First Half of Fiscal Year 2023 Financial Highlights

• Total revenues were $414.8 million, an increase of 12.2% compared to the comparable prior year period.
• Gross margin was 36.1%, compared to 35.3% for the comparable prior year period. Non-GAAP gross margin was 36.3%, compared to 35.4% for the comparable prior year period.
• Net income attributable to Hollysys was $69.6 million, an increase of 57.1% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $72.5 million, an increase of 41.4% compared to the comparable prior year period.
• Diluted earnings per share was $1.12, an increase of 55.6% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $1.17, an increase of 41.0% compared to the comparable prior year period.
• Net cash provided by operating activities was $16.5 million.
• Days sales outstanding ("DSO") was 144 days, compared to 173 days for the comparable prior year period.
• Inventory turnover days were 74 days, compared to 48 days for the comparable prior year period.

Second Quarter of Fiscal Year 2023 Financial Highlights

• Total revenues were $244.7 million, an increase of 13.2% compared to the comparable prior year period.
• Gross margin was 39.6%, compared to 36.1% for the comparable prior year period. Non-GAAP gross margin was 39.7%, compared to 36.2% for the comparable prior year period.
• Net income attributable to Hollysys was $48.2 million, an increase of 60.4% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $49.5 million, an increase of 49.4% compared to the comparable prior year period.
• Diluted earnings per share was $0.78, an increase of 59.2% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.80, an increase of 48.1% compared to the comparable prior year period.
• Net cash provided by operating activities was $15.5 million.
• DSO was 119 days, compared to 147 days for the comparable prior year period.
• Inventory turnover days were 72 days, compared to 50 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, Feb. 16, 2023 /PRNewswire/ -- Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys,"  the "Company" or "we"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the second quarter and the first half of fiscal year 2023 ended December 31, 2022.

The Industrial Automation ("IA") business kept up its strong momentum with increased market shares and broader market recognition.

In the chemical and petrochemical field, Hollysys continued to win mid and high profile contracts with our good client relationship and competitive positioning. We have successfully signed the whole-plant integrated simulation project of China's largest single set of synthetic ammonia and urea plant, with Hollysys providing MACSV system for the power station. Also, we provided the HiaPlant SCADA system for Zhongyuan Oilfield, the second largest oil and gas field under China Petroleum and Chemical Corporation. The system has successfully monitored production performance, optimized process parameters, and ensured safe production during operation, providing reliable technical support for the project. In addition, we signed a contract for the overhaul and rectification of 16 sets of control systems for 10 million tons of oil refining enterprises of the Branch of PetroChina, providing Coordination Control System ("CCS"), Distributed Control System ("DCS") and Gas Detection System ("GDS"). Since then, the Coordination Control System ("CCS"), Safety Instrumented System ("SIS"), DCS and other systems of Hollysys have achieved a full coverage in various branches of China's oil refineries, power plants, olefin plants and other plants, marking another important breakthrough of Hollysys in the field of control systems for 10 million tons of oil refining enterprises. In project delivery, our innovative technology product Optical Control System ("OCS") has been successfully applied in Sinopec's super-large coal chemical projects, setting a positive example in the promotion and application of this innovative technology in future large-scale petrochemical and chemical projects.

In the smart factory field, we successfully signed the project of automatic control system (providing OCS, SIS and GDS) and factory intelligent management system of Jingyuan Coal Power Clean and Efficient Gasification Comprehensive Utilization Project Phase I. The application of OCS in this project is expected to present the extra advantages the system brought to users. This project is also a localization initiative of Hollysys in the gasifier field, which will further promote our localization impact.

In Rail Transportation Automation ("RTA") business, we maintain our market position. In the high-speed rail sector, the Changde-Yiyang section of the Chongqing-Xiamen high-speed railway, equipped with Hollysys train control center ("TCC"), was put into operation. In the urban rail transit section, we signed the smart inspection project for Line 1 of the Dalian Metro, which represents the first smart pilot project of the Dalian Metro and will put into application Hollysys' edge smart control in the field of smart inspection. Meanwhile, branch lines of Shenzhen Metro Line 14 and Line 6 entered into operation smoothly with the support of Hollysys' industrial control cloud access system, unmanned aerial vehicle detection system and other measures to improve the smartness of the project. In terms of highway projects, we won the weather monitoring related bids successively in Inner Mongolia, Sanmenxia and Shaanxi, providing HOLI "travel in all weather" traffic system that combines cloud and big data systems, enabling accurate inclement weather monitoring and warning, effective traffic emergency response and so on. In the tunnel monitoring and control sector, we also won consecutive bids in the provision of intelligent controllers and smart tunnel integrated management platforms, which demonstrates our dedication to contributing to the smart upgrades in highway systems.

The mechanical and electrical solutions ("M&E") segment of the Company also manifested a stable performance with our smooth executions on various projects. The risk monitor and control are still expected to be our future focus in this field.

With our continuous dedication to the industry and the support of experienced and passionate experts, we believe that we will continue to create greater value for our clients and shareholders.

 

Second Quarter and First Half Year Ended December 31, 2022 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,
		2022	2021	% Change		2022	2021	% Change
Revenues	$	244,731	216,251	13.2 %	$	414,774	369,636	12.2 %
Integrated solutions contracts revenue	$	188,929	166,505	13.5 %	$	332,055	291,068	14.1 %
Products sales	$	12,014	9,871	21.7 %	$	23,788	19,517	21.9 %
Service rendered	$	43,788	39,875	9.8 %	$	58,931	59,051	(0.2) %
Cost of revenues	$	147,892	138,264	7.0 %	$	265,085	239,254	10.8 %
Gross profit	$	96,839	77,987	24.2 %	$	149,689	130,382	14.8 %
Total operating expenses	$	48,993	54,268	(9.7) %	$	85,296	91,947	(7.2) %
Selling	$	16,025	13,620	17.7 %	$	29,038	23,029	26.1 %
General and administrative	$	19,741	25,965	(24.0) %	$	32,473	43,040	(24.6) %
Research and development	$	20,431	20,611	(0.9) %	$	37,790	36,660	3.1 %
VAT refunds and government subsidies	$	(7,204)	(5,928)	21.5 %	$	(14,005)	(10,782)	29.9 %
Income from operations	$	47,846	23,719	101.7 %	$	64,393	38,435	67.5 %
Other income (expense), net	$	56	(9)	(722.2) %	$	1,121	959	16.9 %
Foreign exchange (loss) gain	$	(574)	(1,288)	(55.4) %	$	3,523	(1,714)	(305.5) %
Gains on disposal of investments in an      equity investee	$	-	7,995	(100.0) %	$	-	7,995	(100.0) %
Share of net income of equity investees	$	1,068	774	38.0 %	$	1,665	986	68.9 %
Gains on disposal of an investment in      securities	$	845	-	100.0 %	$	845	-	100.0 %
Dividend income from equity      investments	$	-	179	(100.0) %	$	-	179	(100.0) %
Interest income	$	2,918	3,323	(12.2) %	$	6,079	6,183	(1.7) %
Interest expenses	$	(225)	(22)	922.7 %	$	(369)	(366)	0.8 %
Income tax expenses	$	3,626	4,767	(23.9) %	$	7,506	8,669	(13.4) %
Net income (loss) attributable to non-      controlling interests	$	65	(167)	(138.9) %	$	108	(341)	(131.7) %
Net income attributable to Hollysys      Automation Technologies Ltd.	$	48,243	30,071	60.4 %	$	69,643	44,329	57.1 %
Basic earnings per share	$	0.79	0.49	61.2 %	$	1.13	0.73	54.8 %
Diluted earnings per share	$	0.78	0.49	59.2 %	$	1.12	0.72	55.6 %
Share-based compensation expenses	$	940	2,713	(65.4) %	$	2,178	6,306	(65.5) %
Amortization of acquired intangible assets	$	337	353	(4.5) %	$	677	632	7.1 %
Non-GAAP net income attributable to Hollysys      Automation Technologies      Ltd.(1)	$	49,520	33,137	49.4 %	$	72,498	51,267	41.4 %
Non-GAAP basic earnings per share(1)	$	0.81	0.54	50.0 %	$	1.18	0.84	40.5 %
Non-GAAP diluted earnings per share(1)	$	0.80	0.54	48.1 %	$	1.17	0.83	41.0 %
Basic weighted average number of      ordinary shares outstanding		61,440,191	60,946,596	0.8 %		61,378,846	60,884,346	0.8 %
Diluted weighted average number of      ordinary shares outstanding		62,007,655	61,682,393	0.5 %		61,969,551	61,556,602	0.7 %
(1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures.

 

Operational Results Analysis for the First Half Year Ended December 31, 2022

Total revenues for the six months ended December 31, 2022 were $414.8 million, as compared to $369.6 million for the same period of the prior fiscal year, representing an increase of 12.2%. In terms of revenues by type, integrated solutions contracts revenue increased by 14.1% to $332.1 million, products sales revenue increased by 21.9% to $23.8 million, and services revenue decreased by 0.2% to $58.9 million.

The following table sets forth the Company's total revenues by segment for the periods indicated.

 

(In USD thousands, except for %)
		Six months ended December 31,
		2022		2021
		$	% of Total Revenues		$	% of Total Revenues
Industrial Automation		252,777	61.0		216,294	58.5
Rail Transportation Automation		117,068	28.2		115,346	31.2
Mechanical and Electrical Solution		44,929	10.8		37,996	10.3
Total		414,774	100.0		369,636	100.0

 

Gross margin was 36.1% for the six months ended December 31, 2022, as compared to 35.3% for the same period of the prior fiscal year. Gross margins for integrated solutions contracts, product sales, and services rendered were 28.3%, 78.0% and 63.2% for the six months ended December 31, 2022, as compared to 26.5%, 74.9% and 65.5% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 36.3% for the six months ended December 31, 2022, as compared to 35.4% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 28.5% for the six months ended December 31, 2022, as compared to 26.7% 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 $29.0 million for the six months ended December 31, 2022, representing an increase of $6.0 million, or 26.1%, compared to $23.0 million for the same period of the prior fiscal year. Selling expenses as a percentage of total revenues were 7.0% and 6.2% for the six months ended December 31, 2022 and 2021, respectively.

General and administrative expenses were $32.5 million for the six months ended December 31, 2022, representing a decrease of $10.6 million, or 24.6%, compared to $43.0 million for the same period of the prior fiscal year. Share-based compensation expenses were $2.2 million and $6.3 million for the six months ended December 31, 2022 and 2021, respectively. General and administrative expenses as a percentage of total revenues were 7.8% and 11.6% for the six months ended December 31, 2022 and 2021, respectively. 

Research and development expenses were $37.8 million for the six months ended December 31, 2022, representing an increase of $1.1 million, or 3.1%, compared to $36.7 million for the same period of the prior fiscal year. Research and development expenses as a percentage of total revenues were 9.1% and 9.9% for the six months ended December 31, 2022 and 2021, respectively.

The VAT refunds and government subsidies were $14.0 million for the six months ended December 31, 2022, as compared to $10.8 million for the same period of the prior fiscal year, representing a $3.2 million, or 29.9%, increase.

The income tax expenses and the effective tax rate were $7.5 million and 9.7% for the six months ended December 31, 2022, as compared to $8.7 million and 16.5% for the same period of the prior fiscal year. 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 $69.6 million for the six months ended December 31, 2022, representing an increase of 57.1% from $44.3 million reported in the same period of the prior fiscal year. Non-GAAP net income attributable to Hollysys was $72.5 million or $1.17 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 $1.12 for the six months ended December 31, 2022, representing an increase of 55.6% from $0.72 in the same period of the prior fiscal year. Non-GAAP diluted earnings per share was $1.17 for the six months ended December 31, 2022, representing an increase of 41.0% from $0.83 in the same period of the prior fiscal year. These were calculated based on 62.0 million and 61.6 million diluted weighted average ordinary shares outstanding for the six months ended December 31, 2022 and 2021, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Operational Results Analysis for the Second Quarter Ended December 31, 2022

Total revenues for the three months ended December 31, 2022 were $244.7 million, as compared to $216.3 million for the same period of the prior fiscal year, representing an increase of 13.2%. In terms of revenues by type, integrated contracts revenue increased by 13.5% to $188.9 million, products sales revenue increased by 21.7% to $12.0 million, and services revenue increased by 9.8% to $43.8 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,
		2022		2021
		$	% of Total Revenues		$	% of Total Revenues
Industrial Automation		131,727	53.8		113,833	52.7
Rail Transportation Automation		88,826	36.3		79,411	36.7
Mechanical and Electrical Solution		24,178	9.9		23,007	10.6
Total		244,731	100.0		216,251	100.0

 

Gross margin was 39.6% for the three months ended December 31, 2022, as compared to 36.1% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to the product and service mix. Gross margin of integrated solutions contracts, product sales, and service rendered was 30.8%, 85.2% and 64.9% for the three months ended December 31, 2022, as compared to 27.5%, 75.0% and 62.0% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 39.7% for the three months ended December 31, 2022, as compared to 36.2% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 31.0% for the three months ended December 31, 2022, as compared to 27.7% 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 $16.0 million for the three months ended December 31, 2022, representing an increase of $2.4 million, or 17.7%, compared to $13.6 million for the same period of the prior fiscal year. Selling expenses as a percentage of total revenues were 6.5% and 6.3% for the three months ended December 31, 2022 and 2021, respectively.

General and administrative expenses were $19.7 million for the three months ended December 31, 2022, representing a decrease of $6.2 million, or 24.0%, compared to $26.0 million for the same period of the prior fiscal year. Share-based compensation expenses were $0.9 million and $2.7 million for the three months ended December 31, 2022 and 2021, respectively. General and administrative expenses as a percentage of total revenues were 8.1% and 12.0% for the three months ended December 31, 2022 and 2021, respectively. 

Research and development expenses were $20.4 million for the three months ended December 31, 2022, representing a decrease of $0.2 million, or 0.9%, compared to $20.6 million for the same period of the prior fiscal year. Research and development expenses as a percentage of total revenues were 8.3% and 9.5% for the three months ended December 31, 2022 and 2021, respectively.

The VAT refunds and government subsidies were $7.2 million for three months ended December 31, 2022, as compared to $5.9 million for the same period in the prior fiscal year, representing a $1.3 million, or 21.5%, increase.

The income tax expenses and the effective tax rate were $3.6 million and 7.0% for the three months ended December 31, 2022, respectively, as compared to $4.8 million and 13.7% for the same 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 $48.2 million for the three months ended December 31, 2022, representing an increase of 60.4% from $30.1 million reported in the same period in the prior fiscal year. Non-GAAP net income attributable to Hollysys was $49.5 million or $0.80 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 $0.78 for the three months ended December 31, 2022, representing an increase of 59.2% from $0.49 reported in the same period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.80 for the three months ended December 31, 2022, representing an increase of 48.1% from $0.54 reported in the same period in the prior fiscal year. These were calculated based on 62.0 million and 61.7 million diluted weighted average ordinary shares outstanding for the three months ended December 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 $388.7 million and $193.8 million of value of new contracts for the six months and three months ended December 31, 2022, respectively. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $861.7 million as of December 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		Value of new contracts achieved		Backlog as of
	for the six months  ended December 31, 2022		for the three months  ended December 31, 2022		December 31, 2022
	$	% of Total Contract Value		$	% of Total Contract Value		$	% of Total Backlog
Industrial Automation	263,392	67.8		104,488	54.0		356,306	41.3
Rail Transportation Automation	105,502	27.1		89,254	46.0		325,402	37.8
Mechanical and Electrical Solutions	19,778	5.1		88	-		179,991	20.9
Total	388,672	100.0		193,830	100.0		861,699	100.0

 

Cash Flow Highlights

For the six months ended December 31, 2022, the total net cash outflow was $51.5 million. The net cash provided by operating activities was $16.5 million. The net cash used in investing activities was $45.9 million, mainly consisting of $85.9 million purchases of short-term investments, and $24.4 million purchases of property, plant and equipment, which was partially offset by $59.3 million maturity of short-term investments, and $4.2 million proceeds from disposal of a subsidiary. The net cash provided by financing activities was $5.0 million, mainly consisting of $5.3 million of proceeds from long-term bank loans.

For the three months ended December 31, 2022, the total net cash inflow was $52.7 million. The net cash provided by operating activities was $15.5 million. The net cash provided by investing activities was $23.6 million, mainly consisting of $47.7 million maturity of short-term investments, and $4.2 million of proceeds from disposal of a subsidiary, partially offset by $14.8 million purchases of short-term investments, and $14.3 million purchases of property, plant and equipment. The net cash provided by financing activities was $4.1 million, mainly consisting of $4.3 million of proceeds from long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents was $627.6 million, and $575.1 million as of December 31, 2022 and September 30, 2022, respectively.

For the six months ended December 31, 2022, DSO was 144 days, as compared to 173 days from the same period of the prior fiscal year, and inventory turnover days were 74 days, as compared to 48 days from the same period of the prior fiscal year.

For the three months ended December 31, 2022, DSO was 119 days, as compared to 147 days for the same period of the prior fiscal year and 171 days for the last fiscal quarter; inventory turnover days were 72 days, as compared to 50 days for the same period of the prior fiscal year and 79 days for the last fiscal quarter.

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, 2022, Hollysys had cumulatively carried out more than 40,000 projects for approximately 22,000 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 December 31,		Six months ended December 31,
		2022		2021		2022		2021
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net revenues
Integrated solutions contracts revenue	$	188,929	$	166,505	$	332,055	$	291,068
Products sales		12,014		9,871		23,788		19,517
Revenue from services		43,788		39,875		58,931		59,051
Total net revenues		244,731		216,251		414,774		369,636
Costs of integrated solutions contracts		130,751		120,654		238,147		213,963
Cost of products sold		1,775		2,469		5,240		4,898
Costs of services rendered		15,366		15,141		21,698		20,393
Gross profit		96,839		77,987		149,689		130,382
Operating expenses
Selling		16,025		13,620		29,038		23,029
General and administrative		19,741		25,965		32,473		43,040
Research and development		20,431		20,611		37,790		36,660
VAT refunds and government subsidies		(7,204)		(5,928)		(14,005)		(10,782)
Total operating expenses		48,993		54,268		85,296		91,947
Income from operations		47,846		23,719		64,393		38,435
Other income (expense), net		56		(9)		1,121		959
Foreign exchange (loss) gain		(574)		(1,288)		3,523		(1,714)
Gains on disposal of an investment in an equity investee		-		7,995		-		7,995
Gains on disposal of an investment in securities		845		-		845		-
Share of net income of equity investees		1,068		774		1,665		986
Dividend income from equity investments		-		179		-		179
Interest income		2,918		3,323		6,079		6,183
Interest expenses		(225)		(22)		(369)		(366)
Income before income taxes		51,934		34,671		77,257		52,657
Income taxes expenses		3,626		4,767		7,506		8,669
Net income		48,308		29,904		69,751		43,988
Net income (loss) attributable to non-controlling interests	65		(167)		108		(341)
Net income attributable to Hollysys Automation Technologies Ltd.	$	48,243	$	30,071	$	69,643	$	44,329
Other comprehensive income, net of tax of nil
Translation adjustments		20,110		17,456		(50,382)		16,559
Comprehensive income		68,418		47,360		19,369		60,547
Less: comprehensive income (loss) attributable to non- controlling interests	75		(58)		190		(175)
Comprehensive income attributable to Hollysys Automation Technologies Ltd.	$	68,343	$	47,418	$	19,179	$	60,722
Net income per ordinary share:
Basic		0.79		0.49		1.13		0.73
Diluted		0.78		0.49		1.12		0.72
Shares used in net income per share computation:
Basic	61,440,191		60,946,596		61,378,846		60,884,346
Diluted	62,007,655		61,682,393		61,969,551		61,556,602

 

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(In USD thousands except for number of shares and per share data)
				December 31,		September 30,
				2022		2022
				(Unaudited)		(Unaudited)
ASSETS
	Current assets
		Cash and cash equivalents	$	627,589	$	575,148
		Short-term investments		38,569		69,462
		Restricted cash		39,926		38,932
		Accounts receivable, net of allowance for credit losses of $72,800 and $73,470 as       of December 31, 2022 and September 30, 2022, respectively		318,341		303,349
		Costs and estimated earnings in excess of billings, net of allowance for credit losses       of $13,646 and $11,764 as of December 31, 2022 and September 30, 2022,       respectively		252,630		222,510
		Accounts receivable retention		7,010		5,699
		Other receivables, net of allowance for credit losses of $12,489 and $12,280 as of       December 31, 2022 and September 30, 2022, respectively		20,103		25,928
		Advances to suppliers		35,618		41,439
		Amounts due from related parties		23,630		24,219
		Inventories		108,910		104,417
		Prepaid expenses		997		511
		Income tax recoverable		341		1,550
	Total current assets		1,473,664		1,413,164
	Non-current assets
		Restricted cash		-		743
		Costs and estimated earnings in excess of billings		2,405		1,137
		Accounts receivable retention		6,944		6,989
		Prepaid expenses		-		-
		Property, plant and equipment, net		128,066		107,762
		Prepaid land leases		12,037		11,754
		Intangible assets, net		9,555		9,771
		Investments in equity investees		46,293		44,529
		Investments securities		1,623		1,598
		Goodwill		19,683		19,379
		Deferred tax assets		6,429		3,801
		Operating lease right-of-use assets		3,283		3,341
	Total non-current assets		236,318		210,804
	Total assets		1,709,982		1,623,968
LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities
		Short-term bank loans		48		89
		Current portion of long-term loans		255		260
		Accounts payable		171,040		154,037
		Construction costs payable		12,665		7,683
		Deferred revenue		198,302		221,459
		Accrued payroll and related expenses		32,610		23,239
		Income tax payable		5,017		3,436
		Warranty liabilities		4,556		4,349
		Other tax payables		13,187		10,591
		Accrued liabilities		36,136		34,954
		Amounts due to related parties		6,379		6,401
		Operating lease liabilities		1,870		2,069
	Total current liabilities		482,065		468,567
	Non-current liabilities
		Accrued liabilities		3,045		2,924
		Long-term loans		19,613		15,439
		Accounts payable		2,782		2,677
		Deferred tax liabilities		11,200		12,887
		Warranty liabilities		2,642		2,357
		Operating lease liabilities		1,200		1,054
		Other liability		60		49
	Total non-current liabilities		40,542		37,387
	Total liabilities		522,607		505,954
	Commitments and contingencies		-		-
	Stockholders' equity:
		Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;       61,972,317 shares and 61,963,047 shares issued and outstanding as of       December 31, 2022 and September 30, 2022		62		62
		Additional paid-in capital		245,654		244,713
		Statutory reserves		78,932		77,263
		Retained earnings		925,114		878,538
		Accumulated other comprehensive income		(63,118)		(83,219)
	Total Hollysys Automation Technologies Ltd. stockholder's equity		1,186,644		1,117,357
		Non-controlling interests		731		657
	Total equity		1,187,375		1,118,014
	Total liabilities and equity	$	1,709,982	$	1,623,968

 

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD CONSOLIDATED STATEMENTS OF CASH FLOWS (In USD thousands)
			Three months ended		Six months ended
December 31, 2022		December 31, 2022
			(Unaudited)		(Unaudited)
Cash flows from operating activities:
	Net income	$	48,308	$	69,751
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation of property, plant and equipment		2,143		4,523
	Amortization of prepaid land leases		86		166
	Amortization of intangible assets		337		677
	Allowance for credit losses		3,715		2,573
	Gains on disposal of property, plant and equipment		150		94
	Share of net income of equity investees		(1,068)		(1,665)
	Share-based compensation expenses		940		2,178
	Deferred income tax expenses		(4,428)		(3,561)
	Gains on disposal of an investment in securities		(845)		(845)
Changes in operating assets and liabilities:
	Accounts receivable and retention		(11,997)		(20,371)
	Costs and estimated earnings in excess of billings		(27,208)		(31,740)
	Inventories		(2,796)		(21,651)
	Advances to suppliers		6,605		(3,140)
	Other receivables		2,186		912
	Prepaid expenses		(469)		(320)
	Due from related parties		971		2,612
	Accounts payable		5,076		2,592
	Deferred revenue		(27,426)		6
	Accruals and other payables		16,020		10,900
	Due to related parties		(22)		79
	Income tax payable		2,800		616
	Other tax payables		2,443		2,085
	Net cash provided by operating activities		15,521		16,471
Cash flows from investing activities:
	Purchases of short-term investments		(14,801)		(85,879)
	Purchases of property, plant and equipment		(14,311)		(24,432)
	Proceeds from disposal of property, plant and equipment		22		83
	Maturity of short-term investments		47,719		59,318
	Proceeds from disposal of a subsidiary		4,175		4,175
	Proceeds received from disposal of investment in securities		845		845
	Net cash provided by (used in) investing activities		23,649		(45,890)
Cash flows from financing activities:
	Proceeds from short-term bank loans		97		294
	Repayments of short-term bank loans		(141)		(311)
	Proceeds from long-term bank loans		4,307		5,293
	Repayments of long-term bank loans		(121)		(265)
	Net cash provided by financing activities		4,142		5,011
	Effect of foreign exchange rate changes		9,380		(27,104)
	Net increase (decrease) in cash, cash equivalents and restricted cash	$	52,692		(51,512)
	Cash, cash equivalents and restricted cash, beginning of period	$	614,823		719,027
	Cash, cash equivalents and restricted cash, end of period		667,515		667,515

 

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,
			2022		2021		2022		2021
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Gross profit	$	96,839		77,987		149,689		130,382
Gross margin(1)		39.6 %		36.1 %		36.1 %		35.3 %
Add:
Amortization of acquired intangible assets		337		353		677		632
Non-GAAP gross profit	$	97,176	$	78,340	$	150,366	$	131,014
Non-GAAP gross margin(2)		39.7 %		36.2 %		36.3 %		35.4 %
(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 December 31,		Six months ended December 31,
		2022		2021		2022		2021
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Gross profit of integrated     solutions contracts	$	58,178	$	45,851	$	93,908	$	77,105
Gross margin of integrated     solutions contracts(1)		30.8 %		27.5 %		28.3 %		26.5 %
Add:     Amortization of acquired     intangible assets		337		353		677		632
Non-GAAP gross profit of     integrated solutions     contracts	$	58,515	$	46,204	$	94,585	$	77,737
Non-GAAP gross margin of     integrated solutions     contracts(2)		31.0 %		27.7 %		28.5 %		26.7 %
(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,
			2022		2021		2022		2021
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income attributable to Hollysys Automation       Technologies Ltd.	$	48,243	$	30,071	$	69,643	$	44,329
Add:
	Share-based compensation expenses		940		2,713		2,178		6,306
	Amortization of acquired intangible assets		337		353		677		632
Non-GAAP net income attributable to Hollysys       Automation Technologies Ltd.	$	49,520	$	33,137	$	72,498	$	51,267

 

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,
			2022		2021		2022		2021
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income attributable to Hollysys Automation       Technologies Ltd.	$	48,243	$	30,071	$	69,643	$	44,329
Add:
	Share-based compensation expenses		940		2,713		2,178		6,306
	Amortization of acquired intangible assets		337		353		677		632
Non-GAAP net income attributable to       Hollysys Automation Technologies Ltd.	$	49,520	$	33,137	$	72,498	$	51,267
Weighted average number of basic ordinary       shares		61,440,191		60,946,596		61,378,846		60,884,346
Weighted average number of diluted ordinary       shares		62,007,655		61,682,393		61,969,551		61,556,602
Basic earnings per share(1)		0.79		0.49		1.13		0.73
Add:    non-GAAP adjustments to net income per share(2)		0.02		0.05		0.05		0.11
Non-GAAP basic earnings per share(3)	$	0.81	$	0.54	$	1.18	$	0.84
Diluted earnings per share(1)		0.78		0.49		1.12		0.72
Add:    non-GAAP adjustments to net income per share(2)		0.02		0.05		0.05		0.11
Non-GAAP diluted earnings per share(3)	$	0.80	$	0.54	$	1.17	$	0.83
(1)           Basic (or diluted) earnings per share is derived from net income attributable to Hollysys Automation Technologies Ltd. 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 Hollysys Automation Technologies Ltd. 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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Source: Hollysys Automation Technologies Ltd Related Stocks: NASDAQ:HOLI