Deswell Announces Second Half 2019 Results

Deswell Industries, Inc. (Nasdaq: DSWL) today announced its unaudited financial results for the second half of the fiscal year ended March 31, 2019.

Net sales for the six months ended March 31, 2019 were $31.8 million, an increase of 2.8% compared to net sales of $30.9 million for the six months ended March 31, 2018. Net sales increased by 4.9% to $15.1 million in the plastic segment and increased by 1.0% to $16.5 million in the Company’s electronic segment.

Total gross margin increased to 17.2% during the six months ended March 31, 2019, as compared to 12.6% in the same period last year. Gross profit margin in the plastic segment increased to 20.9% of net sales for the second half of fiscal 2019, as compared to 14.7% 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 the decreases in labor cost, as a result of the reduction in headcount, as well as in factory overhead, as a percentage of sales. Gross profit for the electronic segment for the six months ended March 31, 2019 increased from 10.8% in second half of fiscal 2018 to 13.9% in the second half of fiscal 2019. The increase was mainly due to reduction in raw materials costs.

Operating income for the second half of fiscal 2019 was $0.3 million, as compared to an operating income of $0.2 million for the same period of fiscal 2018.

The Company reported net income of $1.5 million for the six months ended March 31, 2019, as compared to net income of $2.5 million for the six months ended March 31, 2018. Non-operating income for the six months ended March 31, 2019 was $1.4 million, as compared to non-operating income of $2.3 million in the year-ago six months. Non-operating income during the six months ended March 31, 2019 was primarily comprised of $756,000 from rental income, $454,000 of dividend income from securities investment, $88,000 from interest income, $217,000 from a decrease in the fair value of marketable securities, as well as $350,000 of realized gain from the sale of marketable securities, Deswell reported basic and diluted income per share of $0.10 for the second half of fiscal 2019 (based on 15,885,000 and 15,969,000 weighted average shares outstanding, respectively), as compared to basic and diluted income share of $0.16 (based on 15,885,000 and 15,953,000 weighted average shares outstanding), for the six months ended March 31, 2018.

Net sales for the year ended March 31, 2019 were $66.6 million, an increase of 9.7% compared to net sales of $60.7 million for fiscal 2018. Operating income for the year ended March 31, 2019 decreased to $0.5 million, as compared to operating income of $1.8 million for fiscal 2018. The decrease was mainly attributed to the provision of $403,000 for doubtful accounts in fiscal 2019, as compared to the reversal of $654,000 for doubtful account in fiscal 2018. The Company reported net income of $4.3 million in fiscal 2019, as compared to net income of $6.2 million for the year ended March 31, 2018. Deswell reported basic and diluted net income per share of $0.27 for fiscal 2019, (based on 15,885,000 and 16,059,000 weighted average share outstanding, respectively), as compared to basic and diluted income per share of $0.39 (based on 15,855,000 and 15,985,000 weighted average shares outstanding), for the prior fiscal year.

The Company's financial position remained strong, with $14.4 million in cash and cash equivalents and working capital totaled $54.4 million as of March 31, 2019. Furthermore, the Company has no long-term or short-term borrowings as of March 31, 2019.

Mr. Edward So, Chief Executive Officer, commented, “Fiscal 2019 represents our fourth consecutive year of revenue increases, with our sales up 75 percent since we returned to growth in fiscal 2016. Both of our divisions performed well, benefiting from strong relationships with longstanding customers, as well as the addition of multiple new customers. We also saw improved gross margins during the six month period due to reduced labor and raw material costs. Furthermore, we continue to monitor the ongoing US-China trade tension and are prepared to proactively adjust our strategy if necessary to support continued growth. Our balance sheet remains solid and we look forward to continuing to carefully allocate capital and focus on driving profitability.”

Second Half Dividend

The Company also announces that its board of directors today declared a cash dividend of $0.07 per share for the second half of the fiscal year ended March 31, 2019. The dividend will be payable on July 12, 2019 to shareholders of record as of June 25, 2019.

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, 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.

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