Hollysys Automation Technologies Reports Unaudited Financial Results for the Second Quarter and the First Half Year Ended December 31, 2021

Mar 15, 2022

First Half of Fiscal Year 2022 Financial Highlights

  • Total revenues were $369.6 million, an increase of 13.8% compared to the comparable prior year period.
  • Gross margin was 35.3%, compared to 36.1% for the comparable prior year period. Non-GAAP gross margin was 35.4%, compared to 36.1% for the comparable prior year period.
  • Net income attributable to Hollysys was $44.3 million, a decrease of 14.6% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $51.3 million, a decrease of 3.3% compared to the comparable prior year period. 
  • Diluted earnings per share was $0.72, a decrease of 16.3% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.83, a decrease of 4.6% compared to the comparable prior year period.
  • Net cash provided by operating activities was $51.1 million.
  • Days sales outstanding ("DSO") of 173 days, compared to 163 days for the comparable prior year period.
  • Inventory turnover days of 48 days, compared to 41 days for the comparable prior year period.

Second Quarter of Fiscal Year 2022 Financial Highlights

  • Total revenues were $216.3 million, an increase of 10.7% compared to the comparable prior year period.
  • Gross margin was 36.1%, compared to 37.7% for the comparable prior year period. Non-GAAP gross margin was 36.2%, compared to 37.7% for the comparable prior year period.
  • Net income attributable to Hollysys was $30.1 million, a decrease of 4.1% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $33.1 million, an increase of 2.9% compared to the comparable prior year period.
  • Diluted earnings per share was $0.49, a decrease of 3.9% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.54, an increase of 1.9% compared to the comparable prior year period.
  • Net cash provided by operating activities was $29.3 million.
  • DSO of 147 days, compared to 142 days for the comparable prior year period.
  • Inventory turnover days of 50 days, compared to 40 days for the comparable prior year period.

See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin, non-GAAP net income attributable to Hollysys and non-GAAP diluted earnings per share.

BEIJING, March 15, 2022 /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 first half of fiscal year 2022 ended December 31, 2021. Dr. Changli Wang, the CEO and director of Hollysys, stated:

"We are very delighted to report another fiscal quarter with solid financial and operational performance against all external and internal odds. Amid a disturbing and unfavorable environment, Hollysys never forgot our vision of bringing people better lives, showed great solidarity, confidence and strength to all, especially when wrapped in sandpaper, and lived up to our mission and honor. Today, in a seemingly mundane moment, fate requires me to be here shouldering the responsibility of leading Hollysys to a widely shared expectation of a promising future. We will continue to demonstrate the classic Hollysys spirit, building up and adding value to the Company through larger market shares and penetration on pillar business units of industrial automation ("IA") and rail transportation automation ("RTA") and potential drives on possible new business segments like new energy, among others. There was a decrease in net income for the reporting period compared to that for the comparable prior year period, primary due to an increase in operating expenses, especially research and development expenses and general and administration expenses. However, we believe such investment in operating expenses will give more knowledge and insights for the Company to optimize its existing operation and achieve greater economies of scale in a long run.

Here I would like to take the opportunity to discuss the current situation of the Company and address a brief development strategy.

The Company is of high growing potential. After over a month's discussion with colleagues from different levels and business units, a fact found is that Hollysys embraced various expertise from our competitors and our senior technicians have grown into capable specialists or managers with clear minds, distinct directions and glowing motivations over years. In addition, our research and development capability has been enhanced significantly. Furthermore, the current incentive plan and performance appraisal system are effective and encouraging. Externally, China is facing the challenges of an aging population tendency and achieving carbon peaking and carbon neutrality goals, which provides Hollysys with great developing opportunities and directions.

Based on the situations stated above, Hollysys mapped out developing strategy below. On IA business, we are initiating steps to extend aggressively by grasping the chance of market reshuffle with advantages of our exceptional and reliable solutions, sophisticated engineering work, competent personnel and national service network. Additionally, we are extending product lines down stream to hardware and upper stream to comprehensive integrated control platforms. On RTA business, we will sustain and fortify our market share in high speed rail, enrich product lines constantly, foster subway signaling for a further breakthrough, and promote application of new products of urban transportation. In new business segments, we intend to launch new energy related products and services after proper investigation and evaluation.

Then I would like to share some highlights and breakthrough the Company made in the first half of fiscal year 2022:

IA business continued its strong growth momentum with larger market shares. The Company keeps investment in research and development, aiming at users' challenges, carries out technological innovation, and strives to meet the needs of users. In the first half of fiscal year 2022, for example, Hollysys launched a new product—Industrial Optical Bus Control System ("OCS"), and achieved a number of contract breakthroughs. The application of the technology can help customers greatly reduce project cost, cut construction period and improve maintenance efficiency. This not only created huge economic benefits for customers, but also saved lots of non-ferrous copper for the society and fulfilled goals of energy saving and emission reduction. The smooth implementation of the projects also creates conditions for the full promotion of OCS in 2022. At the same time, Hollysys launched a fully self-controllable Distributed Control System ("DCS") to meet the increasing requirements of customers on reliability and security. In the first half of fiscal year 2022, such updated DCS system has been applied successfully in the project of 600MW power unit, the pipage of refined oil product, etc.

In the field of chemical and petrochemical industry, the Company has maintained its fast pace, which proves that its strategy of "vigorously developing chemical and petrochemical industry" is effective. In the first half of the fiscal year 2022, we gained a number of breakthrough projects, including signing a large scale oil refining project in Hainan. In addition, as of December 31, 2021, the Company has accumulated 38 offshore platform project orders, ranking first among domestic suppliers.

In our RTA business, we are excited about winning some key contracts. For example, we signed contracts to provide Automatic Train Protection ("ATP") with automatic train operation function to the Pearl River Delta region and the contract to provide Supervisory Control and Data Acquisition ("SCADA") system to Chengdu rail transit Line 30 Phase I. At the same time, the Company continues to offer various after-sales services, including software upgrading, spare parts sales, and maintenance and replacement services for high speed rail. Especially, in Hong Kong, we successfully entered into the second three-year maintenance contract with Mass Transit Railway Corporation Limited. In project delivery, several lines that we participated in went into operation, such as our track circuit which officially went into service, representing the first application of Hollysys track circuit on C2 high speed rail. Also, the first application of Hollysys subway signaling system in Kunming Changshui Airport Express went into full operation smoothly. In addition to boosting and exploring diversified development opportunities, the Company is also continuously promoting the incubation of innovative businesses. In the first half of the fiscal year 2022, both highway business and vocational education business have made remarkable progress. For example, in the field of vocational education, a comprehensive project of high-speed railway operation control drill field was signed with a railway vocational and technical college. In the field of highway, we signed the intelligent platform project of tunnel inspection and highway operation decision.

For overseas business, Thomson Line II in Singapore that the Company provided SCADA has been successfully put into operation. Under the threat of COVID-19, Hollysys project team worked unitedly to achieve the successful delivery of the project while ensuring personal safety and health, and won a very challenging and valuable award of the "Engineering Safety Excellence Award" 2021 from the Land Transport Authority of Singapore. Overall speaking, COVID-19 remains a challenge to the business unit of mechanical and electrical solutions and other overseas business. We will keep monitoring the impact of COVID-19, and risk control remains our key focus.

With our clear strategies, contentious dedication and experienced loyal expertise, we believe that we will continue to create greater value for our clients and shareholders."

 

Second Quarter and First Half Year Ended December 31, 2021 Unaudited Financial Results Summary

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








Three months ended
December 31,



Six months ended
December 31,


,


2021

2020

%
Change


2021

2020

%
Change










Revenues

$

216,251

195,328

10.7%

$

369,636

324,795

13.8%

    Integrated solutions contracts revenue

$

166,505

142,468

16.9%

$

291,068

248,174

17.3%

    Products sales

$

9,871

8,458

16.7%

$

19,517

15,026

29.9%

    Service rendered

$

39,875

44,402

(10.2)%

$

59,051

61,595

(4.1)%

Cost of revenues

$

138,264

121,709

13.6%

$

239,254

207,675

15.2%

Gross profit

$

77,987

73,619

5.9%

$

130,382

117,120

11.3%

Total operating expenses

$

54,268

40,172

35.1%

$

91,947

62,903

46.2%

    Selling

$

13,620

10,260

32.7%

$

23,029

18,435

24.9%

    General and administrative

$

25,965

14,404

80.3%

$

43,040

24,757

73.8%

    Research and development

$

20,611

18,620

10.7%

$

36,660

28,601

28.2%

    VAT refunds and government subsidies

$

(5,928)

(3,112)

90.5%

$

(10,782)

(8,890)

21.3%

Income from operations

$

23,719

33,447

(29.1)%

$

38,435

54,217

(29.1)%

Other (expense) income, net

$

(9)

1,545

(100.6)%

$

959

2,774

(65.4)%

Foreign exchange loss

$

(1,288)

(3,345)

(61.5)%

$

(1,714)

(5,668)

(69.8)%

Gains on disposal of investments in an
  equity investee

$

7,995

-

100.0%

$

7,995

-

100.0%

Share of net income of equity investees

$

774

2,768

(72.0)%

$

986

4,659

(78.8)%

Dividend income from equity investments

$

179

3

5866.7%

$

179

3

5866.7%

Interest income

$

3,323

2,922

13.7%

$

6,183

6,720

(8.0)%

Interest expenses

$

(22)

(141)

(84.4)%

$

(366)

(277)

32.1%

Income tax expenses

$

4,767

5,906

(19.3)%

$

8,669

10,666

(18.7)%

Net loss attributable to non-controlling
  interests

$

(167)

(71)

135.2%

$

(341)

(151)

125.8%










Net income attributable to Hollysys
  Automation Technologies Ltd.

$

30,071

31,364

(4.1)%

$

44,329

51,913

(14.6)%

Basic earnings per share

$

0.49

0.52

(5.8)%

$

0.73

0.86

(15.1)%

Diluted earnings per share

$

0.49

0.51

(3.9)%

$

0.72

0.86

(16.3)%










Share-based compensation expenses

$

2,713

763

255.6%

$

6,306

938

572.3%

Amortization of acquired intangible assets

$

353

79

346.8%

$

632

155

307.7%

Non-GAAP net income attributable to
  Hollysys Automation Technologies Ltd.(1)

$

33,137

32,206

2.9%

$

51,267

53,006

(3.3)%

Non-GAAP basic earnings per share(1)

$

0.54

0.53

1.9%

$

0.84

0.88

(4.5)%

Non-GAAP diluted earnings per share(1)

$

0.54

0.53

1.9%

$

0.83

0.87

(4.6)%

Basic weighted average number of ordinary
  shares outstanding


60,946,596

60,500,387

0.7%


60,884,346

60,498,431

0.6%

Diluted weighted average number of
  ordinary shares outstanding


61,682,393

60,933,785

1.2%


61,556,602

60,693,633

1.4%











(1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures.

Operational Results Analysis for the Second Quarter Ended December 31, 2021

Compared to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31, 2021 increased from $195.3 million to $216.3 million, representing an increase of 10.7%. In terms of revenues by type, integrated contracts revenue increased by 16.9% to $166.5 million, products sales revenue increased by 16.7% to $9.9 million, and services revenue decreased by 10.2% to $39.9 million.

The following table sets forth the Company's total revenues by segment for the periods indicated.

(In USD thousands, except for %)















Three months ended December 31,


Six months ended December 31,




2021


2020


2021


2020




$

% of
Total
Revenue


$

% of
Total
Revenue


$

% of
Total
Revenue


$

% of
Total
Revenue


Industrial Automation


113,833

52.7


92,889

47.6


216,294

58.5


174,819

53.8


Rail Transportation Automation


79,411

36.7


81,269

41.6


115,346

31.2


109,965

33.9


Mechanical and Electrical Solution


23,007

10.6


21,170

10.8


37,996

10.3


40,011

12.3


Total


216,251

100.0


195,328

100.0


369,636

100.0


324,795

100.0




















Gross margin was 36.1% for the three months ended December 31, 2021, as compared to 37.7% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to product and service mix. Gross margin of integrated solutions contracts, product sales, and service rendered was 27.5%, 75.0% and 62.0% for the three months ended December 31, 2021, as compared to 27.9%, 85.6% and 59.8% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 36.2% for the three months ended December 31, 2021, as compared to 37.7% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 27.7% for the three months ended December 31, 2021, as compared to 28.0% for the same period of the prior fiscal year. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin and non-GAAP gross margin of integrated solutions contracts.

Selling expenses were $13.6 million for the three months ended December 31, 2021, representing an increase of $3.3 million, or 32.7%, compared to $10.3 million for the same period of the prior fiscal year, which was primarily due to the significant increase of sales scale. Selling expenses as a percentage of total revenues were 6.3% and 5.3% for the three months ended December 31, 2021 and 2020, respectively.

General and administrative expenses were $26.0 million for the quarter ended December 31, 2021, representing an increase of $11.6 million or 80.3% compared to $14.4 million for the same quarter of the prior year, which was primarily due to a $7.3 million increase in credit losses and increased investments in strategic planning, internal management, compliance and corporate governance to improve the Company's core competitiveness. Share-based compensation expenses were $2.7 million and $0.8 million for the three months ended December 31, 2021 and 2020, respectively. General and administrative expenses as a percentage of total revenues were 12.0% and 7.4% for the three months ended December 31, 2021 and 2020, respectively. 

Research and development expenses were $20.6 million for the three months ended December 31, 2021, representing an increase of $2.0 million, or 10.7%, compared to $18.6 million for the same period of the prior fiscal year, which was primarily due to increased investments in R&D, including the upgrading of mainstream products and new products developed to meet the needs of the digital infrastructure market, such as the new generation DCS Macs V7, smart factory and smart city rail. Research and development expenses as a percentage of total revenues were 9.5% and 9.5% for the three months ended December 31, 2021 and 2020, respectively.

The VAT refunds and government subsidies were $5.9 million for three months ended December 31, 2021, as compared to $3.1 million for the same period in the prior fiscal year, representing a $2.8 million, or 90.5%, increase.

The income tax expenses and the effective tax rate were $4.8 million and 13.7% for the three months ended December 31, 2021, respectively, as compared to $5.9 million and 15.9% for comparable period in the prior fiscal year, respectively. The effective tax rate fluctuates, as the Company's subsidiaries contributed different pre-tax income at different tax rates.

Net income attributable to Hollysys was $30.1 million, representing a decrease of 4.1% from $31.4 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys, was $33.1 million or $0.54 per diluted share. See the section entitled "Non-GAAP Measures" for more information about non-GAAP net income attributable to Hollysys.

Diluted earnings per share was $0.49 for the three months ended December 31, 2021, a decrease of 3.9% from $0.51 reported in the reported in the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.54 for the three months ended December 31, 2021, an increase of 1.9% from $0.53 reported in the comparable period in the prior fiscal year. These were calculated based on 61.7 million and 60.9 million diluted weighted average ordinary shares outstanding for the three months ended December 31, 2021 and 2020. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $278.8 million of value of new contracts for the three months ended December 31, 2021. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $772.1 million as of December 31, 2021. The following table sets forth a breakdown of the value of new contracts achieved and backlog by segment.

(In USD thousands, except for %)






Value of new contracts achieved


Backlog


for the three months

 ended December 31, 2021


as of December 31, 2021


$


% of Total
Contract

Value


$

% of Total
Backlog

Industrial Automation


92,989

33.3


308,882

40.0

Rail Transportation Automation


169,501

60.9


352,785

45.7

Mechanical and Electrical Solutions


16,294

5.8


110,418

14.3

Total


278,784

100.0


772,085

100.0









Cash Flow Highlights

For the three months ended December 31, 2021, the total net cash inflow was $11.4 million. The net cash provided by operating activities was $29.3 million. The net cash used in investing activities was $27.8 million, mainly consisting of $23.1 million purchases of short-term investments, $7.9 million purchases of property, plant and equipment, and $6.5 million acquisition of a subsidiary, partially offset by $9.5 million of receipts from collection of advances to equity investees.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $715.5 million, $704.9 million, and $356.9 million as of December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

For the three months ended December 31, 2021, DSO was 147 days, as compared to 142 days for the comparable prior fiscal year and 198 days for the last fiscal quarter; inventory turnover days were 50 days, as compared to 40 days for the comparable prior fiscal year and 55 days for the last fiscal quarter.

Financial Performance Guidance

Based on information available as of the date of this press release, Hollysys provides the following financial performance guidance for the full fiscal year 2022:

  • The total value of new contracts signed is expected to be between $770 million and $870 million, with a year-on-year increase of 5% to 18%.
  • Revenue is expected to be between $625 million and $695 million, with a year-on-year increase of 5% to 17%.

About Hollysys Automation Technologies Ltd.

Hollysys is a leading automation control system solutions provider in China, with overseas operations in eight other countries and regions throughout Asia. Leveraging its proprietary technology and deep industry know-how, Hollysys empowers its customers with enhanced operational safety, reliability, efficiency, and intelligence which are critical to their businesses. Hollysys derives its revenues mainly from providing integrated solutions for industrial automation and rail transportation automation. In industrial automation, Hollysys delivers the full spectrum of automation hardware, software, and services spanning field devices, control systems, enterprise manufacturing management and cloud-based applications. In rail transportation automation, Hollysys provides advanced signaling control and SCADA (Supervisory Control and Data Acquisition) systems for high-speed rail and urban rail (including subways). Founded in 1993, with technical expertise and innovation, Hollysys has grown from a research team specializing in automation control in the power industry into a group providing integrated automation control system solutions for customers in diverse industry verticals. As of June 30, 2021, Hollysys had cumulatively carried out more than 35,000 projects for approximately 20,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions.

SAFE HARBOR STATEMENTS

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 "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "target," "confident," 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


Six months ended



December 31,


December 31,



2021


2020


2021


2020



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net revenues









Integrated solutions contracts revenue

$

166,505

$

142,468

$

291,068

$

248,174

Products sales


9,871


8,458


19,517


15,026

Revenue from services


39,875


44,402


59,051


61,595

Total net revenues


216,251


195,328


369,636


324,795










Costs of integrated solutions contracts


120,654


102,656


213,963


181,737

Cost of products sold


2,469


1,218


4,898


2,947

Costs of services rendered


15,141


17,835


20,393


22,991

Gross profit


77,987


73,619


130,382


117,120










Operating expenses









Selling


13,620


10,260


23,029


18,435

General and administrative


25,965


14,404


43,040


24,757

Research and development


20,611


18,620


36,660


28,601

VAT refunds and government subsidies


(5,928)


(3,112)


(10,782)


(8,890)

Total operating expenses


54,268


40,172


91,947


62,903










Income from operations


23,719


33,447


38,435


54,217










Other (expense) income, net


(9)


1,545


959


2,774

Foreign exchange loss


(1,288)


(3,345)


(1,714)


(5,668)

Gains on disposal of an investment in an equity investee


7,995


-


7,995


-

Share of net income of equity investees


774


2,768


986


4,659

Dividend income from equity investments


179


3


179


3

Interest income


3,323


2,922


6,183


6,720

Interest expenses


(22)


(141)


(366)


(277)

Income before income taxes


34,671


37,199


52,657


62,428










Income taxes expenses


4,767


5,906


8,669


10,666

Net income


29,904


31,293


43,988


51,762










Net loss attributable to non-controlling interests

(167)


(71)


(341)


(151)

Net income attributable to Hollysys Automation
  Technologies Ltd.

$

30,071

$

31,364

$

44,329

$

51,913










Other comprehensive income, net of tax of nil








Translation adjustments


17,456


44,703


16,559


83,653

Comprehensive income


47,360


75,996


60,547


135,415










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

(58)


(28)


(175)


53

Comprehensive income attributable to Hollysys
  Automation Technologies Ltd.

$

47,418

$

76,024

$

60,722

$

135,362










Net income per ordinary share:









Basic


0.49


0.52


0.73


0.86

Diluted


0.49


0.51


0.72


0.86

Shares used in net income per share computation:









Basic

60,946,596


60,500,387


60,884,346


60,498,431

Diluted

61,682,393


60,933,785


61,556,602


60,693,633









 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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












Dec- 31,


Sep- 30,





2021


2021





(Unaudited)


(Unaudited)

ASSETS






Current assets







Cash and cash equivalents

$

715,537

$

704,870



Short-term investments


34,769


11,578



Restricted cash


37,998


37,366



Accounts receivable, net of allowance for credit losses of $74,331 and $67,535 as
  of December 31, 2021 and September 30, 2021, respectively


359,816


326,264



Costs and estimated earnings in excess of billings, net of allowance for credit losses
  of $11,747 and $12,526 as of December 31, 2021 and September 30, 2021,
  respectively


222,480


211,892



Accounts receivable retention


6,219


5,670



Other receivables, net of allowance for credit losses of $16,335 and $16,287 as of
  December 31, 2021 and September 30, 2021, respectively


16,318


18,037



Advances to suppliers


29,171


27,356



Amounts due from related parties


28,310


16,612



Inventories


67,656


68,380



Prepaid expenses


779


878



Income tax recoverable


393


1,278


Total current assets


1,519,446


1,430,181








Non-current assets







Restricted cash


6,015


5,928



Costs and estimated earnings in excess of billings


2,482


1,066



Accounts receivable retention


4,558


4,401



Prepaid expenses


2


1



Property, plant and equipment, net


109,297


97,515



Prepaid land leases


18,120


16,409



Intangible assets, net


12,152


13,031



Investments in equity investees


46,920


61,824



Investments securities


2,659


2,621



Goodwill


22,527


21,568



Deferred tax assets


13,635


11,865



Operating lease right-of-use assets


5,221


5,983


Total non-current assets


243,588


242,212


Total assets


1,763,034


1,672,393








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Short-term bank loans


12


-



Current portion of long-term loans


15,371


15,223



Accounts payable


180,653


158,040



Construction costs payable


3,540


917



Deferred revenue


208,173


194,164



Accrued payroll and related expenses


33,263


24,694



Income tax payable


6,054


4,819



Warranty liabilities


6,474


6,239



Other tax payables


16,138


9,596



Accrued liabilities


47,653


53,947



Amounts due to related parties


8,544


15,038



Other liability


3


3



Operating lease liabilities


378


598


Total current liabilities


526,256


483,278








Non-current liabilities







Accrued liabilities


4,535


4,831



Long-term loans


568


581



Accounts payable


994


1,035



Deferred tax liabilities


13,617


14,914



Warranty liabilities


3,038


3,293



Operating lease liabilities


4,432


4,945



Other liability


78


78


Total non-current liabilities


27,262


29,677


Total liabilities


553,518


512,955









Commitments and contingencies


-


-









Stockholders' equity:







Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
  61,961,324 shares and 61,960,524 shares issued and outstanding as of
  December 31, 2021 and September 30, 2021


62


62



Additional paid-in capital


240,073


237,361



Statutory reserves


76,829


64,449



Retained earnings


838,547


820,860



Accumulated other comprehensive income


49,207


31,860


Total Hollysys Automation Technologies Ltd. stockholder's equity


1,204,718


1,154,592



Non-controlling interests


4,798


4,846


Total equity


1,209,516


1,159,438


Total liabilities and equity

$

1,763,034

$

1,672,393

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands).




 

Three months ended


Six months ended

December 31, 2021


December 31, 2021




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

29,904

$

43,988

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






Depreciation of property, plant and equipment


2,586


5,084


Amortization of prepaid land leases


107


211


Amortization of intangible assets


579


661


Allowance for credit losses


7,874


8,002


Gains on disposal of property, plant and equipment


(6)


(1)


Share of net income of equity investees


(774)


(986)


Share-based compensation expenses


2,713


6,306


Deferred income tax expenses


(2,983)


(4,287)


Other income (expense), net


(263)


-


Gains on disposal of an investment in an equity investee


(7,995)


(7,995)

Changes in operating assets and liabilities:






Accounts receivable and retention


(37,548)


(24,810)


Costs and estimated earnings in excess of billings


(8,978)


(21,797)


Inventories 


1,695


(12,612)


Advances to suppliers


(1,434)


(8,006)


Other receivables 


1,872


3,161


Prepaid expenses


104


154


Due from related parties


3,950


6,072


Accounts payable


22,863


29,382


Deferred revenue


11,026


11,057


Accruals and other payables


(4,136)


(2,329)


Due to related parties


(228)


6,883


Income tax payable


2,049


2,572


Other tax payables


6,371


10,429


Net cash provided by operating activities


29,348


51,139







Cash flows from investing activities:






Purchases of short-term investments


(23,111)


(26,259)


Purchases of property, plant and equipment


(7,890)


(11,095)


Proceeds from disposal of property, plant and equipment


44


44


Maturity of short-term investments


190


40,430


Receipts from collection of advances to equity investees


9,497


9,497


Acquisition of a subsidiary, net of cash acquired


(6,527)


(8,726)


Net cash (used in) provided by investing activities


(27,797)


3,891







Cash flows from financing activities:






Proceeds from short-term bank loans


49


49


Repayments of short-term bank loans


(38)


(38)


Proceeds from long-term bank loans


156


228


Repayments of long-term bank loans


(179)


(365)


Net cash used in financing activities


(12)


(126)








Effect of foreign exchange rate changes


9,847


9,099


Net increase in cash, cash equivalents and restricted cash

$

11,386


64,003








Cash, cash equivalents and restricted cash, beginning of period

$

748,164


695,547


Cash, cash equivalents and restricted cash, end of period


759,550


759,550

Non-GAAP Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, in evaluating our results, we use the following non-GAAP financial measures: non-GAAP gross profit and non-GAAP gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share.

These non-GAAP financial measures serve as additional indicators of our operating performance and not as any replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures help identify underlying trends in the Company's business that could otherwise be distorted by the effect of the share-based compensation expenses, which are calculated based on the number of shares or options granted and the fair value as of the grant date, and amortization of acquired intangible assets. 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.

Non-GAAP gross profit and non-GAAP gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share should not be considered in isolation or construed as an alternative to gross profit and gross margin, gross profit and gross margin of integrated solutions contracts, net income attributable to Hollysys Automation Technologies Ltd., basic and diluted earnings per share, or any other measure of performance, or as an indicator of the Company's operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Non-GAAP gross profit and gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data. The Company encourages investors and others to review the Company's financial information in its entirety and not rely on a single financial measure.

We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, adjusted to exclude non-cash amortization of acquired intangibles. The following table provides a reconciliation of our gross profit and gross margin to non-GAAP gross profit and non-GAAP gross margin for the periods indicated.

(In USD thousands, except for %)




Three months ended


Six months ended




December 31,


December 31,




2021


2020


2021


2020




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Gross profit

$

77,987


73,619


130,382


117,120

Gross margin(1)


36.1%


37.7%


35.3%


36.1%

Add:









  Amortization of acquired intangible assets


353


79


632


155

Non-GAAP gross profit

$

78,340

$

73,698

$

131,014

$

117,275

Non-GAAP gross margin(2)


36.2%


37.7%


35.4%


36.1%











(1) Gross margin represents gross profit for the period as a percentage of revenue for such period.

(2) Non-GAAP gross margin represents non-GAAP gross profit for the period as a percentage of revenue for such period.

We define non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts as gross profit and gross margin of integrated solutions contracts, respectively, adjusted to exclude non-cash amortization of acquired intangibles associated with integrated solutions contracts. The following table provides a reconciliation of the gross profit of integrated solutions contracts to non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts for the periods indicated.

(In USD thousands, except for %)



Three months ended December 31,


Six months ended December 31,



2021


2020


2021


2020



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Gross profit of integrated
  solutions contracts

$

45,851

$

39,812

$

77,105

$

66,437

Gross margin of integrated
  solutions contracts(1)


27.5%


27.9%


26.5%


26.8%










Add:

  Amortization of acquired intangible
   assets


353


79


632


155

Non-GAAP gross profit of
  integrated solutions contracts

$

46,204

$

39,891

$

77,737

$

66,592

Non-GAAP gross margin of
  integrated solutions contracts(2)


27.7%


28.0%


26.7%


26.8%










(1) Gross margin of integrated solutions contracts represents gross profit of integrated solutions contracts for the period as a  percentage of integrated solutions contracts revenue for such period.

(2) Non-GAAP gross margin of integrated solutions contracts represents non-GAAP gross profit of integrated solutions contracts for the period as a percentage of integrated solutions contracts revenue for such period.

We define non-GAAP net income attributable to Hollysys as net income attributable to Hollysys adjusted to exclude the share-based compensation expenses and non-cash amortization of acquired intangible assets. The following table provides a reconciliation of net income attributable to Hollysys to non-GAAP net income attributable to Hollysys for the periods indicated.

(In USD thousands)




Three months ended


Six months ended




December 31,


December 31,




2021


2020


2021


2020




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Net income attributable to Hollysys Automation
  Technologies Ltd.

$

30,071

$

31,364

$

44,329

$

51,913

Add:










Share-based compensation expenses


2,713


763


6,306


938


Amortization of acquired intangible assets


353


79


632


155

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

$

33,137

$

32,206

$

51,267

$

53,006











Non-GAAP basic (or diluted) earnings per share represents non-GAAP net income attributable to Hollysys divided by the weighted average number of ordinary shares outstanding during the periods (or on a diluted basis). The following table provides a reconciliation of our basic (or diluted) earnings per share to non-GAAP basic (or diluted) earnings per share for the periods indicated.

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




Three months ended


Six months ended




December 31,


December 31,




2021


2020


2021


2020




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Net income attributable to Hollysys Automation
  Technologies Ltd.

$

30,071

$

31,364

$

44,329

$

51,913

Add:









  Share-based compensation expenses


2,713


763


6,306


938

  Amortization of acquired intangible assets


353


79


632


155

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

$

33,137

$

32,206

$

51,267

$

53,006










Weighted average number of basic ordinary shares


60,946,596


60,500,387


60,884,346


60,498,431

Weighted average number of diluted ordinary shares


61,682,393


60,933,785


61,556,602


60,693,633










Basic earnings per share(1)


0.49


0.52


0.73


0.86

Add:
non-GAAP adjustments to net income per
  share(2)


0.05


0.01


0.11


0.02

Non-GAAP basic earnings per share(3)

$

0.54

$

0.53

$

0.84

$

0.88










Diluted earnings per share(1)


0.49


0.51


0.72


0.86

Add:
non-GAAP adjustments to net income per
  share(2)


0.05


0.02


0.11


0.01

Non-GAAP diluted earnings per share(3)

$

0.54

$

0.53

$

0.83

$

0.87












(1) Basic (or diluted) earnings per share is derived from net income attributable to ordinary shareholders for computing basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).

(2) Non-GAAP adjustments to net income per share is derived from non-GAAP adjustments to net income divided by weighted average number of shares (or on a diluted basis).

(3) Non-GAAP basic (or diluted) earnings per share is derived from non-GAAP net income attributable to ordinary shareholders for computing non-GAAP basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).

 

 

SOURCE Hollysys Automation Technologies Ltd