Dialight Full Year 2021 Results: A Return to Profitability, After 2 Years of Losses

Dialight plc recently released Full Year 2021 Results (year ending 31 December 2021) in their 2021 Annual Report.  As a UK company, quarterly reporting is not required – only half year and full year reporting (same for companies in the EU and Australia).  Dialight announced 2021 revenue of $178M USD (£m 131.6) with “underlying profit” of $5.6M USD (£m 4.5).  The previous two years featured losses:  -$6.7M USD on $204M USD revenue in 2019, and -$8.6M USD on $161M USD revenue in 2020.  While Dialight’s reported 2021 revenue is up 17% over 2020, it has not yet recovered to the 2018 level of $229M USD (£m169.6).

Ownership of Dialight is almost entirely held by UK-based investment firms.  It’s been a tough slog for long term shareholders with the share price dropping more than 65% from five years ago.  No dividend was issued in 2021 or 2020.

Dialight describes themselves as a pure LED company, and operates two divisions:  LED Industrial Lighting, and Signals & Components.  Dialight’s Lighting Segment serves these major vertical markets:  Mining, Heavy Industry, Oil & Gas, Pulp & Paper, Petrochemical, and Power Generation.  While the Lighting segment brought in almost 70% of the revenue at $122M USD (£m 90.5), its overhead is much higher than the Signals & Components segment; both businesses contributed equally to the Underlying EBIT.

“Underlying EBIT” is a categorization that allows a company to exclude certain one-off gains or losses or exclude unusual income or expenses as a result of events that are not likely to recur.  In the case of Dialight’s 2021 reported results, the non-underlying items included expenses of $3.9M USD (£m 2.9) related to on-going litigation costs with former manufacturing partner Sanmina Corporation.  Since December 2019, Dialight and Sanmina have been in legal proceedings against each other, and Dialight’s annual report indicates no conclusion is expected before the end of 2022.  Dialight has filed a claim with total damages exceeding $256M USD (£m 190) “suffered as a result of: (a) Sanmina’s fraudulent inducement of Dialight to enter into a manufacturing services agreement (MSA); (b) Sanmina breaching the terms of the MSA in a willful and/or grossly negligent manner (for example in respect of their failure to appropriately manage supply chain and inventory levels and to deliver product on time and free of workmanship defects); and (c) Sanmina’s gross negligence and/or willful misconduct.”  If Sanmina is successful in their claim, Dialight’s exposure could be up to $12M USD (£m8.9m), excluding legal costs.

Looking at the geographic breakdown of Dialight’s business in 2021, North America makes up 77% of revenue at $136M, EMEA accounts for 8% of revenue, and the rest of the world brings in the remaining 15% of revenue.  The split between the business segments – Industrial Lighting versus Signal and Components is not provided geographically, but globally 69% of Dialight’s revenue comes from the Industrial Lighting segment.

Most of Dialight’s employees (1241 of the total 1679) are based in Mexico, where the majority of the company’s manufacturing is located.  Another 218 employees are US-based, with an R&D facility in New Jersey and a manufacturing facility in North Carolina.

Dialight’s 2021 Annual Report highlights the company’s efforts to embed into the organization Environmental, Social and Governance (ESG) activity.  The company released its inaugural ESG report in 2021 and has set an internal target to be NET Zero by 2040.   Group Chief Executive Fariyal Khanbabi provided a look at the strategy ahead in her business review that included a plan to launch the first fully recyclable industrial LED fixture.  CEO Khanbabi, a rarity as a female CEO in the male-dominated global lighting industry, shares that rarity status with the Chair of Dialight’s Board of Directors, Karen Oliver, who stepped into the Board Chair role in late 2021.

Dialight offers a 10-year warranty on most of their Lighting products, and the Annual Report notes that the Dialight’s 10-year warranty was approved in early 2021 by the National Lighting Bureau (NLB) Trusted Warranty Program in the US.  Acceptance in the NLB program validates companies that reliably stand behind their warranty.

Guidance for Dialight in 2022 included a statement on a healthy order book and continuing strong customer demand, hedged by concern on the challenges in the near-term global trading environments (supply chain constraints, inflation).  Dialight’s strategy is focused organic growth supported by product innovation.  By their own assessment, Dialight’s product portfolio covers about 80% of a typical customer lighting schedule, and Dialight is exploring options to address the remaining 20% as “Source & Sell” – options that include purchasing these products or partnering with companies that can provide them.

Dig Deeper:

Dialight 2021 Annual Report (Full Year ending 31 December 2021):
http://www.ir.dialight.com/media/1462/23462_dialight_ar21_interactive_pdf.pdf

Dialight plc Full Year Results 2021 Presentation:
http://www.ir.dialight.com/media/1459/full-year-2021-v13.pdf