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

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:

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:

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.

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.

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.

SOURCE Hollysys Automation Technologies, Ltd.