Hollysys Automation Technologies Reports Unaudited Financial Results for Fiscal Year 2013 First Quarter Ended September 30, 2012

PR Newswire
BEIJING
Nov 13, 2012

BEIJING, Nov. 14, 2012 /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 2013 first quarter ended on September 30, 2012 (see attached tables).

Q1 Financial Highlights

  • Quarterly revenues of $88.1 million, representing an increase of 1.0% compared to $87.2 million  year-over-year, and an decrease of 0.1% compared to $88.1 million quarter-over-quarter.
  • Gross margin at 34.4%, as compared to 37.8% year-over-year, and 41.4% quarter-over-quarter.
  • Non-GAAP net income attributable to Hollysys of $15.8 million, representing an increase of 22.7% as compared to $12.8 million year-over-year, and an increase of 26.3% as compared to $12.5 million quarter-over-quarter.
  • Non-GAAP Diluted EPS at $0.28 reported for the quarter, as compared to $0.23 year-over-year, and $0.22 quarter-over-quarter.
  • Backlog of $368.7 million as of September 30, 2012, a 22.8% increase compared to $300.1 million year-over-year, and 5.4% decrease compared to $389.8 million quarter-over-quarter.
  • Quarterly DSO of 140 days, as compared to 138 days year-over-year, and 139 days quarter-over-quarter.
  • Inventory turn-over days of 43 days for this quarter compared to 51 days year-over-year, and 53 days quarter-over-quarter.
  • Generate net cash provided by operating activities of $29.1 million for this quarter.

Dr. Changli Wang, Chairman and CEO of Hollysys, stated: "We are pleased to report solid financial and operational performance for the first quarter of this fiscal year, here I would like to discuss some key events during this quarter:

Industrial automation continued its growth momentum in both revenue and backlog compared to the same period of last fiscal year, besides our strengthened efforts and enhanced core capabilities, the growth is mainly driven by several factors amid the challenging external environment: Firstly, we continued to take market share in industrial automation by our better value proposition and unparallel advantages of industry leading proprietary technology, more extensive service network, flexible customization, industry expertise and total solution capabilities; Secondly, we further segmented industrial automation market into detailed niche sectors and found a lot of opportunities and designed customized systems to satisfy clients' specific requirements; Thirdly, we are providing more total solution for the whole plant's automation and control to address customers' buying behavior change and enlarge our business scope; Lastly, we changed our marketing strategy from hunting for projects to cultivating client base to establish long term close working relationship with customers. All in all, with our brand name recognition, industry leading technology, better customization and service capabilities and better value for money proposition, as well as the vast business opportunities we have envisioned so far, we will continue to maintain the stable and sustainable growth and development of this business sector.

In rail sector, we are glad to see that the expedited high-speed construction will continue to bring more opportunities to Hollysys as one of the two major high-speed rail signaling system providers in China. In October, we signed a contract to provide the Line-side Electronic Unit (LEU) and Balise to Chongqing-Lichuan high-speed rail line, which was another major contract we signed in the past few months. Going into the future, we will take on the ride of another round of China's accelerated high-speed construction and take our fair market share.  In the subway sector, we are well on track of the subway signaling system development and certification according to the international standards, which will be finished by the end of this calendar year.

Overseas market will be another exciting growth driver for Hollysys stepping towards internationalization, we believe that with our world class technology and experienced international team, we will make more exciting achievements in the international market in the future.

The First Quarter Ended September 2012 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

   

September 30,
2012

September 30,
2011

%
Change

         

Revenues

$

88,067

87,164

1.0%

    Integrated Contract Revenue

$

82,852

83,482

(0.8)%

    Products Sales

$

5,215

3,682

41.6%

Cost of Revenues

$

57,800

54,217

6.6%

Gross Profit

$

30,267

32,947

(8.1)%

Total Operating Expenses

$

15,517

17,515

(11.4)%

    Selling

$

6,593

6,982

(5.6)%

    General and Administrative

$

5,832

4,858

20.0%

    Research and Development

$

7,675

6,069

26.4%

    VAT refunds and government subsidies

$

(4,583)

(394)

1061.6%

Income from operations

$

14,750

15,432

(4.4)%

Other income, net

$

2,037

188

983.8%

Share of net income (loss) of equity investees

$

739

(55)

(1,439.4)%

Interest income

$

982

205

378.9%

Interest expenses

$

(716)

(926)

(22.7)%

Income tax expenses

$

1,966

1,866

5.4%

Non-GAAP net income attributable to non-controlling interests

$

75

141

(46.9)%

Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.

$

15,750

12,837

22.7%

Basic Non-GAAP EPS

$

0.28

0.23

21.7%

Diluted  Non-GAAP EPS

$

0.28

0.23

21.7%

         

Stock-based Compensation Cost

$

527

157

234.8%

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

$

15,223

12,679

20.1%

Basic GAAP EPS

$

0.27

0.23

17.4%

Diluted GAAP EPS

$

0.27

0.23

17.4%

         

Basic Weighted Average Common Shares Outstanding

 

55,998,917

55,009,486

1.8%

Diluted Weighted Average Common Shares Outstanding

 

56,062,950

55,238,035

1.5%

Operational Results Analysis for the First quarter ended September 30, 2012

For the three months ended September 30, 2012, total revenues increased by 1.0% to $88.1 million, from $87.2 million in the prior fiscal year period.  Of the total revenues, revenue from integrated contracts decreased by 0.8% to $82.9 million, as compared to $83.5 million for the same period of the prior year; revenue from products sales increased by 41.6% to $5.2 million, as compared to $3.7 million for the same period of the prior year. The Company's total revenue by segment was as followings:

   

Three months ended Sep 30,

   

2012

 

2011

   

$

% to Total
Revenue

 

$

% to Total
Revenue

Industrial Automation

 

60.1

68.3%

 

54.8

62.9%

Rail Transportation

 

14.9

16.9%

 

25.6

29.4%

Miscellaneous

 

13.0

14.8%

 

6.7

7.7%

Total

 

88.1

100.0%

 

87.2

100.0%

As a percentage of total revenues, overall gross margin was 34.4% for the three months ended September 30, 2012, as compared to 37.8% for the same period of last year. The gross margin for integrated contracts and product sales were 32.4% and 66.0% for the three months ended September 30, 2012, as compared to 36.6% and 64.4% for the same period of last year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin.

For the three months ended September 30, 2012, selling expenses were $6.6 million, compared to $7.0 million year over year, representing a decrease of $0.4 million, or 5.6%. As a percentage of total revenues, selling expenses were 7.5% and 8.0% for the three months ended September 30, 2012, and 2011, respectively.

General and administrative expenses, excluding non-cash stock-based compensation expense, were $5.8 million for the quarter ended September 30, 2012, representing an increase of $0.9 million, or 20.0%, as compared to $4.9 million for the same period of prior year, mainly due to an increase of 0.6 million of bad debt allowance. As a percentage of total revenues, G&A expenses were 6.6% and 5.6% for the three months ended September 30, 2012 and 2011, respectively. Including the non-cash stock-based compensation cost recorded on a GAAP basis, G&A expenses were $6.4 million and $5.0 million for three months ended September 30, 2012 and 2011, respectively.

Research and development expenses were $7.7 million for the three months ended September 30, 2012, compared to $6.1 million year over year, representing an increase of $1.6 million, or 26.4%. Compared to the same period of prior year, the increase was mainly due to the Company's increased R&D activities. As a percentage of total revenues, R&D expenses were 8.7% and 7.0% for the quarter ended September 30, 2012 and 2011, respectively.

The VAT refunds and government subsidies amounted to $4.6 million for three months ended September 30, 2012, as compared to $0.4 million for the comparative prior year period, representing an increase of $4.2 million. No VAT refunds were recognized during the quarter ended September 30, 2011,as the VAT refunds policy was undetermined by then, and all the VAT refunds for the whole calendar year 2011 was recognized during the December quarter of fiscal year 2012.

The income tax expenses and the effective tax rate were $2.0 million and 11.4% for the three months ended September 30, 2012, as compared to $1.9 million and 12.7% for the same prior year period.

For the three months ended September 30, 2012, the non-GAAP net income attributable to Hollysys excluding non-cash stock compensation cost was $15.8 million or $0.28 per diluted share based on 56 million shares outstanding. This represents an increase of $2.9 million, or 22.7%, over the $12.9 million, or $0.23 per share based on 55 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $15.2 million, or $0.27 per diluted share representing an increase of $2.5 million or 20.1%, over the $12.7 million, or $0.23 per diluted share reported in the prior year period.

Backlog Highlights

Hollysys' backlog as of September 30, 2012 was $368.7 million, compared to $389.8 million on June 30, 2012, and $300.1 million on September 30, 2011. There is slight decrease compared with last quarter. The large increase compared with prior year was mainly contributed by contracts with Hong Kong MTR Corporation to provide High-Speed Rail Signaling Systems. The detailed breakdown of the backlog by segment is as followings:

         

Quarter-over-Quarter Analysis

 

Year-over-Year Analysis

   

2012-9-30

 

2012-6-30

 

2011-9-30

   

$

% to Total Backlog

 

$

% to Total Backlog

 

%
Change

 

$

% to Total Backlog

 

%
Change

Industrial Automation

 

145.2

39.4%

 

150.9

38.7%

 

(3.8%)

 

128.7

42.9%

 

12.8%

Rail Transportation

 

185.3

50.2%

 

196.9

50.5%

 

(5.9%)

 

157.2

52.4%

 

17.9%

Miscellaneous

 

38.2

10.4%

 

42.0

10.8%

 

(9.0%)

 

14.2

4.7%

 

168.7%

Total

 

368.7

100.0%

 

389.8

100.0%

 

(5.4%)

 

300.1

100.0%

 

22.8%

 

Cash Flow Highlights

The net cash provided by operating activities was $29.1 million for the three months ended September 30, 2012; including investing and financing activities, the total net cash inflow for this quarter was $24.8 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $139.2 million, $117.9 million, and $75.5 million as of September 30, 2012, June 30, 2012, and September 30, 2011, respectively. Of the total $139.2 million as of September 30, 2012, cash and cash equivalents were $121.2 million, and time deposits with original maturities over three months were $18.0 million.

For the three months ended September 30, 2012, Days Sales Outstanding ("DSO") is 140 days, as compared to 138 days year over year and 139 days quarter over quarter; and inventory turnover is 43 days, as compared to 51 days year over year and 53 days quarter over quarter.

Outlook for FY 2013

Dr. Wang concluded, "Given our strong backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance of fiscal year 2013 with revenue in the range of $385 million to $410 million and non-GAAP net income in the range of $63 million to $67 million unchanged."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 8:30 AM ET/9:30 PM Beijing time on Wednesday, November 14, 2012. 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 57520064.

1-866-519-4004 (USA)
800-930-346 (HK)
+852-24750994 (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 3,500 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 4,000 customers more than 15,000 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 conventional island 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
+86-10-5898-1386
investors@hollysys.com

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In US Dollars)

         
   

Three months ended
September 30,

   

2012

 

2011

   

(Unaudited)

 

(Unaudited)

Net revenues

       

Integrated contract revenue

$

82,852,035

$

83,481,883

Products sales

 

5,214,583

 

3,682,190

Total net revenues

 

88,066,618

 

87,164,073

         

Cost of integrated contracts

 

56,027,759

 

52,905,654

Cost of products sold

 

1,772,187

 

1,311,271

Gross profit

 

30,266,672

 

32,947,148

         

Operating expenses

       

Selling

 

6,592,885

 

6,981,831

General and administrative

 

6,358,859

 

5,015,483

Research and development

 

7,674,707

 

6,069,469

VAT refunds and government subsidies

 

(4,582,586)

 

(394,491)

Total operating expenses

 

16,043,865

 

17,672,292

         

Income from operations

 

14,222,807

 

15,274,856

         

Other income, net

 

2,036,663

 

187,926

Share of net income (loss) of equity investees

 

739,018

 

(55,175)

Interest income

 

981,711

 

204,978

Interest expenses

 

(715,831)

 

(926,117)

Income before income taxes

 

17,264,368

 

14,686,468

         

Income taxes expenses

 

1,966,056

 

1,866,180

Net income

 

15,298,312

 

12,820,288

         

Less: Net income attributable to non-controlling interests

 

74,824

 

140,930

Net income attributable to Hollysys Automation Technologies Ltd.

$

15,223,488

$

12,679,358

         

Other comprehensive income, net of tax

       

Foreign currency translation adjustments, net of nil tax

 

(1,917,454)

 

3,939,572

Comprehensive income

 

13,380,858

 

16,759,860

         

Less: Comprehensive income attributable to non-controlling interests

 

67,961

 

158,051

Comprehensive income attributable to Hollysys Automation Technologies Ltd.

$

13,312,897

$

16,601,809

         

Net income per ordinary share:

       

Basic

 

0.27

 

0.23

Diluted

 

0.27

 

0.23

Weighted average ordinary shares used in income per share computation:

       

Basic

 

55,998,917

 

55,009,486

Diluted

 

56,062,950

 

55,238,035

 

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

             
       

September 30,

 

June 30,

       

2012

 

2012

       

(Unaudited)

 

(Unaudited)

ASSETS

       
 

Current assets:

       
   

Cash and cash equivalents

$

121,157,212

$

96,332,962

   

Time deposits with original maturities over three months

 

18,015,398

 

21,586,896

   

Restricted cash

 

3,829,739

 

5,544,273

   

Accounts receivable, net of allowance for doubtful accounts of
  $15,777,271 and $14,287,361 as of September 30, 2012 and June 
  30, 2012, respectively

 

136,752,983

 

136,589,994

   

Cost and estimated earnings in excess of billings, net of allowance
  for doubtful accounts of $1,768,528 and $1,890,108 as of
  September 30, 2012 and June 30, 2012, respectively

 

126,344,148

 

115,161,236

   

Other receivables, net of allowance for doubtful accounts of
  $354,214 and $344,978 as of September 30, 2012 and June 30,
  2012, respectively

 

5,948,416

 

7,287,214

   

Advances to suppliers

 

8,542,288

 

10,300,182

   

Amount due from related parties

 

14,750,841

 

16,336,558

   

Inventories, net

 

28,553,597

 

26,745,225

   

Prepaid expenses

 

288,241

 

876,363

   

Income tax recoverable

 

319,298

 

139,469

   

Deferred tax assets

 

652,979

 

772,061

 

Total current assets

 

465,155,140

 

437,672,433

             
   

Restricted cash

 

675,651

 

-

   

Property, plant and equipment, net

 

69,137,613

 

63,536,646

   

Prepaid land leases

 

6,813,632

 

6,870,076

   

Acquired intangible assets, net

 

503,328

 

594,971

   

Investments in equity investees

 

14,256,245

 

13,080,929

   

Investments in cost investees

 

2,989,025

 

2,996,638

   

Goodwill

 

27,643,846

 

27,588,883

   

Deferred tax assets

 

1,376,462

 

414,399

             
 

Total assets

 

588,550,942

 

552,754,975

             

LIABILITIES AND STOCKHOLDERS' EQUITY

       
 

Current liabilities:

       
   

Current portion of long-term loans

 

7,895,145

 

7,914,668

   

Accounts payable

 

83,314,254

 

78,761,476

   

Construction cost payable

 

3,309,360

 

923,205

   

Deferred revenue

 

70,235,032

 

59,293,745

   

Accrued payroll and related expense

 

7,239,996

 

6,448,623

   

Income tax payable

 

3,148,875

 

3,605,030

   

Warranty liabilities

 

1,602,545

 

3,575,920

   

Other tax payables

 

18,504,017

 

18,225,344

   

Accrued liabilities

 

14,077,091

 

7,746,036

   

Amounts due to related parties

 

1,835,253

 

1,964,275

   

Deferred tax liabilities

 

1,351,906

 

370,300

 

Total current liabilities

 

212,513,474

 

188,828,622

             
   

Long-term bank loans

 

22,610,747

 

24,641,374

   

Deferred tax liabilities

 

234,111

 

-

 

Total liabilities

 

235,358,332

 

213,469,996

             
 

Commitments and contingencies

 

-

 

-

             
 

Equity:

       
   

Ordinary shares

 

55,999

 

55,999

   

Additional paid-in capital

 

151,831,919

 

151,305,146

   

Statutory reserves

 

23,091,072

 

23,091,072

   

Retained earnings

 

146,157,830

 

130,934,342

   

Accumulated other comprehensive income

 

30,803,965

 

32,714,556

 

Total Hollysys Automation Technologies Ltd. stockholder's 
  equity

 

351,940,785

 

338,101,115

             
   

Non-controlling interests

 

1,251,825

 

1,183,864

 

Total equity

 

353,192,610

 

339,284,979

             
 

Total liabilities and stockholders' equity

$

588,550,942

$

552,754,975

 

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)

       
     

Three months ended
September 30, 2012

     

(Unaudited)

Cash flows from operating activities:                                          

   
 

Net income

$

15,298,312

Adjustments to reconcile net income to net cash provided by
   (used in) operating activities:

 

Depreciation of property, plant and equipment

 

1,467,299

 

Amortization of prepaid land leases

 

39,050

 

Amortization of intangible assets

 

43,311

 

Allowance for doubtful accounts

 

1,565,846

 

Loss on disposal of property, plant and equipment

 

24,115

 

Share of net income from equity investees

 

(739,018)

 

Share based compensation expenses

 

526,773

 

Deferred income tax expenses

 

362,962

Changes in operating assets and liabilities:

   
 

Accounts receivable

 

(1,495,557)

 

Costs and estimated earnings in excess of billings

 

(11,358,382)

 

Inventories 

 

(1,849,936)

 

Advances to suppliers

 

1,734,237

 

Other receivables 

 

1,361,238

 

Deposits and other assets

 

1,753,793

 

Due from related parties

 

1,073,204

 

Accounts payable

 

4,558,155

 

Deferred revenue

 

10,889,531

 

Accruals and other payable

 

4,300,639

 

Due to related parties

 

(124,035)

 

Income tax payable

 

(629,264)

 

Other tax payables

 

325,601

 

Net cash provided by operating activities

 

29,127,874

       

Cash flows from investing activities:

   
 

Time deposits placed with banks

 

(5,217,245)

 

Purchases of property, plant and equipment

 

(4,033,240)

 

Maturity of time deposits

 

8,766,465

 

Net cash used in investing activities

 

(484,020)

       

Cash flows from financing activities:

   
 

Repayments of long-term bank loans

 

(1,975,998)

 

Net cash used in financing activities

 

(1,975,998)

       
 

Effect of foreign exchange rate changes

 

(1,843,606)

 

Net increase in cash and cash equivalents

$

24,824,250

       
 

Cash and cash equivalents, beginning of period

$

96,332,962

 

Cash and cash equivalents, end of period

 

121,157,212

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.", "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 stock-based compensation cost, which is calculated based on the number of shares or options granted and the fair value as of the grant date. It 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

     

September 30,

     

2012

 

2011

     

(Unaudited)

 

(Unaudited)

           

General and administrative expenses

$

6,358,859

$

5,015,483

Minus:

       
 

Stock-based compensation cost

 

526,773

 

157,356

Non-GAAP general and administrative expenses

$

5,832,086

$

4,858,127

           

Net income attributable to Hollysys Automation Technologies Ltd.

$

15,223,488

$

12,679,358

Add:

       
 

Stock-based compensation cost

 

526,773

 

157,356

Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.

$

15,750,261

$

12,836,714

           
 

Weighted average number of ordinary shares

 

55,998,917

 

55,009,486

 

Weighted average number of diluted ordinary shares

 

56,062,950

 

55,238,035

Non-GAAP basic earnings per share

$

0.28

$

0.23

Non-GAAP diluted earnings per share

$

0.28

$

0.23

SOURCE Hollysys Automation Technologies, Ltd.

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


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