Hollysys Automation Technologies Reports Unaudited Financial Results for the First Quarter Ended September 30, 2017

BEIJING, Nov 13, 2017 /PRNewswire/ --

First Quarter of Fiscal Year 2018 Financial Highlights

• Non-GAAP net income attributable to Hollysys was $21.9 million, a decrease of 3.6% compared to the comparable prior year period.
• Total revenues were $115.5 million, an increase of 11.6% compared to the comparable prior year period.
• Non-GAAP gross margin was at 36.6%, compared to 29.6% for the comparable prior year period.
• Non-GAAP diluted EPS were at $0.36, a decrease of 5.3% compared to the comparable prior year period.
• Net cash provided by operating activities was $36.1 million for the current quarter.
• DSO of 196 days, compared to 207 days for the comparable prior year period.
• Inventory turnover days of 61 days, compared to 48 days for the comparable prior year period.

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 2018 first quarter ended September 30, 2017 (see attached tables). The management of Hollysys, stated:

The momentum of recovery in industrial automation continued in this quarter as we recorded 27.6% and 18.9% year-on-year growth in revenue and new contract respectively, with revenue achieving year-on-year growth for three consecutive quarters. Our performance in power industry remained stable and dominant as we signed contracts on Datang Dongying 2X1000MW power units and Guohua Yongzhou 2X1000MW power units, etc. In chemical, we signed several major contracts, including a DCS contract with Inner Mongolia FuFeng Group on Biology ingredients workshop project and a contract with Zhonganlianhe Coal-chemical Company on 1.7 million ton methyl alcohol and olefin conversion project. In food beverage area, we signed a contract with Xinjiang Kashi Aodu Sugar Industry on 20 million tons/year Beet Sugar DCS project. In nuclear, we continued to provide products for Tianwan #5 and #6 units.

In factory automation, we kept focusing on several key industries and renowned players and our demonstration-for-further-application approach has been going smoothly. As we perform these projects, we improve our capability of providing turnkey solutions, accumulate track records and raise brand awareness. In white-goods area, our cooperation with Haier went further as we won new contracts on their Tianjin-based and Qingdao-based washing machine factories. Additionally, breakthrough was achieved in new energy area, as we won contracts from Do-Fluoride Chemicals Co., Ltd. to help improve the interconnection, data collection and management of production equipment in their lithium battery workshop. We believe that these projects will lead to more business opportunities from the current and an increasingly wider customer base.

In high speed rail, we signed contract to provide TCC to Longchuan-Shanwei Railway. Our short term performance can be affected by factors such as limited completion of newly planned railway infrastructure in the early years of the 13th five-year-plan and the change in customer procurement timeline. However, we believe that outlook for rail business in the long run remains positive, given an explicit national plan, growing after-sale service demand and launching of our new products. For subway, we adhered to the expansion strategy to win new SCADA contracts in more cities and work closely with subway authorities to promote our SCADA system and subway signaling technologies in future.

In mechanical and electrical installation services, with macroeconomic and political circumstances in South East Asia and Middle East being closely followed, Concord and Bond remained active in exploration and kept executing projects covering various industries. Management and risk control have also been addressed to improve operation efficiency. The strategic value of Concord and Bond as customer resources and international sales channels remains significant and we expect a moderate growth in the future.

The Quarter Ended September 30, 2017 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 Quarter Ended September 30, 2017

Comparing to the first quarter of the prior fiscal year, the total revenues for the three months ended September 30, 2017 increased from $103.5 million to $115.5 million, representing an increase of 11.6%. Broken down by the revenue types, services revenue increased by 378.7% to $10.4 million, products sales revenue increased by 13.8% to $9.5 million, and integrated contracts revenue increased by 2.8% to $95.6million.

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 36.6% for the three months ended September 30, 2017, as compared to 29.6% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 29.3%, 71.8% and 71.6% for the three months ended September 30, 2017, as compared to 25.0%, 70.5%, and 69.7% 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 36.4% for the three months ended September 30, 2017, as compared to 29.5% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 29.1%, 71.8% and 71.6% for the three months ended September 30, 2017, as compared to 24.9%, 70.5%, and 69.7% for the same period of the prior year respectively.

Selling expenses were $6.7 million for the three months ended September, 2017, representing an increase of $1.1 million or 20.6% compared to $5.6 million for the same period of the prior year, mainly due to increased sales activities. Presented as a percentage of total revenues, selling expenses were 5.8% and 5.4% for the three months ended September 30, 2017, and 2016, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $11.0 million for the three months ended September 30, 2017, representing an increase of $1.3 million, or 13.3%, as compared to $9.7 million for the same period of the prior year, mainly due to an increase of $2.1 million in allowance for doubtful accounts. Presented as a percentage of total revenues, non-GAAP G&A expenses were 9.5% and 9.3% for the quarters ended September 30, 2017 and 2016 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $11.3 million and $10.6 million for the three months ended September 30, 2017 and 2016, respectively.

Research and development expenses were $8.6 million for the three months ended September 30, 2017, an increase of $0.9 million or 11.7% compared to $7.7 million for the same period of the prior year, mainly due to increased research and development activities. Presented as a percentage of total revenues, R&D expenses were 7.5% and 7.4% for the quarter ended September 30, 2017 and 2016, respectively.

The VAT refunds and government subsidies were $7.1 million for the three months ended September 30, 2017, as compared to $9.6 million for the same period of the prior year, representing a $2.5 million or 26.0% decrease which was primarily due to decrease of the government subsidies for $3.0 million.

The income tax expenses and the effective tax rate were $3.7 million and 14.9% for the three months ended September 30, 2017, as compared to $3.0 million and 12.2% for the same period of the prior year.

The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles, acquisition-related consideration fair value adjustments and convertible bond related fair value adjustments was $21.9 million or $0.36 per diluted share based on 61.3 million shares outstanding for the three months ended September 30, 2017. This represents a 3.6% decrease over the $22.7 million or $0.38 per share based on 61.1 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $21.4 million or $0.35 per diluted share representing a decrease 1.5% over the $21.7 million or $0.36 per diluted share reported in the comparable prior year period. In July 2016, the company's interests in HollyCon were diluted from 51.0% to 30.0%, the Company recorded a gains on dilution and divestment of the Company's interests in HollyCon of $6.1 million during the first quarter of fiscal year 2017. Excluding the impact of the above mentioned for the same period of the prior year, the non-GAAP net income attributable to Hollysys for the three months ended September 30, 2017 should be increased by 31.7%, the GAAP net income to Hollysys for the three months ended September 30, 2017 should be increased by 37.0%.

Contracts and Backlog Highlights

Hollysys achieved $91.6 million new contracts for the three months ended September 30, 2017. And the backlog as of September 30, 2017 was $498.3 million. The detailed breakdown of the new contracts and backlog by segments is shown below:

Cash Flow Highlights

For the three months ended September 30, 2017, the total net cash inflow was $47.2 million. The net cash provided by operating activities was $36.1 million. The net cash provided by investing activities was $6.6 million, mainly consisted of $38.4 million maturity of time deposits, which was partially offset by $27.1 million deposits placed with banks. The net cash provided by financing activities was $1.0 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $331.5 million, $293.9 million, and $260.8 million as of September 30, 2017, June 30, 2017 and September 30, 2016, respectively. As of September 30, 2017, the company held $244.8 million in cash and cash equivalents and $86.7 million in time deposits with original maturities over three months.

For the three months ended September 30, 2017, DSO was 196 days, as compared to 207 days for the comparable prior year period and 153 days for the last quarter; and inventory turnover was 61 days, as compared to 48 days for the comparable prior year period and 51 days for the last quarter.

Outlook for FY 2018

The management concluded, "Based on our backlog currently on-hand and sales pipeline envisioned so far, we set our guidance for fiscal year 2018 with revenue in the range of $500 million to $530 million and non-GAAP net income in the range of $100 million to $110 million."

Conference Call

The Company will host a conference call at 8:00 pm November 13, 2017 U.S. Eastern Time / 9:00 am November 14, 2017 Beijing Time, to discuss the financial results for the first quarter of fiscal year 2018 ended September 30, 2017 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 6000014.

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 3,200 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 10,000 customers more than 25,000 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 (Supervisory 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
+8610-58981386
[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