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Hollysys Automation Technologies Reports Unaudited Financial Results for the Third Quarter and the First Nine Months Ended March 31, 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 30, 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 7×24 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).

 

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