Hollysys Automation Technologies Reports Unaudited Financial Results for the Third Quarter and the First Nine Months Ended March 31, 2020

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First Nine months of Fiscal Year 2020 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $77.9 million, a decrease of 22.5% compared to the comparable prior year period.
  • Total revenues were $374.1 million, a decrease of 9.5% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 35.6%, compared to 38.3% for the comparable prior year period.
  • Non-GAAP diluted EPS was $1.28, a decrease of 22.0% compared to the comparable prior year period.
  • Net cash provided by operating activities was $117.5 million for the current period.
  • DSO of 188 days, compared to 176 days for the comparable prior year period.
  • Inventory turnover days of 57 days, compared to 59 days for the comparable prior year period.

Third Quarter of Fiscal Year 2020 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $13.9 million, a decrease of 50.4% compared to the comparable prior year period.
  • Total revenues were $80.8 million, a decrease of 35.5% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 30.8%, compared to 39.6% for the comparable prior year period.
  • Non-GAAP diluted EPS were at $0.23, a decrease of 50.0% compared to the comparable prior year period.
  • Net cash provided by operating activities was $8.0 million for the current quarter.
  • DSO of 266 days, compared to 193 days for the comparable prior year period.
  • Inventory turnover days of 71 days, compared to 50 days for the comparable prior year period.

BEIJING, May 15, 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 fiscal year 2020 third quarter ended March 31, 2020 (see attached tables). The management of Hollysys, stated:

COVID-19 has laid negative impact on our business. Contract bidding and project execution were delayed for Industrial Automation (“IA”) and rail business and only started to recover starting in March. In response to such impact, we have actively prepared internal work in advance, including staff training, marketing preparation, solution improvement, internal testing, etc. while also maintained communication with clients to the greatest extent, and made procurement in advance to counter the uncertainty of overseas supply chain. With the reopening of economy in China, we expect our business to recover to its normal course. Going forward, the Company will be imposing more stringent criteria on cash collection and payment, contract quality and expense.

IA business finished the third quarter with revenue and contract at $34.2 million and $63.2 million, representing 43.0% and 24.7% YOY decrease, respectively. For the first nine months of the fiscal year, IA revenue and contract achieved 0.5% and 4.1% YOY growth, respectively.

  • In coal fire sector, we continued our effort in strengthening our market position in high-end market and won the bidding for Xinjiang Wucaiwan 2*660MW power units this quarter.
  • In chemical and petro-chemical sector, we continued our effort in key bidding tracking. Several major contracts that we signed this quarter include a 5 million tons/year oil treatment DCS upgrade project for Sinopec and a comprehensive surveillance project covering six LNG (Liquidated Natural Gas) storage centers of Henan Natural Gas Storage & Logistics Company, where we provided a wide range of solutions including SCADA, DCS, SIS, and GDS (Gas Detection System) etc. To assist with our market penetration strategy, we kept improving our solution and product through internal R&D and cooperation with external parties, with particular focus in the vertical of coal-chemical and oil & gas. We also continued to build the reputation of the Company in the industry in various manners, including industry conference, successful key project demonstration, cooperation with experts, key clients strategic relation management, etc.
  • In smart factory business, internal structural optimization was made as we established the digital factory business unit (“BU”). The new BU will be responsible for the marketing, solution and software development and execution of smart factory project. We expect such change to lead to more focused internal resource deployment for serving client of various industries. As a comparison, the business used to be carried out separately by different industry teams, with our advantageous power industry being the primary focus. In solution preparation, we have gradually improved our solution through internal R&D and external cooperation for various industries, including oil & gas and fine chemical.
  • Under the “3+1+N” strategy, we continued the effort to integrate the sales platform of the Company for greater internal synergy, to develop and strengthen our industrial cloud capacity covering cloud platform and cloud-based software, and to expand our solution for full lifecycle coverage. With the effort, we have made meaningful progress in pharmaceutical business in terms of solution expansion, thanks to the inclusion of design capacity and greater coordination between members of the Company. In this quarter, key contracts of pharmaceutical business include an engineering design contract with Shandong Fulkon, a renowned domestic pharmaceutical producer, and three tens of millions RMB level control system contracts.

Rail business finished the third quarter with revenue and contract at $28.7 million and $5.0 million, recording 38.7% and 86.0% YOY decrease, respectively. For the first nine months of the fiscal year, revenue and contract recorded 5.3% and 53.5% YOY decrease, respectively.

  • In high-speed rail (“HSR”) sector, major contracts include an ATP contract for cargo high-speed train, a TCC contract for Zhengzhou section of the Taiyuan-Jiaozuo High-speed Railway and several aftersales contracts covering part components, maintenance and upgrade.
  • In subway sector, no significant contracts were signed this quarter. On quality management, following the successful delivery of Phase one of Hohhot subway line 1 cloud-based SCADA project last quarter, subway business continued to strengthen quality management, with particular focus on supply chain management and engineering standardization. On aftersales service, several contracts covering system upgrade and part components were signed.
  • To actively address the aftersales opportunities in the market, rail business has been implementing the “service transformation” strategy, to strengthen local service network, to expand service solution and to develop technology-and-service-centered service for better differentiation. In HSR sector, other than the current aftersales service provided to on-board products (ATP), we have been exploring and developing service solution for on-ground products. In subway sector, with current client base and numerous line under operation, we are gradually reviewing existing projects for maintenance and upgrade opportunities.
  • As part of the “3+1+N” strategy, rail business is actively executing the digital empowerment for the current product line. New solutions on smart maintenance and smart workshop for clients from HSR and subway have been identified and are currently under development and testing. With urbanization as an ongoing process, we will keep leveraging our strong R&D capacity and prepare for the application of our solution in more verticals of transportation in the future. Going forward, our rail business will continue to adhere to the diversity strategy for stable and healthy growth.

M&E business finished the quarter with revenue and contract at $17.9 million and $19.9 million, recording 2.6% YOY decrease and 18.6% YOY increase respectively. For the first nine months of the fiscal year, revenue and contract recorded 37.0% and 3.7% YOY decrease respectively.

Given the macro economy in Southeast Asia and the Middle East, as well as the outbreak of COVID-19 and its potential impact, 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.

In addition to our previous effort on overseas headquarter upgrade and appointment of overseas officer, we have set up a 3-year-long global management capacity action plan. The plan aims to gradually incorporate our current overseas business into the management system of the domestic business, and to ultimately build our global management capacity.

Third Quarter and First Nine Months Ended March 31, 2020 Unaudited Financial Results Summary

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

Three months ended

Nine months ended

March 31,
2020

 March 31,
2019

%
Change

March 31,
2020

 March 31,
2019

%
Change

Revenues

$

80,768

125,167

(35.5)%

$

374,106

413,350

(9.5)%

    Integrated solutions contracts revenue

$

67,673

101,285

(33.2)%

$

301,814

334,618

(9.8)%

    Products sales

$

3,588

13,187

(72.8)%

$

16,249

27,144

(40.1)%

    Service rendered

$

9,507

10,695

(11.1)%

$

56,043

51,588

8.6%

Cost of revenues

$

55,928

75,652

(26.1)%

$

240,977

255,219

(5.6)%

Gross profit

$

24,840

49,515

(49.8)%

$

133,129

158,131

(15.8)%

Total operating expenses

$

13,317

19,319

(31.1)%

$

65,121

55,895

16.5%

    Selling

$

6,168

6,474

(4.7)%

$

23,838

22,043

8.1%

    General and administrative

$

8,946

8,743

2.3%

$

30,130

28,939

4.1%

    Research and development

$

10,221

8,655

18.1%

$

32,969

27,825

18.5%

    VAT refunds and government subsidies

$

(12,018)

(4,553)

164.0%

$

(21,816)

(22,912)

(4.8)%

Income from operations

$

11,523

30,196

(61.8)%

$

68,008

102,236

(33.5)%

Other income, net

$

1,031

1,190

(13.4)%

$

4,357

7,685

(43.3)%

Foreign exchange gain (loss)

$

98

(333)

(129.4)%

$

647

(1,163)

(155.6)%

Gains on disposal of an investment in an
    equity investee

$

$

5,763

Share of net income (loss) of equity
    investees

$

570

(885)

(164.4)%

$

4,108

(1,172)

(450.5)%

Dividend income from equity security
    investments

$

$

1,141

1,116

2.2%

Interest income

$

3,271

2,978

9.9%

$

9,399

8,973

4.7%

Interest expenses

$

(16)

(54)

(70.4)%

$

(135)

(371)

(63.6)%

Income tax expenses

$

2,422

4,946

(51.0)%

$

15,424

16,713

(7.7)%

Net income (loss) attributable to non-
    controlling interests

$

119

50

138.0%

$

(7)

132

(105.3)%

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

$

13,936

28,096

(50.4)%

$

77,871

100,459

(22.5)%

Non-GAAP basic EPS

$

0.23

0.46

(50.0)%

$

1.29

1.66

(22.3)%

Non-GAAP diluted EPS

$

0.23

0.46

(50.0)%

$

1.28

1.65

(22.0)%

Share-based compensation expenses

$

15

50

(70.0)%

$

55

201

(72.6)%

Amortization of acquired intangible assets

$

75

78

(3.8)%

$

226

234

(3.4)%

Fair value adjustments of a bifurcated
    derivative

$

$

20

(100.0)%

GAAP Net income attributable to Hollysys
    Automation Technologies Ltd.

$

13,846

27,968

(50.5)%

$

77,590

100,004

(22.4)%

GAAP basic EPS

$

0.23

0.46

(50.0)%

$

1.28

1.65

(22.4)%

GAAP diluted EPS

$

0.23

0.46

(50.0)%

$

1.28

1.64

(22.0)%

Basic weighted average common shares
    outstanding

60,552,099

60,459,370

0.2%

60,520,329

60,453,704

0.1%

Diluted weighted average common shares
    outstanding

60,552,099

61,276,829

(1.2)%

60,694,045

61,273,073

(0.9)%

Operational Results Analysis for the Third Quarter Ended March 31, 2020

Comparing to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31 2020 decreased from $125.2 million to $80.8 million, representing a decrease of 35.5%. Broken down by the revenue types, integrated contracts revenue decreased by 33.2% to $67.7 million, products sales revenue decreased by 72.8% to $3.6 million, and services revenue decreased by 11.1% to $9.5 million.

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

(In USD thousands)

Three months ended March 31,

Nine months ended March 31,

2020

2019

2020

2019

$

% to
Total
Revenue

$

% to
Total
Revenue

$

% to
Total
Revenue

$

% to
Total

Revenue

Industrial Automation

34,228

42.4%

60,063

47.9%

168,155

45.0%

167,241

40.4%

Rail Transportation Automation

28,672

35.5%

46,759

37.4%

152,071

40.6%

160,630

38.9%

Mechanical and Electrical
Solution

17,868

22.1%

18,345

14.7%

53,880

14.4%

85,479

20.7%

Total

80,768

100.0%

125,167

100.0%

374,106

100.0%

413,350

100.0%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 30.8% for the three months ended March 31, 2020, as compared to 39.6% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 22.3%, 71.3% and 75.3% for the three months ended March 31, 2020, as compared to 30.2%, 85.6% and 71.9% 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 30.7% for the three months ended March 31, 2020, as compared to 39.5% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered was 22.2%, 71.3% and 75.3% for the three months ended March 31, 2020, as compared to 30.1%, 85.6% and 71.9% for the same period of the prior year, respectively.

Selling expenses were $6.2 million for the three months ended March 31, 2020, representing a decrease of $0.3 million or 4.7% compared to $6.5 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 7.6% and 5.2% for the three months ended March 31, 2020, and 2019, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $8.9 million for the quarter ended March 31, 2020, representing an increase of $0.2 million or 2.3% compared to $8.7 million for the same quarter of the prior year. Presented as a percentage of total revenues, non-GAAP G&A expenses were 11.1% and 7.0% for quarters ended March 31, 2020 and 2019, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $9.0 million and $8.8 million for the three months ended March 31, 2020 and 2019, respectively.

Research and development expenses were $10.2 million for the three months ended March 31, 2020, representing an increase of $1.5 million or 18.1% compared to $8.7 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 12.7% and 6.9% for the quarter ended March 31, 2020 and 2019, respectively.

The VAT refunds and government subsidies were $12.0 million for three months ended March 31, 2020, as compared to $4.6 million for the same period in the prior year, representing a $7.4 million or 164.0% increase, which was primarily due to increase of the VAT refunds.

The income tax expenses and the effective tax rate were $2.4 million and 14.8% for the three months ended March 31, 2020, respectively, as compared to $4.9 million and 15.0% for comparable prior year period, respectively,.

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 $13.9 million or $0.23 per diluted share based on 60.6 million diluted weighted average ordinary shares outstanding for the three months ended March 31, 2020. This represents a 50.4% decrease from $28.1 million or $0.46 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 $13.8 million or $0.23 per diluted share representing a decrease of 50.5% from $28.0 million or $0.46 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $88.1 million of new contracts for the three months ended March 31, 2020. The backlog as of March 31, 2020 was $574.1 million. The detailed breakdown of new contracts and backlog by segments is shown below:

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New contracts achieved

Backlog

for the three months

 ended March 31, 2020

as of March 31, 2020

(In USD
thousands)

% to Total
Contract

(In USD

thousands)

% to Total
Backlog

Industrial Automation

63,228

71.7%

211,437

36.8%

Rail Transportation

4,980

5.7%

277,962

48.4%

Mechanical and Electrical Solutions

19,867

22.6%

84,719

14.8%

Total

88,075

100.0%

574,118

100.0%

Cash Flow Highlights

For the three months ended March 31, 2020, the total net cash outflow was $60.1 million. The net cash provided by operating activities was $8.0 million. The net cash used in investing activities was $61.8 million and mainly consisted of 2.2 million purchases of property, plant and equipment, and $137.0 million of time deposits placed with banks, which were partially offset by $77.1 million of matured time deposits. The net cash used in financing activities was $1.1 million and mainly consisted of $1.2 million repayments of short-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $366.4 million, $403.9 million, and $276.5 million as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

For the three months ended March 31, 2020, DSO was 266 days, as compared to 193 days for the comparable prior year period and 137 days for the last quarter; and inventory turnover was 71 days, as compared to 50 days for the comparable prior year period and 39 days for the last quarter.

Conference Call

The Company will host a conference call at 9:00 pm May 14, 2020 U.S. Eastern Time / 9:00 am May 15, 2020 Beijing Time, to discuss the financial results for fiscal year 2020 third quarter ended March 31, 2020 and business outlook.

Joining the Conference Call:

Please note that our teleconference provider have fully moved to a new system, Direct Event, which delivers the same teleconference call service but by pre-registration only for the participants. Here is the instruction on joining the conference call:

1.         Please register in advance of the conference using the link provided below. Upon registering, you will be provided with participant dial-in numbers, Direct Event passcode and unique registrant ID.

2.         In the 10 minutes prior to the call start time, you will need to use the conference access information provided in the email received at the point of registering.

Note: Due to regional restrictions some participants may receive operator assistance when joining this conference call and will not be automatically connected.

Helpful keypad commands:
*0 – Operator assistance
*6 – Self mute/unmute

Direct Event online registration: http://apac.directeventreg.com/registration/event/7939828. Please use Conference ID 7939828 for entry if the link fails to lead directly to the registration page.

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
Mar 31,

Nine months ended
Mar 31,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Integrated solutions contracts revenue

$

67,673

$

101,285

$

301,814

$

334,618

Products sales

3,588

13,187

16,249

27,144

Revenue from services

9,507

10,695

56,043

51,588

Total net revenues

80,768

125,167

374,106

413,350

Costs of integrated solutions contracts

52,628

70,818

216,613

232,411

Cost of products sold

1,031

1,903

4,461

5,566

Costs of services rendered

2,344

3,009

20,129

17,476

Gross profit

24,765

49,437

132,903

157,897

Operating expenses

Selling

6,168

6,474

23,838

22,043

General and administrative

8,961

8,793

30,185

29,140

Research and development

10,221

8,655

32,969

27,825

VAT refunds and government subsidies

(12,018)

(4,553)

(21,816)

(22,912)

Total operating expenses

13,332

19,369

65,176

56,096

Income from operations

11,433

30,068

67,727

101,801

Other income, net

1,031

1,190

4,357

7,665

Foreign exchange gain (loss)

98

(333)

647

(1,163)

Gains on disposal of an investment in an equity investee

5,763

Share of net income (losses) of equity investees

570

(885)

4,108

(1,172)

Dividend income from equity security investments

1,141

1,116

Interest income

3,271

2,978

9,399

8,973

Interest expenses

(16)

(54)

(135)

(371)

Income before income taxes

16,387

32,964

93,007

116,849

Income taxes expenses

2,422

4,946

15,424

16,713

Net income

13,965

28,018

77,583

100,136

Net income (losses) attributable to non-controlling interests

119

50

(7)

132

Net income attributable to Hollysys Automation
Technologies Ltd.

$

13,846

$

27,968

$

77,590

$

100,004

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

Translation adjustments

(18,493)

14,871

(31,746)

(11,604)

Comprehensive income

(4,528)

42,889

45,837

88,532

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

79

50

1,030

(129)

Comprehensive (loss) income attributable to Hollysys
Automation Technologies Ltd.

$

(4,607)

$

42,839

$

44,807

$

88,661

Net income per share:

Basic

0.23

0.46

1.28

1.65

Diluted

0.23

0.46

1.28

1.64

Shares used in net income per share computation:

Basic

60,552,099

60,459,370

60,520,329

60,453,704

Diluted

60,552,099

61,276,829

60,694,045

61,273,073

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

March 31,

December
31,

2020

2019

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

344,000

$

403,860

Time deposits with original maturities over three months

203,542

146,745

Restricted cash

15,020

19,985

Accounts receivable, net of allowance for doubtful accounts of $45,704 and $45,348
     as of March 31, 2020 and December 31, 2019, respectively

215,247

239,492

Costs and estimated earnings in excess of billings, net of allowance for doubtful
    accounts of $6,189 and $6,672 as of March 31, 2020 and December 31, 2019,

    respectively

214,057

227,490

Accounts receivable retention

4,142

4,911

Other receivables, net of allowance for doubtful accounts of $4,346 and $4,390 as
     of March 31, 2020 and December 31, 2019, respectively

27,795

23,173

Advances to suppliers

16,228

17,522

Amounts due from related parties

24,808

26,515

Inventories

49,609

35,596

Prepaid expenses

821

510

Income tax recoverable

1,541

288

Total current assets

1,116,810

1,146,087

Non-current assets

Restricted cash

7,368

2,657

Costs and estimated earnings in excess of billings

2,542

2,700

Accounts receivable retention

6,490

7,300

Prepaid expenses

7

10

Property, plant and equipment, net

75,778

78,059

Prepaid land leases

15,719

16,224

Intangible assets, net

1,116

1,208

Investments in equity investees

40,052

40,077

Investments securities

4,623

4,693

Goodwill

35,834

37,845

Deferred tax assets

8,947

8,328

Operating lease right-of-use assets

5,084

5,259

Total non-current assets

203,560

204,360

Total assets

1,320,370

1,350,447

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Short-term bank loans

279

1,436

Current portion of long-term loans

316

319

Accounts payable

114,363

115,166

Construction costs payable

1,461

1,289

Deferred revenue

133,176

142,025

Accrued payroll and related expenses

11,972

21,473

Income tax payable

2,349

4,795

Warranty liabilities

6,205

6,597

Other tax payables

2,320

4,481

Accrued liabilities

31,315

29,337

Amounts due to related parties

3,534

4,218

Operating lease liabilities

1,679

1,673

Total current liabilities

308,969

332,809

Non-current liabilities

Accrued liabilities

5,534

7,620

Long-term loans

829

896

Accounts payable

3,690

3,824

Deferred tax liabilities

14,252

13,146

Warranty liabilities

3,681

4,117

Operating lease liabilities

3,075

3,180

Total non-current liabilities

31,061

32,783

Total liabilities

340,030

365,592

Commitments and contingencies

Stockholders’ equity:

Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
    60,537,099 shares issued and outstanding as of March 31, 2020 and December

    31, 2019

61

61

Additional paid-in capital

223,690

223,673

Statutory reserves

49,424

49,427

Retained earnings

772,666

758,819

Accumulated other comprehensive loss

(68,305)

(49,852)

Total Hollysys Automation Technologies Ltd. stockholder’s equity

977,536

982,128

Non-controlling interests

2,804

2,727

Total equity

980,340

984,855

Total liabilities and equity

$

1,320,370

$

1,350,447

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands).

Three months ended

Nine months ended

March 31, 2020

March 31, 2020

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

13,965

$

77,583

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

Depreciation of property, plant and equipment

2,499

7,101

Amortization of prepaid land leases

97

294

Amortization of intangible assets

75

226

Allowance for doubtful accounts

716

1,311

Gains on disposal of property, plant and equipment

(11)

(2)

Share of net income of equity investees

(570)

(4,108)

Share-based compensation expenses

15

55

Deferred income tax expenses

477

6,712

Accretion of convertible bond

57

Gains on disposal of an investment of an equity investee

(5,763)

Changes in operating assets and liabilities:

Accounts receivable and retention

17,872

57,723

Costs and estimated earnings in excess of billings

9,614

(25,469)

Inventories 

(14,712)

(8,063)

Advances to suppliers

1,019

(3,793)

Other receivables 

(5,407)

(1,720)

Deposits and other assets

(332)

(204)

Due from related parties

1,293

10,440

Accounts payable

2,587

13,381

Deferred revenue

(6,540)

(3,675)

Accruals and other payables

(8,173)

(6,306)

Due to related parties

(683)

(1,861)

Income tax payable

(3,666)

1,875

Other tax payables

(2,118)

1,670

Net cash provided by operating activities

8,017

117,464

Cash flows from investing activities:

Time deposits placed with banks

(136,982)

(240,643)

Purchases of property, plant and equipment

(2,174)

(5,036)

Proceeds from disposal of property, plant and equipment

264

556

Maturity of time deposits

77,108

177,044

Acquisition of a subsidiary, net of cash acquired

 

(150)

Proceeds from disposal of investments in equity investee

 

4,458

Net cash used in investing activities

(61,784)

(63,771)

Cash flows from financing activities:

Proceeds from short-term bank loans

102

2,377

Repayments of short-term bank loans

(1,213)

(3,965)

Proceeds from long-term bank loans

117

293

Repayments of long-term bank loans

 

(119)

(379)

Payment of dividends

 

(12,713)

Repayments of bonds payable

 

(20,753)

Net cash used in financing activities

(1,113)

(35,140)

Effect of foreign exchange rate changes

(5,234)

 

(10,552)

 

Net increase in cash, cash equivalents and restricted cash

$

(60,114)

8,001

Cash, cash equivalents and restricted cash, beginning of period

$

426,502

358,387

Cash, cash equivalents and restricted cash, end of period

366,388

366,388

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

Nine months ended

March 31,

March 31,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Cost of integrated solutions contracts

$

52,628

$

70,818

$

216,613

$

232,411

Less: Amortization of acquired intangible assets

75

78

226

234

Non-GAAP cost of integrated solutions contracts

$

52,553

$

70,740

$

216,387

$

232,177

General and administrative expenses

$

8,961

$

8,793

$

30,185

$

29,140

Less: Share-based compensation expenses

15

50

55

201

Non-GAAP general and administrative expenses

$

8,946

$

8,743

$

30,130

$

28,939

Other income, net

$

1,031

1,190

4,357

7,665

Add: Fair value adjustments of a bifurcated derivative

20

Non-GAAP other income, net

$

1,031

1,190

4,357

7,685

Net income attributable to Hollysys Automation
Technologies Ltd.

$

13,846

$

27,968

$

77,590

$

100,004

Add:

    Share-based compensation expenses

15

50

55

201

    Amortization of acquired intangible assets

75

78

226

234

    Fair value adjustments of a bifurcated derivative

20

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

$

13,936

$

28,096

$

77,871

$

100,459

    Weighted average number of basic ordinary shares

60,552,099

60,459,370

60,520,329

60,453,704

    Weighted average number of diluted ordinary shares

60,552,099

61,276,829

60,694,045

61,273,073

Non-GAAP basic earnings per share

$

0.23

$

0.46

$

1.29

$

1.66

Non-GAAP diluted earnings per share

$

0.23

$

0.46

$

1.28

$

1.65

Cision View original content:http://www.prnewswire.com/news-releases/hollysys-automation-technologies-reports-unaudited-financial-results-for-the-third-quarter-and-the-first-nine-months-ended-march-31-2020-301059162.html

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