Hollysys Automation Technologies Reports Unaudited Financial Results for the First Nine Months and the Third Quarter Ended March 31, 2017

May 11, 2017

First Nine Months of Fiscal Year 2017 Financial Highlights

- Non-GAAP net income attributable to Hollysys was $47.5 million, a decrease of 45.6% compared to the comparable prior year period.

- Total revenues were $294.0 million, a decrease of 25.9% compared to the comparable prior year period.

- Non-GAAP gross margin was at 29.6%, compared to 37.2% for the comparable prior year period.

- Non-GAAP diluted EPS were at $0.79, a decrease of 45.5% compared to the comparable prior year period.

- Net cash provided by operating activities was $41.1 million for the current period.

- DSO of 212 days, compared to 169 days for the comparable prior year period.

- Inventory turnover days of 54 days, compared to 38 days for the comparable prior year period.

Third Quarter of Fiscal Year 2017 Financial Highlights

Non-GAAP net income attributable to Hollysys was $13.7 million, a decrease of 40.7% compared to the comparable prior year period.

- Total revenues were $91.3 million, a decrease of 23.1% compared to the comparable prior year period.

- Non-GAAP gross margin was at 30.7%, compared to 31.7% for the comparable prior year period.

- Non-GAAP diluted EPS were at $0.22, a decrease of 42.1% compared to the comparable prior year period.

- Net cash used in operating activities was $12.5 million for the current quarter.

- DSO of 219 days, compared to 181 days for the comparable prior year period.

Inventory turnover days of 61 days, compared to 40 days for the comparable prior year period.

BEIJING, May 11, 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 third quarter ended on March 31, 2017 (see attached tables).

With market stabilization in parts of process industries, the performance of Industrial Automation has been getting better, especially recent order trend reflecting a positive momentum. 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 Sichuan Jiangyou 2X1000MW power units, Shanxi Yangmei 2X660MW power units. In chemical, we provided DCS and SIS for producing polycarbonate of Luxi Chemical Company. In petrochemical, we won the contract to provide DCS to Shengli oilfield Gudong production plant. In nuclear power, we are continuing providing DCS for Hongyanhe #5 & #6 units and Tianwan #5 & #6 units.

For Factory Automation, after changing strategies from selling products to providing 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 and Hai Di Lao Hot Pot project to help the customer improve their efficiency of hot pot based making in the restaurant. Hollysys aims to make each project into a demonstration project to create values to the customers and explore more opportunities in sub-industries.

In high-speed railway, we won 106 C2-ATPs & 10 C3-ATPs but since the customer is changing the procurement timeline, it increases uncertainty and volatility of the performance of high-speed railway. In addition, since it is the beginning of the 13th five-year-plan, the finished infrastructure of new planned railway is limited. Therefore, in short term, the performance of high speed rail segment was unfavorable. 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 replacement, as well as new products launching, we expect the sector will gradually recover in future. For subway, we won the contract to provide power SCADA for Dalian intercity line (from Jinzhou to Pulandianwan).

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 working hard to develop businesses. 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 Nine Months and the Third Quarter Ended March 31, 2017 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


Nine months ended



Mar 31,
2017

 Mar 31,
2016

%
Change


Mar 31,
2017

 Mar 31,
2016

%
Change










Revenues

$

91,303

118,793

(23.1)%

$

293,981

396,657

(25.9)%

    Integrated contract revenue

$

78,167

99,757

(21.6)%

$

260,766

344,929

(24.4)%

    Products sales

$

9,746

16,157

(39.7)%

$

24,116

42,992

(43.9)%

    Service rendered

$

3,390

2,879

17.7%

$

9,099

8,736

4.2%

Cost of revenues

$

63,238

81,126

(22.0)%

$

206,826

249,000

(16.9)%

Gross profit

$

28,065

37,667

(25.5)%

$

87,155

147,657

(41.0)%

Total operating expenses

$

15,300

17,986

(14.9)%

$

45,843

55,292

(17.1)%

    Selling

$

5,961

5,237

13.8%

$

17,819

18,957

(6.0)%

    General and administrative

$

8,754

8,685

0.8%

$

29,247

28,438

2.8%

    Research and development

$

6,093

8,369

(27.2)%

$

22,083

27,969

(21.0)%

    VAT refunds and government subsidies

$

(5,508)

(4,305)

27.9%

$

(23,306)

(20,072)

16.1%

Income from operations

$

12,765

19,681

(35.1)%

$

41,312

92,365

(55.3)%

Other income (expenses), net

$

571

(394)

244.9%

$

1,831

1,383

32.4%

Foreign exchange gains

$

1,191

1,543

(22.8)%

$

132

729

(81.9)%

Share of net income of equity investees

$

2,390

6,409

(62.7)%

$

4,670

6,486

(28.0)%

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

$

-

-

-

$

6,429

-

-

Dividend income from cost investees


449

-

-


449

-

-

Interest income

$

1,173

1,212

(3.2)%

$

2,431

4,051

(40.0)%

Interest expenses

$

(395)

(161)

145.3%

$

(795)

(914)

(13.0)%

Income tax expenses

$

4,433

3,358

32.0%

$

9,003

13,140

(31.5)%

Net income attributable to noncontrolling
     interests

$

(5)

1,787

(100.3)%

$

(17)

3,727

(100.5)%

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

$

13,716

23,145

(40.7)%

$

47,473

87,233

(45.6)%

Non-GAAP basic EPS

$

0.23

0.39

(41.0)%

$

0.79

1.48

(46.6)%

Non-GAAP diluted EPS

$

0.22

0.38

(42.1)%

$

0.79

1.45

(45.5)%










Share-based compensation expenses

$

(1,907)

1,128

(269.1)%

$

(70)

3,265

(102.1)%

Amortization of acquired intangible assets

$

-

166

(100.0)%

$

263

654

(59.8)%

Acquisition-related incentive share
     contingent consideration

$

-

-

-

$

-

(1,745)

(100.0)%

GAAP Net income attributable to Hollysys
     Automation Technologies Ltd.

$

15,623

21,851

(28.5)%

$

47,280

85,059

(44.4)%

GAAP basic EPS

$

0.26

0.37

(29.7)%

$

0.79

1.44

(45.1)%

GAAP diluted EPS

$

0.26

0.36

(27.8)%

$

0.78

1.41

(44.7)%










Basic weighted average common shares
     outstanding


60,408,369

59,082,795

2.2%


60,112,281

59,061,277

1.8%

Diluted weighted average common shares
     outstanding


61,225,248

60,555,132

1.1%


60,909,201

60,594,356

0.5%

Operational Results Analysis for the Third Quarter Ended March 31, 2017

Comparing to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2017 decreased from $118.8 million to $91.3 million, representing a decrease of 23.1%. Broken down by the revenue types, services revenue increased by 17.7% to $3.4 million, integrated contracts revenue decreased by 21.6% to $78.2 million, and products sales revenue decreased by 39.7% to $9.7 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 third quarter of the prior fiscal year, the products sales revenue for the three months ended March 31, 2017 should be increased by 17.8%.

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

(In USD thousands)


Three months ended Mar 31,


Nine months ended Mar 31,


2017


2016


2017


2016


$

% to
Total
Revenue


$

% to
Total
Revenue


$

% to
Total
Revenue


$

% to
Total
Revenue

Industrial Automation

38,054

41.7%


38,026

32.0%


128,884

43.8%


141,769

35.7%

Rail Transportation Automation

34,788

38.1%


56,157

47.3%


91,085

31.0%


174,366

44.0%

Mechanical and Electrical
Solution

18,461

20.2%


17,089

14.4%


74,012

25.2%


62,357

15.7%

Miscellaneous

-

-


7,521

6.3%


-

-


18,165

4.6%

Total

91,303

100.0%


118,793

100.0%


293,981

100.0%


396,657

100.0%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 30.7% for the three months ended March 31, 2017, as compared to 31.7% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 24.4%, 65.2% and 78.8% for the three months ended March 31, 2017, as compared to 27.1%, 55.5% and 59.1% 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 30.7% for the three months ended March 31, 2017, as compared to 31.6% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 24.4%, 65.2% and 78.8% for the three months ended March 31, 2017, as compared to 26.9%, 55.5% and 59.1% for the same period of the prior year respectively.

Selling expenses were $6.0 million for the three months ended March 31, 2017, representing an increase of $0.8 million or 13.8% compared to $5.2 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 6.5% and 4.4% for the three months ended March 31, 2017, and 2016, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $8.8 million and $8.7 million for the quarter ended March 31, 2017, and 2016, respectively. Presented as a percentage of total revenues, non-GAAP G&A expenses were 9.6% and 7.3% for quarters ended March 31, 2017 and 2016 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $6.8 million and $9.8 million for the three months ended March 31, 2017 and 2016, respectively.

Research and development expenses were $6.1 million for the three months ended March 31, 2017, representing a decrease of $2.3 million or 27.2% compared to $8.4 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 6.7% and 7.0% for the quarter ended March 31, 2017 and 2016, respectively.

The VAT refunds and government subsidies were $5.5 million for three months ended March 31, 2017, as compared to $4.3 million for the same period in the prior year, representing a $1.2 million or 27.9% increase.

The income tax expenses and the effective tax rate were $4.4 million and 22.1% for the three months ended March 31, 2017, as compared to $3.4 million and 12.4% for comparable prior year period. The fluctuation of the effective tax rate was mainly due to the different pre-tax income mix with different tax rates, as the Company's subsidiaries apply to different tax rates. For the nine months ended March 31, 2017, the effective tax rate was 16.0%.

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 $13.7 million or $0.22 per diluted share based on 61.2 million shares outstanding for the three months ended March 31, 2017. This represents a 40.7% decrease over the $23.1 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 $15.6 million or $0.26 per diluted share representing a decrease of 28.5% over the $21.9 million or $0.36 per diluted share reported in the comparable prior year period.  

Contracts and Backlog Highlights

Hollysys achieved $108.4 million new contracts for the three months ended March 31, 2017. And the backlog as of March 31, 2017 was $509.8 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 Mar 31, 2017


as of Mar 31, 2017



$

% to Total
Contract


$

% to Total
Backlog

Industrial Automation


52,838

48.8%


127,614

25.0%

Rail Transportation


50,264

46.4%


238,508

46.8%

Mechanical and Electrical Solutions


5,254

4.8%


143,656

28.2%

Total


108,356

100.0%


509,778

100.0%

Cash Flow Highlights

For the three months ended March 31, 2017, the total net cash outflow was $27.6 million. The net cash used in operating activities was $12.5 million. The net cash used in investing activities was $10.0 million, mainly consisted of $22.8 million time deposits placed with banks, which was partially offset by $12.5 million maturity of time deposits. The net cash used in financing activities was $3.5 million, mainly consisted of $4.9 million repayments of long-term bank loans, which was partially offset by $1.1 million proceeds from short-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $268.8 million, $285.4 million, and $256.4 million as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively. As of March 31, 2017, the company held $182.5 million in cash and cash equivalents and $86.4 million in time deposits with original maturities over three months.

For the three months ended March 31, 2017, DSO was 219 days, as compared to 181 days for the comparable prior year period and 208 days for the last quarter; and inventory turnover was 61 days, as compared to 40 days for the comparable prior year period and 52 days for the last quarter.

Outlook for FY 2017

The management concluded, "Consideration on the volatility of high-speed railway performance, we would like to keep the guidance even though meeting potential challenges, 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 9:00 p.m. U.S. Eastern Time on May 11, 2017 / 9:00 a.m. Beijing Time on May 12, 2017, to discuss the financial results for the fiscal year 2017 third quarter ended on March 31, 2017 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 2982392.

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
Mar 31,


Nine months ended
Mar 31,



2017


2016


2017


2016



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net revenues









Integrated contract revenue

$

78,167

$

99,757

$

260,766

$

344,929

Products sales


9,746


16,157


24,116


42,992

Revenue from services


3,390


2,879


9,099


8,736

Total net revenues


91,303


118,793


293,981


396,657










Cost of integrated contracts


59,126


72,921


196,936


227,270

Cost of products sold


3,394


7,194


7,537


19,176

Costs of services rendered


718


1,177


2,616


3,208

Gross profit


28,065


37,501


86,892


147,003










Operating expenses









Selling


5,961


5,237


17,819


18,957

General and administrative


6,847


9,813


29,177


31,703

Research and development


6,093


8,369


22,083


27,969

VAT refunds and government subsidies


(5,508)


(4,305)


(23,306)


(20,072)

Total operating expenses


13,393


19,114


45,773


58,557










Income from operations


14,672


18,387


41,119


88,446










Other income (expenses), net


571


(394)


1,831


3,128

Foreign exchange gains


1,191


1,543


132


729

Share of net income of equity investees


2,390


6,409


4,670


6,486

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


-


-


6,429


-

Dividend income from cost investees


449


-


449


-

Interest income


1,173


1,212


2,431


4,051

Interest expenses


(395)


(161)


(795)


(914)

Income before income taxes


20,051


26,996


56,266


101,926










Income taxes expenses


4,433


3,358


9,003


13,140

Net income


15,618


23,638


47,263


88,786










Net (loss) income attributable to noncontrolling interests


(5)


1,787


(17)


3,727

Net income attributable to Hollysys Automation
Technologies Ltd.

$

15,623

$

21,851

$

47,280

$

85,059










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









Translation adjustments


7,525


7,838


(34,583)


(30,867)

Comprehensive income


23,143


31,476


12,680


57,919










Less: comprehensive (loss) income attributable to
     noncontrolling interests


(34)


1,798


(8,551)


3,505

Comprehensive income attributable to Hollysys
Automation Technologies Ltd.

$

23,177

$

29,678

$

21,231

$

54,414










Net income per ordinary share:









Basic


0.26


0.37


0.79


1.44

Diluted


0.26


0.36


0.78


1.41

Shares used in income per share computation:









Weighted average number of ordinary shares

60,408,369


59,082,795


60,112,281


59,061,277

Weighted average number of diluted ordinary shares

61,225,248


60,555,132


60,909,201


60,594,356


 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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












Mar 31,


Dec 31,





2017


2016





(Unaudited)


(Unaudited)

ASSETS






Current assets







Cash and cash equivalents

$

182,478

$

210,115



Time deposits with original maturities over three months


86,352


75,282



Restricted cash


44,940


42,802



Accounts receivable, net of allowance for doubtful accounts of $45,509 and
     $43,017 as of March 31,2017 and December 31, 2016, respectively


223,494


219,173



Costs and estimated earnings in excess of billings, net of allowance for doubtful
     accounts of $5,515 and $6,355 as of March 31, 2017 and December 31, 2016,
     respectively


147,737


147,097



Other receivables, net of allowance for doubtful accounts of $1,534 and $1,218 as
     of March 31, 2017 and December 31, 2016, respectively


15,026


11,999



Advances to suppliers


9,463


10,027



Amounts due from related parties


44,868


27,299



Inventories


45,802


40,001



Prepaid expenses


562


754



Income tax recoverable


6,531


4,497



Deferred tax assets


7,586


10,103


Total current assets


814,839


799,149








Non-current assets







Restricted cash


2,318


481



Prepaid expenses


13


8



Property, plant and equipment, net


79,871


78,933



Prepaid land leases


10,145


10,026



Acquired intangible assets, net


407


524



Investments in equity investees


23,924


33,951



Investments in cost investees


3,961


3,927



Goodwill


57,758


55,821



Deferred tax assets


1,758


1,526


Total non-current assets


180,155


185,197








Total assets


994,994


984,346








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Short-term bank loans


2,979


2,036



Current portion of long-term loans


5,260


9,860



Accounts payable


101,598


95,544



Deferred revenue


105,145


103,062



Accrued payroll and related expenses


9,455


15,243



Income tax payable


6,362


6,852



Warranty liabilities


6,137


6,174



Other tax payables


4,833


6,837



Accrued liabilities


30,768


35,632



Amounts due to related parties


2,244


2,357



Deferred tax liabilities


5,842


7,929


Total current liabilities


280,623


291,526








Non-current liabilities







Long-term loans


20,682


20,639



Deferred tax liabilities


816


822



Warranty liabilities


3,227


3,473


Total non-current liabilities


24,725


24,934








Total liabilities


305,348


316,460









Commitments and contingencies


-


-









Stockholders' equity:







Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
     60,319,599 and 60,259,599 shares issued and outstanding as of March 31,
     2017 and December 31, 2016, respectively


60


60



Additional paid-in capital


221,656


223,041



Statutory reserves


41,500


41,299



Retained earnings


460,969


445,546



Accumulated other comprehensive income


(34,517)


(42,071)


Total Hollysys Automation Technologies Ltd. stockholder's equity


689,668


667,875










Noncontrolling interests


(22)


11


Total equity


689,646


667,886









Total liabilities and equity

$

994,994

$

984,346

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)




Three months ended


Nine months ended

Mar 31, 2017


Mar 31, 2017




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

15,618

$

47,263

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






Depreciation of property, plant and equipment


1,552


4,418


Amortization of prepaid land leases


47


141


Amortization of intangible assets


136


421


Allowance for doubtful accounts


1,704


4,964


Loss on disposal of property, plant and equipment


-


26


Share of net income from equity investees


(2,390)


(4,670)


Dividends received from equity investees


88


88


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


-


(6,429)


Share based compensation expenses


(1,906)


(70)


Deferred income tax expenses (benefit)


260


(2,935)


Accretion of convertible bond discount


57


391

Changes in operating assets and liabilities:






Accounts receivable


(4,358)


(3,126)


Costs and estimated earnings in excess of billings


2,389


36,656


Inventories 


(5,507)


(11,577)


Advances to suppliers


656


1,610


Other receivables 


(3,173)


(2,601)


Deposits and other assets


(3,307)


(20,613)


Due from related parties


(4,926)


(5,460)


Accounts payable


4,931


2,376


Deferred revenue


758


27,552


Accruals and other payable


(10,412)


(15,308)


Due to related parties


(139)


780


Income tax payable


(2,586)


(199)


Other tax payables


(2,036)


(12,589)


Net cash (used in) provided by operating activities


(12,544)


41,109







Cash flows from investing activities:






Time deposits placed with banks


(22,757)


(97,557)


Purchases of property, plant and equipment


-


(434)


Proceeds from disposal of property, plant and equipment


-


34


Maturity of time deposits


12,542


40,475


Proceeds from sale of shares of a subsidiary


3,200


3,200


Cash reduced upon deconsolidation of subsidiary


(3,051)


(19,732)


Net cash used in investing activities


(10,066)


(74,014)







Cash flows from financing activities:






Proceeds from short-term bank loans


1,059


4,167


Repayments of short-term bank loans


(171)


(4,088)


Proceeds from long-term bank loans


-


5,665


Repayments of long-term bank loans


(4,888)


(7,037)


Proceeds from exercise of options


521


6,323


Payment of Dividends


-


(11,973)


Net cash used in financing activities


(3,479)


(6,943)








Effect of foreign exchange rate changes


(1,548)


(6,769)


Net decrease in cash and cash equivalents

$

(27,637)

$

(46,617)








Cash and cash equivalents, beginning of period

$

210,115

$

229,095


Cash and cash equivalents, end of period


182,478


182,478

 

 

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


Nine months ended




Mar 31,


Mar 31,




2017


2016


2017


2016




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Cost of integrated contracts

$

59,126

$

72,921

$

196,936

$

227,270

Less: Amortization of acquired intangible assets


-


166


263


654

Non-GAAP cost of integrated contracts

$

59,126

$

72,755

$

196,673

$

226,616











General and administrative expenses

$

6,847

$

9,813

$

29,177

$

31,703

Less: Share-based compensation expenses


(1,907)


1,128


(70)


3,265

Non-GAAP general and administrative expenses

$

8,754

$

8,685

$

29,247

$

28,438











Other income, net

$

571

$

(394)

$

1,831

$

3,128

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


-


-


-


(1,745)

Non-GAAP other income, net

$

571

$

(394)

$

1,831

$

1,383











Net income attributable to Hollysys Automation Technologies Ltd.

$

15,623

$

21,851

$

47,280

$

85,059

Add:










Share-based compensation expenses


(1,907)


1,128


(70)


3,265


Amortization of acquired intangible assets


-


166


263


654


Acquisition-related consideration adjustment


-


-


-


(1,745)

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

$

13,716

$

23,145

$

47,473

$

87,233












Weighted average number of basic ordinary shares


60,408,369


59,082,795


60,112,281


59,061,277


Weighted average number of diluted ordinary shares


61,225,248


60,555,132


60,909,201


60,594,356

Non-GAAP basic earnings per share


$

0.23

$

0.39

$

0.79

$

1.48

Non-GAAP diluted earnings per share


$

0.22

$

0.38

$

0.79

$

1.45












 

 

SOURCE Hollysys Automation Technologies, Ltd


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