Hollysys Automation Technologies Reports Unaudited Financial Results for Fiscal Year 2011 First Quarter Ended September 30, 2010

PR Newswire
BEIJING
Nov 7, 2010

BEIJING, Nov. 7, 2010 /PRNewswire-Asia-FirstCall/ --

Financial Highlights

  • Record-breaking quarterly revenues of $60.8 million, representing an increase of 59.3% compared to $38.2 million year-over-year
  • Gross margin at 34.8%, as compared to 37.2% year-over-year, and 33.9% quarter-over-quarter
  • Non-GAAP net income attributable to Hollysys of $10.4 million, as compared to $6.6 million and a 56.7% increase year-over-year
  • Record-breaking backlog balance at $255.3 million as of September 30, 2010, a 36.1% increase compared to $187.5 million year-over-year
  • Quarterly DSO of 111 days, as compared to 157 days year-over-year and 140 days quarter-over-quarter
 

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 its fiscal 2011 first quarter ended September 30, 2010 (see attached tables).

Dr. Changli Wang, Chairman and CEO of Hollysys, stated, "We are pleased to report the fiscal 2011 first quarter with solid operational performance.  I would like to discuss some of the key events that took place during this quarter.

"In this quarter, we continue to make strides in industrial automation, especially in PLC business expansion and DCS application in clean energy. By working more closely with power equipment suppliers, Hollysys is wining more contracts from international market through EPC. We are seeing tangible financial and operation results of increased R&D investment by pushing out newly developed products to the market, which in turn enhances Hollysys' marketing capability and brand-name recognition as a total-solution provider.

"During this quarter, we announced contract and bidding wins of 4 high-speed rail lines with an aggregated contract value of $32.6 million and total length of 1290 kilometers. It is the quality of our products, brand-name recognition, and speed to delivery under a tight schedule that played an important role in winning these projects. As China's 12th five-year plan is being formulated with a much more expedited high-speed rail roll-out plan by the end of 2015, Hollysys will continue to leverage on its core competency to take its leading share in China's high-speed rail build-out."

Dr. Wang continued, "I'd also like to take note of the exciting nuclear automation breakthrough achieved by our nuclear joint venture with China Guangdong Nuclear Power Holding Co., Ltd. Our nuclear JV has successfully completed the development of its proprietary nuclear island automation and control system, which is scheduled to be commercialized within the next two to three years. This achievement is another testament of our leading position in China's nuclear automation and control market. Hollysys, together with its nuclear JV, will take their leading share in China's aggressive nuclear build-out."

Fiscal Year 2011 First Quarter Unaudited Financial Results Summary

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

In USD thousands, except share numbers and EPS

 
   

Three Months ended

 
   

September 30, 2010

September 30, 2009

%
Change

 
           

Revenues

$

60,843

38,194

59.3%

 

   Integrated Contract Revenue

$

57,374

35,871

59.9%

 

   Products Sales

$

3,469

2,323

49.3%

 

Cost of Revenues

$

39,662

23,983

65.4%

 

Gross Profit

$

21,181

14,210

49.1%

 

Total Operating Expenses

$

9,685

5,864

65.2%

 

   Selling

$

3,571

2,726

31.0%

 

   General and Administrative

$

3,772

2,427

55.4%

 

   Research and Development

$

4,326

2,853

51.6%

 

   VAT refunds and government subsidy

$

(1,984)

(2,142)

(7.4)%

 

Income from Operations

$

11,496

8,346

37.7%

 

Other income, net

$

1,470

150

886.2%

 

Share of net gains (losses) of equity investees

$

(351)

236

(248.4)%

 

Interest expense, net

$

(276)

(353)

(21.8)%

 

Income Tax Expenses

$

1,943

820

137.0%

 

Non-GAAP Net income attributable to non-controlling interest

$

8

930

(99.1)%

 

Non-GAAP Net Income attributable to Hollysys Automation Technologies Ltd.

$

10,388

6,629

56.7%

 

Basic Non-GAAP EPS

$

0.19

0.13

43.8%

 

Diluted  Non-GAAP EPS

$

0.19

0.13

43.6%

 
           

Stock-based Compensation Cost for Options

$

131

131

-

 

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

$

10,257

6,498

57.9%

 

Basic GAAP EPS

$

0.19

0.13

44.8%

 

Diluted GAAP EPS

$

0.19

0.13

44.6%

 
           

Basic Weighted Average Common Shares Outstanding

 

54,449,129

49,942,614

9.0%

 

Diluted Weighted Average Common Shares Outstanding

 

54,855,885

50,260,423

9.1%

 
   
         

 

Operational Results Analysis for the three months ended September 30, 2010

For the three months ended September 30, 2010, total revenues increased by 59.3% to $60.8 million, from $38.2 million in the comparable prior fiscal year period.  Of the total revenues, revenue from integrated contracts increased by 59.9% to $57.4 million, compared to $35.9 million for the same period of the prior year.  The Company's integrated contract revenue by segment was as followings:

  • $31.0 million, or 54.0%, related to Industrial Automation & Control, representing a 27.8% segment revenue growth year-over-year;
  • Rail and Subway was $25.3 million, or 44.1%, representing a 186.2% increase year over year; of which $10.3 million, or 18.0%, was from Rail Signaling and Control projects, and $15.0 million, or 26.1%, was from Subway Automation and Control; and
  • $1.1 million, or 1.9%, related to Nuclear Plant Control projects and miscellaneous, compared to $2.8 million year-over-year.
 

As a percentage of total revenues, overall gross margin was 34.8% for the three months ended September 30, 2010, as compared to 37.2% for the same period of last year. The gross margin for integrated contracts and product sales were 33.6% and 55.6% for the three months ended September 30, 2010, as compared to 34.3% and 82.8% for the same period of last year respectively.

For the three months ended September 30, 2010, selling expenses were $3.6 million, compared to $2.7 million year over year, increased by $0.9 million, or 31.0%, which was mainly due to the Company's expanded sales network and increased selling expenses.  As a percentage of total revenues, selling expenses were 5.9% and 7.1% for the three months ended September 30, 2010 and 2009, respectively.

General and administrative expenses, excluding non-cash stock-based compensation expense, were $3.8 million for the quarter ended September 30, 2010, representing an increase of $1.4 million, or 55.4%, as compared to $2.4 million for the prior year period, mainly due to an increase of $0.6 million in bad debt allowance and other expenses. As a percentage of total revenues, G&A expenses were 6.2% and 6.4% for the three months ended September 30, 2010 and 2009, respectively. Including the non-cash stock-based compensation cost of $131,000, general and administrative expenses were 3.9 million and 2.6 million for the quarter ended September 30, 2010 and 2009, respectively.

Research and development expenses were $4.3 million for the three months ended September 30, 2010, compared to $2.9 million for the same period of last year, increased by $1.4 million, or 51.6%, mainly due to the Company's increased R&D activities. As a percentage of total revenue, R&D expenses were 7.1% and 7.5% for three months ended September 30, 2010 and 2009, respectively.

For the quarter ended September 30, 2010, the other income amounted to $1.5 million, of which $1.4 million was contributed by the gain on disposal of 29% interest in HollySys Information Technology Co. Ltd. which Hollysys will continue to own 20% after the transaction.

The share of net losses from equity investees were $0.4 million for the three months ended September 30, 2010, of which, a loss of $0.7 million was from Beijing Techenergy Ltd., the 50/50 joint venture between Hollysys and China Guangdong Nuclear Power Corp. that mainly engages in providing automation and control products and services to China's nuclear industry.

For the three months ended September 30, 2010, the non-GAAP net income excluding non-cash stock compensation cost was $10.4 million, or $0.19 per diluted share based on 55 million shares outstanding. This represents an increase of $3.8 million, or 56.7%, over the $6.6 million, or $0.13 per share based on 50 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $10.3 million, or $0.19 per diluted share representing an increase of $3.8 million, or 57.9%, over the $6.5 million, or $0.13 per share reported in the prior year period.

Backlog Highlights

Hollysys' backlog as of September 30, 2010 was $255.3 million, compared to $252.9 million on June 30, 2010, and $187.5 million on September 30, 2009. The detailed breakdown of the backlog by segment is as followings:

(In USD million)

 
         

Quarter-over-Quarter Analysis

 

Year-over-Year Analysis

 
   

2010-9-30

 

2010-6-30

     

2009-9-30

     
   

$

% to Total Backlog

 

$

% to Total Backlog

 

%
Change

 

$

% to Total Backlog

 

%
Change

 

Industrial Automation & Control

 

85.3

33.4%

 

85.9

34.0%

 

(0.7)%

 

62.6

33.4%

 

36.3%

 

Rail Automation & Control

 

62.9

24.6%

 

50.5

20.0%

 

24.5%

 

57.0

30.4%

 

10.4%

 

Subway Automation & Control

 

93.2

36.5%

 

106.2

42.0%

 

(12.2)%

 

64.3

34.3%

 

45.0%

 

Nuclear automation and control and miscellaneous

 

13.9

5.4%

 

10.2

4.0%

 

36.0%

 

3.7

2.0%

 

275.2%

 

Total

 

255.3

100.0%

 

252.9

100.0%

 

1.0%

 

187.5

100.0%

 

36.1%

 
   
                           

 

Cash Flow Highlights

The net cash used in operating activities was $1.8 million for the three months ended September 30, 2010, mainly due to increased non-billable accounts receivables. Including investing and financing activities, the total net cash outflow for this quarter was $9.3 million. The majority of fixed assets purchases were related to the new facility.

Balance Sheet Highlights

As of September 30, 2010, Hollysys' cash and cash equivalents were $110.2 million, compared to $119.5 million on June 30, 2010. Days Sales Outstanding ("DSO") for this quarter is 111 days, as compared to 157 days year-over-year and 140 days quarter-over-quarter. Inventory turnover is 65 days for the three months ended September 30 2010, as compared to 75 days the prior year period.

Outlook for FY 2011

Dr. Wang concluded, "Given another record-breaking backlog balance and strong pipeline across all of our business segments, we are reiterating our fiscal 2011 revenues and net income guidance of $233M to $237M and $38 million to $39 million respectively."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 8:00 AM ET/9:00 PM Beijing time on Monday, November 8, 2010. 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 21512627.

1-866-519-4004 (USA)
800-930-346 (HK)
800-819-0121 (China Landline)
400-620-8038 (China Mobile)
+ 65-67239381 (International

 
 

 

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at:

http://www.hollysys.com.sg/home/index.php/investor-relations/events-a-webcast

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 2,400 employees with 9 sales centers and 13 service centers in 21 cities in China and serves over 1700 customers in the industrial, railway, subway & nuclear industries. Its proprietary technologies are applied in product lines including Distributed Control System (DCS) and Programmable Logic Controller (PLC) for industrial sector, high-speed railway signaling system of TCC (Train Control Center) and ATP (Automatic Train Protection), subway supervisory and control platform (SCADA), and nuclear conventional island automation and control system.

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
Jennifer Zhang
Manager of Investor Relations
(8610) 5898-1386
+1-646-593-8125
investors@hollysys.com

 
 

 
   

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

(In US Dollars)

 
   
   

Three months ended
September 30,

 
   

2010

 

2009

 
   

(Unaudited)

 

(Unaudited)

 

Revenues

         

Integrated contract revenue

$

57,374,038

$

35,870,551

 

Products sales

 

3,468,804

 

2,323,057

 

Total revenues

 

60,842,842

 

38,193,608

 
           

Cost of integrated contracts

 

38,122,947

 

23,583,744

 

Cost of products sold

 

1,539,062

 

399,578

 

Gross profit

 

21,180,833

 

14,210,286

 
           

Operating expenses

         

Selling

 

3,570,869

 

2,725,641

 

General and administrative

 

3,903,139

 

2,558,313

 

Research and development

 

4,325,887

 

2,853,279

 

VAT refunds and government subsidy

 

(1,983,715)

 

(2,141,880)

 

Total operating expenses

 

9,816,180

 

5,995,353

 
           

Income from operations

 

11,364,653

 

8,214,933

 
           

Other income, net

 

1,470,125

 

149,065

 

Share of net gains (losses) of equity investees

 

(350,543)

 

236,285

 

Interest expense, net

 

(275,815)

 

(352,803)

 

Income before income taxes

 

12,208,420

 

8,247,480

 
           

Income taxes expenses

 

1,943,004

 

819,998

 

Net income

 

10,265,416

 

7,427,482

 
           

Less: Net income attributable to non-controlling interest

 

7,991

 

929,924

 

Net income attributable to Hollysys Automation Technologies Ltd.

$

10,257,425

$

6,497,558

 
           

Weighted average number of common shares

 

54,449,129

 

49,942,614

 
           

Weighted average number of diluted common shares

 

54,855,885

 

50,260,423

 
           

Basic earnings per share attributable to Hollysys Automation Technologies Ltd.

 

0.19

 

0.13

 
           

Diluted earnings per share attributable to Hollysys Automation Technologies Ltd.

 

0.19

 

0.13

 
           
   
         

 
   

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

 

CONSOLIDATED BALANCE SHEETS

 

(In US Dollars)

 
   
       

September 30,

 

June 30,

 
       

2010

 

2010

 
       

(Unaudited)

 

(Unaudited)

 

ASSETS

         
 

Current Assets

         
   

Cash and cash equivalents

$

110,223,446

$

119,501,945

 
   

Contract commitment deposit in banks

 

5,104,740

 

4,383,684

 
   

Accounts receivable, net of allowance for doubtful accounts of $9,411,259 and $8,408,318

 

67,216,021

 

64,384,519

 
   

Cost and estimated earnings in excess of billings, net of allowance for doubtful accounts of $1,256,336 and $1,102,016

 

81,989,156

 

60,928,056

 
   

Other receivables, net of allowance for doubtful accounts of $197,927 and $214,789

 

5,336,728

 

4,102,136

 
   

Advances to suppliers

 

7,523,462

 

10,676,175

 
   

Amount due from related parties

 

11,537,861

 

10,764,828

 
   

Inventories, net of provision of $2,811,087 and $2,393,546

 

28,120,204

 

23,554,331

 
   

Prepaid expenses

 

889,870

 

1,022,803

 
   

Tax refunds receivable

 

-

 

1,083,640

 
   

Deferred tax assets

 

589,997

 

956,969

 
   

Assets held for sale

 

8,534,792

 

-

 
 

Total current assets

 

327,066,277

 

301,359,086

 
               
 

Property, plant and equipment, net

 

59,421,550

 

65,345,618

 
 

Long term investments

 

14,829,360

 

17,348,159

 
 

Deferred tax assets

 

710,540

 

677,388

 
               
 

Total assets

 

402,027,727

 

384,730,251

 
               

LIABILITIES AND STOCKHOLDERS' EQUITY

         
 

Current liabilities

         
   

Short-term bank loans

 

-

 

1,472,559

 
   

Current portion of long-term loans

 

2,238,438

 

1,472,559

 
   

Bonds payable

 

11,938,338

 

11,780,471

 
   

Accounts payable

 

48,695,645

 

41,479,662

 
   

Deferred revenue

 

34,341,675

 

33,552,968

 
   

Accrued payroll and related expense

 

4,681,590

 

4,386,681

 
   

Income tax payable

 

1,626,514

 

1,496,796

 
   

Warranty liabilities

 

2,028,962

 

1,916,654

 
   

Other tax payables

 

12,843,882

 

10,632,611

 
   

Accrued liabilities

 

4,673,989

 

8,078,783

 
   

Amounts due to related parties

 

3,489,366

 

2,610,599

 
   

Deferred tax liabilities

 

579,184

 

-

 
   

Construction cost payable

 

8,468,957

 

12,562,565

 
 

Total current liabilities

 

135,606,540

 

131,442,908

 
               
   

Long-term bank loans

 

35,068,869

 

35,341,413

 
               
 

Total liabilities

 

170,675,409

 

166,784,321

 
               
 

Commitments and contingencies

         
               
 

Stockholder's equity

         
   

Common stock, par value $0.001 per share, 100,000,000 shares authorized, 54,449,129 and 54,449,129 shares issued and outstanding

 

54,450

 

54,450

 
   

Additional paid-in capital

 

138,882,181

 

138,751,162

 
   

Appropriated earnings

 

17,396,777

 

17,396,777

 
   

Retained earnings

 

53,648,616

 

43,391,191

 
   

Accumulated comprehensive income - translation adjustments

 

20,576,316

 

17,577,485

 
 

Total Hollysys Automation Technologies Ltd. stockholder's equity

 

230,558,340

 

217,171,065

 
               
   

Non-controlling interest

 

793,978

 

774,865

 
 

Total equity

 

231,352,318

 

217,945,930

 
               
 

Total liabilities and stockholders' equity

$

402,027,727

$

384,730,251

 
   
             

 
   

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In US Dollars)

 
   
     

Three months ended
September 30, 2010

 

Three months ended
September 30, 2009

 
     

(Unaudited)

 

(Unaudited)

 

Cash flows from operating activities:

         
 

Net income

$

10,265,416

$

7,427,482

 

Adjustments to reconcile net income to net cash

         

provided by (used in) operating activities:

         
 

Depreciation and amortization

 

948,077

 

615,738

 
 

Allowance for doubtful accounts

 

1,106,534

 

521,795

 
 

Provision (reversal) for inventories

 

385,466

 

(141,362)

 
 

Loss on disposal of property, plant and equipment

 

16,515

 

1,586

 
 

Gain on disposal of an equity investee

 

(1,428,371)

 

-

 
 

Share of net losses (gains) from equity investees

 

350,543

 

(236,285)

 
 

Amortization of expenses accrued for bond payable

 

15,595

 

15,303

 
 

Stock-based compensation

 

131,019

 

131,019

 
 

Deferred tax assets (liabilities), net

 

934,906

 

(617,628)

 

Changes in operating assets and liabilities:

         
 

Accounts receivable

 

(4,225,295)

 

(7,524,874)

 
 

Cost and estimated earnings in excess of billings

 

(19,017,836)

 

7,237,210

 
 

Inventories  

 

(4,635,692)

 

(308,265)

 
 

Advance to suppliers

 

3,295,782

 

3,035,487

 
 

Other receivables  

 

(1,159,880)

 

(112,321)

 
 

Deposits and other assets

 

515,322

 

1,423,083

 
 

Due from related parties

 

(301,566)

 

(2,256,376)

 
 

Accounts payable

 

6,496,162

 

(1,071,017)

 
 

Deferred revenue

 

339,071

 

4,888,504

 
 

Accruals and other payable

 

1,081,095

 

161,458

 
 

Due to related parties

 

(201,742)

 

799,150

 
 

Tax payable

 

3,276,607

 

291,010

 
 

Net cash provided by (used in) operating activities

 

(1,812,272)

 

14,280,697

 
             

Cash flows from investing activities:

         
 

Purchase of property, plant and equipment

 

(10,077,752)

 

(2,735,617)

 
 

Proceeds from disposing property, plant and equipment

 

5,303

 

1,623

 
 

Receipt  from related parties

 

27

 

-

 
 

Proceeds from disposal of an equity investee

 

2,442,047

 

-

 
 

Acquisition of equity interest from non-controlling interest

 

-

 

(438,275)

 
 

Net cash used in investing activities

 

(7,630,375)

 

(3,172,269)

 
             

Cash flows from financing activities:

         
 

Repayments of short-term bank loans

 

(1,492,292)

 

(4,393,030)

 
 

Repayments of long-term bank loans

 

-

 

(5,125,201)

 
 

Net cash used in financing activities

 

(1,492,292)

 

(9,518,231)

 
             
 

Effect of foreign exchange rate changes

 

1,656,440

 

125,215

 
 

Net increase (decrease) in cash and cash equivalents

$

(9,278,499)

$

1,715,412

 
             
 

Cash and cash equivalents, beginning of period

$

119,501,945

$

128,882,666

 
 

Cash and cash equivalents, end of period

 

110,223,446

 

130,598,078

 
   
           

 

Reconcile GAAP Net Income to Non-GAAP Net Income

The following table provides more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

   
     

Three months ended
September 30,

 
     

2010

 

2009

 
     

(Unaudited)

 

(Unaudited)

 
             

Net income attributable to Hollysys Automation Technologies Ltd.

$

10,257,425

$

6,497,558

 

Adjustments:

         
 

Stock-based compensation cost for options

 

131,019

 

131,019

 

Non-Gaap Net Income attributable to Hollysys Automation Technologies Ltd.

$

10,388,444

$

6,628,577

 
   
           

 

SOURCE Hollysys Automation Technologies, Ltd.

CONTACT: Jennifer Zhang, Manager of Investor Relations of Hollysys Automation Technologies, Ltd., +8610-5898-1386, +1-646-593-8125, investors@hollysys.com

Web Site: http://www.hollysys.com


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