Hollysys Automation Technologies Reports Unaudited Financial Results for Fiscal Year 2014 Third Quarter Ended on March 31, 2014

14 May, 2014, 18:00 ET from Hollysys Automation Technologies, Ltd.

BEIJING, May 14, 2014 /PRNewswire-FirstCall/ -- Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the fiscal year 2014 third quarter ended on March 31, 2014 (see attached tables).

Q3 Financial Highlights

  • Quarterly revenue of $95.8 million, representing an increase of 58.8%, compared to $60.4 million year over year, and a decrease of 37.5% compared to $153.4 million quarter over quarter.
  • Non-GAAP gross margin at 36.2%, representing a decrease of 7.6% compared to 43.8% year over year, and a 3.9% increase compared to 32.3% quarter over quarter.
  • Non-GAAP net income attributable to Hollysys of $15.1 million, representing a 29.1% increase compared to $11.7 million year over year, and a 41.7% decrease compared to $25.9 million quarter over quarter.
  • Non-GAAP Diluted EPS at $0.26 reported for the quarter, as compared to $0.21 year over year, and $0.45 quarter over quarter.
  • Backlog of $602.9 million as of March 31, 2014, representing a 61.2% increase compared to $374.0 million year over year, and 19.8% increase compared to $503.3 million quarter over quarter.
  • Quarterly DSO of 248 days, as compared to 250 days year over year, and 156 days quarter over quarter.
  • Inventory turnover days of 45 days for the current quarter compared to 78 days year over year, and 27 days quarter over quarter.
  • The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.5 million as of the current quarter end.

The management of Hollysys stated: "We are very pleased to report a solid financial and operational result for the third quarter of this fiscal year, here I would like to discuss some key events during this quarter:

"During this quarter, we continuously insisted on executing our strategies to vertically penetrate in the high-end industrial automation market while improving our market share in mid to low end markets. We achieved several high-end projects wins in chemical, thermal and enlarge our market share in food beverage and new energy industries. We were also focusing on building strong after-sale department and set long term goals on improving after-sale services. Our solution in reducing waste material emission and environment protection proved to be successful. The past few months have been very exciting for Hollysys. A series of strict testing and on-site engineering application indicates that our new generation K series DCS products meet the requirements for large and complicated projects including power, chemical, etc. Our products will significantly improve our market competitive advantages and effectiveness of project as well as improve our client recognition. For the past few months, our HOLLiAS-N DCS product has been successfully operating in the Yangjiang Nuclear Power Plant, proving that our quality assurance system and products are completely qualified for the high standard of nuclear usage. With China accelerates its nuclear power plants construction in the future, we believe we will benefit more financially as well as in reputation in the long run. Going forward, we believe that we will increase our overall market share in the industrial automation, nurture and quickly take commanding height in our new businesses leveraging our advanced technologies, experienced professionals, profound industry expertise, and customization and innovation capability.

"In rail transportation, during this quarter, we feel excited about the significant high-speed rail ATP contract wins for high-speed trains in 200-250km/h and 300-350km/h, total valued at RMB 687 million (approximately USD 110 million). Besides, our strong R&D capability, extraordinary project management and high-quality and reliable products had ensured our wins on a few recently operated high-speed rail lines, including Xiamen-Shenzhen line, Xi'an-Baoji line, Chongqing-Lichuan line and Wuhan-Xianning line. Those high-speed rail lines are all equipped with our high-speed rail signaling system. We will continue to deliver quality works and work closely with railway authorities in the future. With China's increased rail construction and equipment procurement budget for this year, and exciting prospect envisioned, Hollysys, as a well-recognized rail signaling system provider with strong R&D capability, solid execution and reliable products, will continue to penetrate China's vast railway construction market and achieve significant results.

"For the overseas industrial automation and rail transportation expansion, we are sending qualified and experienced engineers from China to overseas, and recruiting local engineers to expand our overseas team. With our proprietary technology and products, industry expertise and strong competitive advantages, together with our expanded local channels through Bond and Concord, we will continue to make exciting achievements in the international market in both industrial and rail transportation fields, and creating value for our shareholders."

The Third Quarter Ended March 31 2014 Unaudited Financial Results Summary

To facilitate a clear understanding of Hollysys' operational results, a summary of unaudited non-GAAP financial results is shown as below:

In USD thousands, except share numbers and EPS

Three months ended

Nine months ended

March 31,

2014

March 31,

2013

% Change

March 31,

2014

March 31,

2013

% Change

Revenues

$

95,842

60,351

58.8%

$

362,481

235,623

53.8%

    Integrated contract revenue

$

90,097

56,446

59.6%

$

343,940

220,480

56.0%

    Products sales

$

5,746

3,905

47.1%

$

18,541

15,143

22.4%

Cost of revenues

$

61,193

33,908

80.5%

$

236,821

150,904

56.9%

Gross profit

$

34,649

26,442

31.0%

$

125,660

84,719

48.3%

Total operating expenses

$

15,998

15,484

3.3%

$

54,402

44,270

22.9%

    Selling

$

5,972

5,345

11.7%

$

22,025

20,024

10.0%

    General and administrative

$

7,356

6,364

15.6%

$

24,454

16,340

49.7%

    Research and development

$

7,855

7,361

6.7%

$

28,043

23,370

20.0%

    VAT refunds and government subsidies

$

(5,186)

(3,586)

44.6%

$

(20,120)

(15,463)

30.1%

Income from operations

$

18,651

10,958

70.2%

$

71,258

40,449

76.2%

Other income, net

$

(529)

277

(291.0)%

$

806

774

4.2%

Foreign exchange gain (loss)

$

156

(225)

(169.3)%

$

1,074

2,215

(51.5)%

Share of net losses of equity investees

$

(298)

(807)

(63.1)%

$

(1,777)

(518)

242.9%

Dividend income from cost investees

-

-

-

-

830

(100.0)%

Interest income

$

821

684

20.0%

$

2,347

2,416

(2.9)%

Interest expenses

$

(206)

(324)

(36.5)%

$

(756)

(1,561)

(51.6)%

Income tax expenses (credit)

$

2,856

(1,245)

(329.4)%

$

10,280

3,356

206.3%

Non-GAAP net income  attributable to non-

   controlling interest

$

617

107

477.2%

$

1,257

200

529.5%

Non-GAAP net income attributable to Hollysys

   Automation Technologies Ltd.

$

15,122

11,701

29.2%

$

61,416

41,049

49.6%

Basic Non-GAAP EPS

$

0.26

0.21

23.8%

$

1.06

0.73

45.2%

Diluted  Non-GAAP EPS

$

0.26

0.21

23.8%

$

1.05

0.73

43.8%

Share based compensation expenses

$

489

517

(5.5)%

$

2,116

1,570

34.7%

Amortization of acquired intangibles

$

926

-

-

$

4,003

-

-

Acquisition-related  incentive share contingent

   consideration fair value adjustments

3,501

-

-

6,206

-

-

Acquisition-related cash contingent

   consideration fair value adjustments

$

196

-

-

$

733

-

-

Net income attributable to Hollysys     Automation Technologies Ltd. (GAAP)

$

10,011

11,184

(10.5)%

$

48,358

39,478

22.5%

Basic GAAP EPS

$

0.17

0.20

(15.0)%

$

0.84

0.70

20.0%

Diluted GAAP EPS

$

0.17

0.20

(15.0)%

$

0.83

0.70

18.6%

Basic weighted average common shares

     outstanding

58,259,337

56,068,084

3.9%

57,820,122

56,022,512

3.2%

Diluted weighted average common shares

    outstanding

58,862,467

56,468,567

4.2%

58,322,944

56,086,042

4.0%

Operational Results Analysis for the quarter ended March 31, 2014

For the quarter ended March 31, 2014, total revenue increased by 58.8% to $95.8 million from $60.4 million compared to the same period from the prior year. Of the total revenue, revenue from integrated contracts increased by 59.6% to $90.1million, as compared to $56.4 million for the same period of the prior year; revenue from products sales increased by 47.1% to $5.7 million, as compared to $3.9 million for the same period of the prior year. The Company's total revenue broken down by segment is shown as below:

Three months ended Mar 31,

Nine months ended Mar 31,

2014

2013

2014

2013

$

% to

Total

Revenue

$

% to

Total

Revenue

$

% to

Total

Revenue

$

% to

Total

Revenue

Industrial Automation

39.6

41.3%

38.5

63.9%

162.9

44.9%

152.6

64.8%

Rail Transportation

26.0

27.2%

17.5

28.9%

117.7

32.5%

53.8

22.9%

M&E Solution

23.7

24.6%

-

-

74.4

20.5%

13.0

5.4%

Miscellaneous

6.5

6.8%

4.3

7.2%

7.4

2.1%

16.2

6.9%

Total

95.8

100.0%

60.4

100.0%

362.5

100.0%

235.6

100.0%

As a percentage of total revenues, overall gross margin excluding non-cash amortization of acquired intangibles was 36.2% for the three months ended March 31, 2014, as compared to 43.8% for the same period of the prior year. The gross margin for integrated contracts and product sales excluding non-cash amortization of acquired intangibles were 34.8% and 57.5% for the three months ended March 31, 2014, as compared to 42.5% and 62.1% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. Including non-cash amortization of acquired intangibles, recorded on a GAAP basis, overall gross margin was 35.2% for the three months ended March 31, 2014, as compared to 43.8% for the same period of the prior year. The gross margin for integrated contracts and product sales including non-cash amortization of acquired intangibles, were 33.8% and 57.5% for the three months ended March 31, 2014, as compared to 42.6% and 62.1% for the same period of the prior year respectively.

For the quarter ended March 31, 2014, selling expenses were $6.0 million, as compared to $5.3 million for the same quarter of the prior year, representing an increase of $0.7 million or 11.7% year over year. As a percentage of total revenues, selling expenses were 6.2% and 8.9% for the three months ended March 31, 2014, and 2013, respectively.

General and administrative expenses, excluding non-cash share-based compensation expense, were $7.4 million for the quarter ended March 31, 2014, representing an increase of $1.0 million or 15.6%, compared to $6.4 million for the same period of the prior year. The increase was mainly due to an increase of $1.2 million contributed by the newly acquired company Bond. As a percentage of total revenues, G&A expenses were 7.7% and 10.5% for the quarter ended March 31st, 2014 and 2013, respectively. Including the non-cash share-based compensation expense, recorded on a GAAP basis, G&A expenses were $7.8 million and $6.9 million for the quarter ended March 31st, 2014 and 2013, respectively.

Research and development expenses were $7.9 million for the quarter ended March 31, 2014, as compared to $7.4 million for the same quarter of the prior year, representing a year over year increase of $0.5 million, or 6.7%. As a percentage of total revenues, R&D expenses were 8.2% and 12.2% for the quarter ended March 31, 2014 and 2013, respectively.

The VAT refunds and government subsidies amounted to $5.2 million for the quarter ended March 31, 2014, as compared to $3.6 million for the same period in the prior year.  

The income tax expenses and effective tax rate were $2.9 million and 21.2% for the quarter ended March 31, 2014. Excluding the impact of non-GAAP adjustments on the Income before income taxes, the effective tax rate was 15.4% for the current quarter. For the same quarter in the prior year, the income tax credit was 1.2 million due to a refund Beijing Hollysys received as a result of being certified as a key software enterprise for the calendar year 2011 & 2012.

For the quarter ended March 31, 2014, the non-GAAP net income attributable to Hollysys excluding non-cash stock compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $15.1 million or $0.26 per diluted share based on 58.9 million shares outstanding. This represents an increase of $3.4 million, or 29.1%, over the $11.7 million or $0.21 per share based on 56.5 million shares outstanding, reported in the prior year same period. On a GAAP basis, net income attributable to Hollysys was $10.0 million or $0.17 per diluted share representing a decrease of $1.2 million or 10.5%, over the $11.2 million or $0.20 per diluted share reported in the prior year period.  

Backlog Highlights

Hollysys' backlog as of March 31, 2014 was $602.9 million, representing an increase of 19.8% compared to $505.3 million as of December 31, 2013, and an increase of 61.2% compared to $374.0 million as of March 31, 2013. The detail segment breakdown is shown as below:

Quarter-over-Quarter Analysis

Year-over-Year Analysis

2014-3-31

2013-12-31

2013-3-31

$

% to

Total

Backlog

$

% to

Total

Backlog

% Change

$

% to

Total

Backlog

% Change

Industrial Automation

172.1

28.5%

149.4

29.7%

15.2%

146.3

39.1%

17.6%

Rail Transportation

278.3

46.2%

223.3

44.4%

24.6%

202.9

54.2%

37.1%

M&E Solution

152.4

25.3%

106.5

21.2%

43.2%

-

-

-

Miscellaneous

0.1

0.0%

24.1

4.8%

(99.6%)

24.8

6.6%

(99.6%)

Total

602.9

100.0%

503.3

100.0%

19.8%

374.0

100.0%

61.2%

Cash Flow Highlights

The net cash provided by operating activities was $3.1 million for the quarter ended March 31, 2014; including investing and financing activities, the total net cash outflows for this quarter was $10.9 million. During the quarter, there was $2.6 million net cash inflow from the proceeds of short-term bank loans and $1.6 million net cash inflow from the proceeds of long-term bank loans.  There was a net cash outflow of $12.0 million used in time deposits placed with bank and a net cash outflow of $2.7 million as the result of repayment of long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.5 million, $150.1 million, and $131.1 million as of March 31 2014, December 31, 2013 and June 30 2013, respectively. Of the total $150.5 million as of December 31, 2013, cash and cash equivalents were $124.2 million, and time deposits with original maturities over three months were $26.3 million.

For the quarter ended March 31, 2014, Days Sales Outstanding ("DSO") was 248 days, as compared to 250 days year over year, and 156 days quarter over quarter. Inventory turnover days of 45 days for the current quarter compared to 78 days year over year, and 27 days quarter over quarter

Outlook for FY 2014

Hollysys management concluded, "In view of our strong backlog and future exciting growth momentum envisioned, we are reiterating our fiscal year 2014 revenue guidance of $500 million to $530 million and non-GAAP net income guidance of $84 million to $86 million. Going into the future, Hollysys will continue to leverage on its core growth pillar foundations of its proprietary technology, profound industry expertise and solution capabilities to increase its market share in respective high-growth end markets. Besides, Hollysys will continue to set up strategic alliance with industry leading organizations to penetrate into new markets and accelerate its growth pace, to create long-term value for our shareholders."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 a.m. Beijing Time on May 15, 2014 / 9:00 p.m. U.S. Eastern Time on May 14, 2014. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Hollysys Automation Technologies conference call.  The conference call identification number is 2533152.

4001-200-539 (Mainland China) +1-855-298-3404 (United States) 800-905-927 (Hong Kong) +852-5808-3202 (Hong Kong) 0800-015-9725 (United Kingdom) +44(0)20 3078 7622 (United Kingdom) 800-616-3222 (Singapore) +65 6823 2299 (Singapore)

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at: http://ir.hollysys.com .

About Hollysys Automation Technologies, Ltd.

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,800 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 5,000 customers more than 20,000 projects in the industrial, railway, subway & nuclear industries in China, South-East Asia, and the Middle East. Its proprietary technologies are applied in its industrial automation solution suite including DCS (Distributed Control System), PLC (Programmable Logic Controller), RMIS (Real-time Management Information System), HAMS (HolliAS Asset Management System), OTS (Operator Training System), HolliAS BATCH (Batch Application Package), HolliAS APC Suite (Advanced Process Control Package), SIS (Safety Instrumentation System), high-speed railway signaling system of TCC (Train Control Center), ATP (Automatic Train Protection), Subway Supervisory and Control platform, SCADA (Surveillance Control and Data Acquisition), nuclear power plant automation and control system and other products.

SAFE HARBOUR:

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties.  Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements.  Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

Contact Information:

Hollysys Automation Technologies, Ltd. www.hollysys.com

Investor Relations +86-10-58981386 investors@hollysys.com

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In US Dollars except for per-share data)

Three months ended March 31,

Nine months ended March 31,

2014

2013

2014

2013

(Unaudited)

(Unaudited)

(Unaudited)

 (Unaudited)

Revenues

Integrated contract revenue

$

90,096,587

$

56,445,995

$

343,939,861

220,479,657

Products sales

5,745,651

3,904,716

18,540,902

15,143,279

Total revenues

95,842,238

60,350,711

362,480,763

235,622,936

Cost of integrated contracts

59,676,218

32,429,992

234,250,522

145,470,976

Cost of products sold

2,442,915

1,478,315

6,573,666

5,432,623

Gross profit

33,723,105

26,442,404

121,656,575

84,719,337

Operating expenses

Selling

5,972,423

5,344,703

22,025,155

20,023,845

General and administrative

7,844,673

6,881,032

26,569,703

17,910,059

Research and development

7,855,149

7,361,126

28,042,859

23,369,833

VAT refunds and government subsidies

(5,185,543)

(3,585,679)

(20,120,034)

(15,463,226)

Total operating expenses

16,486,702

16,001,182

56,517,683

45,840,511

Income from operations

17,236,403

10,441,222

65,138,892

38,878,826

Other (losses) income , net

(4,030,258)

276,841

(5,400,067)

773,559

Foreign exchange gain (loss)

156,089

(225,287)

1,074,381

2,214,674

Share of net losses of equity investees

(297,799)

(806,570)

(1,777,287)

(518,307)

Dividend income from cost investees

-

-

-

830,196

Interest income

820,661

683,783

2,346,967

2,416,221

Interest expenses

(401,230)

(323,999)

(1,488,847)

(1,561,305)

Income before income taxes

13,483,866

10,045,990

59,894,039

43,033,864

Income taxes (credit) expenses

2,856,030

(1,245,065)

10,279,913

3,356,087

Net income

10,627,836

11,291,055

49,614,126

39,677,777

Net income attributable to non-controlling interest

617,193

106,922

1,256,550

199,616

Net income attributable to Hollysys

   Automation Technologies Ltd.

   stockholders

$

10,010,643

$

11,184,133

$

48,357,576

39,478,161

Other comprehensive income, net of tax

Foreign currency translation adjustments, net of nil tax

(2,465,494)

872,847

459,156

760,090

Comprehensive income

8,162,342

12,163,902

50,073,282

40,437,867

Comprehensive income attributable to non-

   controlling interest

597,263

111,610

1,262,713

211,047

Comprehensive income attributable to

    Hollysys Automation Technologies

    Ltd. stockholders

$

7,565,079

$

12,052,292

$

48,810,569

40,226,820

Net income per ordinary share:

Basic

0.17

0.20

0.84

0.70

Diluted

0.17

0.20

0.83

0.70

Weighted average ordinary shares used 

   in income per share computation:

Basic

58,259,337

56,068,084

57,820,122

56,022,512

Diluted

58,862,467

56,468,567

58,332,944

56,086,042

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

March 31,

December 31,

2014

2013

(Unaudited)

(Unaudited)

ASSETS

Current Assets

Cash and cash equivalents

$

124,164,048

$

135,085,593

Time deposits with original maturities over three months

26,338,774

15,035,316

Restricted cash

8,098,290

7,618,795

Accounts receivable, net of allowance for doubtful accounts of

    $23,924,623 and $23,745,875 as of March 31, 2014 and

    December 31, 2013, respectively

264,639,439

263,443,090

Costs and estimated earnings in excess of billings, net of

   allowance for doubtful accounts of $2,908,179 and $2,900,924 

   as of March 31, 2014 and December 31, 2013, respectively

164,191,999

165,498,207

Other receivables, net of allowance for doubtful accounts of

   $299,807 and $280,499  as of March 31, 2014 and December

   31, 2013, respectively

11,431,211

9,800,695

Advances to suppliers

14,524,937

9,539,263

Amount due from related parties

22,090,314

22,150,884

Inventories, net

34,624,528

27,526,001

Prepaid expenses

827,315

902,317

Income tax recoverable

564,165

228,503

Deferred tax assets

5,844,864

6,375,846

Assets held for sale

2,797,980

2,777,865

Total current assets

680,137,864

665,982,375

Restricted cash

5,768,814

6,547,708

Prepaid expenses

329,979

417,532

Property, plant and equipment, net

82,553,765

83,926,203

Prepaid land leases

12,405,510

12,491,977

Acquired intangible assets, net

7,850,435

8,715,403

Investments in equity investees

16,108,375

16,590,675

Investments in cost investees

4,436,363

4,800,234

Goodwill

66,032,319

65,574,520

Deferred tax assets

1,787,607

744,481

Total assets

877,411,031

865,791,108

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Short-term bank loans

7,769,234

6,656,597

Current portion of long-term loans

11,449,333

10,607,340

Accounts payable

134,224,272

143,246,660

Construction cost payable

6,143,893

6,521,670

Deferred revenue

128,283,461

107,970,201

Accrued payroll and related expense

7,524,957

13,561,845

Income tax payable

7,921,609

9,771,145

Warranty liabilities

2,181,098

2,181,282

Other tax payables

21,989,008

25,908,451

Accrued liabilities

18,393,174

18,433,648

Amounts due to related parties

3,017,591

2,880,393

Deferred tax liabilities

284,969

236,054

Current portion of acquisition-related payment

43,097,879

26,284,773

Total current liabilities

392,280,478

374,260,059

Long-term bank loans

12,378,561

14,498,587

Deferred tax liabilities

2,632,878

2,826,399

Long-term warranty liabilities

2,454,820

2,076,652

Long-term acquisition-related payment

-

13,116,010

Total liabilities

409,746,737

406,777,707

Commitments and contingencies

Equity

Ordinary shares

57,555

57,555

Additional paid-in capital

172,895,267

172,406,716

Statutory reserves

23,288,812

23,293,011

Retained earnings

231,088,580

221,073,738

Accumulated other comprehensive income

37,324,660

39,770,224

Total Hollysys Automation Technologies Ltd. stockholder's

      equity

464,654,874

456,601,244

Non-controlling interest

3,009,420

2,412,157

Total equity

467,664,294

459,013,401

Total liabilities and equity

$

877,411,031

$

865,791,108

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)

Three months ended March 31, 2014

Nine months ended

March 31, 2014

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

10,627,836

$

49,614,126

Adjustments to reconcile net income to net cash provided by operating            activities:

Depreciation of property, plant and equipment

1,704,511

5,183,136

Amortization of prepaid land leases

70,429

172,282

Amortization of intangible assets

925,855

4,002,967

Allowance for doubtful accounts

699,769

5,029,832

Gain on disposal of property, plant and equipment

29,174

(1,577)

Impairment loss on investment in a cost investee

325,452

325,452

Share of net loss from equity investees

297,799

1,777,287

Share based compensation expenses

488,551

2,116,017

Deferred income tax expenses

(693,271)

(5,647,648)

Acquisition-related contingent consideration fair value adjustments

3,697,097

6,938,968

Changes in operating assets and liabilities:                                                     

Accounts receivable

(2,988,845)

(91,781,735)

Costs and estimated earnings in excess of billings

392,325

(20,365,649)

Inventories 

(7,365,777)

(373,475)

Advances to suppliers

(5,053,941)

(5,894,687)

Other receivables 

(1,705,224)

339,720

Deposits and other assets

439,549

(3,333,335)

Due from related parties

(67,596)

4,273,202

Accounts payable

(8,469,552)

22,705,824

Deferred revenue

20,833,793

60,927,763

Accruals and other payable

(5,314,854)

(2,318,145)

Due to related parties

154,219

927,725

Income tax payable

(2,176,385)

2,746,248

Other tax payables

(3,735,936)

(154,839)

Net cash provided by operating activities

3,114,978

37,209,459

Cash flows from investing activities:

Time deposits placed with banks

(12,020,996)

(16,880,280)

Purchases of property, plant and equipment

(1,517,765)

(6,670,891)

Proceeds from disposal of property, plant and equipment

6,623

16,932

Maturity of time deposits

680,622

11,487,992

Acquisition of a subsidiary, net of cash acquired

-

(5,510,000)

Investment of an equity investee

-

(3,905,424)

Investment of a cost investee

-

(1,030,720)

Dividends from equity investees

-

2,408,344

Net cash used in investing activities

(12,851,516)

(20,084,047)

Cash flows from financing activities:

Proceeds from short-term bank loans

2,552,071

6,398,613

Repayments of short-term bank loans

(1,489,149)

(6,988,483)

Proceeds from long-term bank loans

1,561,011

3,577,120

Repayments of long-term bank loans

(2,695,355)

(7,654,451)

Net cash used in financing activities

(71,422)

(4,667,201)

Effect of foreign exchange rate changes

(1,113,585)

(522,742)

Net (decrease) increase in cash and cash equivalents

$

(10,921,545)

$

11,935,469

Cash and cash equivalents, beginning of period

$

135,085,593

$

112,228,579

Cash and cash equivalents, end of period

124,164,048

124,164,048

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP general and administrative expenses (hereafter "Non-GAAP G&A expenses"), "Non-GAAP cost of integrated contracts", "Non-GAAP other income, net", "Non-GAAP interest expenses", "Non-GAAP net income attributable to Hollysys" and "Non-GAAP earnings per share" serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with US GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the 1) share-based compensation expenses, 2) amortization of acquired intangibles and 3) acquisition-related consideration adjustments. They will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects. In addition, given the business nature of Hollysys, it has been a common practice for investors and analysts to use such non-GAAP measures to evaluate the Company. 

The following table provides a reconciliation of U.S. GAAP measures to the non-GAAP measures for the periods indicated:

Three months ended

Nine months ended

March 31,

March 31,

2014

2013

2014

2013

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Cost of integrated contracts

$

59,676,218

32,429,992

234,250,522

145,470,976

Less: amortization of acquired intangibles

925,856

-

4,002,967

-

Non-GAAP cost of integrated contracts

$

58,750,362

32,429,992

230,247,555

145,470,976

General and administrative expenses

$

7,844,673

$

6,881,032

26,569,703

$

17,910,059

Less: Share based compensation costs

488,551

516,858

2,116,017

1,570,403

Non-GAAP general and administrative expenses

$

7,356,122

$

6,364,174

24,453,686

$

16,339,656

Other income (expense), net

$

(4,030,258)

276,841

(5,400,067)

773,559

Add: acquisition-related incentive share contingent

   consideration fair value adjustments

3,501,487

-

6,206,320

-

Non-GAAP Other income , net

$

(528,771)

276,841

806,253

773,559

Interest expenses

$

(401,230)

(323,999)

(1,488,847)

(1,561,305)

Add: acquisition-related cash consideration adjustments

195,609

-

732,647

-

Non-GAAP Interest expenses

$

(205,621)

$

(323,999)

(756,200)

$

(1,561,305)

Net income attributable to Hollysys Automation

   Technologies Ltd. stockholders

$

10,010,643

$

11,184,133

48,357,576

$

39,478,161

Add:

Share based compensation expenses

488,551

516,858

2,116,017

1,570,403

Amortization of acquired intangible assets

925,856

-

4,002,967

-

Acquisition-related consideration adjustments

3,697,096

-

6,938,968

-

Non-GAAP net income attributable to Hollysys

   Automation Technologies Ltd. stockholders

$

15,122,146

$

11,700,991

61,415,528

$

41,048,564

Weighted average number of basic ordinary shares

58,259,337

56,068,084

57,604,683

56,068,084

Weighted average number of diluted ordinary

   shares

58,862,467

56,468,567

58,073,331

56,468,567

Non-GAAP basic earnings per share

$

0.26

$

0.21

1.07

$

0.73

Non-GAAP diluted earnings per share

$

0.26

$

0.21

1.06

$

0.73

SOURCE Hollysys Automation Technologies, Ltd.



RELATED LINKS

http://www.hollysys.com


http://ir.hollysys.com