Hollysys Automation Technologies Reports Unaudited Financial Results for the First Half Year and the Second Quarter Ended December 31, 2017

First Half Year of Fiscal Year 2018 Financial Highlights

    --  Non-GAAP net income attributable to Hollysys was $58.2 million, an
        increase of 72.4% compared to the comparable prior year period.
    --  Total revenues were $272.9 million, an increase of 34.7% compared to the
        comparable prior year period.
    --  Non-GAAP gross margin was at 38.2%, compared to 29.2% for the comparable
        prior year period.
    --  Non-GAAP diluted EPS were at $0.96, an increase of 71.4% compared to the
        comparable prior year period.
    --  Net cash provided by operating activities was $72.1 million for the
        current period.
    --  DSO of 166 days, compared to 203 days for the comparable prior year
        period.
    --  Inventory turnover days of 52 days, compared to 48 days for the
        comparable prior year period.

Second Quarter of Fiscal Year 2018 Financial Highlights

    --  Non-GAAP net income attributable to Hollysys was $36.3 million, an
        increase of 229.4% compared to the comparable prior year period.
    --  Total revenues were $157.4 million, an increase of 58.8% compared to the
        comparable prior year period.
    --  Non-GAAP gross margin was at 39.4%, compared to 28.7% for the comparable
        prior year period.
    --  Non-GAAP diluted EPS were at $0.60, an increase of 233.3% compared to
        the comparable prior year period.
    --  Net cash provided by operating activities was $36.1 million for the
        current quarter.
    --  DSO of 147 days, compared to 208 days for the comparable prior year
        period.
    --  Inventory turnover days of 48 days, compared to 52 days for the
        comparable prior year period.

BEIJING, Feb 8, 2018 /PRNewswire/ -- Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the second quarter and the first half of fiscal year 2018 ended December 31, 2017 (see attached tables). The management of Hollysys, stated:

Industrial automation remained on the track of recovery, with revenue recording a 25.9% year-over-year growth, at $57.6 million. Management team has adhered to the low-to-high end market expansion strategy in industries such as chemical and petro-chemical, etc. while building comprehensive service capacity to address the substantial aftersales potential from the entire customer base and seeking new opportunities from existing end-users. On the chemical industry, we signed a contract with Jinan Taixing Fine Chemicals Company to provide system for their polyphosphazene project, a contract with Jiangsu Jingshen Salt & Chemical Industry Co., Ltd to provide Manufacturing Execution System for information integration of their salt packaging and distribution center. On the petro-chemical industry, we signed a contract with China Petroleum & Chemical Corporation to provide DCS and instruments for their liquid chemical wharf project. We entered into a strategic cooperation agreement with CEET, a wholly-owned subsidiary of China National Offshore Oil Corporation to collectively push forward the localization of core equipment on offshore oil platform. In the new energy and food-beverage area, we signed a contract to provide system for Chia Tai Group's recycling of waste project and a contract with Lihua Starch Co., Ltd for their sorbitol project.

Our demonstration-for-further-application strategy in factory automation has brought us more market recognition. We earned government level recognition as we were listed as one of the 23 intelligent manufacturing system solution providers recommended by the Ministry of Industry and Information Technology. We continued to focus on several key industries and cooperate with renowned players. On white-goods, our cooperation with Haier went further as we signed contracts on their Tianjin-based and Qingdao-based washing machine factories. On food beverage area, we are dedicated to provide innovative solution to address safety and efficiency issues. Upon the successful delivery of the first project, our relationship with Hai Di Lao went deeper, with regular communication mechanism set. We expect broader cooperation with them and more clients in the future.

The performance of high speed rail was prominent in this quarter, with revenue recording a 199.0% year-over-year growth at $69.6 million. One of the contributors is the significant increase in aftersales order, including ATP maintenance and replacement contracts. Signing 80 sets of automatic train protection (ATP) to high speed trains in 300-350km/h also contributed greatly to the revenue because of the tightening delivery schedule to secure the Spring Festival Travel. Breakthrough has been made in our new product as we signed our first tract circuit contract for Chengdu-Ya'an regular speed railway line. In subway, we signed SCADA contract for Chengdu Subway Line 5. We will adhere to the expansion strategy to win SCADA contracts in more cities and work closely with subway authorities to promote our SCADA system and subway signaling technologies in future. Management team will adhere to the diversity strategy to create revenue stream from more new products and services, and to maintain a stable and healthy growth into the future.

In oversea business, we signed several EPC contracts with domestic companies, including a contract with Shandong Ludian Co. Ltd to provide DCS for 2X350MW power station in Indonesia. Mechanical and electrical installation services recorded a 0.4% revenue growth at $30.2 million. We continued to address operation, management and risk control issue to ensure that projects can be delivered in good quality, while closely following economic and political circumstances in South East Asia and Middle East. Concord and Bond remained active in seeking business opportunities and we believe that their strategic value as customer resources and international sales channels remains significant.

First Half Year and the Second Quarter Ended December 31, 2017 Unaudited Financial Results Summary

To facilitate a clear understanding of Hollysys' operational results, a summary of unaudited non-GAAP financial results is shown as below:


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


                                                                                Three months ended                               Six months ended
                                                                                ------------------                               ----------------

                                                                                   Dec 31, 2017           Dec 31, 2016                  %                Dec 31, 2017             Dec 31, 2016               %
                                                                                                                                      Change                                                               Change
                                                                                                                                      ------                                                               ------


    Revenues                                                                                     $157,404                 99,137                 58.8%                   $272,914                  202,679              34.7%

        Integrated contract revenue                                                              $134,419                 89,535                 50.1%                   $230,109                  182,600              26.0%

        Products sales                                                                             $9,717                  6,057                 60.4%                    $19,177                   14,370              33.5%

        Service rendered                                                                          $13,268                  3,545                274.3%                    $23,628                    5,709             313.9%

    Cost of revenues                                                                              $95,424                 70,704                 35.0%                   $168,663                  143,588              17.5%

    Gross profit                                                                                  $61,980                 28,433                118.0%                   $104,251                   59,091              76.4%

    Total operating expenses                                                                      $21,072                 17,236                 22.3%                    $40,278                   30,543              31.9%

        Selling                                                                                    $7,740                  6,307                 22.7%                    $14,438                   11,858              21.8%

        General and administrative                                                                $12,177                 10,819                 12.6%                    $23,135                   20,493              12.9%

        Research and development                                                                  $10,585                  8,293                 27.6%                    $19,216                   15,990              20.2%

        VAT refunds and government subsidies                                                     $(9,430)               (8,183)                15.2%                  $(16,511)                (17,798)            (7.2)%

    Income from operations                                                                        $40,908                 11,197                265.3%                    $63,973                   28,548             124.1%

    Other income, net                                                                              $2,271                    866                162.2%                     $2,710                    1,260             115.1%

    Foreign exchange gain (loss)                                                                      $29                  (715)               104.1%                   $(1,104)                   (635)             73.9%

    Share of net income of equity investees                                                        $1,337                    970                 37.8%                     $2,273                    2,279             (0.3)%

    Gains on deconsolidation of the Company's interests in Beijing Hollycon
     Electronic Technology Co., Ltd                                           $                         -                     -                    -   $                      -                   6,005           (100.0)%

    Dividend income from a cost investee                                                                -                     -                    -                     $1,057                        -                 -

    Interest income                                                                                $1,560                    512                204.7%                     $3,036                    1,257             141.5%

    Interest expenses                                                                              $(497)                 (271)                83.4%                     $(634)                   (400)             58.5%

    Income tax expenses                                                                            $9,295                  1,559                496.2%                    $13,031                    4,570             185.1%

    Net income (loss) attributable to non-controlling interests                                       $52                    (9)             (677.8)%                        $86                     (13)          (761.5)%

    Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.                     $36,261                 11,009                229.4%                    $58,194                   33,757              72.4%

    Non-GAAP basic EPS                                                                              $0.60                   0.18                233.3%                      $0.96                     0.56              71.4%

    Non-GAAP diluted EPS                                                                            $0.60                   0.18                233.3%                      $0.96                     0.56              71.4%


    Share-based compensation expenses                                                               $(67)                   918              (107.3)%                       $324                    1,837            (82.4)%

    Amortization of acquired intangible assets                                                       $101                    122               (17.2)%                       $279                      263               6.1%

    GAAP Net income attributable to Hollysys Automation Technologies Ltd.                         $36,227                  9,969                263.4%                    $57,591                   31,657              81.9%

    GAAP basic EPS                                                                                  $0.60                   0.17                252.9%                      $0.95                     0.53              79.2%

    GAAP diluted EPS                                                                                $0.60                   0.17                252.9%                      $0.95                     0.52              79.2%

                                                                                                                                                                              -                       -

    Basic weighted average common shares outstanding                                           60,431,250             60,070,218                  0.6%                 60,428,431               59,976,132               0.8%

    Diluted weighted average common shares outstanding                                         61,251,116             60,895,404                  0.6%                 61,241,092               61,023,669               0.4%

Operational Results Analysis for the Second Quarter Ended December 31, 2017

Comparing to the second quarter of the prior fiscal year, the total revenues for the three months ended December 31, 2017 increased from $99.1 million to $157.4 million, representing an increase of 58.8%. Broken down by the revenue types, services revenue increased by 274.3% to $13.3 million, products sales revenue increased by 60.4% to $9.7 million, and integrated contracts revenue increased by 50.1% to $134.4 million.

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


    (In USD thousands)

                                          Three months ended Dec 31,                        Six months ended Dec 31,
                                          --------------------------                        ------------------------

                                          2017                       2016                  2017                          2016
                                          ----                       ----                  ----                          ----

                                             $    % to Total                  $   % to Total
                                                   Revenue                          Revenue                              $   % to Total Revenue         $   % to Total Revenue
                                           ---   ----------                 ---   ----------                           ---   ------------------       ---   ------------------

    Industrial Automation               57,647          36.6%             45,792          46.2%                      115,130                 42.2%    90,831                     44.8%

    Rail Transportation Automation      69,550          44.2%             23,263          23.5%                      104,745                 38.4%    56,297                     27.8%

    Mechanical and Electrical Solution  30,207          19.2%             30,082          30.3%                       53,039                 19.4%    55,462                     27.4%

    Miscellaneous                            -             -                  -             -                            -                    -        89                  0.0%

    Total                              157,404         100.0%             99,137         100.0%                      272,914                100.0%   202,679                    100.0%
                                       -------          -----              ------          -----                       -------                 -----    -------                    -----

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 39.4% for the three months ended December 31, 2017, as compared to 28.7% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 34.5%, 67.4% and 68.6% for the three months ended December 31, 2017, as compared to 24.3%, 72.1% and 64.9% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 39.3% for the three months ended December 31, 2017, as compared to 28.6% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 34.4%, 67.4% and 68.6% for the three months ended December 31, 2017, as compared to 24.2%, 72.1% and 64.9% for the same period of the prior year respectively.

Selling expenses were $7.7 million for the three months ended December 31, 2017, representing an increase of $1.4 million or 22.7% compared to $6.3 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.9% and 6.4% for the three months ended December 31, 2017, and 2016, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $12.2 million and $10.8 million for the quarter ended December 31, 2017, and 2016, respectively. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.7% and 10.9% for quarters ended December 31, 2017 and 2016 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $12.1 million and $11.7 million for the three months ended December 31, 2017 and 2016, respectively.

Research and development expenses were $10.6 million for the three months ended December 31, 2017, representing an increase of $2.3 million or 27.6% compared to $8.3 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 6.7% and 8.4% for the quarter ended December 31, 2017 and 2016, respectively.

The VAT refunds and government subsidies were $9.4 million for three months ended December 31, 2017, as compared to $8.2 million for the same period in the prior year, representing a $1.2 million or 15.2% increase.

The income tax expenses and the effective tax rate were $9.3 million and 20.4% for the three months ended December 31, 2017, as compared to $1.6 million and 13.5% for comparable prior year period. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates, as the Company's subsidiaries apply to different tax rates.

The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses, which is calculated based on the number of shares or options granted and the fair value as of the grant date, amortization of acquired intangible assets, fair value adjustments of acquisition-related consideration, and fair value adjustments of a bifurcated derivative was $36.3 million or $0.60 per diluted share based on 61.3 million shares outstanding for the three months ended December 31, 2017. This represents a 229.4% increase over the $11.0 million or $0.18 per share based on 60.9 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $36.2 million or $0.60 per diluted share representing an increase of 263.4% over the $10.0 million or $0.17 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $220.0 million new contracts for the three months ended December 31, 2017. And the backlog as of December 31, 2017 was $547.6 million. The detailed breakdown of the new contracts and backlog by segments is shown below:


    (In USD thousands)                      New contracts
                                              achieved                              Backlog
                                               -------------                        -------

                                        for the three months                         as of
                                                                                 Dec 31, 2017
                                         ended Dec 31, 2017

                                                             $ % to Total                          $   % to Total
                                                                Contract                                 Backlog
                                                                --------                                 -------

    Industrial Automation                               45,799             20.8%              152,602              27.9%

    Rail Transportation                                143,784             65.4%              272,154              49.7%

    Mechanical and Electrical Solutions                 30,386             13.8%              122,798              22.4%

    Total                                              219,969            100.0%              547,554             100.0%
                                                       -------             -----               -------              -----

Cash Flow Highlights

For the three months ended December 31, 2017, the total net cash outflow was $13.8 million. The net cash provided by operating activities was $36.1 million. The net cash used in investing activities was $45.5 million, mainly consisted of $92.6 million time deposits placed with banks, which was partially offset by $47.8 million maturity of time deposits. The net cash used in financing activities was $7.2 million, mainly consisted of $7.2 million payment of dividends.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $365.4 million, $331.5 million, and $285.4 million as of December 31, 2017, September 30, 2017 and December 31, 2016, respectively. As of December 31, 2017, the company held $231.0 million in cash and cash equivalents and $134.4 million in time deposits with original maturities over three months.

For the three months ended December 31, 2017, DSO was 147 days, as compared to 208 days for the comparable prior year period and 196 days for the last quarter; and inventory turnover was 48 days, as compared to 52 days for the comparable prior year period and 61 days for the last quarter.

Outlook for FY 2018

The management concluded, "Based on our backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance for fiscal year 2018 with revenue in the range of $500 million to $530 million and non-GAAP net income in the range of $100 million to $110 million."

Conference Call

The Company will host a conference call at 8:00 pm February 8, 2018 U.S. Eastern Time / 9:00 am February 9, 2018 Beijing Time, to discuss the financial results for the second quarter of fiscal year 2018 ended December 31, 2017 and business outlook.

To participate, please call the following numbers ten minutes before the scheduled start of the call. The conference call identification number is 7722722.


    1 800 573 793         (Australia)

    +61 (0)2 9193 3706    (Australia, Sydney)

    4001 209 101          (China)

    +33 (0)1 76 77 22
     74                   (France)

    +49 (0)69 2222
     13420                (Germany)

    800 961 105           (Hong Kong)

    +852 3008 1527        (Hong Kong)

    0120 001 836          (Japan)

    007 9814 2032 546     (Korea, Republic of)

    1800 806 802          (Malaysia)

    +65 6320 9025         (Singapore)

    +46 (0)8 5033 6574    (Sweden)

    +41 (0)22 567 5729    (Switzerland)

    0800 868 298          (Taiwan, Province of China)

    0800 358 6377         (United Kingdom)

    +44 (0)330 336
     9105                 (United Kingdom, Local)

    800 281 7973           (United States/Canada)

    +1 323 794 2093       (United States, Los Angeles)

In addition, a recording of the conference call will be accessible within 48 hours via Hollysys' website at: http://hollysys.investorroom.com

About Hollysys Automation Technologies Ltd. (NASDAQ: HOLI)

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,200 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 10,000 customers more than 25,000 projects in the industrial, railway, subway & nuclear industries in China, South-East Asia, and the Middle East. Its proprietary technologies are applied in its industrial automation solution suite including DCS (Distributed Control System), PLC (Programmable Logic Controller), RMIS (Real-time Management Information System), HAMS (HolliAS Asset Management System), OTS (Operator Training System), HolliAS BATCH (Batch Application Package), HolliAS APC Suite (Advanced Process Control Package), SIS (Safety Instrumentation System), high-speed railway signaling system of TCC (Train Control Center), ATP (Automatic Train Protection), Subway Supervisory and Control platform, SCADA (Supervisory Control and Data Acquisition), nuclear power plant automation and control system and other products.

SAFE HARBOUR:

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

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                        Six months ended
                                                                                                                                      Dec 31,                                  Dec 31,
                                                                                                                                      -------                                  -------

                                                                                                                                   2017                       2016                          2017                       2016
                                                                                                                                   ----                       ----                          ----                       ----

                                                                                                              (Unaudited)                   (Unaudited)              (Unaudited)                   (Unaudited)
                                                                                                              ----------                    ----------               ----------                    ----------

    Net revenues

    Integrated contract revenue                                                                                                  $134,419                    $89,535                      $230,109                   $182,600

    Products sales                                                                                                                9,717                      6,057                        19,177                     14,370

    Revenue from services                                                                                                        13,268                      3,545                        23,628                      5,709

    Total net revenues                                                                                                          157,404                     99,137                       272,914                    202,679


    Cost of integrated contracts                                                                                                 88,186                     67,896                       155,998                    137,810

    Cost of products sold                                                                                                         3,167                      1,687                         5,834                      4,143

    Costs of services rendered                                                                                                    4,172                      1,243                         7,110                      1,898

    Gross profit                                                                                                                 61,879                     28,311                       103,972                     58,828


    Operating expenses

    Selling                                                                                                                       7,740                      6,307                        14,438                     11,858

    General and administrative                                                                                                   12,110                     11,737                        23,459                     22,330

    Research and development                                                                                                     10,585                      8,293                        19,216                     15,990

    VAT refunds and government subsidies                                                                                        (9,430)                   (8,183)                     (16,511)                  (17,798)

    Total operating expenses                                                                                                     21,005                     18,154                        40,602                     32,380


    Income from operations                                                                                                       40,874                     10,157                        63,370                     26,448


    Other income , net                                                                                                            2,271                        866                         2,710                      1,260

    Foreign exchange income (loss)                                                                                                   29                      (715)                      (1,104)                     (635)

    Share of net income of equity investees                                                                                       1,337                        970                         2,273                      2,279

    Gains on deconsolidation of the Company's interests in Beijing Hollycon Electronic Technology
     Co., Ltd                                                                                                           -                             -                        -                         6,005

    Dividend income from a cost investee                                                                                -                             -                    1,057                              -

    Interest income                                                                                                               1,560                        512                         3,036                      1,257

    Interest expenses                                                                                                             (497)                     (271)                        (634)                     (400)

    Income before income taxes                                                                                                   45,574                     11,519                        70,708                     36,214


    Income taxes expenses                                                                                                         9,295                      1,559                        13,031                      4,570

    Net income                                                                                                                   36,279                      9,960                        57,677                     31,644


    Net income (loss) attributable to non-controlling interests                                                                      52                        (9)                           86                       (13)

    Net income attributable to Hollysys Automation Technologies Ltd.                                                              $36,227                     $9,969                       $57,591                    $31,657


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

    Translation adjustments                                                                                                      17,512                   (29,683)                       32,270                   (42,108)

    Comprehensive income                                                                                                         53,791                   (19,723)                       89,947                   (10,464)


    Less: comprehensive income (loss) attributable to non-controlling interests                                                      54                       (11)                           87                    (8,518)

    Comprehensive income (loss) attributable to Hollysys Automation Technologies Ltd.                                             $53,737                  $(19,712)                      $89,860                   $(1,946)



    Net income per ordinary share:

    Basic                                                                                                                          0.60                       0.17                          0.95                       0.53

    Diluted                                                                                                                        0.60                       0.17                          0.95                       0.52

    Shares used in income per share computation:

    Weighted average number of ordinary shares                                                                               60,431,250                 60,070,218                    60,428,431                 59,976,132

    Weighted average number of diluted ordinary shares                                                                       61,251,116                 60,895,404                    61,241,092                 61,023,669





                                                                                                                    HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
                                                                                                                         CONSOLIDATED BALANCE SHEETS
                                                                                                      (In USD thousands except for number of shares and per share data)


                                                                                                                                                                           Dec 31,               Sep 30,
                                                                                                                                                                           -------               -------

                                                                                                                                                                                          2017                   2017
                                                                                                                                                                                          ----                   ----

                                                                                                                                                                         (Unaudited)           (Unaudited)
                                                                                                                                                                         ----------            ----------

    ASSETS

                       Current assets

                       Cash and cash equivalents                                                                                                                                      $231,070               $244,838

                       Time deposits with maturities over three months                                                                                                                 134,379                 86,628

                       Restricted cash                                                                                                                                                  35,986                 28,192

                       Accounts receivable, net of allowance for doubtful accounts of $49,041 and $48,709 as of December 31,2017 and September 30, 2017, respectively                  257,611                255,359

                        Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $12,472 and $10,788 as of December 31, 2017 and
                        September 30, 2017, respectively                                                                                                                               199,736                169,495

                       Other receivables, net of allowance for doubtful accounts of $1,568 and $1,454 as of December 31, 2017 and September 30, 2017, respectively                      16,857                 15,713

                       Advances to suppliers                                                                                                                                             8,523                 14,108

                       Amounts due from related parties                                                                                                                                 28,642                 31,341

                       Inventories                                                                                                                                                      47,602                 50,112

                       Prepaid expenses                                                                                                                                                    797                    548

                       Income tax recoverable                                                                                                                                              170                  5,704

                       Deferred tax assets                                                                                                                                               8,559                  8,085
                                                                                                                                                                                         -----                  -----

                       Total current assets                                                                                                                                            969,932                910,123


                       Non-current assets

                       Restricted cash                                                                                                                                                     461                    533

                       Prepaid expenses                                                                                                                                                      8                      1

                       Property, plant and equipment, net                                                                                                                               84,025                 81,705

                       Prepaid land leases                                                                                                                                              10,472                 10,321

                       Intangible assets, net                                                                                                                                            1,602                  1,761

                       Investments in equity investees                                                                                                                                  58,219                 49,138

                       Investments in cost investees                                                                                                                                     4,191                  4,105

                       Goodwill                                                                                                                                                         51,175                 50,118

                       Deferred tax assets                                                                                                                                                  24                  1,333
                                                                                                                                                                                           ---                  -----

                       Total non-current assets                                                                                                                                        210,177                199,015


                       Total assets                                                                                                                                                  1,180,109              1,109,138


    LIABILITIES AND STOCKHOLDERS' EQUITY

                       Current liabilities

                       Derivative financial liability                                                                                                                                      487                    487

                       Short-term bank loans                                                                                                                                             7,859                  8,929

                       Current portion of long-term loans                                                                                                                                  401                    393

                       Dividends payable                                                                                                                                                     -                 7,241

                       Accounts payable                                                                                                                                                126,095                116,998

                       Construction costs payable                                                                                                                                          167                    213

                       Deferred revenue                                                                                                                                                130,451                120,570

                       Accrued payroll and related expenses                                                                                                                             17,724                 15,458

                       Income tax payable                                                                                                                                                5,237                  3,548

                       Warranty liabilities                                                                                                                                              6,136                  5,511

                       Other tax payables                                                                                                                                               11,052                  9,646

                       Accrued liabilities                                                                                                                                              22,062                 26,595

                       Amounts due to related parties                                                                                                                                    3,169                  3,440

                       Deferred tax liabilities                                                                                                                                          3,381                  3,642
                                                                                                                                                                                         -----                  -----

                       Total current liabilities                                                                                                                                       334,221                322,671


                       Non-current liabilities

                       Accrued liabilities                                                                                                                                               9,155                  3,955

                       Long-term loans                                                                                                                                                  21,064                 20,786

                       Deferred tax liabilities                                                                                                                                          6,457                  6,674

                       Warranty liabilities                                                                                                                                              2,642                  2,207
                                                                                                                                                                                         -----                  -----

                       Total non-current liabilities                                                                                                                                    39,318                 33,622


                       Total liabilities                                                                                                                                               373,539                356,293


                       Commitments and contingencies                                                                                                                                         -                     -


                       Stockholders' equity:

                        Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 60,342,099 shares issued and outstanding as of December 31, 2017 and
                        September 30, 2017                                                                                                                                                  60                     60

                       Additional paid-in capital                                                                                                                                      222,514                222,581

                       Statutory reserves                                                                                                                                               41,131                 41,131

                       Retained earnings                                                                                                                                               533,347                497,120

                       Accumulated other comprehensive income                                                                                                                            9,409                (8,102)
                                                                                                                                                                                         -----                 ------

                        Total Hollysys Automation Technologies Ltd. stockholder's
                        equity                                                                                                                                                         806,461                752,790


                       Non-controlling interests                                                                                                                                           109                     55
                                                                                                                                                                                           ---                    ---

                       Total equity                                                                                                                                                    806,570                752,845


                       Total liabilities and equity                                                                                                                                 $1,180,109             $1,109,138


                                                                                                      HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

                                                                                                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                                (In USD thousands)

                                                                                                                                                   Three months ended           Six months ended
                                                                                                                                                   ------------------           ----------------

                                       Dec 31, 2017                                                                                   Dec 31, 2017
                                       ------------                                                                                   ------------

                                                                                                                                                       (Unaudited)                 (Unaudited)
                                                                                                                                                       ----------                  ----------

    Cash flows from operating activities:

                                                                                      Net income                                                                        $36,279                     $57,677

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

                                                                                      Depreciation of property, plant and equipment                                       1,558                       4,226

                                                                                      Amortization of prepaid land leases                                                    63                         130

                                                                                      Amortization of intangible assets                                                     141                         279

                                                                                      Allowance for doubtful accounts                                                       874                       4,187

                                                                                      Loss on disposal of property, plant and equipment                                      48                          48

                                                                                      Share of net income from equity investees                                         (1,337)                    (2,273)

                                                                                      Dividends received from a cost investee                                                 -                    (1,057)

                                                                                      Share-based compensation expenses                                                    (67)                        325

                                                                                      Deferred income tax (benefit) expenses                                                382                       (754)

                                                                                      Accretion of convertible bond                                                         200                         258

                                                                                      Gain from the derecognition of nonfinancial assets                                (2,345)                    (2,345)

    Changes in operating assets and liabilities:

                                                                                      Accounts receivable                                                                 5,109                         847

                                                                                      Costs and estimated earnings in excess of billings                               (28,234)                   (34,461)

                                                                                      Inventories                                                                         3,456                        (44)

                                                                                      Advances to suppliers                                                               1,908                        (62)

                                                                                      Other receivables                                                                   (909)                      3,806

                                                                                      Deposits and other assets                                                         (7,105)                      4,975

                                                                                      Due from related parties                                                            3,265                       7,834

                                                                                      Accounts payable                                                                    6,042                         158

                                                                                      Deferred revenue                                                                    7,357                      18,353

                                                                                      Accruals and other payables                                                         1,426                       2,352

                                                                                      Due to related parties                                                              (325)                        757

                                                                                      Income tax payable                                                                  7,124                       6,806

                                                                                      Other tax payables                                                                  1,168                         126

                                                                                      Net cash provided by operating activities                                          36,078                      72,148


    Cash flows from investing activities:

                                                                                      Time deposits placed with banks                                                  (92,648)                  (119,741)

                                                                                      Purchases of property, plant and equipment                                          (509)                      (611)

                                                                                      Maturity of time deposits                                                          47,806                      86,215

                                                                                      Proceeds from disposal of property, plant and equipment                                20                          50

                                                                                      Investment of an equity investee                                                    (151)                    (4,212)

                                                                                      Acquisition of a subsidiary, net of cash acquired                                       -                      (583)

                                                                                      Net cash used in investing activities                                            (45,482)                   (38,882)


    Cash flows from financing activities:

                                                                                      Proceeds from short-term bank loans                                                     -                      1,052

                                                                                      Repayments of short-term bank loans                                                     -                    (1,554)

                                                                                      Proceeds from long-term bank loans                                                    202                         536

                                                                                      Repayments of long-term bank loans                                                  (133)                      (362)

                                                                                      Payment of Dividends                                                              (7,241)                    (7,241)

                                                                                      Net cash used in financing activities                                             (7,172)                    (7,569)


                                                                                      Effect of foreign exchange rate changes                                             2,808                       7,733


                                                                                      Net (decrease) increase in cash and cash equivalents                            $(13,768)                    $33,431


                                                                                      Cash and cash equivalents, beginning of period                                   $244,838                    $197,640

                                                                                      Cash and cash equivalents, end of period                                          231,070                     231,070

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP general and administrative expenses", "Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. stockholders", "Non-GAAP basic earnings per share", and "Non-GAAP diluted earnings per share" serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the non-cash share-based compensation expenses, which is calculated based on the number of shares or options granted and the fair value as of the grant date, amortization of acquired intangible assets, fair value adjustments of acquisition-related consideration, and fair value adjustments of a bifurcated derivative. They will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects. In addition, given the business nature of the Company, it has been a common practice for investors to use such non-GAAP measures to evaluate the Company.

The following table provides a reconciliation of U.S. GAAP measures to the non-GAAP measures for the periods indicated:


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

                                                                                                                                       Three months ended                   Six months ended
                                                                                                                                       ------------------                   ----------------

                                                                                                                                            Dec 31,                             Dec 31,
                                                                                                                                            -------                             -------

                                                                                                                                           2017                  2016                        2017                  2016
                                                                                                                                           ----                  ----                        ----                  ----

                                                                                                                           (Unaudited)              (Unaudited)         (Unaudited)                 (Unaudited)
                                                                                                                           ----------               ----------          ----------                  ----------


    Cost of integrated contracts                                                                                               $88,186                   $67,896             $155,998                     $137,810

    Less: Amortization of acquired intangible assets                                                                               101                       122                  279                          263

    Non-GAAP cost of integrated contracts                                                                                      $88,085                   $67,774             $155,719                     $137,547
                                                                                                                               -------                   -------             --------                     --------


    General and administrative expenses                                                                                        $12,110                   $11,737              $23,459                      $22,330

    Less: Share-based compensation expenses                                                                                       (67)                      918                  324                        1,837

    Non-GAAP general and administrative expenses                                                                               $12,177                   $10,819              $23,135                      $20,493
                                                                                                                               -------                   -------              -------                      -------


    Net income attributable to Hollysys Automation Technologies Ltd.                                                           $36,227                    $9,969              $57,591                      $31,657
                                                                                                                               -------                    ------              -------                      -------

    Add:

                                                                              Share-based compensation expenses                              (67)                  918                         324                 1,837

                                                                               Amortization of acquired intangible
                                                                               assets                                                         101                   122                         279                   263

    Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.                                                  $36,261                   $11,009              $58,194                      $33,757
                                                                                                                               -------                   -------              -------                      -------


                                                                               Weighted average number of basic ordinary
                                                                               shares                                       60,431,250                60,070,218           60,428,431                   59,976,132

                                                                               Weighted average number of diluted ordinary
                                                                               shares                                       61,251,116                60,895,404           61,241,092                   61,023,669

    Non-GAAP basic earnings per share                                                                                            $0.60                     $0.18                $0.96                        $0.56

    Non-GAAP diluted earnings per share                                                                                          $0.60                     $0.18                $0.96                        $0.55

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SOURCE Hollysys Automation Technologies, Ltd