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


    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 16, 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).

     

     

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