Derivative Financial Instruments

3 Months Ended

Mar. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

8. Derivative Financial Instruments

The Company’s Korean subsidiary, Magnachip Semiconductor, Ltd., from time to time has entered into zero cost collar contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues.

Details of the zero cost collar contracts as of March 31, 2025 are as follows (in thousands):

Date of transaction	Total notional amount		Month of settlement
July 09, 2024	$	18,000	April 2025 to September 2025
October 17, 2024	$	9,000	October 2025 to December 2025
February 03, 2025	$	9,000	January 2026 to March 2026

Details of the zero cost collar contracts as of December 31, 2024 are as follows (in thousands):

Date of transaction	Total notional amount		Month of settlement
April 05, 2024	$	9,000	January 2025 to March 2025
July 09, 2024	$	18,000	April 2025 to September 2025
October 17, 2024	$	9,000	October 2025 to December 2025

The zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts.

The fair values of the Company’s outstanding zero cost collar contracts recorded as liabilities as of March 31, 2025 and December 31, 2024 are as follows (in thousands):

Derivatives designated as hedging instruments:		March 31, 2025		December 31, 2024
Liability Derivatives:
Zero cost collars	Other current liabilities	$	1,321	$	1,956

Offsetting of derivative liabilities as of March 31, 2025 is as follows (in thousands):

As of March 31, 2025	Gross amounts of recognized liabilities		Gross amounts offset in the balance sheets		Net amounts of liabilities presented in the balance sheets		Gross amounts not offset in the balance sheets					Net amount
							Financial instruments		Cash collateral pledged
Liability Derivatives:
Zero cost collars	$	1,321	$	—	$	1,321	$	—	$	(1,080	)	$	241

Offsetting of derivative assets and liabilities as of December 31, 2024 is as follows (in thousands):

As of December 31, 2024	Gross amounts of recognized liabilities		Gross amounts offset in the balance sheets		Net amounts of liabilities presented in the balance sheets		Gross amounts not offset in the balance sheets					Net amount
							Financial instruments		Cash collateral pledged
Liability Derivatives:
Zero cost collars	$	1,956	$	—	$	1,956	$	—	$	(1,080	)	$	876

For derivative instruments that are designated and qualify as cash flow hedges, gains or losses on the derivative aside from components excluded from the assessment of effectiveness are reported as a component of accumulated other comprehensive income or loss (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the three months ended March 31, 2025 and 2024 (in thousands):

Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives					Location/Amount of Loss Reclassified from AOCI Into Statement of Operations								Location/Amount of Gain Recognized in Statement of Operations on Derivatives
	Three Months Ended March 31,							Three Months Ended March 31,								Three Months Ended March 31,
	2025		2024					2025			2024					2025		2024
Zero cost collars	$	136	$	(605	)		Net sales	$	(525	)	$	(59	)		Other income, net	$	29	$	25
	$	136	$	(605	)			$	(525	)	$	(59	)			$	29	$	25

As of March 31, 2025, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next 12 months is $305 thousand.

The Company has set aside a cash deposit to the counterparty, Standard Chartered Bank Korea Limited (“SC”), as required for the zero cost collar contracts. This cash deposit is recorded as hedge collateral on the consolidated balance sheets. Cash deposits as of March 31, 2025 and December 31, 2024 are as follows (in thousands):

Counterparty	March 31, 2025		December 31, 2024
SC	$	1,000	$	1,000
Total	$	1,000	$	1,000

The Company is required to deposit additional cash collateral with Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and SC for any exposure in excess of $500 thousand, respectively. As of March 31, 2025 and December 31, 2024, $1,080 thousand of additional cash collateral were required by NFIK and recorded as hedge collateral on the consolidated balance sheet.

These zero cost collar contracts may be terminated by the counterparties if the Company’s total cash and cash equivalents is less than $30,000 thousand at the end of a fiscal quarter, unless a waiver is obtained.