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

Feb 3, 2016

- First Half Year of Fiscal Year 2016 Financial Highlights
- Non-GAAP net income attributable to Hollysys was $64.1 million, an increase of 26.3% compared to the comparable prior year period.
- Total revenues were $277.9 million, an increase of 2.5% compared to the comparable prior year period.
- Non-GAAP gross margin was at 39.6%, compared to 38.9% for the comparable prior year period.
- Non-GAAP diluted EPS were at $1.06, an increase of 23.3% compared to the comparable prior year period.
- Net cash provided by operating activities was $53.6 million for the current period.
- DSO of 158 days, compared to 192 days for the comparable prior year period.
- Inventory turnover days of 38 days, compared to 48 days from the comparable prior year period.
- Second Quarter of Fiscal Year 2016 Financial Highlights
- Non-GAAP net income attributable to Hollysys was $36.8 million, an increase of 56.0% compared to the comparable prior year period.
- Total revenues were $152.8 million, an increase of 17.3% compared to the comparable prior year period.
- Non-GAAP gross margin was at 39.8%, compared to 38.3% for the comparable prior year period.
- Non-GAAP diluted EPS were at $0.61, an increase of 52.5% compared to the comparable prior year period.
- Net cash provided by operating activities was $46.7 million for the current quarter.
- DSO of 138 days, compared to 206 days for the comparable prior year period.
- Inventory turnover days of 34 days, compared to 52 days for the comparable prior year period.

 

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 13th 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:

(In USD thousands except for number of shares and per share data)

 
   

Three months ended

 

Six months ended

   

Dec 31, 2015

Dec 31, 2014

%
Change

 

Dec 31, 2015

Dec 31, 2014

%
Change

                 

Revenues

$

152,773

130,296

17.3%

$

277,864

270,960

2.5%

    Integrated contract revenue

$

134,159

119,014

12.7%

$

245,172

247,505

(0.9)%

    Products sales

$

15,393

10,304

49.4%

$

26,835

19,185

39.9%

    Service rendered

$

3,221

978

229.3%

$

5,857

4,270

37.2%

Cost of revenues

$

91,964

80,450

14.3%

$

167,875

165,424

1.5%

Gross profit

$

60,809

49,846

22.0%

$

109,989

105,536

4.2%

Total operating expenses

$

19,151

27,762

(31.0)%

$

37,305

46,277

(19.4)%

    Selling

$

7,096

7,203

(1.5)%

$

13,720

13,975

(1.8)%

    General and administrative

$

10,836

15,466

(29.9)%

$

19,752

24,780

(20.3)%

    Research and development

$

11,890

10,109

17.6%

$

19,600

18,893

3.7%

    VAT refunds and government subsidies

$

(10,671)

(5,016)

112.7%

$

(15,767)

(11,371)

38.7%

Income from operations

$

41,658

22,084

88.6%

$

72,684

59,259

22.7%

Other income, net

$

1,391

713

95.1%

$

1,777

1,269

40.0%

Foreign exchange (losses) gains

$

(850)

30

(2933.3)%

$

(814)

(668)

21.9%

Share of net (losses) income of equity
   investees

$

(217)

24

(1004.2)%

$

77

(2,487)

(103.1)%

Dividend income from cost investees

$

-

248

(100.0)%

$

-

248

(100.0)%

Interest income

$

1,102

857

28.6%

$

2,839

1,712

65.8%

Interest expenses

$

(384)

(336)

14.3%

$

(753)

(666)

13.1%

Income tax expenses (credit)

$

5,128

(282)

(1918.4)%

$

9,783

7,133

37.2%

Net income attributable to noncontrolling
   interests

$

785

325

141.5%

$

1,940

800

142.5%

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

$

36,787

23,577

56.0%

$

64,087

50,734

26.3%

Non-GAAP basic EPS

$

0.62

0.40

55.0%

$

1.08

0.87

24.1%

Non-GAAP diluted EPS

$

0.61

0.40

52.5%

$

1.06

0.86

23.3%

                 

Share-based compensation expenses

$

1,243

466

166.7%

$

2,137

931

129.5%

Amortization of acquired intangible assets

$

230

1,535

(85.0)%

$

487

3,431

(85.8)%

Fair value adjustments of acquisition-related
   incentive share contingent consideration

$

2,366

2,389

(4.2)%

$

(1,745)

(117)

1391.5%

Fair value adjustments of acquisition-related
   cash contingent consideration

$

-

-

-

$

-

201

(100.0)%

Fair value adjustments of a bifurcated derivative

$

-

81

(100.0)%

$

-

81

(100.0)%

GAAP Net income attributable to Hollysys
   Automation Technologies Ltd.

$

32,948

19,106

72.4%

$

63,208

46,207

36.8%

GAAP basic EPS

$

0.56

0.33

69.7%

$

1.07

0.79

35.4%

GAAP diluted EPS

$

0.55

0.32

71.9%

$

1.05

0.78

34.6%

                 

Basic weighted average common shares
    outstanding

 

59,071,520

58,271,021

1.4%

 

59,069,316

58,267,994

1.4%

Diluted weighted average common shares
   outstanding

 

60,619,909

59,157,335

2.5%

 

60,632,435

59,129,245

2.5%

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:

(In USD thousands)

   

Three months ended Dec 31,

 

Six months ended Dec 31,

   

2015

 

2014

 

2015

 

2014

   

$

% to
Total
Revenue

 

$

% to
Total
Revenue

 

$

% to
Total
Revenue

 

$

% to
Total
Revenue

Industrial Automation

 

54,276

35.5%

 

56,798

43.6%

 

103,743

37.3%

 

113,942

42.0%

Rail Transportation

 

63,878

41.8%

 

33,631

25.8%

 

118,209

42.6%

 

74,453

27.5%

Mechanical and Electrical Solutions

 

29,710

19.4%

 

36,944

28.4%

 

45,268

16.3%

 

76,990

28.4%

Miscellaneous

 

4,909

3.3%

 

2,923

2.2%

 

10,644

3.8%

 

5,575

2.1%

Total

 

152,773

100.0%

 

130,296

100.0%

 

277,864

100.0%

 

270,960

100.0%

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:

(In USD thousands)

     

Quarter-over-Quarter Analysis

 

Year-over-Year Analysis

   

2015/12/31

 

2015/9/30

 

2014/12/31

   

$

% to
Total
Backlog

 

$

% to
Total
Backlog

 

%
Change

 

$

% to
Total
Backlog

 

%
Change

Industrial Automation

 

105,805

20.1%

 

127,270

26.0%

 

(16.9%)

 

139,310

32.1%

 

(24.1%)

Rail Transportation

 

301,571

57.2%

 

245,280

50.0%

 

22.9%

 

219,680

50.7%

 

37.3%

Mechanical and Electrical Solutions

 

119,617

22.7%

 

117,800

24.0%

 

1.5%

 

74,710

17.2%

 

60.1%

Total

 

526,993

100.0%

 

490,350

100.0%

 

7.5%

 

433,700

100.0%

 

21.5%

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.

4001-200-539

(China)

0080 161 5189

(Taiwan)

+1-855-298-3404

(United States)

+1 631 5142 526

(US - New York)

0800 916 599

(France)

0800 1899 399

(Germany)

0800 837 001

(Switzerland)

1800 801 825

(Australia)

800-905-927

(Hong Kong)

+852-5808-3202

(Hong Kong)

0800-015-9725

(United Kingdom)

+44(0)20 3078 7622

(United Kingdom - London)

800-616-3222

(Singapore)

+65 6823 2299

(Singapore/International)

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
investors@hollysys.com

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In USD thousands except for number of shares and per share data)

 
   

Three months ended
December 31,

 

Six months ended
December 31,

   

2015

 

2014

 

2015

 

2014

   

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 (Audited)

Revenues

               

Integrated contract revenue

$

134,159

$

119,014

$

245,172

$

247,505

Products sales

 

15,393

 

10,304

 

26,835

 

19,185

Revenue from service

 

3,221

 

978

 

5,857

 

4,270

Total revenues

 

152,773

 

130,296

 

277,864

 

270,960

                 

Costs of integrated contracts

 

84,520

 

78,058

 

154,349

 

161,818

Costs of products sold

 

6,554

 

3,736

 

11,982

 

5,583

Costs of services rendered

 

1,120

 

191

 

2,031

 

1,454

Gross profit

 

60,579

 

48,311

 

109,502

 

102,105

                 

Operating expenses

               

Selling

 

7,096

 

7,203

 

13,720

 

13,975

General and administrative

 

12,079

 

15,932

 

21,889

 

25,711

Research and development

 

11,890

 

10,109

 

19,600

 

18,893

VAT refunds and government subsidies

 

(10,671)

 

(5,016)

 

(15,767)

 

(11,371)

Total operating expenses

 

20,394

 

28,228

 

39,442

 

47,208

                 

Income from operations

 

40,185

 

20,083

 

70,060

 

54,897

                 

Other (expenses) income, net

 

(975)

 

(1,676)

 

3,522

 

1,386

Foreign exchange (losses) gains

 

(850)

 

30

 

(814)

 

(668)

Share of net (losses) income of equity investees

 

(217)

 

24

 

77

 

(2,487)

Dividend income from cost investees

 

-

 

248

 

-

 

248

Interest income

 

1,102

 

857

 

2,839

 

1,712

Interest expenses

 

(384)

 

(417)

 

(753)

 

(948)

Income before income taxes

 

38,861

 

19,149

 

74,931

 

54,140

                 

Income taxes expenses (credit)

 

5,128

 

(282)

 

9,783

 

7,133

Net income

 

33,733

 

19,431

 

65,148

 

47,007

                 

Net income attributable to noncontrolling interests

 

785

 

325

 

1,940

 

800

Net income attributable to Hollysys Automation
   Technologies Ltd.

$

32,948

$

19,106

$

63,208

$

46,207

                 

Other comprehensive income, net of tax of nil

               

Translation adjustments

 

(9,250)

 

(55)

 

(38,705)

 

(1,986)

Comprehensive income

 

24,483

 

19,376

 

26,443

 

45,021

                 

Comprehensive income (losses) attributable to noncontrolling
   interests

 

818

 

(119)

 

1,706

 

357

Comprehensive income attributable to Hollysys
   Automation Technologies Ltd.

$

23,665

$

19,495

$

24,737

$

44,664

                 

Net income per ordinary share:

               

Basic

 

0.56

 

0.33

 

1.07

 

0.79

Diluted

 

0.55

 

0.32

 

1.05

 

0.78

Weighted average ordinary shares used in income per
   share computation:

               

Basic

 

59,071,520

 

58,271,021

 

59,069,316

 

58,267,994

Diluted

 

60,619,909

 

59,157,335

 

60,632,435

 

59,129,245

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In USD thousands except for number of shares and per share data)

             
       

Dec 31,

 

Sep 30,

       

2015

 

2015

       

(Unaudited)

 

(Unaudited)

ASSETS

       
 

Current assets

       
   

Cash and cash equivalents

$

188,683

$

190,475

   

Time deposits with maturities over three months

 

86,950

 

44,394

   

Restricted cash

 

27,113

 

24,418

   

Accounts receivable, net of allowance for doubtful accounts of $39,244 and $34,259 as of
   December 31,2015 and September 30, 2015, respectively

 

234,251

 

234,873

   

Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of
   $5,774 and $9,052 as of December 31, 2015 and September 30, 2015, respectively

 

167,626

 

185,603

   

Other receivables, net of allowance for doubtful accounts of $739 and $696 as of December
   31, 2015 and September 30, 2015, respectively

 

15,882

 

13,481

   

Advances to suppliers

 

10,302

 

19,386

   

Amounts due from related parties

 

32,213

 

37,377

   

Inventories

 

35,505

 

34,815

   

Prepaid expenses

 

676

 

460

   

Income tax recoverable

 

257

 

784

   

Deferred tax assets

 

3,871

 

3,470

 

Total current assets

 

803,329

 

789,536

             
   

Restricted cash

 

3,713

 

3,735

   

Prepaid expenses

 

12

 

12

   

Property, plant and equipment, net

 

78,357

 

77,126

   

Prepaid land leases

 

10,820

 

10,948

   

Acquired intangible assets, net

 

1,131

 

1,350

   

Investments in equity investees

 

11,360

 

12,386

   

Investments in cost investees

 

4,204

 

4,290

   

Goodwill

 

57,100

 

56,643

   

Deferred tax assets

 

2,791

 

2,249

             
 

Total assets

 

972,817

 

958,275

             

LIABILITIES AND STOCKHOLDERS' EQUITY

       
 

Current liabilities

       
   

Short-term bank loans

 

2,872

 

2,462

   

Current portion of long-term loans

 

11,880

 

11,695

   

Accounts payable

 

109,392

 

104,021

   

Construction costs payable

 

1,112

 

1,082

   

Deferred revenue

 

108,627

 

130,738

   

Accrued payroll and related expenses

 

15,160

 

12,677

   

Income tax payable

 

3,638

 

4,800

   

Warranty liabilities

 

7,448

 

7,313

   

Other tax payables

 

21,527

 

23,763

   

Accrued liabilities

 

30,581

 

27,398

   

Amounts due to related parties

 

1,405

 

1,687

   

Deferred tax liabilities

 

8,561

 

8,330

   

Current portion of acquisition-related consideration

 

-

 

10,970

 

Total current liabilities

 

322,203

 

346,936

             
   

Long-term loans

 

20,402

 

20,524

   

Deferred tax liabilities

 

64

 

68

   

Long-term warranty liabilities

 

2,846

 

2,507

             
 

Total liabilities

 

345,515

 

370,035

             
 

Commitments and contingencies

 

-

 

-

             
 

Equity

       
   

Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 58,998,599 and
   58,358,521 shares issued and outstanding as of December 31, 2015 and September 30,
   2015, respectively

 

59

 

58

   

Additional paid-in capital

 

208,241

 

193,663

   

Statutory reserves

 

30,299

 

30,248

   

Retained earnings

 

381,598

 

348,700

   

Accumulated other comprehensive income

 

-886

 

8,398

 

Total Hollysys Automation Technologies Ltd. stockholder's equity

 

619,311

 

581,067

             
   

Noncontrolling interests

 

7,991

 

7,173

 

Total equity

 

627,302

 

588,240

             
 

Total liabilities and equity

$

972,817

$

958,275

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

           
     

Three months ended
Dec 31, 2015

 

Six months ended
Dec 31, 2015

     

(Unaudited)

 

(Unaudited)

Cash flows from operating activities:

       
 

Net income

$

33,733

$

65,148

Adjustments to reconcile net income to net cash provided by operating
   activities:

       
 

Depreciation of property, plant and equipment

 

1,366

 

3,283

 

Amortization of prepaid land leases

 

83

 

132

 

Amortization of intangible assets

 

231

 

489

 

Allowance for doubtful accounts

 

2,897

 

4,874

 

Losses on disposal of property, plant and equipment

 

(95)

 

305

 

Share of net losses (income) from equity investees

 

217

 

(77)

 

Share-based compensation expenses

 

1,243

 

2,137

 

Deferred income tax expenses

 

(743)

 

1,604

 

Acquisition-related consideration adjustments

 

2,366

 

(1,745)

 

Accretion of convertible notes discount

 

57

 

115

Changes in operating assets and liabilities:

       
 

Accounts receivable

 

(7,499)

 

(3,276)

 

Costs and estimated earnings in excess of billings

 

19,179

 

(9,330)

 

Inventories 

 

(1,388)

 

(2,894)

 

Advances to suppliers

 

8,995

 

4,205

 

Other receivables

 

(2,667)

 

(4,353)

 

Deposits and other assets

 

(3,255)

 

(3,353)

 

Due from related parties

 

4,530

 

4,712

 

Accounts payable

 

5,766

 

10,135

 

Deferred revenue

 

(20,473)

 

(22,561)

 

Accruals and other payable

 

4,429

 

2,653

 

Due to related parties

 

156

 

198

 

Income tax payable

 

(558)

 

(1,500)

 

Other tax payables

 

(1,885)

 

2,660

 

Net cash provided by operating activities

 

46,685

 

53,561

           

Cash flows from investing activities:

       
 

Time deposits with original maturities over three months placed with banks

 

(47,210)

 

(60,860)

 

Purchases of property, plant and equipment

 

(1,335)

 

(3,271)

 

Proceeds from disposal of property, plant and equipment

 

-

 

1

 

Maturity of time deposits with original maturities over three months

 

3,055

 

20,254

 

Net cash used in investing activities

 

(45,490)

 

(43,876)

           

Cash flows from financing activities:

       
 

Proceeds from short-term bank loans

 

404

 

3,221

 

Repayments of short-term bank loans

 

-

 

(16,378)

 

Proceeds from long-term bank loans

 

1,929

 

2,296

 

Repayments of long-term bank loans

 

(1,975)

 

(4,194)

 

Net cash provided by (used in) financing activities

 

358

 

(15,055)

           
 

Effect of foreign exchange rate changes

 

(3,345)

 

(13,781)

 

Net decrease in cash and cash equivalents

$

(1,792)

$

(19,151)

           
 

Cash and cash equivalents, beginning of period

$

190,475

$

207,834

 

Cash and cash equivalents, end of period

 

188,683

 

188,683

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:

(In USD thousands except for number of shares and per share data)

     

Three months ended

 

Six months ended

     

Dec 31,

 

Dec 31,

     

2015

 

2014

 

2015

 

2014

     

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

                   

Cost of integrated contracts

$

84,520

$

78,058

$

154,349

$

161,818

Less: Amortization of acquired intangible assets

 

230

 

1,535

 

487

 

3,431

Non-GAAP cost of integrated contracts

$

84,290

$

76,523

$

153,862

$

158,387

                   

General and administrative expenses

$

12,079

$

15,932

$

21,889

$

25,711

Less: Share-based compensation expenses

 

1,243

 

466

 

2,137

 

931

Non-GAAP general and administrative expenses

$

10,836

$

15,466

$

19,752

$

24,780

                   

Other (expenses) income, net

$

(975)

$

(1,676)

$

3,522

$

1,386

Add: Fair value adjustments of acquisition-related incentive
   share contingent consideration

 

2,366

 

2,389

 

(1,745)

 

(117)

Non-GAAP other income, net

$

1,391

$

713

$

1,777

$

1,269

                   

Interest expenses

$

(384)

$

(417)

$

(753)

$

(948)

Add:

               
 

Fair value adjustments of acquisition-related cash
   contingent consideration

 

-

 

-

 

-

 

201

 

Fair value adjustments of a bifurcated derivative

 

-

 

81

 

-

 

81

Non-GAAP interest expenses

$

(384)

$

(336)

$

(753)

$

(666)

                   

Net income attributable to Hollysys Automation
   Technologies Ltd.

$

32,948

$

19,106

$

63,208

$

46,207

Add:

               
 

Share-based compensation expenses

 

1,243

 

466

 

2,137

 

931

 

Amortization of acquired intangible assets

 

230

 

1,535

 

487

 

3,431

 

Fair value adjustments of acquisition-related
   consideration

 

2,366

 

2,389

 

(1,745)

 

84

 

Fair value adjustments of a bifurcated derivative

 

-

 

81

 

-

 

81

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

$

36,787

$

23,577

$

64,087

$

50,734

                   
 

Weighted average number of basic ordinary shares

 

59,071,520

 

58,271,021

 

59,069,316

 

58,267,994

 

Weighted average number of diluted ordinary shares

 

60,619,909

 

59,157,335

 

60,632,435

 

59,129,245

Non-GAAP basic earnings per share

$

0.62

$

0.40

$

1.08

$

0.87

Non-GAAP diluted earnings per share

$

0.61

$

0.40

$

1.06

$

0.86

 

SOURCE Hollysys Automation Technologies, Ltd


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