Deswell Announces Second Half 2024 Results

Rhea-AI Summary

Deswell Industries (Nasdaq: DSWL) announced its unaudited financial results for the second half of fiscal year 2024, ending March 31. The company's net sales were $31.6 million, reflecting a 4.4% decrease compared to the same period last year. Sales in the plastic segment dropped by 18.4%, while the electronics segment saw a marginal decline. However, the overall gross margin improved to 20.7%, driven by cost savings from the depreciation of the renminbi and effective cost control measures.

Operating income increased to $1.5 million, and net income rose significantly to $4.2 million, aided by substantial non-operating income. For the full fiscal year, net sales were down by 10.5% to $69.4 million, but net income surged to $7.7 million. The company reported a strong financial position with $15.8 million in cash and no debt. Deswell declared a $0.10 per share dividend, payable on July 19, 2024, to shareholders of record as of July 5, 2024.

Positive

• Total gross margin increased to 20.7%.
• Operating income rose to $1.5 million.
• Net income surged to $4.2 million for the second half and $7.7 million for the full fiscal year.
• Strong financial position with $15.8 million in cash and no debt.
• Declared a cash dividend of $0.10 per share.

Negative

• Net sales decreased by 4.4% in the second half and by 10.5% for the full fiscal year.
• Sales in the plastic segment fell by 18.4%.

Insights

Financial Analyst

Deswell Industries' performance for the second half of 2024 shows a mixed bag of results. Net sales saw a slight decline of 4.4% to $31.6 million, driven mainly by a significant drop in the plastic segment. However, it's impressive that the company managed to increase its gross margin from 17.3% to 20.7%. This improvement was largely due to reduced raw material and labor costs, aided by the depreciation of the renminbi.

Operating income surged to $1.5 million from $0.8 million a year earlier, indicating effective cost control measures. The net income also showed a significant increase to $4.2 million from $2.6 million, owing largely to higher non-operating income, which included gains from marketable securities and rental incomes.

Despite the dip in sales, the rise in profitability metrics and a strong balance sheet with $15.8 million in cash and no debt provide a strong safety net and the potential for future growth. However, it’s important to watch if the reduction in costs is sustainable long-term or merely due to temporary currency fluctuations. Investors should be aware of these dynamics when assessing the company's future prospects.

Market Research Analyst

The economic landscape is important in understanding Deswell Industries' performance. The reported decrease in sales, particularly in the plastic segment, highlights the pressure from cautious consumer behavior in an inflationary environment. This trend is a critical factor for investors to consider, as it reflects broader market challenges that can impact Deswell's revenue streams.

On the upside, Deswell's improved gross margin and profitability are noteworthy. The company has effectively navigated through cost pressures, leveraging the depreciation of the renminbi and implementing stringent cost control measures. This adaptability is a positive indicator of management's capability to maneuver through economic challenges.

The declared dividend of $0.10 per share shows confidence in the company's financial health and can be attractive to income-focused investors. However, future dividends depend on consistent earnings growth and cash flow generation, which remain uncertain in the current economic climate.

- Company Announces Second Half Cash Dividend of 0.10 Per Share -

MACAO--(BUSINESS WIRE)-- Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the second half of the fiscal year ended March 31, 2024.

Net sales for the six months ended March 31, 2024 were $31.6 million, a decrease of 4.4% compared to net sales of $33.1 million for the six months ended March 31, 2023. Net sales decreased by 18.4% to $6.1 million in the plastic segment and by less than one percent to $25.5 million in the Company’s electronic segment.

Total gross margin increased to 20.7% during the six months ended March 31, 2024, as compared to 17.3% in the same period last year. For the plastic segment, gross profit margin increased to 27.1% of net sales for the second half of fiscal 2024, as compared to 17.8% of net sales for the corresponding period of the last fiscal year. The increase in gross profit margin in the plastic segment is mainly attributable to decreased raw material and labor costs as a result of the depreciation of the renminbi, as well as the change of product mix. Gross profit margin in the electronics segment increased to 19.2% in the second half of fiscal 2024, as compared to 17.2% in the second half of fiscal 2023. The increase in gross profit margin in the electronics segment is the result of the depreciation of the renminbi, and decreased labor costs due to continuous cost control measures taken.

Operating income for the second half of fiscal 2024 increased from $0.8 million in the second half of fiscal 2023 to $1.5 million in the second half of fiscal 2024.

The Company reported net income of $4.2 million for the six months ended March 31, 2024, as compared to net income of $2.6 million for the six months ended March 31, 2023. Non-operating income for the six months ended March 31, 2024 was $2.6 million, as compared to non-operating income of $1.7 million in the six months ended March 31, 2023. Non-operating income during the six months ended March 31, 2024 was primarily comprised of $884,000 from unrealized gain in marketable securities, $260,000 from rental income, $695,000 on dividend income from securities investments, and $351,000 from other income, as compared to an unrealized gain of $381,000 on marketable securities, rental income of $330,000, dividend income of $445,000 from securities investments and a realized gain of $461,000 on the sale of marketable securities in the second half of fiscal 2023. Deswell reported basic and diluted income per share of $0.26 for the second half of fiscal 2024 (based on 15,935,000 and 15,992,000 weighted average shares outstanding, respectively), as compared to basic and diluted income per share of $0.16 (based on 15,935,000 and 16,000,000 weighted average shares outstanding, respectively), for the six months ended March 31, 2023.

Net sales for the year ended March 31, 2024 were $69.4 million, a decrease of 10.5% compared to net sales of $77.5 million for fiscal 2023. Operating income for the year ended March 31, 2024 increased to $3.8 million from $2.9 million in fiscal 2023. The Company reported net income of $7.7 million in fiscal 2024, as compared to net income of $2.1 million for the year ended March 31, 2023. The increase in net income was mainly attributable to the increases in gross profit and non-operating income for fiscal 2024, as compared to the prior fiscal year. Deswell reported basic and diluted net income per share of $0.48 for fiscal 2024 (based on 15,935,000 and 15,999,000 weighted average shares outstanding, respectively), as compared to basic and diluted net income per share of $0.13 (based on 15,935,000 and 16,072,000 weighted average shares outstanding, respectively), for the prior fiscal year.

The Company's financial position remained strong, with $15.8 million in cash and cash equivalents and working capital totaling $66.8 million as of March 31, 2024. Furthermore, the Company has no long-term or short-term borrowings as of March 31, 2024.

Mr. Edward So, Chief Executive Officer, commented, “We continued to see sales pressure in the back half of fiscal 2024, related to consumer caution around discretionary purchases as the worldwide economy continues to contend with an inflationary environment. Nonetheless, we were pleased to achieve improved margin performance as well as enhanced profitability in both the last six months of fiscal 2024 and for full year 2024. Our margin performance was favorably impacted by a decrease in labor and materials costs associated with the depreciation of the renminbi, changes to our product mix, and the effect of the cost control measures we have undertaken.

“Our balance sheet is strong, reflecting a solid cash position and no debt providing us with the resources to focus on increasing our customer base and recognition in the industry as a dependable and effective partner for outsourced manufacturing operations.”

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, 2024. The dividend will be payable on July 19, 2024 to shareholders of record as of July 5, 2024.

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,
			2024			2023
ASSETS			(Unaudited)			(Audited)
Current assets:
	Cash and cash equivalents		$	15,750		$	22,160
	Time deposits with original maturing over three months			13,979			3,053
	Time deposits with original maturing over twelve months - current			-			1,047
	Marketable securities (note 2)			23,026			20,722
	Held-to-Maturity Investment			5,157			-
	Accounts receivable, net			11,986			15,704
	Inventories (note 3)			12,129			17,325
	Prepaid expenses and other current assets			1,228			1,149
	Total current assets			83,255			81,160
Property, plant and equipment, net				24,603			26,051
Deferred income tax assets				419			262
Time deposits with original maturing over twelve months				2,799			2,906
	Total assets		$	111,076		$	110,379
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Accounts payable		$	5,210		$	6,949
	Accrued payroll and employee benefits			7,159			7,943
	Customer deposits			1,712			2,216
	Other accrued liabilities			1,236			1,989
	Income taxes payable			1,113			1,149
	Total current liabilities			16,430			20,246
	Deferred income tax liabilities			476			484
	Total liabilities			16,906			20,730
Shareholders' equity
	Common shares nil par value - authorized 30,000,000 shares,
	17,081,810 shares issued as of March 31, 2022 and 2023;
	15,935,239 shares outstanding as of March 31, 2022 and 2023;			53,202			53,202
	Treasury stock at cost; 1,146,571 shares as of March 31, 2022 and 2023			(2,821)			(2,821)
	Additional paid-in capital			7,973			7,973
	Accumulated other comprehensive income			5,316			5,316
	Retained earnings			30,500			25,979
	Total shareholders' equity			94,170			89,649
	Total liabilities and shareholders' equity		$	111,076		$	110,379

DESWELL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME (UNAUDITED) (U.S. dollars in thousands, except per share data)
				Six months ended						Year ended
				March 31,						March 31,
				2024			2023			2024			2023
Net sales				$	31,638		$	33,105		$	69,368		$	77,543
Cost of sales					25,097			27,380			55,465			64,704
Gross profit					6,541			5,725			13,903			12,839
Selling, general and administrative expenses					5,241			5,215			10,501			10,966
Other income, net					183			337			383			1,014
Operating income					1,483			847			3,785			2,887
Non-operating (expenses) income, net					2,610			1,737			4,034			(573)
Income, before income taxes					4,093			2,584			7,819			2,314
Income taxes expense (benefit)					(59)			(35)			110			255
Net income attributable to Deswell Industries, Inc.				$	4,152		$	2,619		$	7,709		$	2,059
Other comprehensive income				$	-		$	-		$	-		$	-
Total comprehensive income attributable to Deswell Industries, Inc.				$	4,152		$	2,619		$	7,709		$	2,059
Net income per share attributable to
	Deswell Industries, Inc. (note 4)
Basic:
	Net income per share			$	0.26		$	0.16		$	0.48		$	0.13
	Weighted average common shares outstanding
	(shares in thousands)				15,935			15,935			15,935			15,935
Diluted:
	Net income per share			$	0.26		$	0.16		$	0.48		$	0.13
	Weighted average common shares outstanding
	(shares in thousands)				15,992			16,000			15,999			16,072

DESWELL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (U.S. dollars in thousands)
( U.S. dollars in thousands )				Year ended
				March 31,
				2024			2023
Cash flows from operating activities:
	Net income			$	7,709		$	2,059
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				1,523			1,709
	Provision for (reversal of) credit losses, net				76			(229)
	Allowance of for obsolete inventories, net				-			116
	(Gain) loss on disposal of property, plant and equipment				74			(18)
	Unrealized holding (gain) loss on marketable securities				(952)			3,973
	Gain on sale of marketable securities				-			(581)
	Deferred income tax benefit				(165)			(178)
	Changes in operating assets and liabilities:
	Accounts receivable				3,642			2,720
	Inventories				5,196			6,378
	Prepaid expenses and other current assets				(79)			777
	Accounts payable				(1,739)			(2,889)
	Accrued payroll and employee benefits				(784)			332
	Customer deposits				(504)			(127)
	Other accrued liabilities				(753)			(961)
	Income taxes payable				(36)			(83)
Net cash provided by operating activities					13,208			12,998
Cash flows from investing activities
	Purchase of property, plant and equipment				(381)			(792)
	Proceeds from sale of property, plant and equipment, net of transaction costs				232			67
	Purchase of marketable securities				(1,352)			(3,469)
	Proceeds from sales of marketable securities				-			3,854
	(Increase) decrease of fixed deposits with original maturing over three months				(10,926)			1,301
	Decrease (increase) of fixed deposits with original maturing over twelve months				1,154			(2,076)
	Increase in held-to-maturity investment				(5,157)			-
Net cash used in investing activities					(16,430)			(1,115)
Cash flows from financing activities
	Dividends paid				(3,188)			(3,188)
	Proceeds from exercise of stock options				-			-
Net cash used in financing activities					(3,188)			(3,188)
Net decrease in cash and cash equivalents					(6,410)			8,695
Cash and cash equivalents, beginning of year					22,160			13,465
Cash and cash equivalents, end of year					15,750			22,160
Supplementary disclosures of cash flow information:
	Cash paid during the year for:
	Interest				-			-
	Income taxes				227			418

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240620366991/en/

Investor Relations:

John Nesbett/Jennifer Belodeau

IMS Investor Relations

203.972.9200

jnesbett@imsinvestorrelations.com

Source: Deswell Industries, Inc.

FAQ

What were Deswell's net sales for the second half of fiscal 2024?

Deswell reported net sales of $31.6 million for the second half of fiscal 2024.

What was Deswell's net income for the second half of fiscal 2024?

Deswell's net income for the second half of fiscal 2024 was $4.2 million.

How did Deswell's gross margin perform in the second half of fiscal 2024?

Deswell's gross margin improved to 20.7% in the second half of fiscal 2024.

How much was Deswell's dividend for the second half of fiscal 2024?

Deswell declared a cash dividend of $0.10 per share for the second half of fiscal 2024.

What was Deswell's financial position as of March 31, 2024?

Deswell had $15.8 million in cash and no debt as of March 31, 2024.

What impacted Deswell's improved gross profit margin in the plastic segment?

The improvement was due to decreased raw material and labor costs from the depreciation of the renminbi and a change in product mix.