Hollysys Automation Technologies Reports Unaudited Financial Results for the First Half Year and the Second Quarter Ended December 31, 2015

BEIJING, Feb. 3, 2016 /PRNewswire/ --

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 2016 second quarter ended on December 31, 2015 (see attached tables). The management of Hollysys, stated:

"During this quarter, industrial automation business has being affected by weak external environment, with particular impacts on process control sector that we have not seen the recovery sign from the market. However, despite of challenging conditions, our strategy of developing after sales and services is proven successful which continuously taking larger percentage of our revenue. Besides, giving the new construction projects in the near future would be lack of sustainable, we have already focused on reconstruction or upgrading opportunities as supplement through sign maintenance and service contracts to lock potential customers, helping them to improve efficiency and saving the costs. Breaking down in industries, power is maintaining stable, we have taken several numbers of high level generator units, and signed large contract such as Jiujiang Shenhua 2X1052MW power units which are the highest level units in coal-fire power industry. While petro-chemical is still weak, the same as metallurgy and building materials. Overall speaking, we have to say that external environment brings large impact to our industrial automation business, but we will adjust ourselves through better internal management and control such as to insist keeping gross margin for long-term health development within industrial automation to better cope with this situation and try our best to gradually recover the business.

In high-speed railway, we signed a large contract to provide Automatic Train Protection (ATP) equipment and system to China Railways Corporation. We are quite confident of the steady high-speed rail revenue and backlog performance. As China is continuously investing a certain scale on supporting high-speed railway sector for the next five years, we will still benefit from the policy of 13^th five-year-plan. Furthermore, we are also working to expand our rail new products & technologies such as track circuit which would make potential revenue contribution in the near future.

For subway business, we have signed quite a few SCADA contracts in the recent quarters and seeking opportunities to work with more local transportation bureaus. We will continue to deliver quality works and work closely with subway authorities in the future to build up our SCADA and subway signaling businesses both in China and abroad.

In the mechanical and electrical solution segment, seasonal lumpiness affected sector's performance in the short term. However, we are unshakable to penetrate Southeast Asia and Middle East markets and make progress on delayed projects. We also actively communicate with local customers to discuss new project opportunities and even seek business partners for further cooperation.

At last, for extending international business, we have recruited local engineers to support our overseas team. With our proprietary technologies and products, industry expertise and customer resources, we will continue to make exciting development and achievements in both industrial and rail transportation fields, and create value for our shareholders."

First Half Year and the Second Quarter Ended December 31, 2015 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:

Operational Results Analysis for the Second Quarter Ended December 31, 2015

Comparing to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31, 2015 increased from $130.3 million to $152.8 million, representing an increase of 17.3%. Broken down by the revenue types, integrated contracts revenue increased by 12.7% to $134.2 million, products sales revenue increased by 49.4% to $15.4 million, and services revenue increased by 229.3% to $3.2 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 39.8% for the three months ended December 31, 2015, as compared to 38.3% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 37.2%, 57.4% and 65.2% for the three months ended December 31, 2015, as compared to 35.7%, 63.7% and 80.4% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 39.7% for the three months ended December 31, 2015, as compared to 37.1% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 37.0%, 57.4% and 65.2% for the three months ended December 31, 2015, as compared to 34.4%, 63.7% and 80.5% for the same period of the prior year respectively.

Selling expenses were $7.1 million for the three months ended December 31, 2015, representing a decrease of $0.1 million or 1.5% compared to $7.2 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.6% and 5.5% for the three months ended December 31, 2015, and 2014, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $10.8 million for the quarter ended December 31, 2015, representing a decrease of 4.6 million, or 29.9%, as compared to $15.5 million for the same period of the prior year. The decrease was mainly due to the decrease of $2.1 million in bad debt expenses. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.1% and 11.9% for quarters ended December 31, 2015 and 2014 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $12.1 million and $15.9 million for the three months ended December 31, 2015 and 2014, respectively.

Research and development expenses were $11.9 million for the three months ended December 31, 2015, an increase of $1.8 million or 17.6% compared to $10.1 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 7.8% and 7.8% for the quarter ended December 31, 2015 and 2014, respectively.

The VAT refunds and government subsidies were $10.7 million for three months ended December 31, 2015, as compared to $5.0 million for the same period in the prior year, representing a $5.7 million or 112.7% increase which primarily due to the increase of the VAT refunds of $6.1 million.

The income tax expenses and the effective tax rate were $5.1 million and 13.2% for the three months ended December 31, 2015, as compared to a $(0.3) million and (1.5)% for comparable prior year period. When excluding the impact of non-GAAP adjustments on the income before income taxes, the effective tax rate would have been 12.0% for the current quarter and (1.2)% for the comparable prior year period. During the second quarter ended December 31, 2014, Beijing Hollysys & Hangzhou Hollysys were certified as HNTE effective for three years from January 1, 2014 to December 31, 2016, and are applied to the preferential EIT rate of 15%; and Beijing Hollysys and Hangzhou Hollysys accordingly recalculated the tax expenses accrual for calendar year 2014, based on the newly applied EIT rate of 15%, instead of 25%. Excluding the impact of the accrual adjustment, the effective tax rate for the three months ended December 31, 2014 was 15.2%.

The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $36.8 million or $0.61 per diluted share based on 60.6 million shares outstanding for the three months ended December 31, 2015. This represents a 56.0% increase over the $23.6 million or $0.40 per share based on 59.2 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $32.9 million or $0.55 per diluted share representing an increase of 72.4% over the $19.1 million or $0.32 per diluted share reported in the comparable prior year period.  

Integrated Contracts Backlog Highlights

Hollysys' backlog for integrated contracts as of December 31, 2015 was $527.0 million, representing an increase of 7.5% compared to $490.4 million as of September 30, 2015, and an increase of 21.5% compared to $433.7 million as of December 31, 2014. The detailed breakdown of the backlog for integrated contracts by segments is shown below:

Cash Flow Highlights

For the three months ended December 31, 2015, the total net cash outflow was $1.8 million. The net cash provided by operating activities was $46.7 million. The net cash used in investing activities was $45.5 million, mainly consisted of $47.2 million placed as time deposits with original maturities over three months in banks. The net cash provided by financing activities was $0.4 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $275.6 million, $234.9 million, and $215.8 million as of December 31, September 30, 2015 and December 31, 2014, respectively. As of December 31, 2015, the company held $188.7 million in cash and cash equivalents and $86.9 million in time deposits with original maturities over three months.

For the three months ended December 31, 2015, Days Sales Outstanding ("DSO") was 138 days, as compared to 206 days for the comparable prior year period and 179 days for the last quarter; and inventory turnover was 34 days, as compared to 52 days for the comparable prior year period and 42 days for the last quarter.

Outlook for FY 2016

The management concluded, "Given our strong backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance for fiscal year 2016 with revenue in the range of $565 million to $600 million and non-GAAP net income in the range of $110 million to $120 million."

Conference Call

The Company will host a conference call at 8:00 p.m. U.S. Eastern Time on February 3, 2016 / 9:00 a.m. Beijing Time on February 4, 2016, to discuss the financial results for the fiscal year 2016 second quarter ended December 31, 2015 and business outlook.

To participate, please call the following numbers ten minutes before the scheduled start of the call. The conference call identification number is 2220095.

In addition, a recording of the conference call will be accessible within 48 hours via Hollysys' website at: http://ir.hollysys.com/ or http://hollysys.investorroom.com

About Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI)

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 3,600 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 6,000 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.

For further information, please contact:

Hollysys Automation Technologies, Ltd.
www.hollysys.com
+86-10-5898-1386
[email protected]

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP general and administrative expenses", "Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. stockholders", "Non-GAAP basic earnings per share", and "Non-GAAP diluted earnings per share" serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the non-cash share-based compensation expenses, which is calculated based on the number of shares or options granted and the fair value as of the grant date, amortization of acquired intangible assets, fair value adjustments of acquisition-related consideration, and fair value adjustments of a bifurcated derivative. 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 the Company, it has been a common practice for investors 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:

SOURCE Hollysys Automation Technologies, Ltd