November 25, 2024
Dialight Faces $19.3M Loss Amid Leadership and Legal Woes
Company struggles with executive turnover and costly legal provisions in 2024
Dialight PLC, a UK-based industrial LED lighting manufacturer, revealed unaudited interim results for the six months ending September 30, 2024, marked by stagnant revenues and a significant statutory loss of $19.3 million. While underlying operational improvements hint at progress, heavy non-operating costs, including a $19.5 million legal provision, underscore the company’s ongoing challenges.
EDITOR'S NOTE: We acknowledge that a previous version of this article, while accurate, placed focus on the $0.9 million operating profit while not emphasizing the $19.3 million net loss. We sincerely regret this oversight and any misunderstandings it may have caused.
Revenue for the period totaled $90.3 million, a slight decline from $91 million in the same period last year, representing a 0.77% drop. Despite this, Dialight reported an underlying operating profit of $0.9 million, a marked improvement compared to the $2.5 million loss recorded in the prior-year period. However, the sharp statutory loss reflects mounting legal costs and expenses tied to the company's transformation initiatives.
Leadership Turnover Delays Financials
Executive instability compounded Dialight's challenges during the reporting period. CFO Carolyn Zhang unexpectedly resigned on November 11, 2024, the day the financial results were initially scheduled to be released. The company attributed her departure to personal reasons, appointing Nigel Lingwood, Chair of the Audit Committee, to oversee financial reporting on an interim basis.
This resignation follows a tumultuous year of leadership changes, including the departures of CFO Clive Jennings in late 2023 and CEO Fariyal Khanbabi in early 2024. The turnover has sparked questions about the company's ability to maintain strategic direction during a critical period of transformation and litigation.
Legal Challenges Take a Toll
Dialight’s financial performance continues to be heavily influenced by its prolonged legal battle with former manufacturing partner Sanmina Corporation. The company set aside $19.5 million to cover expected damages, legal fees, and other related costs stemming from the case. This provision significantly contributed to the $19.3 million statutory loss for the period, a sharp rise from a $4.5 million loss in 2023.
The legal saga dates back to 2019 when Dialight accused Sanmina of fraudulent practices and overcharging, seeking $220 million in damages. The case culminated in September with a U.S. jury ruling that both parties breached their manufacturing services agreement. Sanmina was awarded $7.8 million, while Dialight received a $900,000 counter-award for contractual breaches. The financial report suggests the company has accounted for broader implications of the verdict, including interest and ancillary legal costs.
Operational Improvements Amid Broader Challenges
Despite the financial setbacks, Dialight achieved some operational progress. Gross margins improved due to stringent cost controls, and net debt was reduced to $15.4 million, compared to $27.3 million a year ago. CEO Steve Blair highlighted these improvements as part of the company's ongoing transformation plan but acknowledged the difficult economic climate.
"There is added hesitation and increased uncertainty following the recent US election as businesses anticipate potential policy changes, further delaying capital commitments."
— Steve Blair, CEO, Dialight
Despite operational improvements and reduced net debt Dialight continues to face significant challenges. However, the company’s transformation plan and improved margins offer a glimmer of hope for stakeholders as it seeks to stabilize operations and achieve sustainable growth.
