Hollysys Automation Technologies Reports Unaudited Financial Results for the Second Quarter and the First Half Year Ended December 31, 2023

First Half of Fiscal Year 2024 Financial Highlights

Total revenues were $423.6 million, an increase of 2.1% compared to the comparable prior year period. Gross margin was 31.9%, compared to 36.1% for the comparable prior year period. Non-GAAP gross margin was 32.1%, compared to 36.3% for the comparable prior year period. Net income attributable to Hollysys was $45.8 million, a decrease of 34.3% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $46.8 million, a decrease of 35.5% compared to the comparable prior year period.  Diluted earnings per share was $0.74, a decrease of 33.9% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.75, a decrease of 35.9% compared to the comparable prior year period. Net cash provided by operating activities was $88.3 million. Days sales outstanding (“DSO”) was 146 days, compared to 144 days for the comparable prior year period. Inventory turnover days were 74 days, compared to 74 days for the comparable prior year period.

Second Quarter of Fiscal Year 2024 Financial Highlights

Total revenues were $223.7 million, a decrease of 8.6% compared to the comparable prior year period. Gross margin was 29.5%, compared to 39.6% for the comparable prior year period. Non-GAAP gross margin was 29.7%, compared to 39.7% for the comparable prior year period. Net income attributable to Hollysys was $14.1 million, a decrease of 70.7% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $14.6 million, a decrease of 70.6% compared to the comparable prior year period. Diluted earnings per share was $0.23, a decrease of 70.5% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.23, a decrease of 71.3% compared to the comparable prior year period. Net cash provided by operating activities was $60.1 million. DSO was 138 days, compared to 119 days for the comparable prior year period. Inventory turnover days were 68 days, compared to 72 days for the comparable prior year period.

See the section entitled “Non-GAAP Measures” for more information about non-GAAP gross margin, non-GAAP net income attributable to Hollysys and non-GAAP diluted earnings per share.

BEIJING, March 8, 2024 /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 2024 ended December 31, 2023.

In the Industrial Automation segment, the Company’s innovation and development capabilities have once again received industry recognition. In this quarter, the Company was selected for the “2023 Intelligent Manufacturing System Solution List Leading Projects” by the Ministry of Industry and Information Technology of China and “2023 Zhejiang Province High-tech Enterprise Innovation Capability Top 500 List”. It was also awarded the title of “2023 Zhejiang Province Technology Leading Enterprise”. Meanwhile, the Company continues to strengthen its technological foundation and seek development opportunities in various fields. During this quarter, the Company introduced Advanced Planning and Scheduling Technology Plus, which can optimize the entire process from supply chain to production and order delivery, further promoting the development of the Company’s industrial software system.

In the chemical and petrochemical sector, the Company utilized its Advanced Process Control (“APC”) platform to successfully support a chemical company’s first boiler optimization control project, and achieved a fully automatic optimization of boiler air, water, coal, and environmental protection systems, resulting in a significant improvement in the automatic input rate. Furthermore, the Company successfully signed a contract for a company’s 120kt/a carbon fiber precursor production project, where Hollysys will provide production control systems and integrated solution. This project marked a major milestone for Hollysys’ Industrial Optical Bus Control System (“OCS”) and an expansion of its application in the field of carbon fiber precursor automation control.

In the smart factory sector, the Company successfully signed a contract for a 60,000-ton energy grade titanium (alloy) material intelligent manufacturing control platform project, where Hollysys will provide integrated intelligent manufacturing control solutions such as Distributed Control System (“DCS”) and HiaPlant system to assist the company in intelligent production and operation. This project is significant for the Company’s smart factory products and overall solutions in the titanium industry. Additionally, the Company signed a smart factory project to develop and utilize 10,000 tons of battery grade lithium carbonate in an environmentally friendly and comprehensive manner, where Hollysys will provide DCS and HOLLiAS MACS for this project. Upon completion, this project will play a crucial role in guaranteeing the security of local lithium resource supply.

In the electricity sector, the Company completed the optimization and control transformation project of the first heating boiler for a heat source plant in the power industry, in partnership with another company, based on the HOLLiAS APC platform.

In the Rail Transportation Automation segment, the Company maintained its market position. In the high-speed rail sector, the Company won the renovation project of ZPW-2000 track circuit equipment and coding equipment for the Zibo-Boshan railway. Meanwhile, the Company has witnessed significant progress in several key projects that it has been involved in. As the supplier of the Chinese Train Control System Level 3, the Company successfully contributed to the completion of the Guizhou-Guangzhou High-speed Railway upgrading and renovation project, as well as the official opening and operation of the Chengdu-Yibin High-speed Railway. In the urban rail transit sector, the Company acted as the equipment integrator and successfully assisted in the completion of the Integrated Supervisory and Control System upgrade project for Beijing Metro Line 10. The Company also supported the trial operation of the Shenzhen Metro Line 8 Phase II project, providing integrated monitoring system. Additionally, the Company contributed to the opening of the north section of Beijing Metro Line 17 with its Train Integration Automatic System. 

In terms of overseas business, collaborating with other companies, the Company won the bid for the power supply system project of Jurong Regional Line and Sengkang-Punggol Light Rail Depot Line in Singapore. The Company also won the design and construction project of the Overhead Conducting Rail system for the Cross Island Line in Singapore.

In the mechanical and electrical solutions (“M&E”) segment, the Company achieved stable performance with smooth executions on various projects.

With the Company’s continuous dedication to the industry and the support of experienced and passionate experts, Hollysys believes that it will continue to create greater value for clients and shareholders.

Second Quarter and First Half Year Ended December 31, 2023 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,

2023

2022

%
Change

2023

2022

%
Change

Revenues

$

223,723

244,731

(8.6) %

$

423,623

414,774

2.1 %

    Integrated solutions contracts
revenue

$

180,518

188,929

(4.5) %

$

330,219

332,055

(0.6) %

    Products sales

$

9,402

12,014

(21.7) %

$

23,721

23,788

(0.3) %

    Service rendered

$

33,803

43,788

(22.8) %

$

69,683

58,931

18.2 %

Cost of revenues

$

157,711

147,892

6.6 %

$

288,435

265,085

8.8 %

Gross profit

$

66,012

96,839

(31.8) %

$

135,188

149,689

(9.7) %

Total operating expenses

$

52,241

48,993

6.6 %

$

87,166

85,296

2.2 %

    Selling

$

19,870

16,025

24.0 %

$

36,054

29,038

24.2 %

    General and administrative

$

18,864

19,741

(4.4) %

$

24,394

32,473

(24.9) %

    Research and development

$

28,270

20,431

38.4 %

$

46,626

37,790

23.4 %

    VAT refunds and government
subsidies

$

(14,763)

(7,204)

104.9 %

$

(19,908)

(14,005)

42.1 %

Income from operations

$

13,771

47,846

(71.2) %

$

48,022

64,393

(25.4) %

Other (expense) income, net

$

(653)

56

(1266.1) %

$

(303)

1,121

(127.0) %

Foreign exchange (loss) gain

$

(1,009)

(574)

75.8 %

$

(1,054)

3,523

(129.9) %

Impairment loss of investments in
    securities

$

(69)

(100.0) %

$

(69)

(100.0) %

Share of net income of equity investees

$

1,241

1,068

16.2 %

$

298

1,665

(82.1) %

Gains on disposal of an investment in
    securities

$

845

(100.0) %

$

845

(100.0) %

Interest income

$

3,108

2,918

6.5 %

$

6,669

6,079

9.7 %

Interest expenses

$

(414)

(225)

84.0 %

$

(731)

(369)

98.1 %

Income tax expenses

$

1,851

3,626

(49.0) %

$

7,124

7,506

(5.1) %

Net (loss) income attributable to non-
    controlling interests

$

(15)

65

(123.1) %

$

(71)

108

(165.7) %

Net income attributable to Hollysys
    Automation Technologies Ltd.

$

14,139

48,243

(70.7) %

$

45,779

69,643

(34.3) %

Basic earnings per share

$

0.23

0.79

(70.9) %

$

0.74

1.13

(34.5) %

Diluted earnings per share

$

0.23

0.78

(70.5) %

$

0.74

1.12

(33.9) %

Share-based compensation expenses

$

86

940

(90.9) %

$

348

2,178

(84.0) %

Amortization of acquired intangible
assets

$

326

337

(3.3) %

$

648

677

(4.3) %

Non-GAAP net income attributable to
    Hollysys Automation Technologies
    Ltd.(1)

$

14,551

49,520

(70.6) %

$

46,775

72,498

(35.5) %

Non-GAAP basic earnings per share(1)

$

0.23

0.81

(71.6) %

$

0.76

1.18

(35.6) %

Non-GAAP diluted earnings per share(1)

$

0.23

0.80

(71.3) %

$

0.75

1.17

(35.9) %

Basic weighted average number of
    ordinary shares outstanding

61,987,791

61,440,191

0.9 %

61,917,839

61,378,846

0.9 %

Diluted weighted average number of
    ordinary shares outstanding

62,305,532

62,007,655

0.5 %

62,254,019

61,969,551

0.5 %

(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, 2023

Total revenues for the six months ended December 31, 2023 were $423.6 million, as compared to $414.8 million for the same period of the prior fiscal year, representing an increase of 2.1%. In terms of revenues by type, integrated solutions contracts revenue decreased by 0.6% to $330.2 million, products sales revenue decreased by 0.3% to $23.7 million, and services revenue increased by 18.2% to $69.7 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,

2023

2022

$

% of Total
Revenues

$

% of Total
Revenues

Industrial Automation

252,403

59.5

252,777

61.0

Rail Transportation Automation

124,334

29.4

117,068

28.2

Mechanical and Electrical Solution

46,886

11.1

44,929

10.8

Total

423,623

100.0

414,774

100.0

 

Gross margin was 31.9% for the six months ended December 31, 2023, as compared to 36.1% for the same period of the prior fiscal year. Gross margins of integrated solutions contracts, product sales, and services rendered were 21.6%, 72.9% and 67.0% for the six months ended December 31, 2023, as compared to 28.3%, 78.0% and 63.2% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 32.1% for the six months ended December 31, 2023, as compared to 36.3% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 21.8% for the six months ended December 31, 2023, as compared to 28.5% 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 $36.1 million for the six months ended December 31, 2023, representing an increase of $7.0 million, or 24.2%, compared to $29.0 million for the same period of the prior fiscal year. The increase in selling expenses was mainly due to the increase in sales headcount to support the business growth, and the implementation of industry key customer strategy in industrial automation segment. Selling expenses as a percentage of total revenues were 8.5% and 7.0% for the six months ended December 31, 2023 and 2022, respectively.

General and administrative expenses were $24.4 million for the six months ended December 31, 2023, representing a decrease of $8.1 million, or 24.9%, compared to $32.5 million for the same period of the prior fiscal year, which was primarily due to a $10.4 million decrease in credit losses, and a $1.8 million decrease in share-based compensation expenses, partially offset by a $3.6 million increase in third-party consulting fees. Share-based compensation expenses were $0.3 million and $2.2 million for the six months ended December 31, 2023 and 2022, respectively. General and administrative expenses as a percentage of total revenues were 5.8% and 7.8% for the six months ended December 31, 2023 and 2022, respectively. 

Research and development expenses were $46.6 million for the six months ended December 31, 2023, representing an increase of $8.8 million, or 23.4%, compared to $37.8 million for the same period of the prior fiscal year, which was primarily due to a $6.2 million increase in labor cost for the increase in R&D staff for strategic technological innovation. Research and development expenses as a percentage of total revenues were 11.0% and 9.1% for the six months ended December 31, 2023 and 2022, respectively.

The VAT refunds and government subsidies were $19.9 million for the six months ended December 31, 2023, as compared to $14.0 million for the same period of the prior fiscal year, representing a $5.9 million, or 42.1%, increase, which was primarily due to a $5.8 million increase in government subsidies.

The income tax expenses and the effective tax rate were $7.1 million and 13.5% for the six months ended December 31, 2023, as compared to $7.5 million and 9.7% 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 $45.8 million for the six months ended December 31, 2023, representing a decrease of 34.3% from $69.6 million reported in the same period of the prior fiscal year. Non-GAAP net income attributable to Hollysys was $46.8 million or $0.75 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 $0.74 for the six months ended December 31, 2023, representing a decrease of 33.9% from $1.12 in the same period of the prior fiscal year. Non-GAAP diluted earnings per share was $0.75 for the six months ended December 31, 2023, representing a decrease of 35.9% from $1.17 in the same period of the prior fiscal year. These were calculated based on 62.3 million and 62.0 million diluted weighted average ordinary shares outstanding for the six months ended December 31, 2023 and 2022, 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, 2023

Total revenues for the three months ended December 31, 2023 were $223.7 million, as compared to $244.7 million for the same period of the prior fiscal year, representing a decrease of 8.6%. In terms of revenues by type, integrated contracts revenue decreased by 4.5% to $180.5 million, products sales revenue decreased by 21.7% to $9.4 million, and services revenue decreased by 22.8% to $33.8 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,

2023

2022

$

% of Total
Revenues

$

% of Total
Revenues

Industrial Automation

135,361

60.5

131,727

53.8

Rail Transportation Automation

66,824

29.9

88,826

36.3

Mechanical and Electrical Solution

21,538

9.6

24,178

9.9

Total

223,723

100.0

244,731

100.0

 

Gross margin was 29.5% for the three months ended December 31, 2023, as compared to 39.6% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to the product and service mix. Gross margins of integrated solutions contracts, product sales, and service rendered were 21.1%, 65.6% and 64.2% for the three months ended December 31, 2023, as compared to 30.8%, 85.2% and 64.9% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 29.7% for the three months ended December 31, 2023, as compared to 39.7% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 21.3% for the three months ended December 31, 2023, as compared to 31.0% for the same period of the prior fiscal year. See the section entitled “Non-GAAP Measures” for more information about non-GAAP gross margin and non-GAAP gross margin of integrated solutions contracts.

Selling expenses were $19.9 million for the three months ended December 31, 2023, representing an increase of $3.8 million, or 24.0%, compared to $16.0 million for the same period of the prior fiscal year. The increase in selling expenses was mainly due to the increase in sales headcount to support the business growth, and the implementation of industry key customer strategy in industrial automation segment. Selling expenses as a percentage of total revenues were 8.9% and 6.5% for the three months ended December 31, 2023 and 2022, respectively.

General and administrative expenses were $18.9 million for the three months ended December 31, 2023, representing a decrease of $0.8 million, or 4.4%, compared to $19.7 million for the same period of the prior fiscal year, which was primarily due to a $4.9 million decrease in credit losses, and a $0.9 million decrease in share-based compensation expenses, partially offset by a $3.6 million increase in third-party consulting fees. Share-based compensation expenses were $0.1 million and $0.9 million for the three months ended December 31, 2023 and 2022, respectively. General and administrative expenses as a percentage of total revenues were 8.4% and 8.1% for the three months ended December 31, 2023 and 2022, respectively. 

Research and development expenses were $28.3 million for the three months ended December 31, 2023, representing an increase of $7.8 million, or 38.4%, compared to $20.4 million for the same period of the prior fiscal year, which was primarily due to a $4.5 million increase in labor cost for the increase in R&D staff for strategic technological innovation. Research and development expenses as a percentage of total revenues were 12.6% and 8.3% for the three months ended December 31, 2023 and 2022, respectively.

The VAT refunds and government subsidies were $14.8 million for three months ended December 31, 2023, as compared to $7.2 million for the same period in the prior fiscal year, representing a $7.6 million, or 104.9%, increase, which was primarily due to a $7.1 million increase in government subsidies.

The income tax expenses and the effective tax rate were $1.9 million and 11.6% for the three months ended December 31, 2023, respectively, as compared to $3.6 million and 7.0% 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 $14.1 million for the three months ended December 31, 2023, representing a decrease of 70.7% from $48.2 million reported in the same period in the prior fiscal year. Non-GAAP net income attributable to Hollysys was $14.6 million or $0.23 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 $0.23 for the three months ended December 31, 2023, representing a decrease of 70.5% from $0.78 reported in the same period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.23 for the three months ended December 31, 2023, representing a decrease of 71.3% from $0.80 reported in the same period in the prior fiscal year. These were calculated based on 62.3 million and 62.0 million diluted weighted average ordinary shares outstanding for the three months ended December 31, 2023 and 2022, respectively. See the section entitled “Non-GAAP Measures” for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $495.2 million and $235.4 million of value of new contracts for the six months and three months ended December 31, 2023, respectively. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $962.2 million as of December 31, 2023. 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

 

for the six months

 ended December 31, 2023

for the three months

ended December 31, 
2023


as of December 31, 2023

$

% of Total
Contract
Value

$

% of
Total
Contract
Value

$

% of Total
Backlog

Industrial Automation

226,130

45.7

67,579

28.7

368,937

38.4

Rail Transportation Automation

225,859

45.6

151,609

64.4

408,176

42.4

Mechanical and Electrical
Solutions

43,200

8.7

16,194

6.9

185,093

19.2

Total

495,189

100.0

235,382

100.0

962,206

100.0

 

Cash Flow Highlights

For the six months ended December 31, 2023, the total net cash inflow was $135.3 million. The net cash provided by operating activities was $88.3 million. The net cash provided by investing activities was $4.3 million, mainly consisting of $44.9 million maturity of short-term investments, which was partially offset by$20.5 million purchases of short-term investments, and $20.6 million purchases of property, plant and equipment. The net cash provided by financing activities was $31.3 million, mainly consisting of $31.6 million of proceeds from long-term bank loans.

For the three months ended December 31, 2023, the total net cash inflow was $97.4 million. The net cash provided by operating activities was $60.1 million. The net cash provided by investing activities was $20.2 million, mainly consisting of $25.7 million maturity of short-term investments, partially offset by $2.3 million purchases of short-term investments, and $3.7 million purchases of property, plant and equipment. The net cash provided by financing activities was $1.9 million, mainly consisting of $2.0 million of proceeds from long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents was $747.5 million and $650.4 million as of December 31, 2023 and September 30, 2023, respectively.

For the six months ended December 31, 2023, DSO was 146 days, as compared to 144 days from the same period of the prior fiscal year, and inventory turnover days were 74 days, as compared to 74 days from the same period of the prior fiscal year.

For the three months ended December 31, 2023, DSO was 138 days, as compared to 119 days for the same period of the prior fiscal year and 145 days for the last fiscal quarter; inventory turnover days were 68 days, as compared to 72 days for the same period of the prior fiscal year and 84 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, 2023, Hollysys had cumulatively carried out more than 45,000 projects for approximately 23,000 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,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Integrated solutions contracts revenue

$

180,518

$

188,929

$

330,219

$

332,055

Products sales

9,402

12,014

23,721

23,788

Revenue from services

33,803

43,788

69,683

58,931

Total net revenues

223,723

244,731

423,623

414,774

Costs of integrated solutions contracts

142,387

130,751

258,973

238,147

Cost of products sold

3,234

1,775

6,440

5,240

Costs of services rendered

12,090

15,366

23,022

21,698

Gross profit

66,012

96,839

135,188

149,689

Operating expenses

Selling

19,870

16,025

36,054

29,038

General and administrative

18,864

19,741

24,394

32,473

Research and development

28,270

20,431

46,626

37,790

VAT refunds and government subsidies

(14,763)

(7,204)

(19,908)

(14,005)

Total operating expenses

52,241

48,993

87,166

85,296

Income from operations

13,771

47,846

48,022

64,393

Other (expense) income, net

(653)

56

(303)

1,121

Foreign exchange (loss) gain

(1,009)

(574)

(1,054)

3,523

Impairment loss of investments in investment in securities

(69)

(69)

Gains on disposal of an investment in securities

845

845

Share of net income of equity investees

1,241

1,068

298

1,665

Interest income

3,108

2,918

6,669

6,079

Interest expenses

(414)

(225)

(731)

(369)

Income before income taxes

15,975

51,934

52,832

77,257

Income taxes expenses

1,851

3,626

7,124

7,506

Net income

14,124

48,308

45,708

69,751

Net (loss) income attributable to non-controlling interests

(15)

65

(71)

108

Net income attributable to Hollysys Automation
Technologies Ltd.

$

14,139

$

48,243

$

45,779

$

69,643

Other comprehensive income, net of tax of nil

Translation adjustments

28,499

20,110

21,147

(50,382)

Comprehensive income

42,623

68,418

66,855

19,369

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

9

75

(55)

190

Comprehensive income attributable to Hollysys
Automation Technologies Ltd.

$

42,614

$

68,343

$

66,910

$

19,179

Net income per ordinary share:

Basic

0.23

0.79

0.74

1.13

Diluted

0.23

0.78

0.74

1.12

Shares used in net income per share computation:

Basic

61,987,791

61,440,191

61,917,839

61,378,846

Diluted

62,305,532

62,007,655

62,254,019

61,969,551

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

December
31,

September
30,

2023

2023

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

747,507

$

650,413

Short-term investments

9,074

32,100

Restricted cash

24,492

24,392

Accounts receivable, net of allowance for credit losses of $62,968 and $63,925 as
    of December 31, 2023 and September 30, 2023, respectively

352,399

308,788

Costs and estimated earnings in excess of billings, net of allowance for credit losses
    of $12,431 and $13,908 as of December 31, 2023 and September 30, 2023,
    respectively

244,154

285,218

Accounts receivable retention

5,297

5,783

Other receivables, net of allowance for credit losses of $15,707 and $15,584 as of
    December 31, 2023 and September 30, 2023, respectively

16,011

20,389

Advances to suppliers

31,687

31,216

Amounts due from related parties

22,482

28,712

Inventories

106,691

112,261

Prepaid expenses

441

280

Income tax recoverable

1,115

449

Total current assets

1,561,350

1,500,001

Non-current assets

Restricted cash

11,425

11,174

Costs and estimated earnings in excess of billings

1,570

1,451

Accounts receivable retention

7,070

7,418

Prepaid expenses

2

2

Property, plant and equipment, net

164,833

145,885

Prepaid land leases

11,569

11,357

Intangible assets, net

8,598

8,079

Investments in equity investees

48,683

46,381

Investments securities

1,552

1,552

Goodwill

19,359

18,827

Deferred tax assets

9,454

11,364

Operating lease right-of-use assets

3,435

2,997

Total non-current assets

287,550

266,487

Total assets

1,848,900

1,766,488

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Short-term bank loans

67

Current portion of long-term loans

15,245

15,237

Accounts payable

181,618

174,713

Construction costs payable

18,650

11,328

Deferred revenue

223,005

202,782

Accrued payroll and related expenses

39,496

27,752

Income tax payable

4,004

5,667

Warranty liabilities

3,663

3,094

Other tax payables

10,540

14,197

Accrued liabilities

35,580

36,885

Amounts due to related parties

4,043

5,111

Operating lease liabilities

1,934

1,542

Total current liabilities

537,845

498,308

Non-current liabilities

Accrued liabilities

666

2,118

Long-term loans

48,638

45,899

Accounts payable

2,851

2,754

Deferred tax liabilities

11,665

12,773

Warranty liabilities

2,573

2,885

Operating lease liabilities

1,227

1,024

Total non-current liabilities

67,620

67,453

Total liabilities

605,465

565,761

Commitments and contingencies

Stockholders’ equity:

Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
    62,095,839 shares and 62,024,409 shares issued and outstanding as of
    December 31, 2023 and September 30, 2023

62

62

Additional paid-in capital

247,256

247,170

Statutory reserves

81,060

78,875

Retained earnings

1,005,375

993,423

Accumulated other comprehensive income

(91,287)

(119,763)

Total Hollysys Automation Technologies Ltd. stockholder’s equity

1,242,466

1,199,767

Non-controlling interests

969

960

Total equity

1,243,435

1,200,727

Total liabilities and equity

$

1,848,900

$

1,766,488

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

 

Three months
ended

Six months
ended

December 31,
2023

December 31,
2023

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

14,124

$

45,708

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

Depreciation of property, plant and equipment

2,457

4,574

Amortization of prepaid land leases

82

163

Amortization of intangible assets

326

648

Allowance for credit losses

(1,246)

(7,839)

Gains on disposal of property, plant and equipment

(70)

(66)

Share of net income of equity investees

(1,241)

(298)

Share-based compensation expenses

86

348

Deferred income tax expenses

862

1,119

Impairment loss of investments in investment in securities 

69

69

Changes in operating assets and liabilities:

Accounts receivable and retention

(31,117)

(24,898)

Costs and estimated earnings in excess of billings

46,830

13,543

Inventories 

8,600

7,308

Advances to suppliers

211

(2,690)

Other receivables 

4,832

3,592

Prepaid expenses

(151)

164

Due from related parties

6,767

3,798

Accounts payable

2,612

7,926

Deferred revenue

14,534

37,079

Accruals and other payables

(1,039)

3,270

Due to related parties

(1,067)

(2,111)

Income tax payable

(2,415)

(2,929)

Other tax payables

(3,947)

(180)

Net cash provided by operating activities

60,099

88,298

Cash flows from investing activities:

Purchases of short-term investments

(2,268)

(20,474)

Purchases of property, plant and equipment

(3,730)

(20,626)

Proceeds from disposal of property, plant and equipment

83

157

Maturity of short-term investments

25,725

44,862

Investment of an investment in securities

(35)

(35)

Proceeds from acquisition of a subsidiary

390

390

Net cash provided by investing activities

20,165

4,274

Cash flows from financing activities:

Proceeds from short-term bank loans

66

66

Proceeds from long-term bank loans

2,022

31,567

Repayments of long-term bank loans

(144)

(374)

Net cash provided by financing activities

1,944

31,259

Effect of foreign exchange rate changes

15,237

11,463

Net increase in cash, cash equivalents and restricted cash

$

97,445

135,294

Cash, cash equivalents and restricted cash, beginning of period

$

685,979

648,130

Cash, cash equivalents and restricted cash, end of period

783,424

783,424

 

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,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit

$

66,012

96,839

135,188

149,689

Gross margin(1)

29.5 %

39.6 %

31.9 %

36.1 %

Add:

  Amortization of acquired intangible assets

326

337

648

677

Non-GAAP gross profit

$

66,338

$

97,176

$

135,836

$

150,366

Non-GAAP gross margin(2)

29.7 %

39.7 %

32.1 %

36.3 %

(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,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit of integrated
   solutions contracts

$

38,131

$

58,178

$

71,246

$

93,908

Gross margin of integrated
   solutions contracts(1)

21.1 %

30.8 %

21.6 %

28.3 %

Add:

  Amortization of acquired
    intangible assets

326

337

648

677

Non-GAAP gross profit of
    integrated solutions
    contracts

$

38,457

$

58,515

$

71,894

$

94,585

Non-GAAP gross margin of
    integrated solutions
    contracts(2)

21.3 %

31.0 %

21.8 %

28.5 %

(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,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income attributable to Hollysys Automation
    Technologies Ltd.

$

14,139

$

48,243

$

45,779

$

69,643

Add:

Share-based compensation expenses

86

940

348

2,178

Amortization of acquired intangible assets

326

337

648

677

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

$

14,551

$

49,520

$

46,775

$

72,498

 

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,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income attributable to Hollysys Automation
    Technologies Ltd.

$

14,139

$

48,243

$

45,779

$

69,643

Add:

Share-based compensation expenses

86

940

348

2,178

Amortization of acquired intangible assets

326

337

648

677

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

$

14,551

$

49,520

$

46,775

$

72,498

Weighted average number of basic ordinary
    shares

61,987,791

61,440,191

61,917,839

61,378,846

Weighted average number of diluted ordinary
    shares

62,305,532

62,007,655

62,254,019

61,969,551

Basic earnings per share(1)

0.23

0.79

0.74

1.13

Add:
  non-GAAP adjustments to net income per share(2)

0.00

0.02

0.02

0.05

Non-GAAP basic earnings per share(3)

$

0.23

$

0.81

$

0.76

$

1.18

Diluted earnings per share(1)

0.23

0.78

0.74

1.12

Add:
  non-GAAP adjustments to net income per share(2)

0.00

0.02

0.01

0.05

Non-GAAP diluted earnings per share(3)

$

0.23

$

0.80

$

0.75

$

1.17

(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).