Hollysys Automation Technologies Reports Unaudited Financial Results for the Third Quarter and the First Nine Months Ended March 31, 2022

Apr 29, 2022

First Nine months of Fiscal Year 2022 Financial Highlights

  • Total revenues were $525.3 million, an increase of 20.9% compared to the comparable prior year period.
  • Gross margin was 33.9%, compared to 36.4% for the comparable prior year period. Non-GAAP gross margin was 34.1%, compared to 36.4% for the comparable prior year period.
  • Net income attributable to Hollysys was $60.2 million, a decrease of 11.2% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $69.5 million, a decrease of 3.0% compared to the comparable prior year period.
  • Diluted earnings per share was $0.98, a decrease of 12.5% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $1.13, a decrease of 4.2% compared to the comparable prior year period.
  • Net cash provided by operating activities was $15.7 million.
  • Days sales outstanding ("DSO") of 183 days, compared to 186 days for the comparable prior year period.
  • Inventory turnover days of 58 days, compared to 52 days for the comparable prior year period.

Third Quarter of Fiscal Year 2022 Financial Highlights

  • Total revenues were $155.7 million, an increase of 41.7% compared to the comparable prior year period.
  • Gross margin was 30.6%, compared to 37.4% for the comparable prior year period. Non-GAAP gross margin was 30.8%, compared to 37.5% for the comparable prior year period.
  • Net income attributable to Hollysys was $15.8 million, a decrease of 0.2% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $18.3 million, a decrease of 2.2% compared to the comparable prior year period.
  • Diluted earnings per share was $0.26, which remained relatively stable compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.30, a decrease of 3.2% compared to the comparable prior year period.
  • Net cash used in operating activities was $35.4 million.
  • DSO of 215 days, compared to 279 days for the comparable prior year period.
  • Inventory turnover days of 69 days, compared to 58 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.

To further align the management's interests with the shareholders' and deliver value to our shareholders through share purchases, Dr. Changli Wang, the CEO and director of Hollysys, through a special purpose vehicle beneficially owned and funded by him, recently purchased a total of 1,055,000 ordinary shares in the open market in accordance with applicable SEC rules and regulations.

BEIJING, April 29, 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 third quarter of fiscal year 2022 ended March 31, 2022. Dr. Changli Wang, the CEO and director of Hollysys, stated:

"We are pleased to report another fiscal quarter with solid financial and operational performance and carried forward of our mission of automation for better lives, even though the COVID-19 continues bringing challenges, such as the rising raw materials costs and the reduced engineering efficiency. I am confident with a promising business future as I am witnessing the self-motivated and goal-oriented management team and employees, raising jointly and heading towards a more prosperous and vigorous Hollysys with clear overall industrial maps and wise developing plans."

The Industrial Automation ("IA") business maintained its strong momentum with augmented market shares as Hollysys had been poised to capitalize on opportunities of the evolving IA industry and had gained wider market recognition.

In the field of chemical and petrochemical industry, we maintained a fast mounting pace. In this fiscal quarter, Hollysys signed a framework agreement with BASF Group for its largest overseas investment project, Zhanjiang Project for the construction of its third largest integrated production base around the globe. Hollysys is the only domestic automation control system supplier in China for this project, providing Gas Detection System ("GDS") and Safety Instrumented System ("SIS"). Furthermore, Hollysys successfully delivered the Carbon Capture, Utilization and Storage ("CCUS") project of Sinopec Group, in which the Company provided Distributed Control System ("DCS"), SIS, GDS, integrated control system and solution. The project is the first one million ton CCUS project in China, and is expected to become the largest CCUS base and a benchmark project in China after its completion. In the future, the Company will continue to strengthen its advantages and competitiveness, helping chemical and petrochemical customers achieve green energy and low carbon goals.

In the thermal power sector, we continued to strengthen our market position in the high-end market and won the bid of several power contracts. For instance, we signed 2*660MW power units in Yan'an, and 2*660MW power units in Xinlin Gol, among others. Despite the slowdown in the thermal power market, our advanced solutions and matured service help us win the favor, adherence and follow-up cooperation of customers, which will inject new vigor into future after-sell performance. Meanwhile, we are making progress on advanced intelligent technologies in the power sector, which will facilitate customers' construction of low-carbon and environmentally friendly projects. For example, the Jimsar Power Generation Project in which the Company participated had successfully passed the trial operation and embraced considerable satisfaction by the customer. Hollysys developed the "Whole-process Intelligent Collaborative Center" solution for the project that covers four functional modules of smart power generation platform, smart management service platform, smart facility application and active information security defense, aiming to build up a low-carbon, environmentally friendly and technology-leading intelligent power station. The Company also set up a new model for the construction of smart power plants in the whole process of the thermal power industry in China.

In addition, the Company is becoming more influential in the food and pharmaceutical field, which was attributable to its accelerated improvements, upgraded products and solutions, and vast breakthroughs on the development of its business among leading customers in the industry. In this fiscal quarter, Hollysys signed a contract with a customer in the pharmaceutical industry in Hubei, who will employ HOLI comprehensive solution including instruments, SIS, Batch Processing System ("BATCH"), Industrial Optical Bus Control System ("OCS"), among others. The Company's solution is expected to help the customer reduce construction costs for users, enhance the reliability and security of the control system and bring remarkable value experience.

In Rail Transportation Automation ("RTA") business, our market position has strengthened, and we take pride in our dedication to national transportation. For example, our technical team dedicated themselves to working at the front line during the Chinese New Year and assisted in maintaining the smooth operation of transportation for Beijing 2022 Winter Olympics and Paralympics. As the Automatic Train Protection ("ATP") supplier of Beijing-Zhangjiakou high-speed railway, Hollysys offered 7x24 hours' world-leading intelligent guard during the events, ensuring the transportation and providing safe, fast, warm and comfortable experience for athletes, coaches and guests around the world. In the metro field, benefiting from our good customer relationships, we won the bid of Supervisory Control and Data Acquisition ("SCADA") project of Chengdu Metro Ziyang Line after winning the Chengdu 30 Line Project in the last few months. With respect to new market opportunities, Hollysys is seeking to leverage self-competitive advantage to sustain its leading position. Hollysys, as the chief editor, participated in the edit of Technical Standard for Precise Traffic Weather System of Highway (the "Standard"), regulating the structure, function, construction and application of highway traffic meteorological system. The implementation of the Standard is expected to further extend Hollysys' competitiveness, which will boost the development of the industry and help the construction of intelligent highways.

COVID-19 remains a challenge to our business, especially to the unit of mechanical and electrical solutions ("M&E") and other overseas business in general. We will continue to monitor the impact of COVID-19 on our business, and risk control remains our key focus.

With our continuous dedication and experienced passionate expertise, we believe that we will continue to create greater value for our clients and shareholders.

Third Quarter and the First Nine months Ended March 31, 2022 Unaudited Financial Results Summary

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








Three months ended

March 31,



Nine months ended

March 31,




2022

2021

%
Change


2022

2021

%
Change










Revenues

$

155,711

109,907

41.7%

$

525,346

434,702

20.9%

    Integrated solutions contracts revenue

$

133,206

85,769

55.3%

$

424,274

333,943

27.0%

    Products sales

$

7,146

6,543

9.2%

$

26,663

21,569

23.6%

    Service rendered

$

15,359

17,595

(12.7)%

$

74,409

79,190

(6.0)%

Cost of revenues

$

108,070

68,807

57.1%

$

347,324

276,482

25.6%

Gross profit

$

47,641

41,100

15.9%

$

178,022

158,220

12.5%

Total operating expenses

$

30,651

23,728

29.2%

$

122,599

86,633

41.5%

    Selling

$

11,409

7,160

59.3%

$

34,438

25,596

34.5%

    General and administrative

$

13,878

14,965

(7.3)%

$

56,918

39,723

43.3%

    Research and development

$

16,291

13,159

23.8%

$

52,951

41,760

26.8%

    VAT refunds and government subsidies

$

(10,927)

(11,556)

(5.4)%

$

(21,708)

(20,446)

6.2%

Income from operations

$

16,990

17,372

(2.2)%

$

55,423

71,587

(22.6)%

Other income, net

$

967

813

18.9%

$

1,927

3,587

(46.3)%

Foreign exchange (loss) gain

$

(498)

391

(227.4)%

$

(2,212)

(5,277)

(58.1)%

Gains on disposal of investments in an
   equity investee

$

-

-

-


7,995

-

-

Share of net (loss) income of equity
   investees

$

(428)

(2,725)

(84.3)%

$

558

1,934

(71.1)%

Losses on disposal of subsidiaries

$

(3)

-

-


(3)

-

-

Dividend income from equity investments

$

(93)

453

(120.5)%

$

86

456

(81.1)%

Interest income

$

3,151

3,132

0.6%

$

9,335

9,852

(5.2)%

Interest expenses

$

(224)

(151)

48.3%

$

(590)

(428)

37.9%

Income tax expenses

$

4,038

3,571

13.1%

$

12,706

14,237

(10.8)%

Net loss attributable to non-controlling
   interests

$

(3)

(145)

(97.9)%

$

(343)

(296)

15.9%

Net income attributable to Hollysys
   Automation Technologies Ltd.

$

15,827

15,859

(0.2)%

$

60,156

67,770

(11.2)%

Basic earnings per share

$

0.26

0.26

0.0%

$

0.99

1.12

(11.6)%

Diluted earnings per share

$

0.26

0.26

0.0%

$

0.98

1.12

(12.5)%










Share-based compensation expenses

$

2,076

2,750

(24.5)%

$

8,382

3,688

127.3%

Amortization of acquired intangible assets

$

370

70

428.6%

$

1,002

225

345.3%

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

$

18,273

18,679

(2.2)%

$

69,540

71,683

(3.0)%

Non-GAAP basic earnings per share(1)

$

0.30

0.31

(3.2)%

$

1.14

1.18

(3.4)%

Non-GAAP diluted earnings per share(1)

$

0.30

0.31

(3.2)%

$

1.13

1.18

(4.2)%

Basic weighted average number of ordinary
   shares outstanding


61,068,732

60,522,107

0.9%


60,945,131

60,502,714

0.7%

Diluted weighted average number of ordinary
   shares outstanding


61,644,902

60,559,890

1.8%


61,560,896

60,736,180

1.4%


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

Operational Results Analysis for the Third Quarter Ended March 31, 2022

Compared to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2022 increased from $109.9 million to $155.7 million, representing an increase of 41.7%. In terms of revenues by type, integrated contracts revenue increased by 55.3% to $133.2 million, products sales revenue increased by 9.2% to $7.1 million, and services revenue decreased by 12.7% to $15.4 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 March 31,


Nine months ended March 31,



2022


2021


2022


2021



$


% of


$


% of


$

% of


$

% of





Total




Total



Total



Total





Revenue




Revenue



Revenue



Revenue

Industrial Automation


101,854


65.4


67,454


61.4


318,147

60.5


242,273

55.7

Rail Transportation Automation


34,224


22.0


30,673


27.9


149,570

28.5


140,638

32.4

Mechanical and Electrical


19,633


12.6


11,780


10.7


57,629

11.0


51,791

11.9

Solution















Total


155,711


100.0


109,907


100.0


525,346

100.0


434,702

100.0

Gross margin was 30.6% for the three months ended March 31, 2022, as compared to 37.4% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to changes in product and service mix. Gross margin of integrated solutions contracts, product sales, and service rendered was 25.4%, 65.9% and 59.5% for the three months ended March 31, 2022, as compared to 25.9%, 81.2% and 77.4% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 30.8% for the three months ended March 31, 2022, as compared to 37.5% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 25.7% for the three months ended March 31, 2022, as compared to 25.9% 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 $11.4 million for the three months ended March 31, 2022, representing an increase of $4.2 million, or 59.3%, compared to $7.2 million for the same period of the prior fiscal year. The increase was primarily due to the significant increase in sales. Selling expenses as a percentage of total revenues were 7.3% and 6.5% for the three months ended March 31, 2022 and 2021, respectively.

General and administrative expenses were $13.9 million for the quarter ended March 31, 2022, representing a decrease of $1.1 million or 7.3% compared to $15.0 million for the same quarter of the prior year, which was primarily due to a $1.3 million decrease in credit losses. Share-based compensation expenses were $2.1 million and $2.8 million for the three months ended March 31, 2022 and 2021, respectively. General and administrative expenses as a percentage of total revenues were 8.9% and 13.6% for the three months ended March 31, 2022 and 2021, respectively. 

Research and development expenses were $16.3 million for the three months ended March 31, 2022, representing an increase of $3.1 million, or 23.8%, compared to $13.2 million for the same period of the prior fiscal year, which was primarily due to increased investments in research and development, 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 10.5% and 12.0% for the three months ended March 31, 2022 and 2021, respectively.

The VAT refunds and government subsidies were $10.9 million for three months ended March 31, 2022, as compared to $11.6 million for the same period in the prior fiscal year, representing a $0.6 million, or 5.4%, decrease.

The income tax expenses and the effective tax rate were $4.0 million and 20.3% for the three months ended March 31, 2022, respectively, as compared to $3.6 million and 18.5% 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 $15.8 million, representing a decrease of 0.2% from $15.9 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys, was $18.3 million or $0.30 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 $0.26 for the three months ended March 31, 2022, which remained relatively stable compared to the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.30 for the three months ended March 31, 2022, a decrease of 3.2% from $0.31 reported in the comparable period in the prior fiscal year. These were calculated based on 61.7 million and 60.6 million diluted weighted average ordinary shares outstanding for the three months ended March 31, 2022 and 2021, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $299.2 million of value of new contracts for the three months ended March 31, 2022. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $924.0 million as of March 31, 2022. 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 March 31, 2022


as of March 31, 2022


$


% of Total
Contract
Value


$

% of Total
Backlog

Industrial Automation


163,699

54.7


357,340

38.7

Rail Transportation Automation


25,108

8.4


342,224

37.0

Mechanical and Electrical Solutions


110,410

36.9


224,477

24.3

Total


299,217

100.0


924,041

100.0









Cash Flow Highlights

For the three months ended March 31, 2022, the total net cash outflow was $47.4 million. The net cash used in operating activities was $35.4 million. The net cash used in investing activities was $14.3 million, mainly consisting of $31.2 million purchases of short-term investments, $8.0 million purchases of property, plant and equipment, and $1.3 million investment of an equity investee, partially offset by $3.8 million of proceeds from disposal of a subsidiary, and 22.3 million of maturity of short-term investments.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $669.8 million, $715.5 million, and $466.1 million as of March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

For the three months ended March 31, 2022, DSO was 215 days, as compared to 279 days for the comparable prior fiscal year and 147 days for the last fiscal quarter; inventory turnover days were 69 days, as compared to 58 days for the comparable prior fiscal year and 50 days for the last fiscal quarter. The inventory balance as of March 31, 2022 was $89.2 million, compared to $67.7 million as of December 31, 2021, as we strategically stocked up inventories to minimize the adverse impacts of the ongoing global supply chain constraints following the COVID-19 outbreak.

Financial Performance Guidance

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

  • Full-year total value of new contracts is expected to be between $900 million and $1 billion, up 23% to 36% year-over-year.
  • Revenue is expected to be in the range of $625 million to $700 million, up 5% to 18% year-over-year.

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
March 31,


Nine months ended
March 31,



2022


2021


2022


2021



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net revenues









Integrated solutions contracts revenue

$

133,206

$

85,769

$

424,274

$

333,943

Products sales


7,146


6,543


26,663


21,569

Revenue from services


15,359


17,595


74,409


79,190

Total net revenues


155,711


109,907


525,346


434,702










Costs of integrated solutions contracts


99,406


63,593


313,369


245,330

Cost of products sold


2,436


1,230


7,334


4,177

Costs of services rendered


6,228


3,984


26,621


26,975

Gross profit


47,641


41,100


178,022


158,220










Operating expenses









Selling


11,409


7,160


34,438


25,596

General and administrative


13,878


14,965


56,918


39,723

Research and development


16,291


13,159


52,951


41,760

VAT refunds and government subsidies


(10,927)


(11,556)


(21,708)


(20,446)

Total operating expenses


30,651


23,728


122,599


86,633










Income from operations


16,990


17,372


55,423


71,587










Other income, net


967


813


1,927


3,587

Foreign exchange (loss) gain


(498)


391


(2,212)


(5,277)

Gains on disposal of an investment in an equity investee


-


-


7,995


-

Losses on disposal of subsidiaries


(3)


-


(3)


-

Share of net (loss) income of equity investees


(428)


(2,725)


558


1,934

Dividend income from equity investments


(93)


453


86


456

Interest income


3,151


3,132


9,335


9,852

Interest expenses


(224)


(151)


(590)


(428)

Income before income taxes


19,862


19,285


72,519


81,711










Income taxes expenses


4,038


3,571


12,706


14,237

Net income


15,824


15,714


59,813


67,474










Net loss attributable to non-controlling interests

(3)


(145)


(343)


(296)

Net income attributable to Hollysys Automation
Technologies Ltd.

$

15,827

$

15,859

$

60,156

$

67,770










Other comprehensive income, net of tax of nil








Translation adjustments


3,954


(5,356)


20,513


78,297

Comprehensive income


19,778


10,358


80,326


145,771










Less: comprehensive loss attributable to non-controlling
   interests

(1,199)


(165)


(1,374)


(113)

Comprehensive income attributable to Hollysys
Automation Technologies Ltd.

$

20,977

$

10,523

$

81,700

$

145,884










Net income per ordinary share:









Basic


0.26


0.26


0.99


1.12

Diluted


0.26


0.26


0.98


1.12

Shares used in net income per share computation:









Basic

61,068,732


60,522,107


60,945,131


60,502,714

Diluted

61,644,902


60,559,890


61,560,896


60,736,180









 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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




March 31,


December 31,



2022


2021

ASSETS


(Unaudited)


(Unaudited)


Current assets







Cash and cash equivalents

$

669,799

$

715,537



Short-term investments


44,085


34,769



Restricted cash


36,298


37,998



Accounts receivable, net of allowance for credit losses of $76,061 and $74,331 as
   of March 31, 2022 and December 31, 2021, respectively


360,589


359,816



Costs and estimated earnings in excess of billings, net of allowance for credit losses
   of $11,077 and $11,747 as of March 31, 2022 and December 31, 2021,
   respectively


220,645


222,480



Accounts receivable retention


6,002


6,219



Other receivables, net of allowance for credit losses of $15,798 and $16,335 as of
   March 31, 2022 and December 31, 2021, respectively


28,734


16,318



Advances to suppliers


32,348


29,171



Amounts due from related parties


21,064


28,310



Inventories


89,175


67,656



Prepaid expenses


756


779



Income tax recoverable


164


393


Total current assets


1,509,659


1,519,446








Non-current assets







Restricted cash


6,026


6,015



Costs and estimated earnings in excess of billings


2,648


2,482



Accounts receivable retention


5,850


4,558



Prepaid expenses


2


2



Property, plant and equipment, net


97,700


109,297



Prepaid land leases


13,135


18,120



Intangible assets, net


11,767


12,152



Investments in equity investees


42,152


46,920



Investments securities


2,576


2,659



Goodwill


20,822


22,527



Deferred tax assets


16,186


13,635



Operating lease right-of-use assets


4,447


5,221


Total non-current assets


223,311


243,588


Total assets


1,732,970


1,763,034








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Short-term bank loans


-


12



Current portion of long-term loans


15,346


15,371



Accounts payable


176,849


180,653



Construction costs payable


98


3,540



Deferred revenue


211,593


208,173



Accrued payroll and related expenses


17,878


33,263



Income tax payable


9,068


6,054



Warranty liabilities


6,814


6,474



Other tax payables


4,443


16,138



Accrued liabilities


36,051


47,653



Amounts due to related parties


2,250


8,544



Other liability


3


3



Operating lease liabilities


2,224


378


Total current liabilities


482,617


526,256








Non-current liabilities







Accrued liabilities


2,047


4,535



Long-term loans


523


568



Accounts payable


1,338


994



Deferred tax liabilities


13,600


13,617



Warranty liabilities


2,618


3,038



Operating lease liabilities


1,912


4,432



Other liability


76


78


Total non-current liabilities


22,114


27,262


Total liabilities


504,731


553,518









Commitments and contingencies


-


-









Stockholders' equity:







Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
   61,962,249 shares and 61,961,324 shares issued and outstanding as of March
   31, 2022 and December 31, 2021,


62


62



Additional paid-in capital


242,149


240,073



Statutory reserves


64,978


76,829



Retained earnings


866,215


838,547



Accumulated other comprehensive income


54,358


49,207


Total Hollysys Automation Technologies Ltd. stockholder's equity


1,227,762


1,204,718



Non-controlling interests


477


4,798


Total equity


1,228,239


1,209,516


Total liabilities and equity

$

1,732,970

$

1,763,034

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands).




 

Three months ended


Nine months ended

March 31, 2022


March 31, 2022




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

15,824

$

59,813

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






Depreciation of property, plant and equipment


2,612


7,696


Amortization of prepaid land leases


101


312


Amortization of intangible assets


384


1,045


Allowance for credit losses


708


8,710


Gains on disposal of property, plant and equipment


(22)


(23)


Share of net income (loss) of equity investees


428


(558)


Share-based compensation expenses


2,076


8,382


Deferred income tax expenses


(2,515)


(6,802)


Gains on disposal of an investment in an equity investee


(25)


(8,020)

Changes in operating assets and liabilities:






Accounts receivable and retention


323


(24,489)


Costs and estimated earnings in excess of billings


2,402


(19,395)


Inventories 


(20,760)


(33,371)


Advances to suppliers


(3,084)


(11,090)


Other receivables 


(7,837)


(4,676)


Prepaid expenses


23


177


Due from related parties


7,359


13,431


Accounts payable


(6,481)


22,900


Deferred revenue


2,623


13,681


Accruals and other payables


(13,941)


(16,270)


Due to related parties


(6,294)


589


Income tax payable


3,224


5,796


Other tax payables


(12,566)


(2,139)


Net cash (used in) provided by operating activities


(35,438)


15,699







Cash flows from investing activities:






Purchases of short-term investments


(31,186)


(57,445)


Purchases of property, plant and equipment


(7,983)


(19,078)


Proceeds from disposal of a subsidiary


3,797


3,797


Proceeds from disposal of property, plant and equipment


33


77


Maturity of short-term investments


22,319


62,749


Investment of an equity investee


(1,261)


(1,261)


Receipts from collection of advances to equity investees


-


9,497


Acquisition of a subsidiary, net of cash acquired


-


(8,726)


Net cash used in investing activities


(14,281)


(10,390)







Cash flows from financing activities:






Proceeds from short-term bank loans


11


60


Repayments of short-term bank loans


(23)


(60)


Proceeds from long-term bank loans


110


339


Repayments of long-term bank loans


(157)


(522)


Net cash used in financing activities


(59)


(183)








Effect of foreign exchange rate changes


2,351


11,450


Net (decrease) increase in cash, cash equivalents and restricted cash

$

(47,427)


16,576








Cash, cash equivalents and restricted cash, beginning of period

$

759,550


695,547


Cash, cash equivalents and restricted cash, end of period


712,123


712,123

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


Nine months ended




March 31,


March 31




2022


2021


2022


2021




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Gross profit

$

47,641

$

41,100


178,022

$

158,220

Gross margin(1)


30.6%


37.4%


33.9%


36.4%

Add:









  Amortization of acquired intangible assets


370


70


1,002


225

Non-GAAP gross profit

$

48,011

$

41,170

$

179,024

$

158,445

Non-GAAP gross margin(2)


30.8%


37.5%


34.1%


36.4%


(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 March 31,


Nine months ended March 31,



2022


2021


2022


2021



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Gross profit of integrated
   solutions contracts

$

33,800

$

22,176

$

110,905

$

88,613

Gross margin of integrated
   solutions contracts(1)


25.4%


25.9%


26.1%


26.5%










Add:

  Amortization of acquired intangible
   assets


370


70


1,002


225

Non-GAAP gross profit of
   integrated solutions contracts

$

34,170

$

22,246

$

111,907

$

88,838

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


25.7%


25.9%


26.4%


26.6%


(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


Nine months ended




March 31,


March 31,




2022


2021


2022


2021




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Net income attributable to Hollysys Automation
   Technologies Ltd.

$

15,827

$

15,859

$

60,156

$

67,770

Add:










Share-based compensation expenses


2,076


2,750


8,382


3,688


Amortization of acquired intangible assets


370


70


1,002


225

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

$

18,273

$

18,679

$

69,540

$

71,683











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


Nine months ended




March 31,


March 31,




2022


2021


2022


2021




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Net income attributable to Hollysys Automation
   Technologies Ltd.

$

15,827

$

15,859

$

60,156

$

67,770

Add:









     Share-based compensation expenses



2,076


2,750


8,382


3,688

     Amortization of acquired intangible assets



370


70


1,002


225

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

$

18,273

$

18,679

$

69,540

$

71,683










Weighted average number of basic ordinary
   shares


61,068,732


60,522,107


60,945,131


60,502,714

Weighted average number of diluted ordinary
   shares


61,644,902


60,559,890


61,560,896


60,736,180










Basic earnings per share(1)


0.26


0.26


0.99


1.12

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


0.04


0.05


0.15


0.06

Non-GAAP basic earnings per share(3)

$

0.30

$

0.31

$

1.14

$

1.18










Diluted earnings per share(1)


0.26


0.26


0.98


1.12

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


0.04


0.05


0.15


0.06

Non-GAAP diluted earnings per share(3)

$

0.30

$

0.31

$

1.13

$

1.18


(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