Hollysys Automation Technologies Reports Unaudited Financial Results for the First Half Year and the Second Quarter Ended December 31, 2016

Feb 14, 2017

First Half Year of Fiscal Year 2017 Financial Highlights

- Non-GAAP net income attributable to Hollysys was $33.8 million, a decrease of 47.3% compared to the comparable prior year period.

- Total revenues were $202.7 million, a decrease of 27.1% compared to the comparable prior year period.

- Non-GAAP gross margin was at 29.2%, compared to 39.6% for the comparable prior year period.

- Non-GAAP diluted EPS were at $0.56, a decrease of 47.2% compared to the comparable prior year period.

- Net cash provided by operating activities was $54.1 million for the current period.

- DSO of 203 days, compared to 158 days for the comparable prior year period.

- Inventory turnover days of 48 days, compared to 38 days for the comparable prior year period.

Second Quarter of Fiscal Year 2017 Financial Highlights

- Non-GAAP net income attributable to Hollysys was $11.0 million, a decrease of 70.1% compared to the comparable prior year period.

- Total revenues were $99.1 million, a decrease of 35.1% compared to the comparable prior year period.

- Non-GAAP gross margin was at 28.7%, compared to 39.8% for the comparable prior year period.

- Non-GAAP diluted EPS were at $0.18, a decrease of 70.5% compared to the comparable prior year period.

- Net cash provided by operating activities was $36.2 million for the current quarter.

- DSO of 208 days, compared to 138 days for the comparable prior year period.

- Inventory turnover days of 52 days, compared to 34 days for the comparable prior year period.

BEIJING, Feb 14, 2017 /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 2017 the second quarter ended on Dec 31, 2016 (see attached tables).

Industrial Automation (IA) has been developing to the short-term target, which was trying to alleviate continuously declining. Through actively traced our customers' new demands under adjusting circumstance, we got several significant contracts. For example, in power, we signed the contract to provide products for Yuneng Hengshan 2X1000MW power units, Datang Pingluo 2X660MW power units and Yangmei Xishangzhuang 2X660MW power units. In chemical, we provided DCS and Batch for BASF chemical company. In petrochemical, we won the contract to provide products to a halite project which will produce 1 million tons soda ash per year. In nuclear power, we continued to provide DCS for Hongyanhe #5 & #6 units and Tianwan #5 & #6 units.

For Factory Automation (FA), after by changing strategies from selling products to provide solutions to customers we did have some progress such as Hair project to help the customer improve the level of automation and Intelligence of their Tianjin-based factory which focuses on wash machine, integrated internal resources to improve the production. Others new sub-vertical trials such as Hai Di Lao Hot Pot project helped the customer to improve their efficiency of hot pot based making in the restaurant which is the first food area project under FA customizations. We also provide supervisory control and data analyzing software integration solutions to "China Model Factory" jointly established by Tsinghua University and McKinsey & Company. The project is to raise the level of factory's productivity, digitalization and intelligence in China. Hollysys aim to make each project into a demonstration project and create values to the customers.

In high-speed railway, due to the negative impact from delaying ATP contract, the performance of high-speed railway for this quarter was less than satisfactory. In addition, since it is the first year for the 13th five-year-plan, the infrastructure of new planned railway is just started. Therefore, in short term, the performance of high speed rail segment was fluctuated. However, from long run, according to the mid and long term plan of high-speed railway and with the increase of the after sell and new products launching, we think the sector will recover in future. For subway, we stick to our strategy to expand new cities. For this quarter, we signed the contract to provide SCADA for Wuhan Subway Line 21.

In the mechanical and electrical installation services, although Concord and Bond are facing some difficulties because of the local political and economic uncertainties in South East Asia and Middle East area, they are still hard working to develop businesses. For example, Concord won the contract to provide SCADA for Macau LRT phase 1. As one of the strategies to expand overseas market, we will ensure a healthy development of Concord and Bond and take use of their advantages such as good customer relations and sales channels to find more international opportunities.

First Half Year and the Second Quarter Ended December 31, 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

 

Six months ended

   

Dec 31,
2016

 Dec 31,
2015

%
Change

 

Dec 31,
2016

 Dec 31,
2015

%
Change

                 

Revenues

$

99,137

152,773

(35.1)%

$

202,679

277,864

(27.1)%

    Integrated contract revenue

$

89,535

134,159

(33.3)%

$

182,600

245,172

(25.5)%

    Products sales

$

6,057

15,393

(60.7)%

$

14,370

26,835

(46.5)%

    Service rendered

$

3,545

3,221

10.1%

$

5,709

5,857

(2.5)%

Cost of revenues

$

70,704

91,964

(23.1)%

$

143,588

167,875

(14.5)%

Gross profit

$

28,433

60,809

(53.2)%

$

59,091

109,989

(46.3)%

Total operating expenses

$

17,236

19,151

(10.0)%

$

30,543

37,305

(18.1)%

    Selling

$

6,307

7,096

(11.1)%

$

11,858

13,720

(13.6)%

    General and administrative

$

10,819

10,836

(0.2)%

$

20,493

19,752

3.8%

    Research and development

$

8,293

11,890

(30.3)%

$

15,990

19,600

(18.4)%

    VAT refunds and government subsidies

$

(8,183)

(10,671)

(23.3)%

$

(17,798)

(15,767)

12.9%

Income from operations

$

11,197

41,658

(73.1)%

$

28,548

72,684

(60.7)%

Other income, net

$

866

1,391

(37.7)%

$

1,260

1,777

(29.1)%

Foreign exchange loss

$

(715)

(850)

(15.9)%

$

(635)

(814)

(22.0)%

Share of net income (losses) of equity
     investees

$

970

(217)

(547.0)%

$

2,279

77

2859.7%

Gains on dilution and divestment of the
     Company's interests in HollyCon

$

-

-

-

$

6,005

-

-

Interest income

$

512

1,102

(53.5)%

$

1,257

2,839

(55.7)%

Interest expenses

$

(271)

(384)

(29.4)%

$

(400)

(753)

(46.9)%

Income tax expenses

$

1,559

5,128

(69.6)%

$

4,570

9,783

(53.3)%

Net income attributable to noncontrolling
    interests

$

(9)

785

(101.1)%

$

(13)

1,940

(100.7)%

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

$

11,009

36,787

(70.1)%

$

33,757

64,087

(47.3)%

Non-GAAP basic EPS

$

0.18

0.62

(71.0)%

$

0.56

1.08

(48.1)%

Non-GAAP diluted EPS

$

0.18

0.61

(70.5)%

$

0.56

1.06

(47.2)%

                 

Share-based compensation expenses

$

918

1,243

(26.1)%

$

1,837

2,137

(14.0)%

Amortization of acquired intangible assets

$

122

230

(47.0)%

$

263

487

(46.0)%

Acquisition-related incentive share contingent
     consideration

$

-

2,366

(100.0)%

$

-

(1,745)

(100.0)%

GAAP Net income attributable to Hollysys
     Automation Technologies Ltd.

$

9,969

32,948

(69.7)%

$

31,657

63,208

(49.9)%

GAAP basic EPS

$

0.17

0.56

(69.6)%

$

0.53

1.07

(50.5)%

GAAP diluted EPS

$

0.17

0.55

(69.1)%

$

0.52

1.05

(50.5)%

                 

Basic weighted average common shares
     outstanding

 

60,070,218

59,071,520

1.7%

 

59,976,132

59,069,316

1.5%

Diluted weighted average common shares
     outstanding

 

60,895,404

60,619,909

0.5%

 

61,023,669

60,632,435

0.6%

Operational Results Analysis for the Second Quarter Ended December 31, 2016

Comparing to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31, 2016 decreased from $152.8 million to $99.1 million, representing a decrease of 35.1%. Broken down by the revenue types, services revenue increased by 10.1% to $3.5 million, integrated contracts revenue decreased by 33.3% to $89.5 million, and products sales revenue decreased by 60.7% to $6.1 million. In July 2016, the company's interests in Hollycon were diluted from 51.0% to 30.0% and the Company lost the control of Hollycon. As a result, Hollycon's financials would not be included in the Company's consolidated financials from July 2016 on. If Hollycon's revenue was excluded from the comparable figure for the second quarter of the prior fiscal year, the products sales revenue for the three months ended December 31, 2016 should be decreased by 42.2%.

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,

   

2016

 

2015

 

2016

 

2015

   

$

% to Total Revenue

 

$

% to Total Revenue

 

$

% to Total Revenue

 

$

% to Total Revenue

Industrial Automation

 

45,792

46.2%

 

54,276

35.6%

 

90,831

44.8%

 

103,742

37.4%

Rail Transportation Automation

 

23,263

23.5%

 

63,878

41.8%

 

56,297

27.8%

 

118,209

42.5%

Mechanical and Electrical Solution

 

30,082

30.3%

 

29,710

19.4%

 

55,462

27.4%

 

45,268

16.3%

Miscellaneous

 

-

-

 

4,909

3.2%

 

89

0.0%

 

10,645

3.8%

Total

 

99,137

100.0%

 

152,773

100.0%

 

202,679

100.0%

 

277,864

100.0%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 28.7% for the three months ended December 31, 2016, as compared to 39.8% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 24.3%, 72.1% and 64.9% for the three months ended December 31, 2016, as compared to 37.2%, 57.4% and 65.2% 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 28.6% for the three months ended December 31, 2016, as compared to 39.7% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 24.2%, 72.1% and 64.9% for the three months ended December 31, 2016, as compared to 37.0%, 57.4% and 65.2% for the same period of the prior year respectively.

Selling expenses were $6.3 million for the three months ended December 31, 2016, representing a decrease of $0.8 million or 11.1% compared to $7.1 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 6.4% and 4.6% for the three months ended December 31, 2016, and 2015, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $10.8 million and $10.8 million for the quarter ended December 31, 2016, and 2015, respectively. Presented as a percentage of total revenues, non-GAAP G&A expenses were 10.9% and 7.1% for quarters ended December 31, 2016 and 2015 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $11.7 million and $12.1million for the three months ended December 31, 2016 and 2015, respectively.

Research and development expenses were $8.3 million for the three months ended December 31, 2016, representing a decrease of $3.6 million or 30.3% compared to $11.9 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 8.4% and 7.8% for the quarter ended December 31, 2016 and 2015, respectively.

The VAT refunds and government subsidies were $8.2 million for three months ended December 31, 2016, as compared to $10.7 million for the same period in the prior year, representing a $2.5million or 23.3% decrease, which was primarily due to decrease of the VAT refunds of $3.3 million.

The income tax expenses and the effective tax rate were $1.6 million and 13.5% for the three months ended December 31, 2016, as compared to $5.1 million and 13.2% for comparable prior year period.

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 $11.0 million or $0.18 per diluted share based on 60.9 million shares outstanding for the three months ended December 31, 2016. This represents a 70.5% decrease over the $25.8 million or $0.43 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 $10.0 million or $0.17 per diluted share representing a decrease of 69.7% over the $32.9 million or $0.55 per diluted share reported in the comparable prior year period.  

Contracts and Backlog Highlights

Hollysys achieved $110.2 million new contracts for the three months ended December 31, 2016. And the backlog as of December 31, 2016 was $499.4 million. The detailed breakdown of the new contracts and backlog by segments is shown below:

(In USD thousands)

 

New contracts achieved

 

Backlog

   

for the three months

 ended Dec 31, 2016

 

as of Dec 31, 2016

   

$

% to Total
Contract

 

$

% to Total
Backlog

Industrial Automation

 

46,479

42.1%

 

119,764

24.0%

Rail Transportation

 

47,338

43.0%

 

225,404

45.1%

Mechanical and Electrical Solutions

 

16,387

14.9%

 

154,191

30.9%

Total

 

110,204

100.0%

 

499,359

100.0%

Cash Flow Highlights

For the three months ended December 31, 2016, the total net cash outflow was $2.2 million. The net cash provided by operating activities was $36.2 million. The net cash used in investing activities was $30.0 million, mainly consisted of $54.4 million time deposits placed with banks, which was partially offset by $24.6 million maturity of time deposits. The net cash used in financing activities was $3.9 million, mainly consisted of $12.0 million payment of dividends, which was partially offset by $5.5 million proceeds from long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $285.4 million, $260.9 million, and $275.6 million as of December 31, 2016, September 30, 2016 and December 31, 2015, respectively. As of December 31, 2016, the company held $210.1 million in cash and cash equivalents and $75.3 million in time deposits with original maturities over three months.

For the three months ended December 31, 2016, DSO was 208 days, as compared to 138 days for the comparable prior year period and 207 days for the last quarter; and inventory turnover was 52 days, as compared to 34 days for the comparable prior year period and 48 days for the last quarter.

Outlook for FY 2017

The management concluded, "Consideration on the negative impact from delaying ATP contract, we would like to adjust the guidance for fiscal year 2017 with revenue in the range of $480 million to $520 million and non-GAAP net income in the range of $90 million to $100 million."

Conference Call

The Company will host a conference call at 8:00 p.m. U.S. Eastern Time on February 14, 2017 / 9:00 a.m. Beijing Time on February 15, 2017, to discuss the financial results for the fiscal year 2017 second quarter ended on December 31, 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 5456927.

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
Dec 31,

 

Six months ended
Dec 31,

   

2016

 

2015

 

2016

 

2015

   

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Net revenues

               

Integrated contract revenue

$

89,535

$

134,159

$

182,600

$

245,172

Products sales

 

6,057

 

15,393

 

14,370

 

26,835

Revenue from services

 

3,545

 

3,221

 

5,709

 

5,857

Total net revenues

 

99,137

 

152,773

 

202,679

 

277,864

                 

Cost of integrated contracts

 

67,896

 

84,520

 

137,810

 

154,349

Cost of products sold

 

1,687

 

6,554

 

4,143

 

11,982

Costs of services rendered

 

1,243

 

1,120

 

1,898

 

2,031

Gross profit

 

28,311

 

60,579

 

58,828

 

109,502

                 

Operating expenses

               

Selling

 

6,307

 

7,096

 

11,858

 

13,720

General and administrative

 

11,737

 

12,079

 

22,330

 

21,889

Research and development

 

8,293

 

11,890

 

15,990

 

19,600

VAT refunds and government subsidies

 

(8,183)

 

(10,671)

 

(17,798)

 

(15,767)

Total operating expenses

 

18,154

 

20,394

 

32,380

 

39,442

                 

Income from operations

 

10,157

 

40,185

 

26,448

 

70,060

                 

Other income (expense), net

 

866

 

(975)

 

1,260

 

3,522

Foreign exchange loss

 

(715)

 

(850)

 

(635)

 

(814)

Share of net income (losses) of equity investees

 

970

 

(217)

 

2,279

 

77

Gains on dilution and divestment of the Company's interests
     in HollyCon

-

 

-

 

6,005

 

-

Interest income

 

512

 

1,102

 

1,257

 

2,839

Interest expenses

 

(271)

 

(384)

 

(400)

 

(753)

Income before income taxes

 

11,519

 

38,861

 

36,214

 

74,931

                 

Income taxes expenses

 

1,559

 

5,128

 

4,570

 

9,783

Net income

 

9,960

 

33,733

 

31,644

 

65,148

                 

Net (loss) income attributable to noncontrolling interests

(9)

 

785

 

(13)

 

1,940

Net income attributable to Hollysys Automation
Technologies Ltd.

$

9,969

$

32,948

$

31,657

$

63,208

                 

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

             

Translation adjustments

 

(29,683)

 

(9,250)

 

(42,108)

 

(38,705)

Comprehensive income

 

(19,723)

 

24,483

 

(10,464)

 

26,443

                 

Less: comprehensive (loss) income attributable to
     noncontrolling interests

(11)

 

818

 

(8,518)

 

1,706

Comprehensive income attributable to Hollysys
Automation Technologies Ltd.

$

(19,712)

$

23,665

$

(1,946)

$

24,737

                 

Net income per ordinary share:

               

Basic

 

0.17

 

0.56

 

0.53

 

1.07

Diluted

 

0.17

 

0.55

 

0.52

 

1.05

Shares used in income per share computation:

               

Weighted average number of ordinary shares

60,070,218

 

59,071,520

 

59,976,132

 

59,069,316

Weighted average number of diluted ordinary shares

60,895,404

 

60,619,909

 

61,023,669

 

60,632,435

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

             
       

Dec 31,

 

Sep 30,

       

2016

 

2016

       

(Unaudited)

 

(Unaudited)

ASSETS

       
 

Current assets

       
   

Cash and cash equivalents

$

210,115

$

212,284

   

Time deposits with original maturities over three months

 

75,282

 

48,570

   

Restricted cash

 

42,802

 

43,653

   

Accounts receivable, net of allowance for doubtful accounts of $43,017and $42,362
     as of December 31,2016 and September 30, 2016, respectively

 

219,173

 

239,990

   

Costs and estimated earnings in excess of billings, net of allowance for doubtful
     accounts of $6,355 and $6,980 as of December 31, 2016 and September 30,
     2016, respectively

 

147,097

 

163,714

   

Other receivables, net of allowance for doubtful accounts of $1,218 and $1,266 as of
     December 31, 2016 and September 30, 2016, respectively

 

11,999

 

16,646

   

Advances to suppliers

 

10,027

 

11,674

   

Amounts due from related parties

 

27,299

 

28,411

   

Inventories

 

40,001

 

40,610

   

Prepaid expenses

 

754

 

513

   

Income tax recoverable

 

4,497

 

6,415

   

Deferred tax assets

 

10,103

 

7,191

 

Total current assets

 

799,149

 

819,671

           
 

Non-current assets

       
   

Restricted cash

 

481

 

1,271

   

Prepaid expenses

 

8

 

3

   

Property, plant and equipment, net

 

78,933

 

81,076

   

Prepaid land leases

 

10,026

 

10,608

   

Acquired intangible assets, net

 

524

 

706

   

Investments in equity investees

 

33,951

 

34,375

   

Investments in cost investees

 

3,927

 

4,092

   

Goodwill

 

55,821

 

59,120

   

Deferred tax assets

 

1,526

 

2,185

 

Total non-current assets

 

185,197

 

193,436

           
 

Total assets

 

984,346

 

1,013,107

             

LIABILITIES AND STOCKHOLDERS' EQUITY

       
 

Current liabilities

       
   

Short-term bank loans

 

2,036

 

1,135

   

Current portion of long-term loans

 

9,860

 

6,566

   

Dividends payable

 

-

 

11,973

   

Accounts payable

 

95,544

 

104,679

   

Deferred revenue

 

103,062

 

89,314

   

Accrued payroll and related expenses

 

15,243

 

13,017

   

Income tax payable

 

6,852

 

6,802

   

Warranty liabilities

 

6,174

 

6,308

   

Other tax payables

 

6,837

 

14,262

   

Accrued liabilities

 

35,632

 

41,981

   

Amounts due to related parties

 

2,357

 

1,516

   

Deferred tax liabilities

 

7,929

 

7,219

 

Total current liabilities

 

291,526

 

304,772

           
 

Non-current liabilities

       
   

Long-term loans

 

20,639

 

20,642

   

Deferred tax liabilities

 

822

 

908

   

Warranty liabilities

 

3,473

 

3,509

 

Total non-current liabilities

 

24,934

 

25,059

           
 

Total liabilities

 

316,460

 

329,831

             
 

Commitments and contingencies

 

-

 

-

             
 

Stockholders' equity:

       
   

Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
     60,259,599 and 59,863,599 shares issued and outstanding as of December 31,
     2016 and September 30, 2016, respectively

 

60

 

60

   

Additional paid-in capital

 

223,041

 

218,682

   

Statutory reserves

 

41,299

 

36,561

   

Retained earnings

 

445,546

 

440,341

   

Accumulated other comprehensive income

 

(42,071)

 

(12,390)

 

Total Hollysys Automation Technologies Ltd. stockholder's equity

 

667,875

 

683,254

             
   

Noncontrolling interests

 

11

 

22

 

Total equity

 

667,886

 

683,276

             
 

Total liabilities and equity

$

984,346

$

1,013,107

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

     

Three months ended

 

Six months ended

Dec 31, 2016

 

Dec 31, 2016

     

(Unaudited)

 

(Unaudited)

Cash flows from operating activities:

       
 

Net income

$

9,960

$

31,644

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

       
 

Depreciation of property, plant and equipment

 

1,514

 

2,866

 

Amortization of prepaid land leases

 

46

 

94

 

Amortization of intangible assets

 

146

 

286

 

Allowance for doubtful accounts

 

2,023

 

3,260

 

Loss on disposal of property, plant and equipment

 

5

 

26

 

Share of net income from equity investees

 

(970)

 

(2,279)

 

Gains on dilution and divestment of the Company's interests in HollyCon

 

-

 

(6,005)

 

Share based compensation expenses

 

918

 

1,836

 

Deferred income tax benefit

 

(1,827)

 

(3,195)

 

Accretion of convertible bond discount

 

277

 

334

Changes in operating assets and liabilities:

       
 

Accounts receivable

 

8,692

 

1,232

 

Costs and estimated earnings in excess of billings

 

9,770

 

34,267

 

Inventories 

 

(996)

 

(6,070)

 

Advances to suppliers

 

1,211

 

954

 

Other receivables 

 

4,067

 

571

 

Deposits and other assets

 

(250)

 

(17,306)

 

Due from related parties

 

(23)

 

(534)

 

Accounts payable

 

(4,504)

 

(2,554)

 

Deferred revenue

 

17,909

 

26,795

 

Accruals and other payable

 

(7,624)

 

(4,897)

 

Due to related parties

 

930

 

919

 

Income tax payable

 

1,941

 

2,387

 

Other tax payables

 

(7,020)

 

(10,558)

 

Net cash provided by operating activities

 

36,195

 

54,073

           

Cash flows from investing activities:

       
 

Time deposits placed with banks

 

(54,405)

 

(74,799)

 

Purchases of property, plant and equipment

 

(167)

 

(434)

 

Maturity of time deposits

 

24,610

 

27,933

 

Proceeds from disposal of property, plant and equipment

 

-

 

34

 

Cash reduced upon deconsolidation of subsidiary

 

-

 

(16,681)

 

Net cash used in investing activities

 

(29,962)

 

(63,947)

           

Cash flows from financing activities:

       
 

Proceeds from short-term bank loans

 

1,956

 

3,108

 

Repayments of short-term bank loans

 

(889)

 

(3,917)

 

Proceeds from long-term bank loans

 

5,518

 

5,665

 

Repayments of long-term bank loans

 

(1,919)

 

(2,149)

 

Proceeds from exercise of options

 

3,442

 

5,802

 

Payment of Dividends

 

(11,973)

 

(11,973)

 

Net cash provided by financing activities

 

(3,865)

 

(3,464)

           
 

Effect of foreign exchange rate changes

 

(4,537)

 

(5,642)

 

Net increase in cash and cash equivalents

$

(2,169)

$

(18,980)

           
 

Cash and cash equivalents, beginning of period

$

212,284

$

229,095

 

Cash and cash equivalents, end of period

 

210,115

 

210,115

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,

     

2016

 

2015

 

2016

 

2015

     

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

                   

Cost of integrated contracts

$

67,896

$

84,520

$

137,810

$

154,349

Less: Amortization of acquired intangible assets

 

122

 

230

 

263

 

487

Non-GAAP cost of integrated contracts

$

67,774

$

84,290

$

137,547

$

153,862

                   

General and administrative expenses

$

11,737

$

12,079

$

22,330

$

21,889

Less: Share-based compensation expenses

 

918

 

1,243

 

1,837

 

2,137

Non-GAAP general and administrative expenses

$

10,819

$

10,836

$

20,493

$

19,752

                   

Other income, net

$

866

$

(975)

$

1,260

$

3,522

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

 

-

 

2,366

 

-

 

(1,745)

Non-GAAP other income, net

$

866

$

1,391

$

1,260

$

1,777

                   

Net income attributable to Hollysys
Automation Technologies Ltd.

$

9,969

$

32,948

$

31,657

$

63,208

Add:

               

   Share-based compensation expenses

   

918

 

1,243

 

1,837

 

2,137

   Amortization of acquired intangible assets

   

122

 

230

 

263

 

487

   Acquisition-related consideration adjustment

   

-

 

2,366

 

-

 

(1,745)

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

$

11,009

$

36,787

$

33,757

$

64,087

                   

   Weighted average number of basic ordinary shares

   

60,070,218

 

59,071,520

 

59,976,132

 

59,069,316

   Weighted average number of diluted ordinary shares

   

60,895,404

 

60,619,909

 

61,023,669

 

60,632,435

Non-GAAP basic earnings per share

$

0.18

$

0.62

$

0.56

$

1.08

Non-GAAP diluted earnings per share

$

0.18

$

0.61

$

0.56

$

1.06

 

SOURCE Hollysys Automation Technologies, Ltd


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