Deswell Announces First Half 2022 Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the first six months of fiscal 2022, ended September 30, 2021.

Net sales for the six months ended September 30, 2021 were $39.8 million, an increase of 43.7% compared to net sales of $27.7 million for the six months ended September 30, 2020. Net sales increased by 13.5% to $9.9 million in the plastic segment and increased by 57.6% to $29.8 million in the Company’s electronic segment.

Total gross margin decreased to 16.1% of net sales during the six months ended September 30, 2021, as compared to 20.2% of net sales in the same period last year. Gross profit margin in the plastic segment decreased to 10.7% of net sales for the first half of fiscal 2022, compared to 20.4% of net sales for the corresponding period of last fiscal year. The decrease in gross profit and margin in the plastic segment was mainly due to increases in raw materials cost, as well as in basic pay rate of labor costs. Gross profit margin in the electronic segment decreased to 17.9% of net sales for the first half of fiscal 2022, compared to 20.1% of net sales for the corresponding period of last fiscal year. The decrease in gross margin in the electronic segment was mainly attributable to increases in raw materials cost, as well as in headcount and pay rate of labor cost for the first six months of fiscal 2022. Operating income in the first half of fiscal 2022 was $1.2 million, compared to operating income of $1.0 million for the same period of fiscal 2021.

The Company reported net income of $4.3 million for the six months ended September 30, 2021, compared to net income of $1.5 million for the six months ended September 30, 2020. This was primarily due to an increase in non-operating income, as a percentage of sales, for the six months ended September 30, 2021. Deswell reported basic and diluted income per share of $0.27 for the first half of fiscal 2022 (based on 15,923,000 and 16,041,000 weighted average shares outstanding), as compared to basic and diluted income per share of $0.10 (based on 15,915,000 and 15,959,000 weighted average shares outstanding) respectively, for the six months ended September 30, 2020.

The Company's financial position remained strong, with $17.4 million in cash and cash equivalents and working capital totaled $61.8 million as of September 30, 2021. Furthermore, the Company has no long-term or short-term borrowings as of September 30, 2021.

Mr. Edward So, Chief Executive Officer, commented, “We’re pleased to have delivered solid revenue growth in the first half of fiscal 2022, driven by sales growth in both our plastics and our electronics segments. Demand for home audio and entertainment equipment remains strong and as more economies start to fully reopen, with the return of live performances and concerts, we’re also seeing an uptick in sales of professional audio equipment.

“While no business is immune to ongoing worldwide supply chain challenges, we have been effectively managing through the global component shortage thanks largely to our longstanding relationships and close collaborations with our suppliers as well as with our customers. We recognize that this is a fluid situation and we will remain vigilant as we, and the rest of our industry navigate supply challenges.”

Mr. So concluded, “Our balance sheet is solid and continues to provide us with the financial flexibility to focus on our long-term performance. With no debt and a strong cash position, we are well positioned to grow our existing customer relationships and to add new customers. Additionally, we have invested $822 thousand in our manufacturing equipment, including SMT machines and injection molding machines, demonstrating our commitment to executing our long-term growth strategy and to enhancing our position as a reliable manufacturing partner for both existing and new customers. We’re encouraged by the opportunities we’re seeing in the marketplace and focused on operational execution with the goal of driving continued profitability and shareholder value as we move through fiscal year 2022.”

First Half Dividend

The Company also announces that its board of directors today declared a cash dividend of $0.10 per share for the first half of the fiscal year ended September 30, 2021. The dividend will be payable on December 22, 2021 to shareholders of record as of December 6, 2021.

About Deswell

Deswell manufactures injection-molded plastic parts and components, electronic products and subassemblies, and metallic molds and accessory parts for original equipment manufacturers (“OEMs”) and contract manufacturers at its factories in the People’s Republic of China. The Company produces a wide variety of plastic parts and components used in the manufacture of consumer and industrial products; printed circuit board assemblies using surface mount (“SMT”) and finished products such as telephones, telephone answering machines, sophisticated studio-quality audio equipment and computer peripherals.

To learn more about Deswell Industries, Inc., please visit the Company’s website at www.deswell.com.

Forward-Looking Statements
Statements in this press release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. For example, our statements regarding our expected growth in sales from the electronic division in the coming year and our efforts to reduce overhead costs in our plastic division are forward-looking statements. Actual results could differ materially because of the following factors, among others, which may cause revenues and income to fall short of anticipated levels or our overhead expenses to increase: our dependence on a few major customers; vigorous competition forcing product price reductions or discounts; the timing and amount of significant orders from our relatively few significant customers; continuing increases in resin prices that cannot be passed on to customers; unexpected production delays; obsolete inventory or product returns; losses resulting from fraudulent activity of our customers or employees; labor shortages that increase labor and costs; changes in the mix of product products we manufacture and sell; adverse currency fluctuations in the renminbi and Hong Kong dollar when translated to US dollars; potential new accounting pronouncements; and the effects of travel restrictions and quarantines associated with major health problems, such as the Severe Acute Respiratory Syndrome, on general economic activity.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to the “Risk Factors” section of Company’s Annual Report on Form 20-F, copies of which may be obtained from the Website maintained by the Securities and Exchange Commission at http://www.sec.gov.

All information in this release is made as of the date of this press release. Deswell undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Deswell’s expectations.

DESWELL INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEET

(U.S. dollars in thousands)

 

September 30,

March 31,

2021

2021

ASSETS

(Unaudited)

(Audited)

Current assets :

Cash and cash equivalents

$

17,379

$

20,223

Fixed deposits maturing over three months

3,070

2,700

Time deposits maturing over twelve months - current portion

1,543

-

Marketable securities (note 3)

24,316

22,373

Accounts receivable, net

17,502

14,708

Inventories (note 2)

20,992

16,193

Prepaid expenses and other current assets

3,420

2,489

Total current assets

88,222

78,686

Property, plant and equipment - net

27,246

27,323

Time deposits maturing over twelve months

308

1,851

Total assets

$

115,776

$

107,860

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

Current liabilities

Accounts payable

$

12,157

$

9,522

Accrued payroll and employee benefits

7,630

7,107

Customer deposits

3,156

1,683

Other accrued liabilities

2,409

2,016

Income taxes payable

1,063

886

Total current liabilities

26,415

21,214

Deferred income tax liabilities

923

957

Total liabilities

27,338

22,171

 

Shareholders' equity 

Common shares nil par value; authorized 30,000,000 shares; 17,061,810, and 17,081,810 shares issued as of March 31, 2021 and September 30, 2021; 15,915,239 and 15,935,239 shares outstanding as of March 31, 2021 and September 30, 2021

53,202

53,143

Treasury stock at cost; 1,146,571 and 1,146,571 shares as of March 31, 2021 and September 30, 2021

(2,821)

(2,821)

Additional paid-in capital

7,973

7,989

Accumulated other comprehensive income

5,316

5,316

Retained earnings

24,768

22,062

Total shareholders' equity

88,438

85,689

Total liabilities and shareholders' equity

$

115,776

$

107,860 

DESWELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME

(UNAUDITED)

(U.S. dollars in thousands, except per share data)

 

Six months ended

September 30,

2021

2020

 

Net sales

$

39,782

$

27,690

Cost of sales

33,362

22,095

Gross profit

6,420

5,595

Selling, general and administrative expenses

5,348

4,720

Other income, net

111

84

Operating income

1,183

959

Non-operating income, net

3,288

804

Income before income taxes

4,471

1,763

Income taxes

173

231

Net income attributable to Deswell Industries, Inc.

$

4,298

$

1,532

 
 
Other comprehensive income

$

-

$

-

Comprehensive income attributable to Deswell Industries, Inc.

$

4,298

$

1,532

 
 

Net income per share attributable to

Deswell Industries, Inc. (note 4)

Basic:

Net income per share

$

0.27

$

0.10

Weighted average common shares outstanding shares (in thousands)

15,923

15,915

 

Diluted:

Net income per share

$

0.27

$

0.10

Weighted average number of shares outstanding (in thousands)

16,041

15,959

DESWELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(U.S. dollars in thousands)

   

( U.S. dollars in thousands )

 

Six months ended

 

Six months ended

 

September 30,

 

September 30,

 

2021

 

2020

Cash flows from operating activities :

  

Net income

 

$

4,298

 

$

1,532

Adjustments to reconcile net income to net cash provided by operating activities :

  

Depreciation and amortization

 

883

 

895

(Reversal of) provision for doubtful accounts

 

(163)

 

432

(Reversal of) additional charges for obsolescence allowance of inventories, net

 

(293)

 

132

Loss on disposal of property, plant and equipment

 

-

 

10

Unrealized holding (gain) loss on marketable securities

 

(845)

 

527

Realized gain on disposal of marketable securities

 

(653)

 

(54)

Scrip dividend received

 

-

 

(448)

Exchange loss from marketable securities

 

117

 

-

Deferred tax (credit) charge

 

(34)

 

81

Changes in operating assets and liabilities:

  

Accounts receivable

 

(2,631)

 

(2,148)

Inventories

 

(4,506)

 

(1,718)

Prepaid expenses and other current assets

 

(931)

 

144

Accounts payable

 

2,635

 

3,603

Accrued payroll and employee benefits

 

523

 

338

Customer deposits

 

1,473

 

133

Other accrued liabilities

 

393

 

106

Income taxes payable

 

177

 

95

Net cash provided by operating activities

 

443

 

3,660

   

Cash flows from investing activities

  

Purchase of property, plant and equipment

 

(822)

 

(85)

Proceeds from disposal of property, plant and equipment,

 

16

 

-

Purchase of marketable securities

 

(7,301)

 

(3,026)

Proceeds from disposal of marketable securities

 

6,739

 

541

Increase in fixed deposits maturing over three months

 

(370)

 

(2,706)

Increase in fixed deposits maturing over twelve months

 

-

 

(27)

Net cash used in investing activities

 

(1,738)

 

(5,303)

   

Cash flows from financing activities

  

Dividends paid

 

(1,592)

 

(1,432)

Exercise of stock options

 

43

 

-

Net cash used in financing activities

 

(1,549)

 

(1,432)

Cash effect of exchange rate changes

  

Net decrease in cash and cash equivalents

 

(2,844)

 

(3,075)

Cash and cash equivalents, at beginning of period

 

20,223

 

22,514

Cash and cash equivalents, at end of period

 

17,379

 

19,439

   

Supplementary disclosures of cashflow information :

  

Cash paid during the period for :

  

Interest

 

-

 

-

Income taxes

 

89

 

78

Contacts:

Investor Relations:
John Nesbett/Jennifer Belodeau
IMS Investor Relations
203.972.9200

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