Hollysys Automation Technologies Reports Unaudited Financial Results for the First Nine Months and the Third Quarter Ended March 31, 2018

May 14, 2018

First Nine months of Fiscal Year 2018 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $80.3 million, an increase of 69.1% compared to the comparable prior year period.
  • Total revenues were $393.5 million, an increase of 33.9% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 37.6%, compared to 29.6% for the comparable prior year period.
  • Non-GAAP diluted EPS were at $1.32, an increase of 67.1% compared to the comparable prior year period.
  • Net cash provided by operating activities was $77.3 million for the current period.
  • DSO of 176 days, compared to 212 days for the comparable prior year period.
  • Inventory turnover days of 58 days, compared to 54 days for the comparable prior year period.

Third Quarter of Fiscal Year 2018 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $22.1 million, an increase of 61.1% compared to the comparable prior year period.
  • Total revenues were $120.6 million, an increase of 32.1% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 36.4%, compared to 30.7% for the comparable prior year period.
  • Non-GAAP diluted EPS were at $0.36, an increase of 63.6% compared to the comparable prior year period.
  • Net cash provided by operating activities was $5.1 million for the current quarter.
  • DSO of 196 days, compared to 219 days for the comparable prior year period.
  • Inventory turnover days of 63 days, compared to 61 days for the comparable prior year period.

BEIJING, May 14, 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 third quarter of fiscal year 2018 ended March 31, 2018 (see attached tables). The management of Hollysys, stated:

Industrial automation recorded a 20.0% yoy growth in quarterly revenue, at $45.7 million, and a 55.6% yoy growth in quarterly contract, at $82.2 million. Management's low-to-high end market expansion strategy has led to a healthy contract growth, especially in chemical and petrochemical. Contracts covered a broad range of products, such as DCS, SIS, DEH, MES and AMS, etc. Several major contracts were signed such as providing system for Henan Kelong Group, Shanxi Guangda Coking on their energy management project, and Zhong'an lianhe Coalification Company on their methanol and olefin conversion project. We are also building comprehensive capacity to address the substantial service and upgrading potential from the entire customer base. On coal fire, while maintaining our market share in the high end market, we have been actively responding to demand on environmental protection, energy saving, control optimization and information security, etc. Similar demand has also been spotted in other industries. With our widespread national service network, we are capable of communicating with and delivering to our customers from various industries regular and value-added customized services and products they need.

In Factory automation, we adhered to our demonstration-for-further-application strategy and proceeded deeper in the cooperation with our current customer base. On food beverage, we continued to provide innovative solution to address safety and efficiency issues for Haidilao, with new projects covering automatic dish serving, dipping source making and smart cleaning. Management team will continue to seek strategic cooperation with more renowned customers to address the increasing demand from discrete automation. With product sales and customized solutions already being delivered for the time being, our team is also making effort to get Hollysys' product line more ready for the era of intelligent manufacture. The R&D is currently under way for a future-oriented industrial internet platform aiming to make better use of industrial data for higher level of efficiency, digitalization, and automaton in manufacture.

Rail business recorded a 30.9% yoy growth in quarterly revenue at $45.5 million, while quarterly contract decline yoy by 24.6%, at $37.9 million. Few contract on ATP was signed in this quarter and the visibility of CRC bidding remains to be observed. In overseas business, we signed a maintenance contract with Hong Kong MTR with a service duration of 3 years. In subway, we continued to execute signed contracts, while strengthening our marketing capacity through reviewing and updating strategic partnership and improving local service network coverage. 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 continued to seek opportunities under the Belt and Road Initiative, signing several EPC contracts with domestic companies, including a contract with Shenhua Guohua Co.Ltd to provide DEH for 2X350MW power station in Indonesia. Our effort on strengthening operation management and risk control in Mechanical and electrical installation services has worked effectively, with quarterly revenue recording a 59.4% yoy growth at $29.4 million and a 303.0% yoy growth of quarterly contract at $21.2 million. We will continue to address operation, management and risk control issue and to closely follow the economic and political circumstances in South East Asia and Middle East.  

First Nine months and the Third Quarter Ended March 31, 2018 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,
2018

 Mar 31,
2017

%
Change


Mar 31,
2018

 Mar 31,
2017

%
Change










Revenues

$

120,617

91,303

32.1%

$

393,531

293,981

33.9%

    Integrated contract revenue

$

104,736

78,167

34.0%

$

334,845

260,766

28.4%

    Products sales

$

9,908

9,746

1.7%

$

29,085

24,116

20.6%

    Service rendered

$

5,973

3,390

76.2%

$

29,601

9,099

225.3%

Cost of revenues

$

76,736

63,238

21.3%

$

245,398

206,826

18.6%

Gross profit

$

43,881

28,065

56.4%

$

148,133

87,155

70.0%

Total operating expenses

$

18,692

15,300

22.2%

$

58,971

45,843

28.6%

    Selling

$

6,205

5,961

4.1%

$

20,643

17,819

15.8%

    General and administrative

$

7,617

8,754

(13.0)%

$

30,752

29,247

5.1%

    Research and development

$

8,758

6,093

43.7%

$

27,975

22,083

26.7%

    VAT refunds and government subsidies

$

(3,888)

(5,508)

(29.4)%

$

(20,399)

(23,306)

(12.5)%

Income from operations

$

25,189

12,765

97.3%

$

89,162

41,312

115.8%

Other income, net

$

352

571

(38.4)%

$

3,062

1,831

67.2%

Foreign exchange (loss) gain

$

(877)

1,191

(173.6)%

$

(1,981)

132

(1600.8)%

Share of net income of equity investees

$

194

2,390

(91.9)%

$

2,466

4,670

(47.2)%

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

$

-

-

-

$

-

6,429

(100.0)%

Dividend income from a cost investee


38

449

(91.5)%

$

1,096

449

144.1%

Interest income

$

2,006

1,173

71.0%

$

5,041

2,431

107.4%

Interest expenses

$

(175)

(395)

(55.7)%

$

(808)

(795)

1.6%

Income tax expenses

$

4,553

4,433

2.7%

$

17,584

9,003

95.3%

Net income (loss) attributable to non-
     controlling interests

$

75

(5)

1600.0%

$

161

(17)

1047.1%

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

$

22,099

13,716

61.1%

$

80,293

47,473

69.1%

Non-GAAP basic EPS

$

0.37

0.23

60.9%

$

1.33

0.79

68.4%

Non-GAAP diluted EPS

$

0.36

0.22

63.6%

$

1.32

0.79

67.1%










Share-based compensation expenses

$

257

(1,907)

113.5%

$

581

(70)

930.0%

Amortization of acquired intangible assets

$

-

-

-

$

279

263

6.1%

GAAP Net income attributable to Hollysys 
     Automation Technologies Ltd.

$

21,842

15,623

39.8%

$

79,433

47,280

68.0%

GAAP basic EPS

$

0.36

0.26

38.5%

$

1.31

0.79

65.8%

GAAP diluted EPS

$

0.36

0.26

38.5%

$

1.31

0.78

67.9%










Basic weighted average common shares 
     outstanding


60,436,871

60,408,369

0.0%


60,431,201

60,112,281

0.5%

Diluted weighted average common shares 
     outstanding


61,296,907

61,225,248

0.1%


61,245,982

60,909,201

0.6%

Operational Results Analysis for the Third Quarter Ended March 31, 2018

Comparing to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2018 increased from $91.3 million to $120.6 million, representing an increase of 32.1%. Broken down by the revenue types, integrated contracts revenue increased by 34.0% to $104.7 million, products sales revenue increased by 1.7% to $9.9 million, and services revenue increased by 76.2% to $6.0 million.

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,


2018


2017


2018


2017


$


% to
Total
Revenue


$


% to
Total
Revenue


$

% to
Total
Revenue


$


% to
Total
Revenue

Industrial Automation

45,651


37.80%


38,054


41.70%


160,780

40.80%


128,884


43.80%

Rail Transportation Automation

45,533


37.80%


34,788


38.10%


150,279

38.20%


91,085


31.00%

Mechanical and Electrical
Solution

29,433


24.40%


18,461


20.20%


82,472

21.00%


74,012


25.20%

Miscellaneous

-


-




-


-

-




-

Total

120,617


100.00%


91,303


100.00%


393,531

100.00%


293,981


100.00%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 36.4% for the three months ended March 31, 2018, as compared to 30.7% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 30.0%, 81.2% and 73.6% for the three months ended March 31, 2018, as compared to 24.4%, 65.2% and 78.8% 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 36.4% for the three months ended March 31, 2018, as compared to 30.7% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 30.0%, 81.2% and 73.6% for the three months ended March 31, 2018, as compared to 24.4%, 65.2% and 78.8% for the same period of the prior year respectively.

Selling expenses were $6.2 million for the three months ended March 31, 2018, representing an increase of $0.2 million or 4.1% compared to $6.0 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 5.1% and 6.5% for the three months ended March 31, 2018, and 2017, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $7.6 million for the quarter ended March 31, 2018, representing a decrease of $1.2 million or 13.0% compared to $8.8 million for the same quarter of the prior year. The decrease was mainly due to a decrease of $2.3 million in bad debt provision. Presented as a percentage of total revenues, non-GAAP G&A expenses were 6.3% and 9.6% for quarters ended March 31, 2018 and 2017 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $7.9 million and $6.8 million for the three months ended March 31, 2018 and 2017, respectively.

Research and development expenses were $8.8 million for the three months ended March 31, 2018, representing an increase of $2.7 million or 43.7% compared to $6.1 million for the same quarter of the prior year, mainly due to increased research and development activities. Presented as a percentage of total revenues, R&D expenses were 7.3% and 6.7% for the quarter ended March 31, 2018 and 2017, respectively.

The VAT refunds and government subsidies were $3.9 million for three months ended March 31, 2018, as compared to $5.5 million for the same period in the prior year, representing a $1.6 million or 29.4% decrease, which was primarily due to decrease of the government subsidies for $2.6 million.

The income tax expenses and the effective tax rate were $4.6 million and 17.2% for the three months ended March 31, 2018, as compared to $4.4 million and 22.1% 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 $22.1 million or $0.36 per diluted share based on 61.3 million shares outstanding for the three months ended March 31, 2018. This represents a 61.1% increase over the $13.7 million or $0.22 per share based on 61.2 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $21.8 million or $0.36 per diluted share representing an increase of 39.8% over the $15.6 million or $0.26 per diluted share reported in the comparable prior year period.  

Contracts and Backlog Highlights

Hollysys achieved $141.3 million new contracts for the three months ended March 31, 2018. And the backlog as of March 31, 2018 was $578.9 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, 2018


as of Mar 31, 2018








$

% to Total
Contract


$

% to Total
Backlog

Industrial Automation


82,231

58.2%


185,960

32.1%

Rail Transportation


37,874

26.8%


275,399

47.6%

Mechanical and Electrical Solutions


21,159

15.0%


117,516

20.3%

Total


141,264

100.0%


578,875

100.0%

Cash Flow Highlights

For the three months ended March 31, 2018, the total net cash inflow was $6.9 million. The net cash provided by operating activities was $5.0 million. The net cash used in investing activities was $5.0 million, mainly consisted of $29.9 million time deposits placed with banks, which was partially offset by $26.6 million maturity of time deposits. The net cash used in financing activities was $0.1 million, mainly consisted of $0.5 million repayments of short-term bank loans, which was partially offset by $0.4 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 $385.0 million, $365.4 million, and $268.8 million as of March 31, 2018, December 31, 2017 and March 31, 2017, respectively. As of March 31, 2018, the company held $238.0 million in cash and cash equivalents and $147.0 million in time deposits with original maturities over three months.

For the three months ended March 31, 2018, DSO was 196 days, as compared to 218 days for the comparable prior year period and 147 days for the last quarter; and inventory turnover was 63 days, as compared to 62 days for the comparable prior year period and 48 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 9:00 pm May 14, 2018 U.S. Eastern Time / 9:00 am May 15, 2018 Beijing Time, to discuss the financial results for the third quarter of fiscal year 2018 ended March 31, 2018 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 7867468.

Australia, Sydney

+61 290833212

Australia

1800411623

China, Domestic

8008190121

China, Domestic

4006208038

France

0800912761

Germany

08001820671

Hong Kong

+852 30186771

Hong Kong

800906601

Japan, Tokyo

+81 345036012

Korea (South), Seoul

+82 264903660

Malaysia

1800813708

Singapore

+65 67135090

Switzerland

0800561006

Taiwan, Province of China

+886 226507825

United Kingdom, London

+44 2036214779

United Kingdom

08082346646

United States, New York

+1 8456750437

United States

18665194004

Standard International Dial-In

+65 67135090

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
Mar 31,


Nine months ended
Mar 31,



2018


2017


2018


2017



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net revenues









Integrated contract revenue

$

104,736

$

78,167

$

334,845

$

260,766

Products sales


9,908


9,746


29,085


24,116

Revenue from services


5,973


3,390


29,601


9,099

Total net revenues


120,617


91,303


393,531


293,981










Cost of integrated contracts


73,297


59,126


229,295


196,936

Cost of products sold


1,863


3,394


7,696


7,537

Costs of services rendered


1,576


718


8,686


2,616

Gross profit


43,881


28,065


147,854


86,892










Operating expenses









Selling


6,205


5,961


20,643


17,819

General and administrative


7,874


6,847


31,333


29,177

Research and development


8,758


6,093


27,975


22,083

VAT refunds and government subsidies


(3,888)


(5,508)


(20,399)


(23,306)

Total operating expenses


18,949


13,393


59,552


45,773










Income from operations


24,932


14,672


88,302


41,119










Other income , net


352


571


3,062


1,831

Foreign exchange (loss) gain


(877)


1,191


(1,981)


132

Share of net income of equity investees


194


2,390


2,466


4,670

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


-


-


-


6,429

Dividend income from a cost investee


38


449


1,096


449

Interest income


2,006


1,173


5,041


2,431

Interest expenses


(175)


(395)


(808)


(795)

Income before income taxes


26,470


20,051


97,178


56,266










Income taxes expenses


4,553


4,433


17,584


9,003

Net income


21,917


15,618


79,594


47,263










Net income (loss) attributable to non-controlling interests

75


(5)


161


(17)

Net income attributable to Hollysys Automation
Technologies Ltd.

$

21,842

$

15,623

$

79,433

$

47,280










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








Translation adjustments


30,784


7,525


63,054


(34,583)

Comprehensive income


52,701


23,143


142,648


12,680










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

76


(34)


163


(8,551)

Comprehensive income attributable to Hollysys
Automation Technologies Ltd.

$

52,625

$

23,177

$

142,485

$

21,231










Net income per ordinary share:









Basic


0.36


0.26


1.31


0.79

Diluted


0.36


0.26


1.31


0.78

Shares used in income per share computation:









Weighted average number of ordinary shares

60,436,871


60,408,369


60,431,201


60,112,281

Weighted average number of diluted ordinary shares

61,296,907


61,225,248


61,245,982


60,909,201


 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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












Mar 31,


Dec 31,





2018


2017





(Unaudited)


(Unaudited)

ASSETS






Current assets







Cash and cash equivalents

$

237,971

$

231,070



Time deposits with maturities over three months


146,984


134,379



Restricted cash


28,888


35,986



Accounts receivable, net of allowance for doubtful accounts of $51,049 and 
     $49,041 as of March 31,2018 and December 31, 2017, respectively


267,799


257,611



Costs and estimated earnings in excess of billings, net of allowance for doubtful 
     accounts of $12,192 and $12,472 as of March 31, 2018 and December 31, 
     2017, respectively


212,603


199,736



Other receivables, net of allowance for doubtful accounts of $1,472 and $1,568 as 
     of March 31, 2018 and December 31, 2017, respectively


24,498


16,857



Advances to suppliers


11,577


8,523



Amounts due from related parties


33,187


28,642



Inventories


56,893


47,602



Prepaid expenses


707


797



Income tax recoverable


457


170








Total current assets


1,021,564


961,373








Non-current assets







Restricted cash


1,479


461



Prepaid expenses


1


8



Property, plant and equipment, net


86,082


84,025



Prepaid land leases


10,742


10,472



Intangible assets, net


1,631


1,602



Investments in equity investees


60,580


58,219



Investments in cost investees


4,349


4,191



Goodwill


52,192


51,175



Deferred tax assets


8,376


8,583


Total non-current assets


 

225,432


218,736








Total assets


 

1,246,996


1,180,109








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Derivative financial liability


535


535



Short-term bank loans


7,930


7,859



Current portion of long-term loans


387


401



Accounts payable


138,061


126,095



Construction costs payable


173


167



Deferred revenue


144,216


130,451



Accrued payroll and related expenses


11,417


17,724



Income tax payable


3,354


5,237



Warranty liabilities


5,907


6,136



Other tax payables


6,599


11,052



Accrued liabilities


22,927


22,014



Amounts due to related parties


3,788


3,169


Total current liabilities


345,294


330,840








Non-current liabilities







Accrued liabilities


6,078


9,155



Long-term loans


21,212


21,064



Deferred tax liabilities


12,168


9,838



Warranty liabilities


2,715


2,642


Total non-current liabilities


42,173


42,699








Total liabilities


387,467


373,539









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 March 31, 2018 and December 
     31, 2017


60


60



Additional paid-in capital


222,771


222,514



Statutory reserves


43,611


41,130



Retained earnings


552,711


533,347



Accumulated other comprehensive income


40,192


9,411


Total Hollysys Automation Technologies Ltd. stockholder's equity


859,345


806,462










Non-controlling interests


184


108


Total equity


859,529


806,570









Total liabilities and equity

$

1,246,996

$

1,180,109

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)




Three months ended


Nine months ended

Mar 31, 2018


Mar 31, 2018




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

21,917

$

79,594

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






Depreciation of property, plant and equipment


1,671


5,060


Amortization of prepaid land leases


68


198


Amortization of intangible assets


-


279


Allowance for doubtful accounts


(616)


3,571


Gain on disposal of property, plant and equipment


(80)


(32)


Share of net income from equity investees


(194)


(2,466)


Share-based compensation expenses


257


582


Deferred income tax expenses


2,383


1,628


Accretion of convertible bond


57


315


Fair value adjustments of a bifurcated derivative


-


48


Gain from the derecognition of nonfinancial assets


-


(2,345)

Changes in operating assets and liabilities:






Accounts receivable


(4,517)


(3,670)


Costs and estimated earnings in excess of billings


(5,094)


(39,555)


Inventories 


(7,200)


(7,244)


Advances to suppliers


(1,009)


(1,070)


Other receivables 


(6,644)


(2,838)


Deposits and other assets


7,263


12,238


Due from related parties


(3,223)


3,554


Accounts payable


5,765


5,924


Deferred revenue


9,100


27,453


Accruals and other payables


(8,540)


(5,399)


Due to related parties


489


1,246


Income tax payable


(2,159)


4,643


Other tax payables


(4,659)


(4,533)


Net cash provided by operating activities


5,035


77,181







Cash flows from investing activities:






Time deposits placed with banks


(29,852)


(149,592)


Purchases of property, plant and equipment


(247)


(858)


Maturity of time deposits


26,563


112,778


Proceeds from disposal of property, plant and equipment


101


151


Investment of an equity investee


(1,594)


(5,806)


Acquisition of a subsidiary, net of cash acquired


-


(583)


Net cash used in investing activities


(5,029)


(43,910)







Cash flows from financing activities:






Proceeds from short-term bank loans


418


1,471


Repayments of short-term bank loans


(499)


(2,053)


Proceeds from long-term bank loans


-


537


Repayments of long-term bank loans


-


(363)


Payment of Dividends


-


(7,241)


Net cash used in financing activities


(81)


(7,649)








Effect of foreign exchange rate changes


6,976


14,709


Net increase in cash and cash equivalents

$

6,901

$

40,331








Cash and cash equivalents, beginning of period

$

231,070

$

197,640


Cash and cash equivalents, end of period


237,971


237,971

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,




2018


2017


2018


2017




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Cost of integrated contracts

$

73,297

$

59,126

$

229,295

$

196,936

Less: Amortization of acquired intangible assets


-


-


279


263

Non-GAAP cost of integrated contracts

$

73,297

$

59,126

$

229,016

$

196,673











General and administrative expenses

$

7,874

$

6,847

$

31,333

$

29,177

Less: Share-based compensation expenses


257


(1,907)


581


(70)

Non-GAAP general and administrative expenses

$

7,617

$

8,754

$

30,752

$

29,247











Net income attributable to Hollysys Automation
Technologies Ltd.

$

21,842

$

15,623

$

79,433

$

47,280

Add:










Share-based compensation expenses


257


(1,907)


581


(70)


Amortization of acquired intangible assets


-


-


279


263

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

$

22,099

$

13,716

$

80,293

$

47,473












Weighted average number of basic ordinary shares

60,436,871


60,408,369


60,431,201


60,112,281


Weighted average number of diluted ordinary shares

61,296,907


61,225,248


61,245,982


60,909,201

Non-GAAP basic earnings per share

$

0.37

$

0.23

$

1.33

$

0.79

Non-GAAP diluted earnings per share

$

0.36

$

0.22

$

1.32

$

0.78












 

SOURCE Hollysys Automation Technologies, Ltd


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