Trio-Tech International(TRT) - 2021 Q2 - Quarterly Report

Part I. Financial Information This section provides the unaudited condensed consolidated financial statements and related disclosures for Trio-Tech International Financial Statements This section presents the unaudited condensed consolidated financial statements for Trio-Tech International as of and for the periods ended December 31, 2020, including balance sheets, statements of operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets to $38.36 million as of December 31, 2020, from $35.66 million as of June 30, 2020, primarily driven by an increase in trade accounts receivable Condensed Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $22,150 | $20,200 | | Total Assets | $38,363 | $35,660 | | Total Current Liabilities | $8,192 | $7,243 | | Total Liabilities | $11,815 | $10,514 | | Total Equity | $26,548 | $25,146 | Condensed Consolidated Statements of Operations and Comprehensive Income For the three months ended December 31, 2020, total revenue was $8.2 million and net income was $235 thousand, a decline from the prior year, with a similar trend for the six-month period Three Months Ended Dec 31, 2020 vs 2019 (in thousands, except EPS) | Metric | Q2 2021 (ended Dec 31, 2020) | Q2 2020 (ended Dec 31, 2019) | | :--- | :--- | :--- | | Total Revenue | $8,201 | $8,962 | | Gross Margin | $1,870 | $1,905 | | (Loss) from Operations | $(37) | $(173) | | Net Income Attributable to Shareholders | $235 | $426 | | Diluted EPS | $0.06 | $0.11 | Six Months Ended Dec 31, 2020 vs 2019 (in thousands, except EPS) | Metric | H1 2021 (ended Dec 31, 2020) | H1 2020 (ended Dec 31, 2019) | | :--- | :--- | :--- | | Total Revenue | $15,042 | $18,785 | | Gross Margin | $3,388 | $4,157 | | (Loss) / Income from Operations | $(364) | $49 | | Net Income Attributable to Shareholders | $227 | $699 | | Diluted EPS | $0.06 | $0.19 | Condensed Consolidated Statements of Shareholders' Equity For the six months ended December 31, 2020, total equity increased from $25.15 million to $26.55 million, primarily due to a $1.56 million positive foreign currency translation adjustment and $227 thousand net income Changes in Shareholders' Equity (Six months ended Dec 31, 2020, in thousands) | Description | Amount | | :--- | :--- | | Balance at June 30, 2020 | $25,146 | | Net income/(loss) | $(115) | | Translation adjustment | $1,583 | | Exercise of stock option | $101 | | Dividend declared by subsidiary | $(182) | | Balance at Dec. 31, 2020 | $26,548 | Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2020, net cash provided by operating activities was $315 thousand, a sharp decrease from $1.57 million in the prior-year period, mainly due to lower net income and increased trade accounts receivable Consolidated Cash Flows (Six months ended Dec 31, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $315 | $1,573 | | Net Cash Used in Investing Activities | $(106) | $(2,116) | | Net Cash (Used in)/ Provided by Financing Activities | $(357) | $395 | | Net Increase/(Decrease) in Cash | $412 | $(110) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies and financial statement line items, covering segments, leases, stock options, and commitments, including the receipt of a $121 thousand PPP loan - The company conducts business in four segments: Manufacturing, Testing Services, Distribution, and Real Estate, with subsidiaries in the U.S., Singapore, Malaysia, Thailand, and China[26] - As of December 31, 2020, the company had $696 thousand of remaining performance obligations, with approximately 66.7% expected to be recognized as revenue over the next two years[104] - In May 2020, the Company received a Paycheck Protection Program (PPP) loan of approximately $121 thousand, which it accounted for as a financial liability[154] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for the second quarter and first half of fiscal 2021, covering COVID-19 impact, segment results, and financial condition, noting revenue declines offset by manufacturing growth and government assistance Overview and COVID-19 Impact The company provides reliability test equipment and services to the semiconductor industry, with COVID-19 negatively impacting testing volumes and distribution orders, mitigated by safety measures and government assistance including a $121 thousand PPP loan and $243 thousand in grants - The company's three core segments (Manufacturing, Testing, Distribution) generated 99.9% of revenue in the second quarter of fiscal 2021[160] - The most significant near-term impacts of COVID-19 are declines in testing services volume, distribution orders, and delays in manufacturing deliveries[167] - The company received $243 thousand in government grants from Singapore and Malaysia and a $121 thousand PPP loan in the U.S. to mitigate the pandemic's impact[168] Comparison of the Three Months Ended December 31, 2020 and 2019 For Q2 FY2021, total revenue decreased 8.5% to $8.2 million due to drops in Distribution and Testing, partially offset by Manufacturing growth, while gross margin improved to 22.8% and operating loss narrowed due to cost controls Revenue by Segment - Q2 FY2021 vs Q2 FY2020 (in thousands) | Segment | Q2 2021 | Q2 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Manufacturing | $3,569 | $3,045 | +17.2% | | Testing Services | $3,560 | $3,887 | -8.4% | | Distribution | $1,065 | $2,014 | -47.1% | | Total | $8,201 | $8,962 | -8.5% | - Overall gross margin increased to 22.8% from 21.3% YoY, driven by a better product mix in the Distribution segment and cost controls in the Testing segment[198][200][201] - Operating expenses decreased by $171 thousand YoY, primarily due to lower general, administrative, and selling expenses resulting from cost-saving measures and reduced travel during the pandemic[203][204] Comparison of the Six Months Ended December 31, 2020 and 2019 For H1 FY2021, total revenue decreased 19.9% to $15.0 million across all segments, resulting in an operating loss of $364 thousand compared to prior year's operating income, with net income falling to $227 thousand Revenue by Segment - H1 FY2021 vs H1 FY2020 (in thousands) | Segment | H1 2021 | H1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Manufacturing | $6,194 | $6,362 | -2.6% | | Testing Services | $6,514 | $8,277 | -21.3% | | Distribution | $2,323 | $4,113 | -43.5% | | Total | $15,042 | $18,785 | -19.9% | - The company swung to an operating loss of $364 thousand from an operating income of $49 thousand YoY, mainly due to the decrease in gross profit from lower revenues[228] - Other income increased by $204 thousand to $354 thousand, primarily due to receiving $260 thousand in government grants related to COVID-19 relief[230][231] Financial Condition and Liquidity As of December 31, 2020, total assets increased to $38.4 million and liabilities to $11.8 million, while cash provided by operating activities significantly decreased to $315 thousand from $1.57 million, though liquidity is deemed sufficient - Total assets increased by $2.7 million to $38.4 million between June 30, 2020, and December 31, 2020[244] - The number of days' sales outstanding (DSO) in accounts receivables increased to 88 days from 67 days at the end of the last fiscal year, indicating slower collections[246] - Net cash provided by operating activities decreased by $1.26 million to $315 thousand for the six months ended Dec 31, 2020, compared to the same period last year[256] Quantitative and Qualitative Disclosures about Market Risk The company states that this item is not applicable, indicating no material changes to its market risk disclosures from the last annual report on Form 10-K - The company has marked this section as "Not applicable"[261] Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, while the company continues its multi-year ERP system implementation, with Tianjin and Suzhou operations successfully transitioned in Q2 FY2021 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2020[262] - The company is implementing a new ERP system in phases. The Tianjin and Suzhou operations transitioned to the new system in Q2 FY2021[265] Part II. Other Information This section addresses other required disclosures, including no material legal proceedings or changes to risk factors, and details on dividend payment restrictions from subsidiaries Other Information Items This section addresses other required disclosures, reporting no material legal proceedings, no changes to risk factors, and no defaults upon senior securities, while also detailing dividend payment restrictions from Malaysian and Singaporean subsidiaries and listing exhibits - The company reports that there are no material legal proceedings, risk factors updates, or defaults upon senior securities to disclose[268][269][270] - Dividend payments from Malaysian and Singaporean subsidiaries are restricted by local regulations regarding retained earnings, tax credits, and, in Malaysia, Central Bank authorization for overseas cash movements[269] - A list of exhibits filed with the report includes officer certifications (Rule 13a-14(a) and Section 1350) and XBRL data files[273]