SEC Form 6-K filed by Deswell Industries Inc.

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

For November 17, 2023

DESWELL INDUSTRIES, INC.

(Registrant’s name in English)

10B Edificio Associacao Industrial de Macau

32-36 Rua do Comandante Mata e Oliveira

Macau

Special Administrative Region, PRC

 (Address of principal executive offices)

Deswell Announces First Half 2024 Results

 

-  Company Announces First Half Cash Dividend of $0.10 Per Share -

 

 

 

MACAO (November 17, 2023) - Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the first six months of fiscal 2023, ended September 30, 2023.

 

Net sales for the six months ended September 30, 2023 were $37.7 million, a decrease of 15.1% compared to net sales of $44.4 million for the six months ended September 30, 2022. Net sales decreased by 24.6% to $6.3 million in the plastic segment and by 12.9% to $31.4 million in the Company’s electronic segment. 

 

 

 

The Company's financial position remained strong, with $17.4 million in cash and cash equivalents and working capital totaling $63.8 million as of September 30, 2023. Furthermore, the Company has no long-term or short-term borrowings as of September 30, 2023.

 

Mr. Edward So, Chief Executive Officer, commented, “With global inflation continuing to rise, consumers are spending less on non-essential items such as home audio equipment and entertainment products as they navigate the challenging economy.  Despite the sales pressure we encountered in the first half of fiscal 2024, we’re pleased to have achieved enhanced margins and significantly improved profitability, with net income of $3.6 million or $0.22 per share, as compared to a net loss of $0.6 million in the first half of fiscal 2023.  Margins were favorably impacted by lower raw materials costs related to an improved supply chain environment and by our ongoing expense control initiatives. Additionally, our margin performance benefitted from the depreciation of renmibi in the first half of 2024.

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, 2023.  The dividend will be payable on December 21, 2023 to shareholders of record as of December 1, 2023.

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

DESWELL INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEET

(U.S. dollars in thousands)

DESWELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME

(UNAUDITED)

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

DESWELL INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(U.S. dollars in thousands)

DESWELL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands except per share data)

 

 

In the opinion of Management, the accompanying unaudited financial statements contain all adjustments (all of which are normal and recurring in nature) necessary to fairly present the financial position of Deswell Industries, Inc. (the Company) at September 30, 2023 and March 31, 2023, the results of operations for the six months ended September 30, 2023 and September 30, 2022, and the cash flows for the six months ended September 30, 2023 and September 30, 2022.  The notes in the Consolidated Financial Statements contained in the Form 20-F Annual Report filed on July 28, 2023 under the Securities Exchange Act of 1934 should be read in conjunction with these Consolidated Financial Statements.

 

2.       Marketable securities and other securities investments

 

Marketable securities and other securities investments include debt and equity securities of which the aggregate fair value, unrealized gain and cost are as follows:

 

 

 

Marketable Securities

The Company acquired equity securities listed on the Hong Kong Stock Exchange. These securities are recorded at fair value based on quoted market prices.

Unrealized gain from these marketable securities for the six months ended September 30, 2023 is included in the non-operating income of the consolidated statement of income.

During the first half of fiscal 2024, there was no disposal of marketable securities.

 3.       Inventories

 

 

 

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 income (loss) for the six months ended September 30, 2023 and 2022 were both from the Company’s continuing operations.

DESWELL INDUSTRIES, INC.

 

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 

 

 

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.

 

 

Net Sales - The Company's net sales for the six months ended September 30, 2023 were $37,730,000, a decrease of $6,708,000 or 15.1%, as compared to $44,438,000 in the corresponding period in fiscal 2023. The decrease was mainly related to decreases in sales revenues of $2,057,000 in the plastic segment, and of $4,651,000 in the electronic segment, as compared with the respective net sales from these segments in the corresponding period of last fiscal year.

The decrease in net sales in the plastic segment was mainly related to decreases in orders of $1,543,000 for plastic component parts of printers, telephones and office equipment, as well as of $1,634,000 for plastic tool boxes and plastic component parts for floor cleaning robots from existing customers, offsetting an increase in orders of $1,073,000 for plastic component parts of printers and multi-purpose equipment from other existing customers.

 

The revenue decrease in the electronic segment was mainly due to decreases in orders of $4,327,000 for home entertainment products and of $2,326,000 for mixing consoles from existing customers, offsetting increases in orders of $1,439,000 for loud speakers and of $1,250,000 for audio signal processors from other existing customers.

 

Gross Profit - Gross profit for the first half of fiscal 2024 was $7,362,000, representing a gross margin of 19.5%. This compared with the overall gross profit of $7,114,000 or 16.0% of net sales for the first half of fiscal 2023.

Gross profit in the electronic segment increased by $120,000 to $6,130,000 or 19.5% of net sales in the segment for the six months ended September 30, 2023, as compared to $6,010,000 or 16.7% of net sales in the segment for the same period of last fiscal year.  The increase in gross profit and margin was mainly the result of depreciation of renminbi, as well as decreases in raw materials and labor costs due to cost control measures taken in labor headcount and 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, 2023 were $5,260,000 or 13.9% of total net sales, as compared to $5,751,000 or 12.9% of total net sales for the six months ended September 30, 2022.

Corporate expenses decreased by $63,000 to $554,000 for the six months ended September 30, 2023 as compared to $617,000 for the same period ended September 30, 2022. The slight decrease was primarily related to the decrease in legal and professional fees.

SG&A expenses in the electronic segment decreased by $243,000 to $2,855,000 or 9.1% of net sales in the segment for the six months ended September 30, 2023, as compared to $3,098,000 or 8.6% of net sales in the segment for the corresponding period in fiscal 2023. The decrease in SG&A expense was primarily related to a decrease of $350,000 in staff costs and consultancy fees, offsetting increases of $28,000 in selling expense as well as $40,000 in local government taxes and other expenses, when compared to the corresponding period in the prior fiscal year.

Other income - Other income was $200,000 for the six months ended September 30, 2023, as compared to other income of $677,000 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, 2023 was $125,000, as compared to other expense of $633,000 for the same period in the prior fiscal year. The decrease in other expense was mainly due to an exchange loss of $188,000 during the first half of fiscal 2024, as compared to an exchange loss of $762,000 and a reversal of bad debt for $46,000 in the same period of fiscal 2023.

 

Operating income - Operating income was $2,302,000 for the six months ended September 30, 2023, as compared to operating income of $2,040,000 in the corresponding six months in the prior fiscal year.  

 

Corporate expenses of $554,000 and $617,000 were incurred during the fiscal year of 2023 and 2022, respectively.

 

 

 

Non-operating income (expense)  – Non-operating income for the six months ended September 30, 2023 was $1,424,000, as compared to non-operating expense of $2,310,000 in the prior year period  The significant increase was primarily due to an increase of $164,000 in dividend income from securities investments, and a decrease of $4,423,000 in unrealized holding loss on the fair value of marketable securities, offsetting decreases of $831,000 in rental and other income during the six months ended September 30, 2023, as compared to the same six months of the prior fiscal year.

Income Taxes – Income tax for the six months ended September 30, 2023 represented an income tax expense of $184,000 and a deferred tax benefit of $15,000, as compared to an income tax expense of $362,000 and a deferred tax benefit of $72,000 in the corresponding six months of the prior fiscal year.  

 

 

Net income (loss) – The Company had a net income of $3,557,000 for the six months ended September 30, 2023, as compared to net loss of $560,000 for the six months ended September 30, 2022.  The increased net income for the first six months of fiscal 2024 was mainly attributed to the increase in non-operating income in the plastic segment as described above.

 

Net income for the plastic segment for the six months ended September 30, 2023 totaled $392,000, as compared to a net loss of $3,364,000 for the corresponding six months in fiscal 2023. Increase in net income in the first six months of fiscal 2024 for the plastic segment was mainly attributable to the increase in non-operating income in fiscal 2024 as described above.

 

Net income for the electronic segment for the six months ended September 30, 2023 was $3,719,000, compared to net income of $3,421,000 for the corresponding six months of fiscal 2023. The increase in net income in the first six months of fiscal 2024 for the electronic segment was mainly attributable to the increases in gross margin and non-operating income, offsetting decreases in other income as described above.

 

 

 

 

The Company relies primarily upon internally-generated funds to finance its operations and investments.

 

As of September 30, 2023, the Company had working capital of $63,765,000 as compared to $60,914,000 at March 31, 2023.   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, 2023.  

 

As of September 30, 2023, the Company had cash and cash equivalents of $17,381,000, as compared to $15,577,000 as of September 30, 2022.  During the six months ended September 30, 2023, net cash provided by operating activities was $4,964,000. Net cash used in investing activities was $8,149,000, mainly due to increases of $3,372,000 in fixed deposits maturing over three months, of $5,092,000 in held-to-maturity investment, as well as cash used in purchases of $604,000 of marketable securities and $141,000 of fixed assets, offsetting cash provided by proceeds of $126,000 from disposal of fixed assts and release of $934,000 of time deposits maturing over twelve months 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, 2023.

 

As of September 30, 2023, the Company had no general banking facilities.