Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal Year and the Fourth Quarter Ended June 30, 2016

Aug 14, 2016

- Fiscal Year 2016 Financial Highlights
- Non-GAAP net income attributable to Hollysys was $121.5 million, an increase of 17.6% compared to the comparable prior year period.
- Total revenues were $544.3 million, an increase of 2.4% compared to the comparable prior year period.- Non-GAAP gross margin was at 37.9%, compared to 41.2% for the comparable prior year period.
- Non-GAAP diluted EPS were at $2.02, an increase of 17.4% compared to the comparable prior year period.
- Net cash provided by operating activities was $46.7 million for the current period.
- DSO of 162 days, compared to 176 days for the comparable prior year period.
- Inventory turnover days of 38 days, compared to 41 days from the comparable prior year period.
-Fourth Quarter of Fiscal Year 2016 Financial Highlights
- Non-GAAP net income attributable to Hollysys was $34.3 million, an increase of 48.8% compared to the comparable prior year period.
- Total revenues were $147.7 million, an increase of 3.9% compared to the comparable prior year period.
- Non-GAAP gross margin was at 39.9%, compared to 41.4% for the comparable prior year period.
- Non-GAAP diluted EPS were at $0.57, an increase of 50.0% compared to the comparable prior year period.
- Net cash used in operating activities was $9.9 million for the current quarter.
- DSO of 146 days, compared to 176 days for the comparable prior year period.
- Inventory turnover days of 37 days, compared to 43 days for the comparable prior year period.

BEIJING, Aug. 14, 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 and the fourth quarter ended on June 30, 2016 (see attached tables). The management of Hollysys, stated:

In fiscal year 2016, we kept a steady revenue growth and outperformed the challenging earnings guidance that announced previously, as well as cash flow, despite a difficulty in macro economy. When we delighted the achievements, we calmly evaluated the future opportunities and challenges, and also carefully planned for the future growth. Here we would like to discuss the achievements in the past fiscal year and strategies in future:

In industrial automation, the soft performance was mainly because of the influence of general economic environment. During the past fiscal year, China continued adjusting its industry structure and reducing the capacity in some industries such as petrochemical, metallurgy and building materials. However, Hollysys took several strategies to mitigate the impact of market headwinds. We gained more market share from rising industries to make up the loss from decreasing industries. We were doing well in power and chemical which took up the largest portion of our revenue in industrial automation; we further penetrated into high-end market. For instance, we won several bids to provide DCS for supercritical coal fire generating units, such as Funeng Luoyuanwan 2X1052MW, Jiujiang Shenhua 2X1052MW, Guohua Ningdong 2X660MW and Xinjiang TBEA 2X660MW power units. In nuclear sector, we supplied DCS for Hongyanhe 5# and 6# units. In addition, after-sale revenue was still reinforced for fiscal year 2016. With our special team kept reviewing existing customers, the demand of upgrade and maintenance continued growing. Besides, Company has actively expanded in abroad. We signed some contracts which delivered our own proprietary products in overseas market. In India, for example, Lanco Solar Power Polycrystalline Silicon Project will be implemented our DCS and SIS. Indonesia Qingshan 2X350MW Coal-fire Power Units will use our DCS and DEH. We will continue to win more customers and enlarge overseas business scale to support long-term growth of IA. In factory automation sector of IA, we are changing the strategy from providing single products to providing customized turnkey solutions, like what we are doing in the process control to help the customers solve their problems and satisfy their needs. We expect this sector has a good performance in the near future.

The performance of railway transportation was prominent. In high-speed rail sector, we won some contracts to provide the Train Control Centers ("TCC") and other related ground based products, such as Chongqing to Wanzhou Line and Xi'an to Chengdu Line; we also won several contracts in Automatic Train Protection ("ATP"). In the future, according to the new five year plan and even longer, the investment scale of central government in high speed rail will be still sizable. At the same time, track circuit has finished the second test in June 2016. This new product could make revenue contribution in upcoming years.

Another strong driver of railway transportation sector for this fiscal year was subway business. We signed the contracts to provide SCADA system for Qingdao Line R3, Kunming Line 3, Chengdu Line 10, Lanzhou Line 1, Wuhan Line 8, etc. We will continue working closely with local subway authorities to expand our SCADA business for better marketing our subway signaling control system.

In the mechanical and electrical solution segment, although Concord and Bond are facing some difficulties like projects delayed and the depreciation of local currency, they are still working hard to expand their businesses. Concord, for example, signed a very large contract to provide electrical installation services for Doha Metro Phase 1. As one of the strategies to expand the overseas market, we will ensure a healthy development of Concord and Bond and take use of the advantages of these two companies such as good customer relations and sales channels to ink more international opportunities.

The Fourth Quarter and Fiscal Year 2016 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

 

Fiscal year ended

   

Jun 30,
2016

 Jun 30,
2015

%
Change

 

Jun 30,
2016

 Jun 30,
2015

%
Change

                 

Revenues

$

147,669

142,189

3.9%

$

544,325

531,378

2.4%

    Integrated contract revenue

$

132,861

127,141

4.5%

$

477,790

481,006

(0.7)%

    Products sales

$

11,554

10,769

7.3%

$

54,546

39,762

37.2%

    Service rendered

$

3,254

4,279

(24.0)%

$

11,989

10,610

13.0%

Cost of revenues

$

88,780

83,272

6.6%

$

337,781

312,523

8.1%

Gross profit

$

58,889

58,917

(0.0)%

$

206,544

218,855

(5.6)%

Total operating expenses

$

25,991

18,109

43.5%

$

81,283

81,801

(0.6)%

    Selling

$

6,680

6,577

1.6%

$

25,637

26,263

(2.4)%

    General and administrative

$

13,535

14,542

(6.9)%

$

41,972

48,292

(13.1)%

    Goodwill impairment charge

$

-

1,855

-

$

-

1,855

-

    Research and development

$

8,595

7,517

14.3%

$

36,564

35,779

2.2%

    VAT refunds and government subsidies

$

(2,819)

(12,382)

(77.2)%

$

(22,890)

(30,388)

(24.7)%

Income from operations

$

32,898

40,808

(19.4)%

$

125,261

137,054

(8.6)%

Other income, net

$

933

351

165.8%

$

2,316

2,233

3.7%

Foreign exchange losses

$

(1,027)

(6,757)

(84.8)%

$

(299)

(6,765)

(95.6)%

Gains on disposal of investments in equity investees

$

-

-

-

$

-

80

-

Share of net income (losses) of equity investees

$

1,347

1,242

8.5%

$

7,834

(2,910)

(369.2)%

Dividend income from cost investees

$

1,109

-

-

$

1,109

249

345.4%

Interest income

$

1,807

1,239

45.8%

$

5,858

3,686

58.9%

Interest expenses

$

(397)

(591)

(32.8)%

$

(1,311)

(1,585)

(17.3)%

Income tax expenses

$

1,100

12,305

(91.1)%

$

14,238

26,040

(45.3)%

Net income attributable to noncontrolling interests

$

1,305

955

36.6%

$

5,033

2,659

89.3%

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

$

34,265

23,032

48.8%

$

121,497

103,343

17.6%

Non-GAAP basic EPS

$

0.58

0.39

48.7%

$

2.05

1.76

16.5%

Non-GAAP diluted EPS

$

0.57

0.38

50.0%

$

2.02

1.72

17.4%

                 

Share-based compensation expenses

$

594

853

(30.4)%

$

3,860

2,492

54.9%

Amortization of acquired intangible assets

$

165

368

(55.2)%

$

818

4,454

(81.6)%

Acquisition-related incentive share contingent consideration

$

-

2,611

-

$

(1,745)

(368)

374.2%

Fair value adjustments of acquisition-related incentive share contingent consideration

$

-

-

-

$

-

201

-

Convertible bond related fair value adjustments

$

93

521

-

$

93

35

-

GAAP Net income attributable to Hollysys Automation Technologies Ltd.

$

33,413

18,679

78.9%

$

118,471

96,529

22.7%

GAAP basic EPS

$

0.56

0.32

75.0%

$

2.00

1.65

21.2%

GAAP diluted EPS

$

0.55

0.31

77.4%

$

1.97

1.61

22.4%

                 

Basic weighted average common shares outstanding

 

59,511,267

58,986,296

0.9%

 

59,170,050

58,612,596

1.0%

Diluted weighted average common shares outstanding

 

60,675,636

60,636,960

0.1%

 

60,611,456

60,134,203

0.8%

                         

 

Operational Results Analysis for the Fiscal Year Ended June 30, 2016

Comparing to the prior fiscal year, the total revenues for fiscal year 2016 increased from $531.4 million to $544.3 million, representing an increase of 2.4%. Broken down by the revenue types, integrated contracts revenue decreased by 0.7% to $477.8 million, products sales revenue increased by 37.2% to $54.5 million, and services revenue increased by 13% to $12.0 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

 

(In USD thousands)

           
   

Fiscal year ended Jun 30,

   

2016

 

2015

   

$

% to Total Revenue

 

$

% to Total Revenue

Industrial Automation

 

182,902

33.6%

 

213,252

40.1%

Rail Transportation Automation

 

240,310

44.2%

 

193,274

36.4%

Mechanical and Electrical Solution

95,277

17.5%

 

110,030

20.7%

Miscellaneous

 

25,836

4.7%

 

14,822

2.8%

Total

 

544,325

100.0%

 

531,378

100.0%

 

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 37.9% for fiscal year 2016, as compared to 41.2% for the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 35.2%, 56.0% and 66.4% for fiscal year 2016, as compared to 38.5%, 68.4%, and 61.4% for 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 37.8% for fiscal year 2016, as compared to 40.3% for the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 35.0%, 56.0% and 66.4% for fiscal year 2016, as compared to 37.6%, 68.4%, and 61.4% for the prior year respectively.

Selling expenses were $25.6 million for fiscal year 2016, representing a decrease of $0.7 million or 2.4% compared to $26.3 million for the prior year. Presented as a percentage of total revenues, selling expenses were 4.7% and 4.9% for fiscal year 2016 and 2015, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $42.0 million for fiscal year 2016, representing a decreased of $6.3 million, or 13.1%, as compared to $48.3 million for the prior year. The decrease was mainly due to a decrease of $7.4 million in bad debt provision. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.7% and 9.1% for fiscal year 2016 and 2015 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $45.8 million and $50.8 million for fiscal year 2016 and 2015, respectively.

Research and development expenses were $36.6 million for fiscal year 2016, an increase of $0.8 million or 2.2% compared to $35.8 million for the prior year. Presented as a percentage of total revenues, R&D expenses were 6.7% and 6.7% for fiscal year 2016 and 2015, respectively.

The VAT refunds and government subsidies were $22.9 million for fiscal year 2016, as compared to $30.4 million for the prior year, representing a $7.5 million or 24.7% decrease which was primarily due to decrease of the VAT refunds of $5.5 million and the government subsidies for $2.0 million.

The income tax expenses and the effective tax rate were $14.2 million and 10.3% for fiscal year 2016, as compared to $26.0 million and 20.8% for the prior year. According to the Notification on Preferential Enterprise Income Tax of Software and Integrated Circuit Industry, Caishui [2016] No. 49, which was issued in May 2016 by the China SAT and the MOF, Beijing Hollysys and Hangzhou Hollysys satisfied the definitions of Key Software Enterprise, and applied to a preferential tax rate of 10% effective for the year from January 1, 2015 to December 31, 2015, instead of the 15% used by the Company in calendar year 2015. As a result, the Company recorded a tax benefit of $7.0 million during the fourth quarter of fiscal 2016. In addition, during the fourth quarter of fiscal year 2016, $3.1 million withholding tax expenses were accrued for the potential profits distribution from PRC to overseas. Excluding the impact of the abovementioned tax benefit and withholding tax expenses, the effective tax rate for fiscal year 2016 should be 13.2%.

The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles, acquisition-related consideration fair value adjustments and convertible bond related fair value adjustments was $121.5 million or $2.02 per diluted share based on 60.6 million shares outstanding for fiscal year 2016. This represents a 17.6% increase over the $103.3 million or $1.72 per share based on 60.1 million shares outstanding reported in prior year. On a GAAP basis, net income attributable to Hollysys was $118.5 million or $1.97 per diluted share representing an increase 22.7% over the $96.5 million or $1.61 per diluted share reported in prior year.  

Operational Results Analysis for the quarter ended June 30, 2016

Comparing to the fourth quarter of the prior fiscal year, the total revenues for the three months ended June 30, 2016 increased from $142.2 million to $147.7 million, representing an increase of 3.9%. Broken down by the revenue types, integrated contracts revenue increased by 4.5% to $132.9 million, products sales revenue increased by 7.3% to $11.6 million, and services revenue decreased by 24.0% to $3.3 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

 

(In USD thousands)

           
   

Three months ended Jun 30,

   

2016

 

2015

   

$

% to Total Revenue

 

$

% to Total Revenue

Industrial Automation

 

41,134

27.8%

 

57,661

40.6%

Rail Transportation Automation

 

65,944

44.7%

 

62,728

44.1%

Mechanical and Electrical Solution

32,921

22.3%

 

17,091

12.0%

Miscellaneous

 

7,670

5.2%

 

4,709

3.3%

Total

 

147,669

100.0%

 

142,189

100.0%

 

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 39.9% for the three months ended June 30, 2016, as compared to 41.4% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 37.4%, 58.0% and 74.7% for the three months ended June 30, 2016, as compared to 39.2%, 61.1% and 59.4% 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 39.8% for the three months ended June 30, 2016, as compared to 41.2% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 37.3%, 58.0% and 74.7% for the three months ended June 30, 2016, as compared to 38.9%, 61.1% and 59.4% for the same period of the prior year respectively.

Selling expenses were $6.7 million for the three months ended June, 2016, representing an increase of $0.1 million or 1.6% compared to $6.6 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.5% and 4.6% for the three months ended June 30, 2016, and 2015, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $13.5 million for the quarter ended June 30, 2016, representing a decrease of 1.0 million, or 6.9%, as compared to $14.5 million for the same period of the prior year. Presented as a percentage of total revenues, non-GAAP G&A expenses were 9.2% and 10.2% for quarters ended June 30, 2016 and 2015 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $14.1 million and $15.4 million for the three months ended June 30, 2016 and 2015, respectively.

Research and development expenses were $8.6 million for the three months ended June 30, 2016, an increase of $1.1 million or 14.3% compared to $7.5 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 5.8% and 5.3% for the quarter ended June 30, 2016 and 2015, respectively.

The VAT refunds and government subsidies were $2.8 million for three months ended June 30, 2016, as compared to $12.4 million for the same period in the prior year, representing a $9.6 million or 77.2% decrease, primarily due to a decrease of the VAT refunds for $7.1 million.

The income tax expenses and the effective tax rate were $1.1 million and 3.1% for the three months ended June 30, 2016, as compared to a $12.3 million and 38.5% for comparable prior year period. During the fourth quarter of fiscal 2016, the Company recorded a tax benefit of $7.0 million according the newly issued Notification on Preferential Enterprise Income Tax of Software and Integrated Circuit Industry, Caishui [2016] No. 49, and a withholding tax expenses of $3.1 million for the potential profits distribution from PRC to overseas.  Excluding the abovementioned impact, the effective tax rate for the three months ended June 30, 2016 should be 14.0%.

The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles, acquisition-related consideration fair value adjustments and convertible bond related fair value adjustments was $34.3 million or $0.57 per diluted share based on 60.7 million shares outstanding for the three months ended June 30, 2016. This represents a 48.8% increase over the $23.0 million or $0.38 per share based on 60.6 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $33.4 million or $0.55 per diluted share representing an increase of 78.9% over the $18.7 million or $0.31 per diluted share reported in the comparable prior year period.  

Integrated Contracts Backlog Highlights

Hollysys' backlog for integrated contracts as of June 30, 2016 was $527.2 million, representing an increase of 5.8% compared to $498.5 million as of Mar 31, 2016 and a decrease of 7.3% compared to $568.5 million as of June 30, 2015. 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

   

Jun 30, 2016

 

Mar 31, 2016

 

Jun 30, 2015

   

$

% to Total
Backlog

 

$

% to Total
Backlog

 

%
Change

 

$

% to Total
Backlog

 

%
Change

Industrial Automation

 

112,106

21.3%

 

107,828

21.6%

 

4.0%

 

134,100

23.6%

 

(16.4%)

Rail Transportation

 

216,502

41.0%

 

259,770

52.1%

 

(16.8%)

 

299,010

52.6%

 

(27.7%)

Mechanical and Electrical Solutions

 

198,616

37.7%

 

130,900

26.3%

 

51.7%

 

135,420

23.8%

 

46.7%

Total

 

527,224

100.0%

 

498,498

100.0%

 

5.8%

 

568,530

100.0%

 

(7.3%)

 

Cash Flow Highlights

For the fiscal year ended June 30, 2016, the total net cash inflow was $21.3 million. The net cash provided by operating activities was $46.7 million. The net cash used in investing activities was $2.5 million, mainly consisted of $107.1 million time deposit with original maturities over three months placed with banks, and $7.9 million used for purchases of property, plant and equipment, which was partially offset by the $112.0 million generated from matured time deposits with original maturities over three months. The net cash used in financing activities was $6.8 million, mainly consisted of $17.0 million used for repayments of short-term loans, $9.7 million used for repayments of long-term loans, which was partially offset by $7.7 million proceeds from issuance of shares of a subsidiary, $5.4 million proceeds from exercise of options, and $4.1 million proceeds from short-term bank loans.

For the three months ended June 30, 2016, the total net cash inflow was $29.6 million. The net cash provided by operating activities was $9.9 million. The net cash provided by investing activities was $11.6 million. The net cash provided by financing activities was $12.2 million, mainly consisted of $7.7 million proceeds from issuance of shares of a subsidiary, and $5.1 proceeds from exercise of share options.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $271.5 million, $256.4 million, and $257.5 million as of June 30, 2016, March 31, 2016 and June 30, 2015, respectively. As of June 30, 2016, the company held $229.1 million in cash and cash equivalents and $42.4 million in time deposits with original maturities over three months.

For fiscal year ended June 30, 2016, Days Sales Outstanding ("DSO") was 162 days, as compared to 176 days from the prior year; and inventory turnover was 38 days, as compared to 41 days from the prior year.

For the three months ended June 30, 2016, DSO was 147 days, as compared to 176 days for the comparable prior year period and 181 days for the last quarter; and inventory turnover was 37 days, as compared to 43 days for the comparable prior year period and 40 days for the last quarter.

Outlook for FY 2017

The management concluded, "Given our strong backlog currently on-hand and sales pipeline envisioned so far, we set our guidance for fiscal year 2017 with revenue in the range of $565 million to $600 million and non-GAAP net income in the range of $130 million to $140 million."

Conference Call

The Company will host a conference call at 9:00 p.m. U.S. Eastern Time on August 14, 2016 / 9:00 a.m. Beijing Time on August 15, 2016, to discuss the financial results for the fiscal year 2016 fourth quarter and the fiscal year ended June 30, 2016 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 5915607.

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 (Supervisory Control and Data Acquisition), nuclear power plant automation and control system and other products.

SAFE HARBOUR:

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

For further information, please contact:

Hollysys Automation Technologies Ltd.
www.hollysys.com
+8610-58981386
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
Jun 30,

 

Fiscal year ended
Jun 30,

   

2016

 

2015

 

2016

 

2015

   

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 (Audited)

Net revenues

               

Integrated contract revenue

$

132,861

$

127,141

$

477,790

$

481,006

Products sales

 

11,554

 

10,769

 

54,546

 

39,762

Revenue from services

 

3,254

 

4,279

 

11,989

 

10,611

Total net revenues

 

147,669

 

142,189

 

544,325

 

531,379

                 

Costs of integrated contracts

 

83,275

 

77,712

 

310,545

 

300,332

Costs of products sold

 

4,847

 

4,191

 

24,023

 

12,547

Costs of services rendered

 

823

 

1,737

 

4,031

 

4,098

Gross profit

 

58,724

 

58,549

 

205,726

 

214,402

                 

Operating expenses

               

Selling

 

6,680

 

6,577

 

25,637

 

26,263

General and administrative

 

14,129

 

15,395

 

45,832

 

50,786

Goodwill impairment charge

 

-

 

1,855

 

-

 

1,855

Research and development

 

8,595

 

7,517

 

36,564

 

35,779

VAT refunds and government subsidies

 

(2,819)

 

(12,382)

 

(22,890)

 

(30,388)

Total operating expenses

 

26,585

 

18,962

 

85,143

 

84,295

                 

Income from operations

 

32,139

 

39,587

 

120,583

 

130,107

                 

Other income (expense), net

 

933

 

(2,260)

 

4,061

 

2,601

Foreign exchange loss

 

(1,027)

 

(6,757)

 

(299)

 

(6,765)

Gain on disposal of an equity investee

-

 

-

 

-

 

80

Share of net income (loss) of equity investees

 

1,347

 

1,242

 

7,834

 

(2,910)

Dividend income from a cost investee

 

1,109

 

-

 

1,109

 

249

Interest income

 

1,807

 

1,239

 

5,858

 

3,686

Interest expenses

 

(490)

 

(1,112)

 

(1,404)

 

(1,821)

Income before income taxes

 

35,818

 

31,939

 

137,742

 

125,227

                 

Income taxes expenses

 

1,100

 

12,305

 

14,238

 

26,040

Net income

 

34,718

 

19,634

 

123,504

 

99,187

                 

Net income attributable to noncontrolling interests

 

1,305

 

955

 

5,033

 

2,660

Net income attributable to Hollysys Automation Technologies Ltd.

$

33,413

$

18,679

$

118,471

$

96,527

                 

Other comprehensive income(loss), net of tax of nil

               

Translation adjustments

 

(17,973)

 

6,984

 

(48,840)

 

(1,386)

Comprehensive income

 

16,745

 

26,618

 

74,664

 

97,801

                 

Less: comprehensive income(loss) attributable to noncontrolling interests

 

(1,260)

 

1,814

 

2,245

 

2,701

Comprehensive income attributable to Hollysys Automation Technologies Ltd.

$

18,005

$

24,804

$

72,419

$

95,100

                 

Net income per ordinary share:

               

Basic

 

0.56

 

0.32

 

2.00

 

1.65

Diluted

 

0.55

 

0.31

 

1.97

 

1.61

Shares used in income per share computation:

               

Weighted average number of ordinary shares

 

59,511,267

 

58,986,296

 

59,170,050

 

58,612,596

Weighted average number of diluted ordinary shares

 

60,675,636

 

60,636,960

 

60,611,456

 

60,134,203

                           

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

             
       

Jun 30,

 

Mar 31,

       

2016

 

2016

       

(Unaudited)

 

(Unaudited)

ASSETS

       
 

Current assets

       
   

Cash and cash equivalents

$

229,095

$

199,477

   

Time deposits with original maturities over three months

 

42,368

 

56,902

   

Restricted cash

 

27,592

 

25,695

   

Accounts receivable, net of allowance for doubtful accounts of $42,471 and $38,630 as of June 30,2016 and March 31, 2016, respectively

 

237,179

 

243,749

   

Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $6,383 and $7,858 as of June 30, 2016 and March 31, 2016, respectively

 

189,928

 

185,677

   

Other receivables, net of allowance for doubtful accounts of $1,302 and $1,059 as of June 30, 2016 and March 31, 2016, respectively

 

13,358

 

12,802

   

Advances to suppliers

 

11,661

 

11,932

   

Amounts due from related parties

 

28,012

 

27,883

   

Inventories

 

36,401

 

35,439

   

Prepaid expenses

 

569

 

644

   

Income tax recoverable

 

4,488

 

609

   

Deferred tax assets

 

6,659

 

4,450

 

Total current assets

 

827,310

 

805,259

           
 

Non-current assets

       
             
   

Restricted cash

 

402

 

3,813

   

Prepaid expenses

 

13

 

18

   

Property, plant and equipment, net

 

79,938

 

79,879

   

Prepaid land leases

 

10,773

 

11,040

   

Acquired intangible assets, net

 

856

 

1,019

   

Investments in equity investees

 

18,714

 

17,728

   

Investments in cost investees

 

4,108

 

4,220

   

Goodwill

 

59,847

 

59,754

   

Deferred tax assets

 

2,195

 

2,771

 

Total non-current assets

 

176,846

 

180,242

           
 

Total assets

 

1,004,156

 

985,501

             

LIABILITIES AND STOCKHOLDERS' EQUITY

       
 

Current liabilities

       
   

Short-term bank loans

 

3,051

 

3,763

   

Current portion of long-term loans

 

6,833

 

6,791

   

Accounts payable

 

106,833

 

105,639

   

Construction costs payable

 

647

 

664

   

Deferred revenue

 

82,004

 

102,799

   

Accrued payroll and related expenses

 

13,193

 

9,284

   

Income tax payable

 

4,917

 

4,032

   

Warranty liabilities

 

6,782

 

6,829

   

Other tax payables

 

18,069

 

19,389

   

Accrued liabilities

 

44,439

 

32,227

   

Amounts due to related parties

 

1,645

 

1,263

   

Deferred tax liabilities

 

8,913

 

8,161

 

Total current liabilities

 

297,326

 

300,841

           
 

Non-current liabilities

       
             
   

Long-term loans

 

20,508

 

20,535

   

Deferred tax liabilities

 

59

 

63

   

Long-term warranty liabilities

 

3,578

 

3,786

             
 

Total non-current liabilities

 

24,145

 

24,384

           
 

Total liabilities

 

321,471

 

325,225

             
 

Commitments and contingencies

 

-

 

-

             
 

Stockholders' equity:

       
   

Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 59,598,099 and 59,028,099 shares issued and outstanding as of June 30, 2016 and March 31, 2016, respectively

 

60

 

59

   

Additional paid-in capital

 

215,403

 

209,742

   

Statutory reserves

 

36,533

 

36,590

   

Retained earnings

 

430,627

 

397,158

   

Accumulated other comprehensive income

 

(8,467)

 

6,938

 

Total Hollysys Automation Technologies Ltd. stockholder's equity

 

674,156

 

660,276

             
   

Noncontrolling interests

 

8,529

 

9,789

 

Total equity

 

682,685

 

660,276

             
 

Total liabilities and equity

$

1,004,156

$

985,501

               

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

     

Three months ended
Jun 30, 2016

 

Fiscal year ended
Jun 30, 2016

     

(Unaudited)

 

(Unaudited)

Cash flows from operating activities:

       
 

Net income

$

34,718

$

123,504

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

       
 

Depreciation of property, plant and equipment

 

1,077

 

6,266

 

Amortization of prepaid land leases

 

82

 

281

 

Amortization of intangible assets

 

160

 

814

 

Allowance for doubtful accounts

 

4,155

 

10,918

 

Loss on disposal of property, plant and equipment

 

25

 

224

 

Share of net income from equity investees

 

(1,347)

 

(7,834)

 

Share based compensation expenses

 

594

 

3,860

 

Deferred income tax benefit

 

(1,022)

 

(462)

 

Acquisition-related consideration adjustments

-

 

(1,745)

 

Accretion of convertible bond discount

 

57

 

230

 

Fair value adjustments of a bifurcated derivative

 

93

 

93

Changes in operating assets and liabilities:

       
 

Accounts receivable

 

(6,063)

 

(16,409)

 

Costs and estimated earnings in excess of billings

 

(8,628)

 

(36,971)

 

Inventories 

 

(1,939)

 

(4,607)

 

Advances to suppliers

 

(94)

 

2,497

 

Other receivables 

 

(1,146)

 

(2,481)

 

Deposits and other assets

 

970

 

(674)

 

Due from related parties

 

(985)

 

8,226

 

Accounts payable

 

3,351

 

8,272

 

Deferred revenue

 

(18,558)

 

(47,637)

 

Accruals and other payable

 

7,976

 

5,015

 

Due to related parties

 

319

 

351

 

Income tax payable

 

(3,105)

 

(4,558)

 

Other tax payables

 

(825)

 

(436)

 

Net cash provided by operating activities

 

9,865

 

46,737

           

Cash flows from investing activities:

       
 

Time deposits placed with banks

 

(25,829)

 

(107,118)

 

Purchases of property, plant and equipment

 

(2,666)

 

(7,887)

 

Proceeds from disposal of property, plant and equipment

 

45

 

74

 

Maturity of time deposits

 

39,568

 

112,013

 

Proceeds from sale of shares of a subsidiary

 

464

 

464

 

Net cash provided by (used in) investing activities

 

11,582

 

(2,454)

           

Cash flows from financing activities:

       
 

Proceeds from short-term bank loans

 

-

 

4,138

 

Repayments of short-term bank loans

 

(633)

 

(17,020)

 

Proceeds from long-term bank loans

 

-

 

2,606

 

Repayments of long-term bank loans

 

-

 

(9,681)

 

Proceeds from exercise of options

 

5,067

 

5,441

 

Proceeds from issuance of shares of a subsidiary

 

7,736

 

7,736

 

Net cash provided by (used in)  financing activities

 

12,170

 

(6,780)

           
 

Effect of foreign exchange rate changes

 

(3,999)

 

(16,242)

 

Net increase in cash and cash equivalents

$

29,618

$

21,261

           
 

Cash and cash equivalents, beginning of period

$

199,477

$

207,834

 

Cash and cash equivalents, end of period

 

229,095

 

229,095

 

 

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

 

Fiscal year ended

     

Jun 30,

 

Jun 30,

     

2016

 

2015

 

2016

 

2015

     

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

                   

Cost of integrated contracts

$

83,275

$

77,712

$

310,545

$

300,332

Less: Amortization of acquired intangible assets

 

165

 

368

 

818

 

4,454

Non-GAAP cost of integrated contracts

$

83,110

$

77,344

$

309,727

$

295,878

                   

General and administrative expenses

$

14,129

$

15,395

$

45,832

$

50,784

Less: Share-based compensation expenses

 

594

 

853

 

3,860

 

2,492

Non-GAAP general and administrative expenses

$

13,535

$

14,542

$

41,972

$

48,292

                   

Other income (expenses), net

$

933

$

(2,260)

$

4,061

$

2,601

Add: acquisition-related incentive share contingent consideration fair value adjustment

 

-

 

2,611

 

(1,745)

 

(368)

Non-GAAP other income, net

$

933

$

351

$

2,316

$

2,233

                   

Interest expenses

$

(490)

$

(1,112)

$

(1,404)

$

(1,821)

Add:

               
 

acquisition-related cash consideration adjustments

-

 

-

 

-

 

201

 

convertible bond related fair value adjustment

 

93

 

521

 

93

 

35

Non-GAAP interest expenses

$

(397)

$

(591)

$

(1,311)

$

(1,585)

                   

Net income attributable to Hollysys Automation Technologies Ltd.

$

33,413

$

18,679

$

118,471

$

96,529

Add:

               
 

Share-based compensation expenses

 

594

 

853

 

3,860

 

2,492

 

Amortization of acquired intangible assets

 

165

 

368

 

818

 

4,454

 

Acquisition-related consideration adjustment

 

-

 

2,611

 

(1,745)

 

(167)

 

convertible bond related fair value adjustment

 

93

 

521

 

93

 

35

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

$

34,265

$

23,032

$

121,497

 

103,343

                   
 

Weighted average number of basic ordinary shares

59,511,267

 

58,986,296

 

59,170,050

 

58,612,596

 

Weighted average number of diluted ordinary shares

60,675,636

 

60,636,960

 

60,611,456

 

60,134,203

Non-GAAP basic earnings per share

$

0.58

$

0.39

$

2.05

$

1.76

Non-GAAP diluted earnings per share

$

0.57

$

0.38

$

2.02

$

1.72

                         

 

SOURCE Hollysys Automation Technologies, Ltd


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