Hollysys Automation Technologies Reports Unaudited Financial Results for the First Quarter Ended September 30, 2018
First Quarter of Fiscal Year 2019 Financial Highlights
-- Non-GAAP net income attributable to Hollysys was $28.1 million, an
increase of 27.9% compared to the comparable prior year period.
-- Total revenues were $138.7 million, an increase of 20.1% compared to the
comparable prior year period.
-- Non-GAAP gross margin was at 37.2%, compared to 36.6% for the comparable
prior year period.
-- Non-GAAP diluted EPS were at $0.46, an increase of 27.8% compared to the
comparable prior year period.
-- Net cash provided by operating activities was $36.6 million for the
current quarter.
-- DSO of 170 days, compared to 196 days for the comparable prior year
period.
-- Inventory turnover days of 51 days, compared to 61 days for the
comparable prior year period.
BEIJING, Nov. 13, 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 fiscal year 2019 first quarter ended September 30, 2018 (see attached tables). The management of Hollysys, stated:
Industrial automation business recorded a 0.4% YOY growth in revenue, at $57.7 million. New contract recorded a 9.9% YOY growth at $80.2 million. We continued to maintain our share in high-end power industry, to execute the low-to-high end market expansion strategy in chemical and petrochemical industry, and to build and maintain our leadership in other verticals. In power, major contracts we signed include DCS solution for Guohua Jinjie 2*660MW power units and Shenhua Shengli 2*660 MW power units. Contract growth in chemical and petrochemical remained healthy. Major contracts include additional SIS contract for the milestone Zhong'an United Coal Chemical Project and additional DCS contract for SINOPEC's p-xylene project. In addition to the effort in gaining and maintaining market share in various industries, the company is paying adequate attention to the intelligence manufacturing based on sizable customer we have accumulated through decades, as it is a valuable asset for our long term sustainable growth. Leveraging our consistent emphasis on R&D, we continue to provide both regular and value-added services to our customers and to accompany them along the cause of better productivity. Our widespread national service network enables us to stay closer to the customers, to respond faster and to understand better.
Rail business recorded a 43.1% YOY growth in revenue at $50.4 million, while new contract increased sharply YOY by 866.0%, at $71.5 million. In high-speed rail business, new ATP contracts were signed this quarter, while CRC has published the bidding notice in mid-October for another 320 sets of ATP. Intake of heavy maintenance contracts are gradually seen as the ATPs are approaching their first 10 years maintenance cycle. In subway business, we signed SCADA contracts on Shenzhen subway line 2 and line 8. Going forward, we will continue to strengthen our marketing capacity through reviewing and updating strategic partnership and improving local service network coverage for both high-speed rail and subway business. 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 continued to seek opportunities in industrial automation business through EPC projects and direct sales. Contracts were signed on DCS, DEH, BATCH, instrument integration etc. solution with customers from India and Southeast Asia in coal fire, thermal power, chemical and construction material, etc. M&E business, performed by Concord and Bond, recorded a 34.2% YOY growth in revenue, at $30.6 million, and a 32.0% YOY growth in new contract, at $14.8 million. M&E will continue to act as the pioneer of internationalization for Hollysys, with growing coordination to be built in between M&E and domestic business. Meanwhile, the economic and political circumstances in South East Asia and Middle East will continue to be closely followed.
The Quarter Ended September 30, 2018 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:
Three months ended
Sep 30, 2018
Sep 30, 2017
%
Change
Revenues $
138,719 115,510 20.1%
Integrated
contract
revenue $
116,650 95,690 21.9%
Products
sales $
8,040 9,460 (15.0)%
Service
rendered $
14,029 10,360 35.4%
Cost
of
revenues $
87,178 73,238 19.0%
Gross
profit $
51,541 42,272 21.9%
Total
operating
expenses $
21,501 19,205 12.0%
Selling $
7,709 6,698 15.1%
General
and
administrative $
8,570 10,957 (21.8)%
Research
and
development $
8,769 8,631 1.6%
VAT
refunds
and
government
subsidies $
(3,547) (7,081) (49.9)%
Income
from
operations $
30,040 23,067 30.2%
Other
income,
net $
558 439 27.1%
Foreign
exchange
loss $
(123) (1,228) 90.0%
Share
of
net
income
of
equity
investees $
98 935 (89.5)%
Dividend
income
from
a
cost
investee
$ 1,152 (100.0)%
Interest
income $
3,099 1,476 110.0%
Interest
expenses $
(106) (137) (22.6)%
Income
tax
expenses $
5,455 3,736 46.0%
Net
income
attributable
to
non-
controlling
interests $
46 33 39.4%
Non-
GAAP
net
income
attributable
to
Hollysys
Automation
Technologies
Ltd. $
28,065 21,935 27.9%
Non-
GAAP
basic
EPS $
0.46 0.36 27.8%
Non-
GAAP
diluted
EPS $
0.46 0.36 27.8%
Share-
based
compensation
expenses $
84 392 (78.6)%
Amortization
of
acquired
intangible
assets $
80 179 (55.3)%
GAAP
Net
income
attributable
to
Hollysys
Automation
Technologies
Ltd. $
27,901 21,364 30.6%
GAAP
basic
EPS $
0.46 0.35 31.4%
GAAP
diluted
EPS $
0.46 0.35 31.4%
Basic
weighted
average
common
shares
outstanding 60,448,111 60,425,631 0.0%
Diluted
weighted
average
common
shares
outstanding 61,263,566 61,261,417 0.0%
Operational Results Analysis for the Quarter Ended September 30, 2018
Comparing to the first quarter of the prior fiscal year, the total revenues for the three months ended September 30, 2018 increased from $115.5 million to $138.7 million, representing an increase of 20.1%. Broken down by the revenue types, integrated contracts revenue increased by 21.9% to $116.7 million, products sales revenue decreased by 15.0% to $8.0 million, and services revenue increased by 35.4% to $14.0 million.
The Company's total revenues can also be presented in segments as shown in the following chart:
(In USD thousands)
Three months ended Sep 30,
2018 2017
$ % to Total Revenue
$
% to Total Revenue
Industrial
Automation 57,720 41.6% 57,481 49.7%
Rail Transportation
Automation 50,368 36.3% 35,197 30.5%
Mechanical and
Electrical Solution 30,631 22.1% 22,832 19.8%
Total 138,719 100.0% 115,510 100.0%
Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 37.2% for the three months ended September 30, 2018, as compared to 36.6% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 30.8%, 75.0% and 67.9% for the three months ended September 30, 2018, as compared to 29.3%, 71.8% and 71.6% 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 37.1% for the three months ended September 30, 2018, as compared to 36.4% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 30.8%, 75.0% and 67.9% for the three months ended September 30, 2018, as compared to 29.1%, 71.8% and 71.6% for the same period of the prior year respectively.
Selling expenses were $7.7 million for the three months ended September 30, 2018, representing an increase of $1.0 million or 15.1% compared to $6.7 million for the same quarter of the prior year, mainly due to increased sales activities. Presented as a percentage of total revenues, selling expenses were 5.6% and 5.8% for the three months ended September 30, 2018, and 2017, respectively.
General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $8.6 million for the quarter ended September 30, 2018, representing a decrease of $2.4 million or 19.3% compared to $11.0 million for the same quarter of the prior year, mainly due to decreased bad debt allowance. Presented as a percentage of total revenues, non-GAAP G&A expenses were 6.2% and 9.5% for quarters ended September 30, 2018 and 2017 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $8.9 million and $11.3 million for the three months ended September 30, 2018 and 2017, respectively.
Research and development expenses were $8.8 million for the three months ended September 30, 2018, representing an increase of $0.2 million or 1.6% compared to $8.6 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 6.3% and 7.5% for the quarter ended September 30, 2018 and 2017, respectively.
The VAT refunds and government subsidies were $3.5 million for three months ended September 30, 2018, as compared to $7.1 million for the same period in the prior year, representing a $3.6 million or 49.9% decrease, which was primarily due to decrease of the VAT refunds.
The income tax expenses and the effective tax rate were $5.5 million and 16.3% for the three months ended September 30, 2018, as compared to $3.7million and 14.9% for comparable prior year period.
The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on grant-date fair value of shares or options granted, amortization of acquired intangible assets, and fair value adjustments of a bifurcated derivative, was $28.1 million or $0.46 per diluted share based on 61.3 million diluted weighted average common shares outstanding for the three months ended September 30, 2018. This represents a 27.9% increase over the $21.9 million or $0.36 per share based on 61.3 diluted weighted average common million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $27.9 million or $0.46 per diluted share representing an increase of 20.6% over the $21.4 million or $0.35 per diluted share reported in the comparable prior year period.
Contracts and Backlog Highlights
Hollysys achieved $166.5 million new contracts for the three months ended September 30, 2018. And the backlog as of September 30, 2018 was $516.2 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 Sep 30, 2018
ended Sep 30, 2018
$ % to Total Contract
$ % to Total Backlog
Industrial
Automation 80,247 48.1% 176,492 34.2%
Rail Transportation 71,530 43.0% 244,663 47.4%
Mechanical and
Electrical
Solutions 14,755 8.9% 95,011 18.4%
Total 166,532 100.00% 516,166 100%
Cash Flow Highlights
For the three months ended September 30, 2018, the total net cash inflow was $11.2 million. The net cash provided by operating activities was $36.6 million. The net cash used in investing activities was $17.0 million, mainly consisted of $48.4 million time deposits placed with banks, which was partially offset by $34.2 million maturity of time deposits. The net cash used in financing activities was $0.1 million.
Balance Sheet Highlights
The total amount of cash and cash equivalents were $276.9 million, $265.7 million, and $244.8 million as of September 30, 2018, June 30, 2018 and September 30, 2017, respectively.
For the three months ended September 30, 2018, DSO was 170 days, as compared to 196 days for the comparable prior year period and 166 days for the last quarter; and inventory turnover was 51 days, as compared to 61 days for the comparable prior year period and 59 days for the last quarter.
Conference Call
The Company will host a conference call at 8:00 pm November 13, 2018 U.S. Eastern Time / 9:00 am November 14, 2018 Beijing Time, to discuss the financial results for fiscal year 2019 first quarter ended September 30, 2018 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 6498818.
Standard International Dial-In
Number:
+65 67135090
Participant Local Dial-In
Numbers:
Australia, Sydney
+61 290833212
China, Domestic 4006208038
China, Domestic 8008190121
Hong Kong
+852 30186771
Japan, Tokyo
+81 345036012
Korea (South), Seoul
+82 27395177
Taiwan, Taipei
+886 255723895
United Kingdom, London
+44 2036214779
United States, New York
+1 8456750437
Participant ITFS Dial-In
Numbers:
Australia 1300717205
Australia 1800411623
Belgium 080071900
Canada 18663861016
France 0800912761
Germany 08001820671
Hong Kong 800906601
India 180030105440
Indonesia, PT Indosat access 0018030179156
Indonesia, PT Telkom access 0078030179156
Italy 800874737
Japan 0120925376
Korea (South), Domestic 0808500474
Malaysia 1800820152
Netherlands 08000221931
New Zealand 0800880084
Norway 80010719
Philippines 180016120306
Switzerland 0800561006
Taiwan 0809091568
Thailand 001800656772
United Kingdom 08082346646
United States 18665194004
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 3,300 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 30,000 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), 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
Three months ended
Sep 30,
2018 2017
(Unaudited) (Unaudited)
Net revenues
Integrated contract
revenue $
116,650 $
95,690
Products sales 8,040 9,460
Revenue from services 14,029 10,360
Total net revenues 138,719 115,510
Cost of integrated contracts 80,748 67,812
Cost of products sold 2,008 2,667
Costs of services rendered 4,502 2,938
Gross profit 51,461 42,093
Operating expenses
Selling 7,709 6,698
General and administrative 8,654 11,349
Research and development 8,769 8,631
VAT refunds and government
subsidies (3,547) (7,081)
Total operating expenses 21,585 19,597
Income from operations 29,876 22,496
Other income, net 558 439
Foreign exchange loss (123) (1,228)
Share of net income of equity
investees 98 935
Dividend income from a cost
investee 1,152
Interest income 3,099 1,476
Interest expenses (106) (137)
Income before income taxes 33,402 25,133
Income taxes expenses 5,455 3,736
Net income 27,947 21,397
Net income attributable to non-
controlling interests 46 33
Net income attributable
to Hollysys Automation
Technologies Ltd. $
27,901 $
21,364
Other comprehensive (loss) income,
net of tax of nil
Translation adjustments (29,137) 14,758
Comprehensive (loss) income (1,190) 36,155
Less: comprehensive income
attributable to non-controlling
interests 46 34
Comprehensive (loss)
income attributable to
Hollysys Automation
Technologies Ltd. $
(1,236) $
36,121
Net income per ordinary share:
Basic 0.46 0.35
Diluted 0.46 0.35
Shares used in income per share
computation:
Weighted average number of ordinary
shares 60,448,111 60,425,631
Weighted average number of diluted
ordinary shares 61,263,566 61,261,417
HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(In USD thousands except for number of shares and per share data)
Sep 30, Jun 30,
2018 2018
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $
276,867 $
265,675
Time deposits with maturities over
three months 148,659 139,433
Restricted cash 15,795 20,233
Accounts receivable, net of allowance
for doubtful accounts of $45,139 and
$49,094 as of September 30,2018 and
June 30, 2018, respectively 248,875 275,216
Costs and estimated earnings in
excess of billings, net of allowance
for doubtful accounts of $9,205 and
$9,929 as of September 30, 2018 and
June 30, 2018, respectively 210,935 161,012
Other receivables, net of allowance
for doubtful accounts of $4,874 and
$4,946 as of September 30, 2018 and
June 30, 2018, respectively 21,025 30,467
Advances to suppliers 13,413 9,685
Amounts due from related parties 38,335 33,678
Inventories 36,583 58,074
Prepaid expenses 645 713
Income tax recoverable 6,155 6,712
Total current
assets 1,017,287 1,000,898
Non-current
assets
Restricted cash 1,348 1,401
Prepaid expenses 1
Property, plant and equipment, net 74,803 80,210
Prepaid land leases 9,867 10,172
Intangible assets, net 1,610 3,186
Investments in equity investees 46,705 53,389
Investments in cost investees 4,765 4,195
Goodwill 48,263 48,359
Deferred tax assets 7,142 8,318
Total non-current
assets 194,504 209,230
Total assets 1,211,791 1,210,128
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities
Derivative financial liability 412 412
Short-term bank loans 2,293 2,865
Current portion of long-term loans 313 350
Dividends payable 10,862
Accounts payable 121,807 129,477
Construction costs payable 304 304
Deferred revenue 126,688 137,692
Accrued payroll and related expenses 15,035 14,299
Income tax payable 4,330 3,746
Warranty liabilities 5,284 5,622
Other tax payables 10,252 7,801
Accrued liabilities 19,859 25,133
Amounts due to related parties 3,775 5,353
Total current
liabilities 321,214 333,054
Non-current
liabilities
Accrued liabilities 5,800 2,410
Long-term loans 20,719 20,709
Deferred tax liabilities 10,828 9,366
Warranty liabilities 2,186 2,236
Total non-current
liabilities 39,533 34,721
Total liabilities 360,747 367,775
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 September 30,
2018 and June 30, 2018 60 60
Additional paid-in capital 223,481 223,396
Statutory reserves 45,970 45,970
Retained earnings * 615,775 578,079
Accumulated other comprehensive
income (34,589) (5,453)
Total Hollysys
Automation
Technologies Ltd.
stockholder's
equity 850,697 842,052
Non-controlling interests 347 301
Total equity 851,044 842,353
Total liabilities
and equity $
1,211,791 $
1,210,128
Three months ended
Sep 30, 2018
(Unaudited)
Cash flows from
operating
activities:
Net income $
27,947
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation of property, plant and
equipment 2,138
Amortization of prepaid land leases 66
Amortization of intangible assets 78
Allowance for doubtful accounts 443
Loss on disposal of property, plant
and equipment 41
Share of net loss from equity
investees (98)
Share-based compensation expenses 84
Deferred income tax expenses 2,467
Accretion of convertible bond 57
Changes in
operating assets
and liabilities:
Accounts receivable 13,424
Costs and estimated earnings in
excess of billings (37,176)
Inventories 16,806
Advances to suppliers (4,422)
Other receivables 8,739
Deposits and other assets 3,677
Due from related parties 4,422
Accounts payable (1,729)
Deferred revenue (3,885)
Accruals and other payables 2,714
Due to related parties (3,132)
Income tax payable 1,001
Other tax payables 2,954
Net cash provided by operating
activities 36,616
Cash flows from
investing
activities:
Time deposits placed with banks (48,419)
Purchases of property, plant and
equipment (491)
Maturity of time deposits 34,207
Proceeds from disposal of property,
plant and equipment 73
Investment of a cost investee (740)
Cash reduced upon deconsolidation of
subsidiary (1,640)
Net cash used in investing activities (17,010)
Cash flows from
financing
activities:
Proceeds from short-term bank loans 273
Repayments of short-term bank loans (327)
Net cash used in financing activities (54)
Effect of foreign exchange rate
changes (8,360)
Net increase in cash and cash
equivalents $
11,192
Cash and cash equivalents, beginning
of period $
265,675
Cash and cash equivalents, end of
period 276,867
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, 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:
Three months ended
Sep 30,
2018 2017
(Unaudited) (Unaudited)
Cost of integrated
contracts $
80,748 $
67,812
Less: Amortization of
acquired intangible assets 80 179
Non-GAAP cost of
integrated contracts $
80,668 $
67,633
General and administrative
expenses $
8,654 $
11,349
Less: Share-based
compensation expenses 84 392
Non-GAAP general and
administrative expenses $
8,570 $
10,957
Net income attributable to
Hollysys Automation
Technologies Ltd. $
27,901 $
21,364
Add:
Share-based compensation expenses 84 392
Amortization of acquired
intangible assets 80 179
Non-GAAP net income
attributable to Hollysys
Automation Technologies
Ltd. $
28,065 $
21,935
Weighted average
number of basic
ordinary shares 60,448,111 60,425,631
Weighted average
number of
diluted ordinary
shares 61,263,566 61,261,417
Non-GAAP basic earnings
per share $
0.46 $
0.36
Non-GAAP diluted earnings
per share $
0.46 $
0.36
View original content:http://www.prnewswire.com/news-releases/hollysys-automation-technologies-reports-unaudited-financial-results-for-the-first-quarter-ended-september-30-2018-300748904.html
SOURCE Hollysys Automation Technologies, Ltd
