Hollysys Automation Technologies Reports Unaudited Financial Results for the First Half Year and the Second Quarter Ended December 31, 2017

Feb 8, 2018

First Half Year of Fiscal Year 2018 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $58.2 million, an increase of 72.4% compared to the comparable prior year period.
  • Total revenues were $272.9 million, an increase of 34.7% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 38.2%, compared to 29.2% for the comparable prior year period.
  • Non-GAAP diluted EPS were at $0.96, an increase of 71.4% compared to the comparable prior year period.
  • Net cash provided by operating activities was $72.1 million for the current period.
  • DSO of 166 days, compared to 203 days for the comparable prior year period.
  • Inventory turnover days of 52 days, compared to 48 days for the comparable prior year period.

Second Quarter of Fiscal Year 2018 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $36.3 million, an increase of 229.4% compared to the comparable prior year period.
  • Total revenues were $157.4 million, an increase of 58.8% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 39.4%, compared to 28.7% for the comparable prior year period.
  • Non-GAAP diluted EPS were at $0.60, an increase of 233.3% compared to the comparable prior year period.
  • Net cash provided by operating activities was $36.1 million for the current quarter.
  • DSO of 147 days, compared to 208 days for the comparable prior year period.
  • Inventory turnover days of 48 days, compared to 52 days for the comparable prior year period.

BEIJING, Feb 8, 2018 /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 second quarter and the first half of fiscal year 2018 ended December 31, 2017 (see attached tables). The management of Hollysys, stated:

Industrial automation remained on the track of recovery, with revenue recording a 25.9% year-over-year growth, at $57.6 million. Management team has adhered to the low-to-high end market expansion strategy in industries such as chemical and petro-chemical, etc. while building comprehensive service capacity to address the substantial aftersales potential from the entire customer base and seeking new opportunities from existing end-users. On the chemical industry, we signed a contract with Jinan Taixing Fine Chemicals Company to provide system for their polyphosphazene project, a contract with Jiangsu Jingshen Salt & Chemical Industry Co., Ltd to provide Manufacturing Execution System for information integration of their salt packaging and distribution center. On the petro-chemical industry, we signed a contract with China Petroleum & Chemical Corporation to provide DCS and instruments for their liquid chemical wharf project. We entered into a strategic cooperation agreement with CEET, a wholly-owned subsidiary of China National Offshore Oil Corporation to collectively push forward the localization of core equipment on offshore oil platform. In the new energy and food-beverage area, we signed a contract to provide system for Chia Tai Group's recycling of waste project and a contract with Lihua Starch Co., Ltd for their sorbitol project.

Our demonstration-for-further-application strategy in factory automation has brought us more market recognition. We earned government level recognition as we were listed as one of the 23 intelligent manufacturing system solution providers recommended by the Ministry of Industry and Information Technology. We continued to focus on several key industries and cooperate with renowned players. On white-goods, our cooperation with Haier went further as we signed contracts on their Tianjin-based and Qingdao-based washing machine factories. On food beverage area, we are dedicated to provide innovative solution to address safety and efficiency issues. Upon the successful delivery of the first project, our relationship with Hai Di Lao went deeper, with regular communication mechanism set. We expect broader cooperation with them and more clients in the future.

The performance of high speed rail was prominent in this quarter, with revenue recording a 199.0% year-over-year growth at $69.6 million. One of the contributors is the significant increase in aftersales order, including ATP maintenance and replacement contracts. Signing 80 sets of automatic train protection (ATP) to high speed trains in 300-350km/h also contributed greatly to the revenue because of the tightening delivery schedule to secure the Spring Festival Travel. Breakthrough has been made in our new product as we signed our first tract circuit contract for Chengdu-Ya'an regular speed railway line. In subway, we signed SCADA contract for Chengdu Subway Line 5. We will adhere to the expansion strategy to win SCADA contracts in more cities and work closely with subway authorities to promote our SCADA system and subway signaling technologies in future. Management team will adhere to the diversity strategy to create revenue stream from more new products and services, and to maintain a stable and healthy growth into the future.

In oversea business, we signed several EPC contracts with domestic companies, including a contract with Shandong Ludian Co. Ltd to provide DCS for 2X350MW power station in Indonesia. Mechanical and electrical installation services recorded a 0.4% revenue growth at $30.2 million. We continued to address operation, management and risk control issue to ensure that projects can be delivered in good quality, while closely following economic and political circumstances in South East Asia and Middle East. Concord and Bond remained active in seeking business opportunities and we believe that their strategic value as customer resources and international sales channels remains significant.

First Half Year and the Second Quarter Ended December 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


Six months ended



Dec 31, 2017

 Dec 31, 2016

%
Change


Dec 31, 2017

 Dec 31, 2016

%
Change










Revenues

$

157,404

99,137

58.8%

$

272,914

202,679

34.7%

    Integrated contract revenue

$

134,419

89,535

50.1%

$

230,109

182,600

26.0%

    Products sales

$

9,717

6,057

60.4%

$

19,177

14,370

33.5%

    Service rendered

$

13,268

3,545

274.3%

$

23,628

5,709

313.9%

Cost of revenues

$

95,424

70,704

35.0%

$

168,663

143,588

17.5%

Gross profit

$

61,980

28,433

118.0%

$

104,251

59,091

76.4%

Total operating expenses

$

21,072

17,236

22.3%

$

40,278

30,543

31.9%

    Selling

$

7,740

6,307

22.7%

$

14,438

11,858

21.8%

    General and administrative

$

12,177

10,819

12.6%

$

23,135

20,493

12.9%

    Research and development

$

10,585

8,293

27.6%

$

19,216

15,990

20.2%

    VAT refunds and government subsidies

$

(9,430)

(8,183)

15.2%

$

(16,511)

(17,798)

(7.2)%

Income from operations

$

40,908

11,197

265.3%

$

63,973

28,548

124.1%

Other income, net

$

2,271

866

162.2%

$

2,710

1,260

115.1%

Foreign exchange gain (loss)

$

29

(715)

104.1%

$

(1,104)

(635)

73.9%

Share of net income of equity investees

$

1,337

970

37.8%

$

2,273

2,279

(0.3)%

Gains on deconsolidation of the Company's interests in Beijing Hollycon Electronic Technology Co., Ltd

$

-

-

-

$

-

6,005

(100.0)%

Dividend income from a cost investee


-

-

-

$

1,057

-

-

Interest income

$

1,560

512

204.7%

$

3,036

1,257

141.5%

Interest expenses

$

(497)

(271)

83.4%

$

(634)

(400)

58.5%

Income tax expenses

$

9,295

1,559

496.2%

$

13,031

4,570

185.1%

Net income (loss) attributable to non-controlling interests

$

52

(9)

(677.8)%

$

86

(13)

(761.5)%

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

$

36,261

11,009

229.4%

$

58,194

33,757

72.4%

Non-GAAP basic EPS

$

0.60

0.18

233.3%

$

0.96

0.56

71.4%

Non-GAAP diluted EPS

$

0.60

0.18

233.3%

$

0.96

0.56

71.4%










Share-based compensation expenses

$

(67)

918

(107.3)%

$

324

1,837

(82.4)%

Amortization of acquired intangible assets

$

101

122

(17.2)%

$

279

263

6.1%

GAAP Net income attributable to Hollysys Automation Technologies Ltd.

$

36,227

9,969

263.4%

$

57,591

31,657

81.9%

GAAP basic EPS

$

0.60

0.17

252.9%

$

0.95

0.53

79.2%

GAAP diluted EPS

$

0.60

0.17

252.9%

$

0.95

0.52

79.2%







-

-


Basic weighted average common shares outstanding


60,431,250

60,070,218

0.6%


60,428,431

59,976,132

0.8%

Diluted weighted average common shares outstanding


61,251,116

60,895,404

0.6%


61,241,092

61,023,669

0.4%

Operational Results Analysis for the Second Quarter Ended December 31, 2017

Comparing to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31, 2017 increased from $99.1 million to $157.4 million, representing an increase of 58.8%. Broken down by the revenue types, services revenue increased by 274.3% to $13.3 million, products sales revenue increased by 60.4% to $9.7 million, and integrated contracts revenue increased by 50.1% to $134.4 million.

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

(In USD thousands)














Three months ended Dec 31,


Six months ended Dec 31,




2017


2016


2017


2016




$

% to Total Revenue


$

% to Total Revenue


$

% to Total Revenue


$

% to Total Revenue


Industrial Automation


57,647

36.6%


45,792

46.2%


115,130

42.2%


90,831

44.8%


Rail Transportation Automation


69,550

44.2%


23,263

23.5%


104,745

38.4%


56,297

27.8%


Mechanical and Electrical Solution


30,207

19.2%


30,082

30.3%


53,039

19.4%


55,462

27.4%


Miscellaneous


-

-


-

-


-

-


89

0.0%


Total


157,404

100.0%


99,137

100.0%


272,914

100.0%


202,679

100.0%





















Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 39.4% for the three months ended December 31, 2017, as compared to 28.7% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 34.5%, 67.4% and 68.6% for the three months ended December 31, 2017, as compared to 24.3%, 72.1% and 64.9% 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 39.3% for the three months ended December 31, 2017, as compared to 28.6% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 34.4%, 67.4% and 68.6% for the three months ended December 31, 2017, as compared to 24.2%, 72.1% and 64.9% for the same period of the prior year respectively.

Selling expenses were $7.7 million for the three months ended December 31, 2017, representing an increase of $1.4 million or 22.7% compared to $6.3 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.9% and 6.4% for the three months ended December 31, 2017, and 2016, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $12.2 million and $10.8 million for the quarter ended December 31, 2017, and 2016, respectively. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.7% and 10.9% for quarters ended December 31, 2017 and 2016 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $12.1 million and $11.7 million for the three months ended December 31, 2017 and 2016, respectively.

Research and development expenses were $10.6 million for the three months ended December 31, 2017, representing an increase of $2.3 million or 27.6% compared to $8.3 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 6.7% and 8.4% for the quarter ended December 31, 2017 and 2016, respectively.

The VAT refunds and government subsidies were $9.4 million for three months ended December 31, 2017, as compared to $8.2 million for the same period in the prior year, representing a $1.2 million or 15.2% increase.

The income tax expenses and the effective tax rate were $9.3 million and 20.4% for the three months ended December 31, 2017, as compared to $1.6 million and 13.5% for comparable prior year period. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates, as the Company's subsidiaries apply to different tax rates.

The non-GAAP net income attributable to Hollysys, which excludes 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 was $36.3 million or $0.60 per diluted share based on 61.3 million shares outstanding for the three months ended December 31, 2017. This represents a 229.4% increase over the $11.0 million or $0.18 per share based on 60.9 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $36.2 million or $0.60 per diluted share representing an increase of 263.4% over the $10.0 million or $0.17 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $220.0 million new contracts for the three months ended December 31, 2017. And the backlog as of December 31, 2017 was $547.6 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, 2017


as of
Dec 31, 2017



$

% to Total
Contract


$

% to Total
Backlog

Industrial Automation


45,799

20.8%


152,602

27.9%

Rail Transportation


143,784

65.4%


272,154

49.7%

Mechanical and Electrical Solutions


30,386

13.8%


122,798

22.4%

Total


219,969

100.0%


547,554

100.0%

Cash Flow Highlights

For the three months ended December 31, 2017, the total net cash outflow was $13.8 million. The net cash provided by operating activities was $36.1 million. The net cash used in investing activities was $45.5 million, mainly consisted of $92.6 million time deposits placed with banks, which was partially offset by $47.8 million maturity of time deposits. The net cash used in financing activities was $7.2 million, mainly consisted of $7.2 million payment of dividends.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $365.4 million, $331.5 million, and $285.4 million as of December 31, 2017, September 30, 2017 and December 31, 2016, respectively. As of December 31, 2017, the company held $231.0 million in cash and cash equivalents and $134.4 million in time deposits with original maturities over three months.

For the three months ended December 31, 2017, DSO was 147 days, as compared to 208 days for the comparable prior year period and 196 days for the last quarter; and inventory turnover was 48 days, as compared to 52 days for the comparable prior year period and 61 days for the last quarter.

Outlook for FY 2018

The management concluded, "Based on our backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance for fiscal year 2018 with revenue in the range of $500 million to $530 million and non-GAAP net income in the range of $100 million to $110 million."

Conference Call

The Company will host a conference call at 8:00 pm February 8, 2018 U.S. Eastern Time / 9:00 am February 9, 2018 Beijing Time, to discuss the financial results for the second quarter of fiscal year 2018 ended December 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 7722722.

1 800 573 793

(Australia)

+61 (0)2 9193 3706

(Australia, Sydney)

4001 209 101

(China)

+33 (0)1 76 77 22 74

(France)

+49 (0)69 2222 13420

(Germany)

800 961 105

(Hong Kong)

+852 3008 1527

(Hong Kong)

0120 001 836

(Japan)

007 9814 2032 546

(Korea, Republic of)

1800 806 802

(Malaysia)

+65 6320 9025

(Singapore)

+46 (0)8 5033 6574

(Sweden)

+41 (0)22 567 5729

(Switzerland)

0800 868 298

(Taiwan, Province of China)

0800 358 6377

(United Kingdom)

+44 (0)330 336 9105

(United Kingdom, Local)

800 281 7973

 (United States/Canada)

+1 323 794 2093

(United States, Los Angeles)

In addition, a recording of the conference call will be accessible within 48 hours via Hollysys' website at: 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 3,200 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 10,000 customers more than 25,000 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,



2017


2016


2017


2016



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net revenues









Integrated contract revenue

$

134,419

$

89,535

$

230,109

$

182,600

Products sales


9,717


6,057


19,177


14,370

Revenue from services


13,268


3,545


23,628


5,709

Total net revenues


157,404


99,137


272,914


202,679










Cost of integrated contracts


88,186


67,896


155,998


137,810

Cost of products sold


3,167


1,687


5,834


4,143

Costs of services rendered


4,172


1,243


7,110


1,898

Gross profit


61,879


28,311


103,972


58,828










Operating expenses









Selling


7,740


6,307


14,438


11,858

General and administrative


12,110


11,737


23,459


22,330

Research and development


10,585


8,293


19,216


15,990

VAT refunds and government subsidies


(9,430)


(8,183)


(16,511)


(17,798)

Total operating expenses


21,005


18,154


40,602


32,380










Income from operations


40,874


10,157


63,370


26,448










Other income , net


2,271


866


2,710


1,260

Foreign exchange income (loss)


29


(715)


(1,104)


(635)

Share of net income of equity investees


1,337


970


2,273


2,279

Gains on deconsolidation of the Company's interests in Beijing Hollycon Electronic Technology Co., Ltd

-


-


-


6,005

Dividend income from a cost investee


-


-


1,057


-

Interest income


1,560


512


3,036


1,257

Interest expenses


(497)


(271)


(634)


(400)

Income before income taxes


45,574


11,519


70,708


36,214










Income taxes expenses


9,295


1,559


13,031


4,570

Net income


36,279


9,960


57,677


31,644










Net income (loss) attributable to non-controlling interests

52


(9)


86


(13)

Net income attributable to Hollysys Automation Technologies Ltd.

$

36,227

$

9,969

$

57,591

$

31,657










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








Translation adjustments


17,512


(29,683)


32,270


(42,108)

Comprehensive income


53,791


(19,723)


89,947


(10,464)










Less: comprehensive income (loss) attributable to non-controlling interests

54


(11)


87


(8,518)

Comprehensive income (loss) attributable to Hollysys Automation Technologies Ltd.

$

53,737

$

(19,712)

$

89,860

$

(1,946)










Net income per ordinary share:









Basic


0.60


0.17


0.95


0.53

Diluted


0.60


0.17


0.95


0.52

Shares used in income per share computation:









Weighted average number of ordinary shares

60,431,250


60,070,218


60,428,431


59,976,132

Weighted average number of diluted ordinary shares

61,251,116


60,895,404


61,241,092


61,023,669


 


HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS

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












Dec 31,


Sep 30,





2017


2017





(Unaudited)


(Unaudited)

ASSETS






Current assets







Cash and cash equivalents

$

231,070

$

244,838



Time deposits with maturities over three months


134,379


86,628



Restricted cash


35,986


28,192



Accounts receivable, net of allowance for doubtful accounts of $49,041 and $48,709 as of December 31,2017 and September 30, 2017, respectively


257,611


255,359



Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $12,472 and $10,788 as of December 31, 2017 and September 30, 2017, respectively


199,736


169,495



Other receivables, net of allowance for doubtful accounts of $1,568 and $1,454 as of December 31, 2017 and September 30, 2017, respectively


16,857


15,713



Advances to suppliers


8,523


14,108



Amounts due from related parties


28,642


31,341



Inventories


47,602


50,112



Prepaid expenses


797


548



Income tax recoverable


170


5,704



Deferred tax assets


8,559


8,085


Total current assets


969,932


910,123








Non-current assets







Restricted cash


461


533



Prepaid expenses


8


1



Property, plant and equipment, net


84,025


81,705



Prepaid land leases


10,472


10,321



Intangible assets, net


1,602


1,761



Investments in equity investees


58,219


49,138



Investments in cost investees


4,191


4,105



Goodwill


51,175


50,118



Deferred tax assets


24


1,333


Total non-current assets


210,177


199,015








Total assets


1,180,109


1,109,138








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Derivative financial liability


487


487



Short-term bank loans


7,859


8,929



Current portion of long-term loans


401


393



Dividends payable


-


7,241



Accounts payable


126,095


116,998



Construction costs payable


167


213



Deferred revenue


130,451


120,570



Accrued payroll and related expenses


17,724


15,458



Income tax payable


5,237


3,548



Warranty liabilities


6,136


5,511



Other tax payables


11,052


9,646



Accrued liabilities


22,062


26,595



Amounts due to related parties


3,169


3,440



Deferred tax liabilities


3,381


3,642


Total current liabilities


334,221


322,671








Non-current liabilities







Accrued liabilities


9,155


3,955



Long-term loans


21,064


20,786



Deferred tax liabilities


6,457


6,674



Warranty liabilities


2,642


2,207


Total non-current liabilities


39,318


33,622








Total liabilities


373,539


356,293









Commitments and contingencies


-


-









Stockholders' equity:







Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 60,342,099 shares issued and outstanding as of December 31, 2017 and September 30, 2017


60


60



Additional paid-in capital


222,514


222,581



Statutory reserves


41,131


41,131



Retained earnings


533,347


497,120



Accumulated other comprehensive income


9,409


(8,102)


Total Hollysys Automation Technologies Ltd. stockholder's equity


806,461


752,790










Non-controlling interests


109


55


Total equity


806,570


752,845









Total liabilities and equity

$

1,180,109

$

1,109,138

 


 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)




Three months ended


Six months ended

Dec 31, 2017


Dec 31, 2017




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

36,279

$

57,677

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






Depreciation of property, plant and equipment


1,558


4,226


Amortization of prepaid land leases


63


130


Amortization of intangible assets


141


279


Allowance for doubtful accounts


874


4,187


Loss on disposal of property, plant and equipment


48


48


Share of net income from equity investees


(1,337)


(2,273)


Dividends received from a cost investee


-


(1,057)


Share-based compensation expenses


(67)


325


Deferred income tax (benefit) expenses


382


(754)


Accretion of convertible bond


200


258


Gain from the derecognition of nonfinancial assets


(2,345)


(2,345)

Changes in operating assets and liabilities:






Accounts receivable


5,109


847


Costs and estimated earnings in excess of billings


(28,234)


(34,461)


Inventories


3,456


(44)


Advances to suppliers


1,908


(62)


Other receivables


(909)


3,806


Deposits and other assets


(7,105)


4,975


Due from related parties


3,265


7,834


Accounts payable


6,042


158


Deferred revenue


7,357


18,353


Accruals and other payables


1,426


2,352


Due to related parties


(325)


757


Income tax payable


7,124


6,806


Other tax payables


1,168


126


Net cash provided by operating activities


36,078


72,148







Cash flows from investing activities:






Time deposits placed with banks


(92,648)


(119,741)


Purchases of property, plant and equipment


(509)


(611)


Maturity of time deposits


47,806


86,215


Proceeds from disposal of property, plant and equipment


20


50


Investment of an equity investee


(151)


(4,212)


Acquisition of a subsidiary, net of cash acquired


-


(583)


Net cash used in investing activities


(45,482)


(38,882)







Cash flows from financing activities:






Proceeds from short-term bank loans


-


1,052


Repayments of short-term bank loans


-


(1,554)


Proceeds from long-term bank loans


202


536


Repayments of long-term bank loans


(133)


(362)


Payment of Dividends


(7,241)


(7,241)


Net cash used in financing activities


(7,172)


(7,569)








Effect of foreign exchange rate changes


2,808


7,733


Net (decrease) increase in cash and cash equivalents

$

(13,768)

$

33,431








Cash and cash equivalents, beginning of period

$

244,838

$

197,640


Cash and cash equivalents, end of period


231,070


231,070

 

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,




2017


2016


2017


2016




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Cost of integrated contracts

$

88,186

$

67,896

$

155,998

$

137,810

Less: Amortization of acquired intangible assets


101


122


279


263

Non-GAAP cost of integrated contracts

$

88,085

$

67,774

$

155,719

$

137,547











General and administrative expenses

$

12,110

$

11,737

$

23,459

$

22,330

Less: Share-based compensation expenses


(67)


918


324


1,837

Non-GAAP general and administrative expenses

$

12,177

$

10,819

$

23,135

$

20,493











Net income attributable to Hollysys Automation Technologies Ltd.

$

36,227

$

9,969

$

57,591

$

31,657

Add:










Share-based compensation expenses


(67)


918


324


1,837


Amortization of acquired intangible assets


101


122


279


263

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

$

36,261

$

11,009

$

58,194

$

33,757












Weighted average number of basic ordinary shares

60,431,250


60,070,218


60,428,431


59,976,132


Weighted average number of diluted ordinary shares

61,251,116


60,895,404


61,241,092


61,023,669

Non-GAAP basic earnings per share

$

0.60

$

0.18

$

0.96

$

0.56

Non-GAAP diluted earnings per share

$

0.60

$

0.18

$

0.96

$

0.55












 

SOURCE Hollysys Automation Technologies, Ltd


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