Hollysys Automation Technologies Reports Unaudited Financial Results for the Second Quarter and the First Half Year Ended December 31, 2022

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 ChongqingXiamen 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
[email protected]

 

 

 

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).