and our product pipeline remains strong. Now let me highlight key takeaways for our Power business. First, starting with demand. As both China and Korea were gradually recovering from the global pandemic, our Power revenue in the third quarter was mainly driven by personal transportation and TV applications. The rebound in the Chinese and Korean TV market drove strong demand for our Super Junction MOSFET and Power IC product in Q3, and the trend is continuing in Q4. We expect our Power business in Q4 to grow 15% to 20% year-over-year. Driven by the combination of capacity constraint and strong demand, our channel inventory level became below our normal operating range. We are striving to address the continued demand and also to replenish the channel inventory to a more balanced level in the future. Let me also underline the progress we are making in the China market under our go-to-market strategy with a newly established leadership team. To efficiently target the fast-growing China market, we set up a regional support system with a dedicated sales and marketing function. The team has focused our product to be more optimized for the Chinese market demand, and we directly engaged with numerous Power customers that resulted in new wins from a wide range of applications, including TV, industrials, and mobiles. We are encouraged by the great momentum in the China Power business. Looking ahead, I am very excited about our Power business potential. By 2022, we will have introduced a complete set of next-generation power discrete product portfolios. These new generation premium product families will carry superior performance with much-improved costs. The upgrade will take place at our Fab 3, and by that time, our Fab 3 will be up and running with about 40% additional capacity. Now turning to our long-term plan. We are repositioning MagnaChip to achieve sustainable and profitable growth. As we close the divestiture ahead of our original schedule, we decided to accelerate our disclosure of pro forma financials rather than wait until the future Analyst Day. Let me provide our key goals we are targeting to achieve by 2023. While our quarterly reports are based on total revenue, including the transitional Fab 3 foundry services in accordance with GAAP, we are providing the following metrics based on the standard product business revenue, excluding the transitional Fab 3 foundry service as such service is expected to cease after a certain period of time. We plan to: one, grow our top line at a double-digit CAGR; two, consistently achieve above 30% gross profit margin; three, reduce adjusted OpEx to be below 18% of revenue; four, exceed 10% adjusted operating income margin. This will enhance our ability to generate free cash flow; five, tax rate to be approximately 14% to 16% in the next 2 to 3 years due to the net operating loss carryforwards to be offset taxable income in part. Our estimated consolidated tax rate is based on our current organization and business structure and tax strategies; six, CapEx for PP&E. Last quarter, we discussed the special investment we are making in Fab 3 for 2020 and 2021. From 2022, we expect the capital spending to return to a moderate level of 3% of revenue or below; seven, by 2023, we will generate free cash flow in excess of 8% of revenue. These additional financial pro forma metrics will give you a better understanding of our long-term outlook and value creation. We also would like to further share our capital allocation plan in the near future. Our Board and management are actively evaluating all available options to maximize our shareholders' value. Now that we communicated these key pro forma financial metrics, it seems more prudent that we reschedule our Analyst Day to Q1 2021 due to uncertainties around COVID-19 and related matters. We will then share our capital allocation plan and our growth strategic initiatives. We believe this rescheduling will allow for a more comprehensive discussion with investors and analysts. The date will be announced in the near future. In closing, Q3 represented a pivotal chapter of MagnaChip as we successfully closed the sale of the foundry business and Fab 4 that ultimately resulted in MagnaChip becoming a pure-play products company with a very healthy balance sheet for the first time. Across the company, we are making well-planned moves to realign our resources, sharpen our R&D focus on key priority areas and improve our operational efficiency. More importantly, the upswing in demand, which began in July, is continuing into the fourth quarter. We are encouraged by the robust growth opportunities ahead of us, which creates a stronger foundation for profitable growth. We continue to push the envelope on enhancing our competitive position through continuous technology advancements, addressable market expansion, and strategic customer engagements. Now I will turn the call over to Dr. Woo and come back for the Q&A.

Thank you, YJ, and welcome to everyone on the call. Let's start with the key financial metrics for Q3. Total revenue in Q3 was $124.8 million, up 5% from Q2 and down 16.3% from Q3 a year ago. The revenue from the standard product business was $116.3 million, up 6.7% from Q2 and down 16.5% from the same quarter a year ago. The sequential increase was driven mainly by strong demand in our power product for personal transportation and TV applications. The year-over-year decline was primarily due to the U.S. government export restrictions on Huawei that impacted the shipment of certain OLED display driver ICs to our customers. The year-over-year decline was also attributable to the strategic exit from the non-LCD business, which amounted to $10.4 million in Q3 2019 and nil in Q3 2020. Display revenue in Q3 was $69.6 million, up 0.6% quarter-over-quarter and down 23.2% year-over-year. Adjusting for the non-auto LCD business, it was down about 13% year-over-year. Power revenue in Q3 was $46.7 million, up 17.3% quarter-over-quarter and down 4.2% year-over-year. The sequential improvement in the Power business was due to a solid rebound in the China market. Gross profit margin in Q3 was 22.9%, down 4.1 percentage points from Q2 and down 1.7 percentage points or 70 basis points from Q3 a year ago. There are two unusual items, as mentioned by YJ earlier that collectively translated into a negative three percentage point impact on gross profit margin in the third quarter. Turning now to operating expenses in Q3. Operating expenses were $25.4 million or 20.3% of total revenue as compared to $23.5 million or 19.8% in Q2 and $20.9 million or 14% for the same quarter a year ago. SG&A in Q3 was $12.9 million as compared to $12.4 million in Q2 and $10.7 million in Q3 2019. R&D in Q3 was $12.5 million as compared to $11.1 million in Q2 and $10.2 million in Q3 last year. Stock compensation charges included in the operating expenses were $2 million in Q3, $1.4 million in Q2, and $0.4 million in Q3 of last year. Adjusted operating income in Q3 was $8.8 million, down from $10.1 million in Q2 and down from $14.8 million in Q3 a year ago. Adjusted EBITDA in Q3 was $11.7 million, down from $12.7 million in Q2 and down from $17.4 million in Q3 a year ago. Net income in Q3, including income from discontinued operations, net of tax was $273 million, up from $29.2 million in Q2 and up from negative $1.6 million in Q3 a year ago. This sharp increase was primarily due to the recognition of a gain on the sale of the Foundry businesses and the Fab 4 of $287.1 million. Q3 net income from continuing operations was $8.5 million, down from $11.8 million in Q2 and up from negative $14.2 million in Q3 2019. Our earnings per share, including results from discontinued operations, was $7.74 in Q3, up from $0.84 in Q2 and up from negative $0.05 in Q3 a year ago. Our earnings per share from continuing operations was $0.24 in Q3, down from an earnings per share of $0.34 in Q2 and up from a loss per share of $0.41 in Q3 2019. Our non-GAAP diluted earnings per share from continuing operations was $0.14 in Q3, up from $0.13 in Q2 and down from $0.21 in Q3 last year. The difference between our GAAP and non-GAAP EPS was primarily due to the elimination of the non-cash net foreign currency gain of $8.9 million, which was offset in part by the elimination of two one-time expenses of $3.5 million. There were 35.3 million basic weighted average number of shares outstanding and 46.6 million diluted weighted average number of shares outstanding in Q3. The difference between share count primarily relates to the dilutive effect, including the company's exchangeable notes as if they were converted into shares at the beginning of the period. Now moving to the balance sheet. Cash was $542.1 million at the end of Q3. This compares to $192.8 million at the end of Q2. In Q3, we completed the sale of the foundry business and Fab 4 for a purchase price of approximately $350.6 million in cash. We plan to use some of our net operating loss carryforward to offset capital gains tax on this sale transaction. The capital gain tax, which is currently estimated to be in the range of $14 million to $16 million will be finalized and paid in Q1 2021 as part of our annual corporate income tax filing for 2020. On October 2, we fully redeemed 2021 senior notes. As part of this redemption, we paid the withholding tax of $20.5 million as we moved the trust proceeds from our Korean subsidiary to the ultimate parent company in the U.S., who was the issuer of the senior notes. Account receivables were up 19% from Q2. The increase in account receivables in Q3 was attributable to the timing of payments from certain customers, as the quarter-end fell on a holiday in Korea, and the related payments were collected by the following week. Our days sales outstanding for Q3 was 43 days. Inventories were down 26.1% from Q2, due primarily to the limited ability to manufacture the product in Fab 3 at full capacity caused by the delayed recovery from the power outage. Our average days in inventory for Q3 was 32 days. CapEx was $7.5 million in Q3 as compared to $5.5 million in Q2. Before moving to the fourth quarter guidance, I would like to note that we commenced our voluntary resignation program, which is available for all employees from October 16. Due to the voluntary nature of this program, we are unable to provide an estimated amount of the related severance and other termination benefits for those employees under the program at this time. Once completed, this will help enhance our profitability. Now moving to Q4 guidance. The COVID-19 global pandemic is still evolving and continues to reduce our forward visibility. While actual results may vary, MagnaChip currently anticipates for Q4 2020: revenue to be in the range of $128 million to $136 million, which represents approximately 3% to 9% sequential growth, including $10 million to $11 million of transitional Fab 3 foundry services, and gross profit margin to be in the range of 25% to 27%. And with that, I will turn the call over to So-Yeon. Thank you.

Thank you, YJ and Young. So operator, this concludes our prepared remarks, and we'll now open the call for questions.

And your first question comes from the line of Raji Gill from Needham.

Yes. Thank you, and congratulations everyone on really good results despite the uncertain environment. So two questions, one short-term and one long-term. On the short term, the gross margin guidance is showing a bit of an uptick after the issue that you faced in Q3 related to the power outage. I wanted to get your thoughts in terms of how we should be thinking about the gross margins in Q4, but also going into 2021. I know you talked about kind of a 30% gross margin target, but are the power outages kind of complete? And going forward, the gross margin improvement over the next several quarters should be driven by mix or improvement on price? Just wondering what are your thoughts on the gross margin, the puts and takes for the near term.

Sure, Raj. Thank you. The power outage is now under control; we regained control in early October. For the fourth-quarter guidance, projected revenue is between $25 to $27 million, which incorporates the transitional services from Fab 3 for FSG that typically carry lower or no margins. The margin for the product business unit is a couple of points higher. We will share more about the near-term margin forecast at the rescheduled Analyst Day. Looking ahead to 2023, we anticipate the company will be fully product-streamlined, providing a clear guideline. Until then, we will continue to have some transitional services at Fab 3, and we will give a more detailed breakdown during the Analyst Day.

And in terms of the growth in power, so there was a rebound in China, as you said, in Korea, driven by personal transportation and TV. And that was a nice reversal. How do we think about Power in 2021? What are the major growth drivers in Power? Are you seeing adoption of electric vehicles accelerating in China and Korea that's fueling a lot of the growth in 2021? And what are the other markets in Power that you are excited about?

Yes, we currently serve four main segments: communication, consumer, computing, and industrial. Industrial and consumer are our largest segments. We're also enthusiastic about the SSD growth in the computing sector. Additionally, we are focused on achieving 10,000-hour quality in automotive, which we expect to see in the second half of next year, although it won’t contribute significantly to revenue initially. We anticipate that automotive will represent 5% to 10% of our business in a few years. As I mentioned earlier, by 2022, we will introduce a completely revamped discrete power portfolio, including Super Junction, IGBT, medium voltage, and power battery Fab, all of which will offer enhanced performance and reduced costs. We are very excited about these developments for both the near and mid-term.

On the OLED side, you mentioned benefiting from the 5G momentum. I'm curious about the adoption of OLED. Would you say it aligns with the 5G momentum going into next year? 5G phones are expected to double, and more than double, so while the attach rate may not double, we can anticipate that OLED adoption will continue to accelerate in 2021 to support these 5G phones. Do these developments tend to coincide when the OEMs launch 5G phones with high frame rates?

Yes. So I think there are two things. First, the industry transition from LCD to OLED. And as you know, even for next year, that may be 40% or close to 50%. But as time goes by, that's going to accelerate more to OLED. So that's in our favor. Second, in terms of 5G, yes, there's great momentum. The first half of this year, we had about 20%. On the third quarter, about 40%. In fact, the industry was slightly less than what our numbers by a couple of percentage points, but it's the right direction we're seeing. And then according to market research, they see the 5G phone shipments to grow at least about 2.5 times of this year. So we are very encouraged by all the signs, both on the 5G adoption as well as the industry moving from LCD to OLED. So that should all help out.

Your next question comes from the line of Suji Desilva from ROTH Capital.

Congratulations on the progress here. So on the smartphone market, YJ, the OLED demand, can you talk about how the China market demand is shaping up for Q4? It seems like the backlog is good and then early calendar year '20. Are you seeing evidence of a multi-quarter recovery here? Or is the visibility still challenging?

We guide on a quarter-by-quarter basis. However, I can share that the industry is experiencing higher demand with supply constraints, indicating a strong market. Competition appears to be increasing, particularly as we aim to secure the Huawei business. There is also positive growth among non-Huawei customers. Although we have around a dozen end customers, they aren’t directly under our management. The market is adapting to these new dynamics while the industry continues to see solid silicon demand. This is our outlook for the near term.

Okay, great. And then perhaps you could talk about the trend in foldable smartphones and how that's impacting your mix in products in OLED. Is it still early? Or is that an opportunity for you in calendar '21?

Yes. We're excited about the new applications that OLED is bringing to. I think the foldable is one of them, automotive is second, and then TV. I think next year, there will be more OLED TVs from multiple vendors. So I'm very excited about the new applications developing in the U.S., particularly about foldable. And foldable will be more mainstream if there will be vendors who can produce in high volume. But absolutely, for the mid-term and long term, foldable is the new form factor for the phone and perhaps for some of the portable applications.

Your next question comes from John Lopez from Vertical Group.

Can you hear me okay?

Yes.

Terrific. I have a couple. The first one is just on a clarification for the Q4 guidance. Is there any latent impact from the outage going from Q3 to Q4? In other words, are you selling out product in Q4 that has higher production costs that theoretically goes away in 2021?

So that's a very good question. So some of the Power products that had the power outage in Q3 that were in the work in progress will have that higher cost due to the higher utilization that will ship in the fourth quarter. But the fourth quarter will have a very high utilization as the fab will be full. So to answer your question, there will be some of that in the fourth quarter on the Power devices.

Got you. Okay, helpful. But in theory, that should probably start to work itself out as we go into early next year? Sorry, is that right, that this should largely resolve itself into early 2021?

Yes. By the first quarter, if the parts are made in mid-October and later, that should be the ideal scenario.

My second question is whether you could provide details on your exposure to Huawei for calendar Q3 or possibly year-to-date?

Sorry, as I said before, we don't break down the customer by end customer because we don't actually sell to them. We only sell to the panel, but we did say that the one-time exposure on the write-off of those inventories was $2.3 million.

I understand. I have a few other quick questions. First, regarding the display guidance for the fourth quarter of the calendar year, I realize you’re not providing specific guidance, but if we assume it will be very strong, significantly stronger than the usual seasonal patterns, given this unusual year, would you advise us to rethink how we approach seasonality for 2021, considering the potentially stronger conclusion to this year?

So I think you're correct about seasonality. Seasonality for us typically has been that Q3s are high, and Q4, we go down slightly. So this is an unusual pattern. So '21, we'll see what happens then. But you're correct that we are doing much better than the normal seasonality for the company.

Okay, got you. My very last one. I'm wondering if you could talk just a minute about the dynamics in the Power market. And one thing in particular, we're picking up is a pretty reasonable amount of concern about the potential for sanctions on SMIC. Well, obviously, a pretty sizable 8-inch footprint. So I guess I'm wondering, are you seeing that development specifically driving opportunities for you, either to expand with existing customers or perhaps pick up new customers? Could you just talk for a minute about the market? And what kind of opportunity set for you might look like to the extent that those developments continue?

I think there are two separate aspects to discuss. First, regarding discrete devices, we produce most of that in our Fab 3, with some still made in Fab 4. As for SMIC, if they were to manufacture it, I assume it would most likely be more focused on PMIC. However, I believe this would present a better business opportunity for us. We are confident in our product portfolio for discrete devices, including IEP, which we produce internally, alongside our Power ICs. Our growth will be driven by this and our competitiveness, and I feel optimistic about our next-generation products. This is how we plan to capture business. Regarding SMIC, I don't think it will negatively impact us; in fact, it may even provide some benefits.

And there are no further questions at this time. I would now like to turn the call back over to Ms. So-Yeon Jeong for some closing remarks.

Thank you. This concludes our third quarter 2020 earnings conference call. Please look for details of our future events on MagnaChip's Investor Relations website. Thank you for joining us today. Goodbye.