Deswell Announces Second Half 2021 Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the second half of the fiscal year ended March 31, 2021.

Net sales for the six months ended March 31, 2021 were $37.2 million, an increase of 34.5% compared to net sales of $27.7 million for the six months ended March 31, 2020. Net sales increased by 4.1% to $11.1 million in the plastic segment and by 53.6% to $26.1 million in the Company’s electronic segment.

Total gross margin increased to 20.4% during the six months ended March 31, 2021, as compared to 19.2% in the same period last year. Gross profit margin in the plastic segment increased to 26.0% of net sales for the second half of fiscal 2021, as compared to 23.3% of net sales for the corresponding period of the last fiscal year. The increase in gross profit margin in the plastic segment was mainly due to a decrease in raw materials cost, offsetting the increase in factory overhead, as a percentage of sales. Gross profit margin for the electronic segment for the six months ended March 31, 2021 increased from 16.7% in the second half of fiscal 2020 to 17.9% in the second half of fiscal 2021. The increase was mainly due to increases in sales volume, increased percentage of sales of ODM products, and the implementation of cost control measures.

Operating income for the second half of fiscal 2021 increased from $0.3 million in the second half of fiscal 2020 to $2.3 million in the second half of fiscal 2021.

The Company reported net income of $6.7 million for the six months ended March 31, 2021, as compared to net loss of $2.6 million for the six months ended March 31, 2020. Non-operating income for the six months ended March 31, 2021 was $4.6 million, as compared to a non-operating expense of $2.6 million in the six months ended March 31, 2020. Non-operating income during the six months ended March 31, 2021 was primarily comprised of an increase of $2,538,000 in the fair value of marketable securities held, $1,214,000 from rental income, $482,000 of dividend income from securities investments, and a $279,000 realized gain from the sale of marketable securities, as compared to a decrease of $3,927 in the fair value of marketable securities held, $761,000 from rental income, $485,000 of dividend income from securities investments and $126,000 from interest income in the second half of fiscal 2020. Deswell reported basic and diluted income per share of $0.42 for the second half of fiscal 2021 (based on 15,915,000 and 15,995,000 weighted average shares outstanding, respectively), as compared to a basic and diluted loss per share of $0.16 (based on 15,915,000 and 15,966,000 weighted average shares outstanding), for the six months ended March 31, 2020.

Net sales for the year ended March 31, 2021 were $64.9 million, a decrease of 0.7% compared to net sales of $65.4 million for fiscal 2020. Operating income for the year ended March 31, 2021 increased to $3.3 million, as compared to operating income of $1.4 million for fiscal 2020. The Company reported net income of $8.2 million in fiscal 2021, as compared to net loss of $1.3 million for the year ended March 31, 2020. The increase in net income was mainly attributed to the non-operating income of $5.4 million in fiscal 2021, as compared to the non-operating expense of $2.4 million in fiscal 2020. Deswell reported a basic net income per share of $0.52 and diluted net income per share of $0.51 for fiscal 2021, (based on 15,915,000 and 16,047,000 weighted average shares outstanding, respectively), as compared to a basic and diluted loss per share of $0.08 (based on 15,914,000 and 16,020,000 weighted average shares outstanding), for the prior fiscal year.

The Company's financial position remained strong, with $20.2 million in cash and cash equivalents and working capital totaling $59.0 million as of March 31, 2021. Furthermore, the Company has no long-term or short-term borrowings as of March 31, 2021.

Mr. Edward So, Chief Executive Officer, commented, “We are pleased with our fiscal 2021 results which included a strong increase in operating income despite the pandemic and ongoing global electronic component shortage. After a slow start to the second half of the fiscal year due to customers’ conservative approach to placing orders because of the continued worldwide pandemic, we saw particularly strong growth in our electronics manufacturing division for the period. While the lockdown and social distancing had a significant impact on some of our customers who cater to the music performance market, we saw significantly increased demand for both home recording and audio streaming products. Our net income for the full year was also positively impacted by the performance of our investments and approximately $2 million in rental income generated from leased space at our facilities, which became available due to our identification of more efficient configuration and relocation of our equipment. Finally, we continue to proactively manage costs to maximize operating profitability.”

Mr. So concluded, “Our balance sheet remains strong and provides us with the financial flexibility to stay focused on the long-term performance of the business even as we navigate a challenging landscape. With a strong cash position and no debt, we look forward to continuing to expand our customer relationships and drive performance as the pandemic subsides.”

Second Half Dividend

The Company also announced that its board of directors today declared a cash dividend of $0.10 per share for the second half of the fiscal year ended March 31, 2021. The dividend will be payable on July 9, 2021 to shareholders of record as of June 25, 2021.

Dividends to be declared in the future will depend upon the Company’s future growth and earnings, of which there can be no assurance, and the Company’s cash flow needs for future development.

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, professional audio equipment, home audio products, and Internet-of-Things (IoT) products.

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)
			March 31,			March 31,
			2021			2020
ASSETS			(Unaudited)			(Audited)
Current assets :
	Cash and cash equivalents		$        20,223			$             22,514
	Fixed deposits maturing over three months		2,700			783
	Time deposits maturing over twelve months-current portion		1,519			-
	Marketable securities		22,373			19,441
	Accounts receivable, net		14,708			12,301
	Inventories		16,193			8,578
	Prepaid expenses and other current assets		2,489			1,752
	Total current assets		80,205			65,369
Property, plant and equipment - net			27,323			28,586
Time deposits maturing over twelve months			332			1,424
	Total assets		$      107,860			$             95,379
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Accounts payable		$          9,522			$               4,604
	Accrued payroll and employee benefits		7,107			6,077
	Customer deposits		1,683			1,172
	Other accrued liabilities		2,016			1,718
	Income taxes payable		886			735
	Total current liabilities		21,214			14,306
	Deferred income tax liabilities		957			751
	Total liabilities		22,171			15,057
Shareholders' equity
	Common shares nil par value - authorized 30,000,000 shares,
	17,061,810 shares issued as of March 31, 2020 and March 31, 2021; 15,915,239 shares outstanding as of
	March 31, 2020 and 2021		53,143			53,143
	Treasury stock at cost; 1,146,571 shares as of
	March 31, 2020 and 2021		(2,821)			(2,821)
	Additional paid-in capital		7,989			7,989
	Accumulated other comprehensive income		5,316			5,316
	Retained earnings		22,062			16,695
	Total shareholders' equity		85,689			80,322
	Total liabilities and shareholders' equity		$      107,860			$             95,379

 

DESWELL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (U.S. dollars in thousands, except per share data)
					Six months ended								Year ended
					March 31,								March 31,
							2021				2020			2021				2020
Net sales					$		37,196		$		27,655		$		64,886		$		65,368
Cost of sales							29,625				22,335				51,720				53,504
Gross profit							7,571				5,320				13,166				11,864
Selling, general and administrative expenses							5,590				4,818				10,310				10,026
Other income (expense), net							321				(245)				405				(425)
Operating income							2,302				257				3,261				1,413
Non-operating income (expense), net							4,641				(2,579)				5,445				(2,360)
Income (loss) before income taxes							6,943				(2,322)				8,706				(947)
Income taxes							244				247				475				373
Net income (loss) attributable to Deswell Industries, Inc.					$		6,699		$		(2,569)		$		8,231		$		(1,320)
Other comprehensive income					$		-		$		-	$			-	$			-
Total Comprehensive income (loss) attributable to Deswell Industries, Inc.					$		6,699		$		(2,569)		$		8,231		$		(1,320)
Net income (loss) per share attributable to
Deswell Industries, Inc.
Basic:
Net income (loss) per share					$		0.42		$		(0.16)		$		0.52		$		(0.08)
Weighted average common shares outstanding
shares (in thousands)							15,915				15,915				15,915				15,914
Diluted:
Net income (loss) per share					$		0.42		$		(0.16)		$		0.51		$		(0.08)
Weighted average number of shares
outstanding (in thousands)							15,995				15,966				16,047				15,914

DESWELL  INDUSTRIES,  INC.
CONSOLIDATED  STATEMENT  OF  CASH  FLOWS  (UNAUDITED)
( U.S. dollars in thousands )				Year ended
				March 31,
				2021		2020
Cash flows from operating activities :
	Net income (loss)			$                8,231		$             (1,320)
	Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization			1,755		1,973
	Provision for doubtful accounts, net			397		297
	Additional charges for (reversal of) obsolescence allowance of inventories, net			(9)		426
	Gain on disposal of property, plant and equipment			(22)		(29)
	Unrealized holding (gain) loss on marketable securities			(2,010)		5,179
	Gain on sales of marketable securities			(333)		(29)
	Scrip dividend received			(19)		(175)
	Deferred income tax expense			206		92
	Exchange (gain) loss from marketable securities			(661)		531
	Changes in operating assets and liabilities:
	Accounts receivable			(2,804)		3,136
	Inventories			(7,606)		4,026
	Prepaid expenses and other current assets			(737)		254
	Accounts payable			4,918		(1,649)
	Accrued payroll and employee benefits			1,030		401
	Customer deposits			511		(126)
	Other accrued liabilities			298		56
	Income taxes payable			151		78
Net cash provided by operating activities				3,296		13,121
Cash flows from investing activities
	Purchase of property, plant and equipment			(551)		(507)
	Proceeds from sale of property, plant and equipment, net of transaction costs			81		188
	Purchase of marketable securities			(6,059)		(2,121)
	Proceeds from sales of marketable securities			6,150		1,620
	Increase of fixed deposits maturing over three months			(1,917)		(412)
	Increase of fixed deposits maturing over twelve months			(427)		(1,424)
Net cash used in investing activities				(2,723)		(2,656)
Cash flows from financing activities      Dividends paid				(2,864)		(2,386)
	Exercise of stock options			-		64
Net cash used in financing activities				(2,864)		(2,322)
Net (decrease) increase in cash and cash equivalents				(2,291)		8,143
Cash and cash equivalents, beginning of year				22,514		14,371
Cash and cash equivalents, end of year				20,223		22,514
Supplementary disclosures of cashflow information:
	Cash paid during the year for:
	Interest			-		-
	Income taxes			236		160

 

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