Washington, D.C. 20549
DESWELL
INDUSTRIES, INC.
Deswell Announces First Half 2023 Results
- Company Announces First Half Cash Dividend of $0.10 Per Share -
FOR IMMEDIATE RELEASE
MACAO (November 17, 2022) - Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the first six months of fiscal 2023, ended September 30, 2022.
Net sales for the six months ended September 30, 2022 were $44.4 million, an increase of 11.7% compared to net sales of $39.8 million for the six months ended September 30, 2021. Net sales increased
by 20.9% to $36.1 million in the electronic segment but decreased by 15.9% to $8.3 million in the Company’s plastic segment.
Total gross margin slightly decreased to 16.0% of net sales during the six months ended September 30, 2022, as compared to 16.1% of net sales in the same period last year. Gross profit
margin in the plastic segment increased to 13.2% of net sales for the first half of fiscal 2023, compared to 10.7% of net sales for the corresponding period of last fiscal year. The increase in gross profit and margin in the plastic segment was
mainly due to decreases in raw materials cost, and in basic pay rate of labor costs due to lower headcount in the first six months of fiscal 2023. Gross profit margin in the electronic segment decreased to 16.7% of net sales for the first half of
fiscal 2023, compared to 17.9% 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 for semiconductor chips as a
result of the continuing shortage in supply and pricing volatility for the first six months of fiscal 2023. Operating income in the first half of fiscal 2023 was $2.0 million, compared to operating income of $1.2
million for the same period of fiscal 2022.
The Company reported net loss of $0.6 million for the six months ended September 30, 2022, compared to net income of $4.3 million for the six months ended September 30, 2021. This was primarily due to
a non-operating expense of $2.3 million for the six months ended September 30, 2022, as compared to a non-operating income of $3.3 million for the same period of fiscal 2022. Deswell reported basic and diluted loss per share of $0.04 for the first
half of fiscal 2023 (based on 15,935,000 and 15,935,000 weighted average shares outstanding), as compared to 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), for the six months ended September 30, 2021.
The Company's financial position remained strong, with $15.6 million in cash and cash equivalents and working capital totaling $59.4 million as of September 30, 2022. Furthermore, the Company has no
long-term or short-term borrowings as of September 30, 2022.
Mr. Edward So, Chief Executive Officer, commented, “We’re pleased to have delivered solid revenue and operating income growth in the first half of fiscal 2023, driven by our electronics segment where we saw continued demand for home audio and
entertainment equipment and for professional audio instruments and equipment. Our sales growth in this segment reflects our ability to reliably produce and deliver products on-time, creating value for our customers. This growth was partially
offset by decreased sales at our plastics segment.”
“During the first half of fiscal 2023 the global economic and political environment were unsettled, impacting worldwide financial markets and, as a result, we recorded an unrealized loss of $4.4 million on our investment portfolio. Nonetheless,
we achieved improved operating income of $2.0 million as compared to $1.2 million in the same prior year period. Our balance sheet remains strong with a solid cash position and no debt providing us the financial flexibility to deliver strong
operating performance while implementing our long-term growth strategy to capitalize on market demand for our manufacturing capabilities.”
First Half Dividend
The Company also announced 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, 2022.
The dividend will be payable on December 22, 2022 to shareholders of record as of December 1, 2022.
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.
Investor Relations Contact:
John Nesbett/Jennifer Belodeau
IMS Investor Relations
203.972.9200
3. Inventories
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September 30,
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March 31,
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2022
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2022
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Inventories by major categories :
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Raw materials
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$
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15,048
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$
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16,970
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Work in progress
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3,971
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3,904
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Finished goods
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1,677
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2,945
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$
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20,696
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$
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23,819
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4. Earnings Per Share
The basic net income per share and diluted net income per share are computed in accordance with ASC No. 260, "Earnings Per Share" (formerly the SFAS
No.128 “Earnings Per Share”).
The basic net income per share is computed by dividing income available to common holders by the weighted average number of common shares
outstanding during the period. Diluted net income per share gives effect to all potentially dilutive common shares outstanding during the period.
The weighted average number of common shares outstanding is adjusted to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued. In computing the dilutive effect of potential common shares, the average stock price for the period is used in determining the number of treasury shares assumed to be purchased
with the proceeds from the exercise of options.
The net (loss) income for the six months ended September 30, 2022 and 2021 were both from the Company’s continuing operations.
DESWELL INDUSTRIES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Company’s revenues are derived from the manufacture and sale of (i) injection-molded plastic parts and components, and (ii) electronic products and subassemblies of
audio equipment. The Company carries out all of its manufacturing operations in southern China, where it is able to take advantage of the lower overhead costs and less expensive labor rates as compared with Hong Kong.
Six Months Ended September 30, 2022 Compared to Six Months Ended September 30, 2021
Net Sales - The Company's net sales for the six months ended September 30, 2022 were $44,438,000, an increase of $4,656,000 or 11.7%, as compared to $39,782,000 in the corresponding period in fiscal 2022. The increase was mainly related to increases in sales revenues of $6,237,000 in the electronic segment, offsetting a decrease of
sales revenues of $1,581,000 in the plastic segment, as compared with the respective net sales from these segments in the corresponding period of the prior fiscal year.
The decrease in net sales in the plastic segment was related to decreases in orders of $1,460,000 for plastic tool boxes, gardening tool boxes and accessories, of
$319,000 for motor vehicle products, such as plastic brakes or speed selector plates, as well as $664,000 for molding products from other existing customers, offsetting an increase in orders from existing customers of $512,000 for plastic
component parts for floor cleaning robots, and of $351,000 for plastic component parts of office equipment.
The revenue increase in the electronic segment was mainly due to increases in orders of $10,868,000 from existing customers, mainly for
audio signal processors, loud speakers and mixing consoles, offsetting a decrease in orders of $4,361,000 for home entertainment products and audio work stations equipment from other existing customers.
Gross Profit - Gross profit for the first half of fiscal 2023 was $7,114,000, representing a gross margin of 16.0%. This compared with the overall gross
profit and gross margin of $6,420,000 or 16.1% for the first half of fiscal 2022.
Gross profit in the plastic segment increased by $37,000 to $1,104,000 or 13.2% of net sales for the six months ended September 30, 2022,
as compared to $1,067,000 or 10.7% of net sales, for the same period in the prior fiscal year. The increase in gross profit and margin in the plastic segment was mainly due to decreases in raw materials costs, and labor costs due to
decreased headcount , as a percentage of net sales.
Gross profit in the electronic segment increased by $657,000 to $6,010,000 or 16.7% of net sales for the six months ended September 30,
2022, as compared to $5,353,000 or 17.9% of net sales, for the same period of last fiscal year. The decrease in gross margin was mainly due to increases in raw materials costs and labor costs as a result of increased overtime
allowances, as compared with the same period of last fiscal year.
Selling, general and administrative expenses - SG&A expenses for the six months ended September 30, 2022 were $5,751,000 or 12.9% of
total net sales, as compared to $5,348,000 or 13.4% of total net sales for the six months ended September 30, 2021.
Corporate expenses increased by $39,000 to $617,000 for the six months ended September 30, 2022 as compared to $578,000 for the same period ended September 30, 2021. The
slight increase was primarily related to the increase in legal and professional fees.
SG&A expense in the plastic segment increased to $2,036,000 or 24.4% of net sales for the first half of fiscal 2023, compared to
$1,993,000 or 20.1% of net sales for the corresponding period in fiscal 2022. The increase in SG&A expense for the first six months of fiscal 2023 was mainly due to an increase of $71,000 in
utility costs, as compared with the same period in the prior fiscal year.
SG&A expenses in the electronic segment increased by $321,000 to $3,098,000 or 8.6% of net sales for the six months ended September 30, 2022, compared to $2,777,000
or 9.3% of net sales for the corresponding period in fiscal 2022. The increase in the SG&A expense total was primarily related to an increase of $643,000 in staff costs and consultancy fees, when compared to the corresponding period in the
prior fiscal year.
Other income - Other income was $677,000 for the six months ended September 30, 2022, as compared to other income of $111,000 in the
corresponding six months of the prior fiscal year.
On a segment basis, other expense attributable to the plastic segment for the six months ended September 30, 2022 was $633,000, as compared to other
income of $68,000 for the same period in the prior fiscal year. The decrease in other income was mainly due to an increase in exchange loss of $611,000 during the first half of fiscal 2023, as compared to the same period of fiscal 2022.
Other income attributable to the electronic segment for the six months ended September 30, 2022 was $1,310,000, as compared to other income
of $43,000 for the corresponding period in the prior fiscal year. This increase in other income was mainly due to increases of $588,000 in exchange gain and of $703,000 in other gain during the six months ended September 30, 2022, as
compared to the same period of last fiscal year.
Operating income - Operating income was $2,040,000 for the six months ended September 30, 2022, as compared to operating income of
$1,183,000 in the corresponding six months in the prior fiscal year.
Corporate expenses of $617,000 and $578,000 were incurred during the fiscal year of 2023 and 2022, respectively.
On a segment basis, the operating loss of the plastic segment was $1,565,000 in the six months ended September 30, 2022, as compared to
operating loss of $858,000 in the corresponding period in fiscal 2022. The increase in operating loss in the plastic segment was mainly due to the decrease in sales revenues, as well as a decrease in other income
as described above.
The electronic segment reported operating income of $4,222,000 in the six months ended September 30, 2022, compared to operating income of
$2,619,000 in the corresponding period in fiscal 2022. The increase in operating income was mainly due to the increases in gross profit and other income as described above.
Non-operating (expense) income – Non-operating expense for the six months ended September 30, 2022 was $2,310,000, as compared to
non-operating income of $3,288,000 in the prior year period The significant decrease was primarily due to decreases of $5,199,000 in unrealized holding gain on the fair value of marketable securities, of $534,000 in realized gain from
the sale of marketable securities and of $182,000 in rental income, offsetting an increase of $128,000 in dividend income from securities investments during the six months ended September 30, 2022, as compared to the same six months of the prior
fiscal year.
Income Taxes – Income tax for the six months ended September 30, 2022 represented an income tax expense of $362,000 and a deferred tax
benefit of $72,000, as compared to an income tax expense of $207,000 and a deferred tax benefit of $34,000 in the corresponding six months of the prior fiscal year.
On a segment basis, there was an income tax credit of $28,000 and a deferred tax benefit of $72,000 in the plastic segment for the six
months ended September 30, 2022, as compared to an income tax expense of $28,000 and a deferred tax benefit of $34,000 during the prior year period. Income tax in the electronic segment was $390,000 for the six months ended September 30,
2022, as compared to an income tax expense of $179,000 for the corresponding six months of fiscal 2022.
Net (loss) income – The Company had a net loss of $560,000 for the six months ended September 30, 2022, as compared to net income of
$4,298,000 for the six months ended September 30, 2021. The decreased net income for the first six months of fiscal 2023 was mainly attributed to the decrease in non-operating income in the plastic segment as described above.
Net loss for the plastic segment for the six months ended September 30, 2022 totaled $3,364,000, as compared to net income of $2,459,000 for the corresponding six
months in fiscal 2022. Decrease in net income in the first six months of fiscal 2023 for the plastic segment was mainly the result of a decrease in non-operating income as described above.
Net income for the electronic segment for the six months ended September 30, 2022 was $3,421,000, compared to net income of $2,417,000,000 for the corresponding six
months of fiscal 2022. The increase in net income in the first six months of fiscal 2023 for the electronic segment was mainly attributable to the increase in sales volume and other income as described above.
Liquidity and Capital Resources
The Company relies primarily upon internally-generated funds to finance its operations and investments.
As of September 30, 2022, the Company had working capital of $59,402,000 as compared to $63,848,000 at March 31, 2022. The Company has generated sufficient funds from
its operating activities to finance its operations and believes there is little need for external financing. The Company had no short-term borrowings or long-term borrowings as of September 30, 2022.
As of September 30, 2022, the Company had cash and cash equivalents of $15,577,000, as compared to $17,379,000 as of September 30, 2021. During the six months ended
September 30, 2022, net cash provided by operating activities was $3,973,000. Net cash used in investing activities was $267,000, mainly due to cash used in purchases of $1,123,000 of marketable securities and $318,000 of fixed assets, as well as
an increase of $1,193,000 in fixed deposits maturing over twelve months, offsetting cash provided by proceeds of $1,927,000 from the sale of marketable securities during the first half of fiscal 2023. Net cash used in financing activities was
comprised mainly of $1,594,000 in payment for dividends during the six months ended September 30, 2022.
As of September 30, 2022, the Company had no general banking facilities.