Hollysys Automation Technologies Reports Unaudited Financial Results for the Second Quarter and the First Half Year Ended December 31, 2019

First Half of Fiscal Year 2020 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $63.9 million, a decrease of 11.6% compared to the comparable prior year period.
  • Total revenues were $293.3 million, an increase of 1.8% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 36.9%, compared to 37.7% for the comparable prior year period.
  • Non-GAAP diluted EPS was $1.06, a decrease of 10.9% compared to the comparable prior year period.
  • Net cash provided by operating activities was $109.4 million for the current period.
  • DSO of 168 days, compared to 171 days for the comparable prior year period.
  • Inventory turnover days of 42 days, compared to 51 days for the comparable prior year period.

Second Quarter of Fiscal Year 2020 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $34.2 million, a decrease of 22.9% compared to the comparable prior year period.
  • Total revenues were $170.1 million, an increase of 13.8% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 36.3%, compared to 38.2% for the comparable prior year period.
  • Non-GAAP diluted EPS were at $0.56, a decrease of 23.3% compared to the comparable prior year period.
  • Net cash provided by operating activities was $70.5 million for the current quarter.
  • DSO of 137 days, compared to 157 days for the comparable prior year period.
  • Inventory turnover days of 39 days, compared to 39 days for the comparable prior year period.

BEIJING, Feb. 20, 2020 /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 2020 ended December 31, 2019 (see attached tables). The management of Hollysys, stated:

Industrial Automation ("IA") business finished the second quarter with revenue and contract at $69.3 million and $69.5 million, achieving 40.1% and 58.2% YOY growth, respectively. For the first half of the fiscal year, IA revenue and contract achieved 25.0% and 23.6% YOY growth, respectively.

  • In coal fire sector, despite slowdown in new construction market, performance in aftersales remained healthy as we kept responding to various demands from our existing customers in face of the replacement cycle. We offered system upgrade and modification, security product and regular maintenance, etc. that addressed the currently installed solutions in part or in whole.
  • Our chemical and petro-chemical sector continued to see healthy growth, thanks to our efforts in organization optimization, talent recruitment, marketing and relationship maintenance, etc. With our quality in the previous milestone project being recognized by clients, we moved on to prepare for project quality assessment seminar to seek wider recognition in the industry. To better showcase our capability, we have also constructed a demo center for high-end ethylene project. Meanwhile, we kept improving our solution for the industry through internal R&D and cooperation with external parties. In the oil and gas vertical, we won a new bidding this quarter in providing control solution to the Central Equipment Platform (CEP) of the oil field for CNOOC (China National Offshore Oil Corporation). It was also the first time that the client has adopted domestic control solution on such production site. Going forward, with successful projects as track record and with solid technology and quality engineering as the gene of the Company, we will maintain close interaction with the client base to gradually spread the concept that Hollysys is a qualified provider for the chemical and petro-chemical industry.
  • In smart factory sector, our boiler combustion optimization solution, a solution within our industrial software matrix tailored-developed for power-generating-related business, has gained wider acceptance. The solution was widely welcomed by our customers, as we have received numerous feedbacks from customers acknowledging the value of our solution in cutting production cost and improving production stability. We are continuing our internal R&D effort while also actively collaborating with external parties along the value chain to expand and improve the solution within our industrial software matrix.

Under the "3+1+N" strategy, we continued the effort to integrate internal sales platform for better cross selling. We expect such effort will put us in a better position to utilize the specialties of each member company for the offering of total solution of the Company. Meanwhile, we signed an EPC contract in December for a chemical project, in which we assumed the role as the general contractor. Such contract marked a step further toward our vision of offering comprehensive solution covering project full life cycle.

Rail business finished the second quarter with revenue and contract at $78.8 million and $104.2 million, recording 24.1% YOY growth and 39.8% YOY decrease, respectively. For the first half of the fiscal year, revenue and contract recorded 8.4% YOY growth and 48.8% YOY decrease, respectively.

  • In high-speed rail sector, we signed contracts of 40 sets of C3 ATP this quarter. Meanwhile, we kept responding to the replacement demand of our customers. In project delivery, several new lines commenced operation this quarter, including Wuhan-Shiyan line, Zhengzhou-Xiangyang section of the Zhengzhou-Wanzhou line, Zhengzhou-Fuyang line, Qianjiang-Zhangjiajie-Changde line, Beijing-Zhangjiakou line and Zhangjiakou-Datong line. Solutions that we have provided to these lines include TCC (Train Control Center), RBC (Radio Block Center), TSRS (Temporary Speed Restriction System) and LEU (Lineside Electronic Unit), etc.
  • In subway sector, we signed an SCADA contract for Kunming Subway line 5. In project delivery, we completed the Chengdu subway line 5 SCADA project and were honored with the title "outstanding equipment provider". We have also fully delivered Phase one of Hohhot subway line 1 cloud-based SCADA project. In this project, though given limited execution time, we have showcased our consistency in quality engineering. Through optimizing system deployment and promoting better standardization in early stage, we have improved efficiency in design and product delivery, while paving the way for easier maintenance afterwards.
  • In subway signaling sector, we signed a contract in October to provide CBTC to a 3-kilometer-long tramcar transportation within Kunming Changshui Airport. With a value of around 25 million RMB, this is a milestone contract in which the total function of our CBTC was fully applied in the field.

Going forward, our rail business will continue to adhere to the diversity strategy for stable and healthy growth and to improve our local service network for more value-adding and differentiated services. With urbanization as an ongoing process, we will keep leveraging our strong R&D capacity and prepare for the application of various types of railway transportation systems in the future.  

M&E business finished the quarter with revenue and contract at $22.0 million and $12.0 million, recording 39.7% and 67.2% YOY decrease respectively. For the first half of the fiscal year, revenue and contract recorded 46.4% and 11.0% YOY decrease respectively.

Given the macro economy in Southeast Asia and the Middle East, risk control remains to be the key focus of our M&E business.  In our direct sales and overseas EPC project, progress is constantly made in terms of establishment of new cooperation with new key EPC players as well as ongoing cooperation with existing partners.

To prepare our overseas business for the new era of development, further actions were taken following the upgrade of our Singapore overseas headquarter in mid-2019. We have recently undertaken organization adjustment and appointed a new head to lead the Singapore headquarter. With those actions taken as a beginning, we expect to upgrade our overseas business with improved management, marketing, R&D capability and deeper localization, and to create better synergy between all overseas businesses.

In response to the outbreak of the novel coronavirus, the Company has taken necessary actions to minimize the risk of spread of disease and adverse effects on the Company's business operation. Since late January, we have been monitoring the health condition of our employees through on-going online survey. Starting from early February, we have been implementing a two-week-long work-from-home scheme. Meanwhile, we have set forth general rules of action for operation in each of our bases for precautionary purpose. For particular urgent projects covering R&D, production and engineering, staff has been requested for on-site work in accordance with the rules of action. Going further, we are planning to gradually resume on-site work with the staff density in our bases being prudently controlled.  However the potential downturn brought by and the duration of the coronavirus is difficult to assess or predict where actual effects will depend on many factors beyond our control. We are closely monitoring its impact on us.  Our business, results of operations, financial conditions and prospects could be adversely affected directly, as well as to the extent that the coronavirus harms the Chinese economy in general.

Second Quarter and First Half Year Ended December 31, 2019 Unaudited Financial Results Summary

 

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








Three months ended


Six months ended



December
31, 2019

 December
31, 2018

%
Change


December
31, 2019

 December
31, 2018

%
Change










Revenues

$

170,109

149,464

13.8%

$

293,338

288,182

1.8%

    Integrated solutions contracts revenue

$

129,675

116,683

11.1%

$

234,141

233,333

0.3%

    Products sales

$

6,539

5,917

10.5%

$

12,661

13,957

(9.3)%

    Service rendered

$

33,895

26,864

26.2%

$

46,536

40,892

13.8%

Cost of revenues

$

108,278

92,389

17.2%

$

185,049

179,567

3.1%

Gross profit

$

61,831

57,075

8.3%

$

108,289

108,615

(0.3)%

Total operating expenses

$

28,511

15,076

89.1%

$

51,803

36,576

41.6%

    Selling

$

10,392

7,860

32.2%

$

17,670

15,569

13.5%

    General and administrative

$

10,591

11,626

(8.9)%

$

21,184

20,196

4.9%

    Research and development

$

13,806

10,402

32.7%

$

22,748

19,170

18.7%

    VAT refunds and government subsidies

$

(6,278)

(14,812)

(57.6)%

$

(9,799)

(18,359)

(46.6)%

Income from operations

$

33,320

41,999

(20.7)%

$

56,486

72,039

(21.6)%

Other income, net

$

1,301

5,937

(78.1)%

$

3,327

6,495

(48.8)%

Foreign exchange (loss) gain

$

(59)

(704)

(91.6)%

$

545

(827)

(165.9)%

Gains on disposal of investments in an
   equity investee

$

-

-

-

$

5,763

-

-

Share of net income (loss) of equity
   investees

$

1,997

(386)

(617.4)%

$

3,538

(287)

(1332.8)%

Dividend income from equity security
investments

$

1,145

1,115

2.7%

$

1,145

1,113

2.9%

Interest income

$

3,099

2,894

7.1%

$

6,128

5,995

2.2%

Interest expenses

$

(6)

(210)

(97.1)%

$

(119)

(316)

(62.3)%

Income tax expenses

$

6,792

6,312

7.6%

$

13,001

11,767

10.5%

Net (loss) income attributable to non-
   controlling interests

$

(151)

37

(508.1)%

$

(125)

83

(250.6)%

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

$

34,156

44,296

(22.9)%

$

63,937

72,362

(11.6)%

Non-GAAP basic EPS

$

0.56

0.73

(23.3)%

$

1.06

1.20

(11.7)%

Non-GAAP diluted EPS

$

0.56

0.73

(23.3)%

$

1.06

1.19

(10.9)%










Share-based compensation expenses

$

15

67

(77.6)%

$

40

151

(73.5)%

Amortization of acquired intangible assets

$

75

75

0.0%

$

151

155

(2.6)%

Fair value adjustments of a bifurcated
   derivative

$

-

20

(100.0)%

$

 

-

20

(100.0)%

GAAP Net income attributable to Hollysys
   Automation Technologies Ltd.

$

34,066

44,134

(22.8)%

$

63,746

72,036

(11.5)%

GAAP basic EPS

$

0.56

0.73

(23.3)%

$

1.05

1.19

(11.8)%

GAAP diluted EPS

$

0.56

0.72

(22.2)%

$

1.05

1.18

(11.0)%










Basic weighted average common shares
   outstanding


60,538,111

60,453,770

0.1%


60,504,151

60,450,930

0.1%

Diluted weighted average common shares
   outstanding


60,552,527

61,273,353

(1.2)%


60,517,798

61,271,864

(1.2)%











 

Operational Results Analysis for the Second Quarter Ended December 31, 2019

Comparing to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31 2019 increased from $149.5 million to $170.1 million, representing an increase of 13.8%. Broken down by the revenue types, integrated contracts revenue increased by 11.1% to $129.7 million, products sales revenue increased by 10.5% to $6.5 million, and services revenue increased by 26.2% to $33.9 million.

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

(In USD thousands)














Three months ended December 31,


Six months ended December 31,




2019


2018


2019


2018




$

% to Total
Revenue


$

% to
Total
Revenue


$

% to Total
Revenue


$

% to
Total
Revenue


Industrial Automation


69,291

40.7%


49,458

33.1%


133,927

45.6%


107,177

37.2%


Rail Transportation Automation


78,823

46.3%


63,503

42.5%


123,399

42.1%


113,871

39.5%


Mechanical and Electrical
Solution


21,995

13.0%


36,503

24.4%


36,012

12.3%


67,134

23.3%


Total


170,109

100.0%


149,464

100.0%


293,338

100.0%


288,182

100.0%




















 

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 36.3% for the three months ended December 31, 2019, as compared to 38.2% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 28.0%, 66.4% and 62.6% for the three months ended December 31, 2019, as compared to 30.8%, 72.0% and 62.9% for the same period of the prior year, respectively. The gross margin fluctuated mainly due to the different revenue mix with different margins. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 36.3% for the three months ended December 31, 2019, as compared to 38.1% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered was 27.9%, 66.4% and 62.6% for the three months ended December 31, 2019, as compared to 30.7%, 72.0% and 62.9% for the same period of the prior year, respectively.

Selling expenses were $10.4 million for the three months ended December 31, 2019, representing an increase of $2.5 million or 32.2% compared to $7.9 million for the same quarter of the prior year, mainly due to increased sales activities. Presented as a percentage of total revenues, selling expenses were 6.1% and 5.3% for the three months ended December 31, 2019, and 2018, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $10.6 million for the quarter ended December 31, 2019, representing a decrease of $1.0 million or 8.9% compared to $11.6 million for the same quarter of the prior year. Presented as a percentage of total revenues, non-GAAP G&A expenses were 6.2% and 7.8% for quarters ended December 31, 2019 and 2018, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $10.6 million and $11.7 million for the three months ended December 31, 2019 and 2018, respectively.

Research and development expenses were $13.8 million for the three months ended December 31, 2019, representing an increase of $3.4 million or 32.7% compared to $10.4 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 8.1% and 7.0% for the quarter ended December 31, 2019 and 2018, respectively.

The VAT refunds and government subsidies were $6.3 million for three months ended December 31, 2019, as compared to $14.8 million for the same period in the prior year, representing a $8.5 million or 57.6% decrease, which was primarily due to decrease of the VAT refunds.

The income tax expenses and the effective tax rate were $6.8 million and 16.7% for the three months ended December 31, 2019, respectively, as compared to $6.3 million and 12.5% for comparable prior year period, respectively,. The effective tax rate fluctuated mainly due to the different pre-tax income mix with different tax rates, as the Company's subsidiaries are subject to different tax rates in various jurisdictions.

The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on the grant-date fair value of shares or options granted, amortization of acquired intangible assets, and fair value adjustments of a bifurcated derivative, was $34.2 million or $0.56 per diluted share based on 60.6 million diluted weighted average ordinary shares outstanding for the three months ended December 31, 2019. This represents a 22.9% decrease from $44.3 million or $0.73 per share based on 61.3 million diluted weighted average ordinary shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $34.1 million or $0.56 per diluted share representing a decrease of 22.8% from $44.1 million or $0.72 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $185.7 million of new contracts for the three months ended December 31, 2019. The backlog as of December 31, 2019 was $587.0 million. The detailed breakdown of new contracts and backlog by segments is shown below:


New contracts achieved


Backlog


for the three months

 ended December 31, 2019


as of December 31, 2019


(In USD
thousands)


% to Total
Contract


(In USD
thousands)

% to Total
Backlog

Industrial Automation


69,477

37.5%


192,445

32.8%

Rail Transportation


104,212

56.1%


307,291

52.3%

Mechanical and Electrical Solutions


11,970

6.4%


87,312

14.9%

Total


185,659

100.0%


587,048

100.0%









 

Cash Flow Highlights

For the three months ended December 31, 2019, the total net cash inflow was $52.8 million. The net cash provided by operating activities was $70.5 million. The net cash used in investing activities was $10.1 million and mainly consisted of 2.4 million purchases of property, plant and equipment, and $27.2 million of time deposits placed with banks, which were partially offset by $19.4 million of matured time deposits. The net cash used in financing activities was $13.7 million and mainly consisted of $12.7 million payment of dividends.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $403.9 million, $340.0 million, and $270.8 million as of December 31, 2019, September 30, 2019 and December 30, 2018, respectively.

For the three months ended December 31, 2019, DSO was 137 days, as compared to 157 days for the comparable prior year period and 204 days for the last quarter; and inventory turnover was 39 days, as compared to 39 days for the comparable prior year period and 56 days for the last quarter.

Conference Call

The Company will host a conference call at 8:00 pm February 19, 2020 U.S. Eastern Time / 9:00 am February 20, 2020 Beijing Time, to discuss the financial results for fiscal year 2020 second quarter ended December 31, 2019 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 6396705.

Standard International Dial-In Number:

+65 67135090

 

Participant Local Dial-In Numbers:


Australia, Sydney

+61 290833212

China, Domestic

4006208038

China, Domestic Landline only

8008190121

China, Hong Kong

+852 30186771

China, Taiwan

+886 255723895

Japan, Tokyo

+81 345036012

Korea (South), Seoul

+82 27395177

United Kingdom, London

+44 2036214779

United States, New York

+1 8456750437

 

Participant ITFS Dial-In Numbers:


Australia,

1800411623

Australia,

1300717205

Belgium

080071900

Canada

18663861016

France

0800912761

Germany

08001820671

China, Hong Kong

800906601

China, Taiwan

0809091568

India

18002666846

Indonesia, PT Indosat access

0018030179156

Indonesia, PT Telkom access

0078030179156

Italy

800874737

Japan

0120925376

Korea (South), Domestic

0808500474

Malaysia

1800820152

Netherlands

08000221931

New Zealand

0800880084

Norway

80010719

Philippines, PLDT Access Only

180016120306

Switzerland

0800561006

Thailand

001800656772

United Kingdom

08082346646

United States

18665194004

 

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 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. 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, 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 2019, Hollysys had cumulatively carried out more than 25,000 projects for approximately 15,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions.

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.

 


 

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
December 31,


Six months ended
December 31,



2019


2018


2019


2018



(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)

Net revenues









Integrated solutions contracts revenue

$

129,675

$

116,683

$

234,141

$

233,333

Products sales


6,539


5,917


12,661


13,957

Revenue from services


33,895


26,864


46,536


40,892

Total net revenues


170,109


149,464


293,338


288,182










Costs of integrated solutions contracts


93,485


80,845


163,985


161,593

Cost of products sold


2,199


1,654


3,430


3,662

Costs of services rendered


12,669


9,965


17,785


14,467

Gross profit


61,756


57,000


108,138


108,460










Operating expenses









Selling


10,392


7,860


17,670


15,569

General and administrative


10,606


11,693


21,224


20,347

Research and development


13,806


10,402


22,748


19,170

VAT refunds and government subsidies


(6,278)


(14,812)


(9,799)


(18,359)

Total operating expenses


28,526


15,143


51,843


36,727

Income from operations


33,230


41,857


56,295


71,733










Other income, net


1,301


5,917


3,327


6,475

Foreign exchange (loss) gain


(59)


(704)


545


(827)

Gains on disposal of investments in an equity investee


-


-


5,763


-

Share of net income (loss) of equity investees


1,997


(386)


3,538


(287)

Dividend income from equity security investments


1,145


1,115


1,145


1,113

Interest income


3,099


2,894


6,128


5,995

Interest expenses


(6)


(210)


(119)


(316)

Income before income taxes


40,707


50,483


76,622


83,886










Income taxes expenses


6,792


6,312


13,001


11,767

Net income


33,915


44,171


63,621


72,119










Net (loss) income attributable to non-controlling interests

(151)


37


(125)


83

Net income attributable to Hollysys Automation
Technologies Ltd.

$

34,066

$

44,134

$

63,746

$

72,036










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








Translation adjustments


20,921


2,661


(13,253)


(27,090)

Comprehensive income


54,836


46,832


50,368


45,029










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

977


(224)


951


(179)

Comprehensive income  attributable to Hollysys
Automation Technologies Ltd.

$

53,859

$

47,056

$

49,417

$

45,208










Net income per ordinary share:









Basic


0.56


0.73


1.05


1.19

Diluted


0.56


0.72


1.05


1.18

Shares used in net income per share computation:









Weighted average number of ordinary shares

60,538,111


60,453,770


60,504,151


60,450,930

Weighted average number of diluted ordinary shares

60,552,527


61,273,353


60,517,798


61,271,864









 

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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












December 31,


September 30,





2019


2019





(Unaudited)


(Unaudited)

ASSETS






Current assets







Cash and cash equivalents

$

403,860

$

339,932



Time deposits with maturities over three months


146,745


136,200



Restricted cash


19,985


30,288



Accounts receivable, net of allowance for doubtful accounts of $45,348 and
   $44,875 as of December 31, 2019 and September 30, 2019, respectively


239,492


245,696



Costs and estimated earnings in excess of billings, net of allowance for doubtful
   accounts of $6,672 and $7,807 as of December 31, 2019 and September 30,
   2019, respectively


227,490


192,201



Accounts receivable retention


4,911


11,660



Other receivables, net of allowance for doubtful accounts of $4,390 and $4,840
   as of December 31, 2019 and September 30, 2019, respectively


23,173


25,274



Advances to suppliers


17,522


22,825



Amounts due from related parties


26,515


29,832



Inventories


35,596


46,319



Prepaid expenses


510


391



Income tax recoverable


288


1,832


Total current assets


1,146,087


1,082,450








Non-current assets







Restricted cash


2,657


3,485



Costs and estimated earnings in excess of billings


2,700


4,828



Accounts receivable retention


7,300


7,785



Prepaid expenses


10


8



Property, plant and equipment, net


78,059


72,718



Prepaid land leases


16,224


15,977



Intangible assets, net


1,208


1,258



Investments in equity investees


40,077


37,319



Investments securities


4,693


4,600



Goodwill


37,845


36,298



Deferred tax assets


8,328


9,313



Operating lease right-of-use assets


5,259


5,262


Total non-current assets


204,360


198,851


Total assets


1,350,447


1,281,301








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Short-term bank loans


1,436


1,585



Current portion of long-term loans


319


307



Dividends payable


-


12,672



Accounts payable


115,166


109,519



Construction costs payable


1,289


86



Deferred revenue


142,025


135,519



Accrued payroll and related expenses


21,473


15,577



Income tax payable


4,795


2,669



Warranty liabilities


6,597


8,212



Other tax payables


4,481


1,245



Accrued liabilities


29,337


28,139



Amounts due to related parties


4,218


3,714



Operating lease liabilities


1,673


-


Total current liabilities


332,809


319,244








Non-current liabilities







Accrued liabilities


7,620


5,084



Long-term loans


896


890



Accounts payable


3,824


4,473



Deferred tax liabilities


13,146


13,251



Warranty liabilities


4,117


3,245



Operating lease liabilities


3,180


5,072


Total non-current liabilities


32,783


32,015


Total liabilities


365,592


351,259









Commitments and contingencies


-


-









Stockholders' equity:







Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
   60,537,099 shares and 60,342,099 shares issued and outstanding as of
   December 31, 2019 and September 30, 2019


61


60



Additional paid-in capital


223,675


223,660



Statutory reserves


49,427


48,698



Retained earnings


758,819


725,521



Accumulated other comprehensive income


(49,852)


(69,645)


Total Hollysys Automation Technologies Ltd. stockholder's equity


982,130


928,294



Non-controlling interests


2,725


1,748


Total equity


984,855


930,042


Total liabilities and equity

$

1,350,447

$

1,281,301

 


 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands).





Three months ended


Six months ended

December 31, 2019


December 31, 2019




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

33,915

$

63,621

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






Depreciation of property, plant and equipment


2,185


4,602


Amortization of prepaid land leases


99


197


Amortization of intangible assets


75


151


Allowance for doubtful accounts


(120)


596


Loss on disposal of property, plant and equipment


3


10


Share of net income of equity investees


(1,997)


(3,538)


Share-based compensation expenses


15


40


Deferred income tax expenses


924


6,235


Accretion of convertible bond


-


57


Gains on deconsolidation of an equity investee


-


(5,763)

Changes in operating assets and liabilities:






Accounts receivable and retention


22,761

 

 


39,851

 

 


Costs and estimated earnings in excess of billings


(29,001)


(35,083)


Inventories 


11,642


6,650


Advances to suppliers


5,755


(4,812)


Other receivables 


2,683


3,687


Deposits and other assets


(111)


128


Due from related parties


3,924


9,147


Accounts payable


3,647


10,794


Deferred revenue


(814)


2,865


Accruals and other payables


7,579

 


1,861

 


Due to related parties


504


(1,178)


Income tax payable


3,648


5,541


Other tax payables


3,173

 


3,789


Net cash provided by operating activities


70,489

 


109,448

 







Cash flows from investing activities:






Time deposits placed with banks


(27,208)


(55,050)


Purchases of property, plant and equipment


(2,372)


(2,863)


Proceeds from disposal of property, plant and equipment


234


292


Maturity of time deposits


19,446


51,326


Acquisition of a subsidiary, net of cash acquired

 


(150)


(150)


Proceeds from disposal of investments in equity investee

 


-


4,458


Net cash used in investing activities


(10,050)

 


(1,987)

 







Cash flows from financing activities:






Proceeds from short-term bank loans


932


2,274


Repayments of short-term bank loans


(1,120)

 


(2,752)


Proceeds from long-term bank loans


136


177


Repayments of long-term bank loans

 


(158)


(260)


Payment of dividends

 


(12,713)


(12,713)


Repayments of bonds payable

 


(758)


(20,753)


Net cash used in financing activities


(13,681)

 


(34,027)

 








Effect of foreign exchange rate changes


6,039

 


(5,319)

 


Net increase in cash, cash equivalents and restricted cash

$

52,797


68,115








Cash, cash equivalents and restricted cash, beginning of period

$

373,705


358,387


Cash, cash equivalents and restricted cash, end of period


426,502


426,502

 

 


Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP cost of integrated contracts", "Non-GAAP general and administrative expenses", "Non-GAAP other income (expenses), net", "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, 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 the non-GAAP measures with the most directly comparable U.S. GAAP measures 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,




2019


2018


2019


2018




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Cost of integrated solutions contracts

$

93,485

$

80,845

$

163,985

$

161,593

Less: Amortization of acquired intangible assets


75


75


151


155

Non-GAAP cost of integrated solutions contracts

$

93,410

$

80,770

$

163,834

$

161,438











General and administrative expenses

$

10,606

$

11,693

$

21,224

$

20,347

Less: Share-based compensation expenses


15


67


40


151

Non-GAAP general and administrative expenses

$

10,591

$

11,626

$

21,184

$

20,196










Other income, net

$

1,301


5,917


3,327


6,475

Add: Fair value adjustments of a bifurcated derivative


-


20


-


20

Non-GAAP other income, net

$

1,301


5,937


3,327


6,495











Net income attributable to Hollysys Automation Technologies
Ltd.

$

34,066

$

44,134

$

63,746

$

72,036

Add:










Share-based compensation expenses


15


67


40


151


Amortization of acquired intangible assets


75


75


151


155


Fair value adjustments of a bifurcated derivative


-


20


-


20

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

$

34,156

$

44,296

$

63,937

$

72,362












Weighted average number of basic ordinary shares


60,538,111


60,453,770


60,504,151


60,450,930


Weighted average number of diluted ordinary shares


60,552,527


61,273,353


60,517,798


61,271,864

Non-GAAP basic earnings per share


$

0.56

$

0.73

$

1.06

$

1.20

Non-GAAP diluted earnings per share


$

0.56

$

0.73

$

1.06

$

1.19












 

 

 

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