Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal year and the Fourth Quarter Ended June 30, 2020
Fiscal Year 2020 Financial Highlights
-- Non-GAAP net income attributable to Hollysys was $80.1 million, a
decrease of 36.5% compared to the comparable prior year period.
-- Total revenues were $503.3 million, a decrease of 11.7% compared to the
comparable prior year period.
-- Non-GAAP gross margin was at 37.9%, compared to 37.1% for the comparable
prior year period.
-- Non-GAAP diluted EPS was $1.32, a decrease of 36.2% compared to the
comparable prior year period.
-- Net cash provided by operating activities was $175.1 million, an
increase of 74.2% compared to the comparable prior year period.
-- DSO of 195 days, compared to 180 days for the comparable prior year
period.
-- Inventory turnover days of 57 days, compared to 55 days for the
comparable prior year period.
Fourth Quarter of Fiscal Year 2020 Financial Highlights
-- Non-GAAP net income attributable to Hollysys was $2.2 million, a
decrease of 91.3% compared to the comparable prior year period.
-- Total revenues were $129.2 million, a decrease of 17.7% compared to the
comparable prior year period.
-- Non-GAAP gross margin was at 44.7%, compared to 34.0% for the comparable
prior year period.
-- Non-GAAP diluted EPS were at $0.04, a decrease of 90.5% compared to the
comparable prior year period.
-- Net cash provided by operating activities was $57.7 million, an increase
of 317.6% compared to the comparable prior year period.
-- DSO of 166 days, compared to 160 days for the comparable prior year
period.
-- Inventory turnover days of 66 days, compared to 42 days for the
comparable prior year period.
BEIJING, Aug. 13, 2020 /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 2020 and the fourth quarter ended June 30, 2020 (see attached tables).
On July 7(th) and 9(th), the Company announced change of the management team and the board. Mr. Baiqing SHAO was removed from his positions as the Company's CEO, director and Chairman of the Board. Ms. Li QIAO, current director of the Company, was elected as the Chairwoman of the Board and Mr. Chit Nim (Colin) SUNG, current director of the Company, was elected as the CEO of the Company. Four new officers of the Company were appointed. Mr. Lei FANG, current head of IA business of the Company and Mr. Yue XU, current head of Rail business of the Company were appointed as Co-Chief Operating Officer of the Company. Dr. Chunming HE, current head of R&D of Hollysys Group, was appointed as Chief Technology Officer of the Company, and Mr. Hongyuan SHI, current head of human resource of Hollysys Goup, was appointed as the Chief Human Resource Officer of the Company.
Ms. Li QIAO, chairwoman of the board, remarks on such change, "The board has made such decision in light of the strategic and financial planning development of the Company. Mr. Sung and our four new officers have been with the Company for many years and are familiar with the Company. We expect their professional experiences in operation, management and capital market to offer unique and insightful idea to the Company."
Mr. Chit Nim (Colin) Sung, CEO of the Company, remarks "First and foremost, we would like to convey the key information to the market that currently, operation and financial condition of the Company remain as usual and stable. We will continue to value and increase our investment in research and development as our key competitive edge, and our vision of automation for better life. We are confident in the Company's solid and steady performance going forward."
For business performance of the fiscal year and the quarter, the management stated:
Industrial Automation ("IA") business finished the fiscal year with revenue and contract at $240.0 million and $314.5 million, representing 2.6% and 8.0% YOY growth, respectively. For the fourth quarter, IA revenue and contract were $71.8 million and $99.0 million, representing 7.9% and 18.1% YOY growth, respectively.
-- In power sector, we continued our effort in strengthening our market
position in high-end coal fire market. Contract highlight of the past
quarter include:
- Signing a replacement contract to provide DCS and DEH solution to two 660MW power units of the power plant of Zhejiang Zheneng Electric Power CO.,LTD.(600023.SH) in Leqing, Zhejiang Province, and
- Signing a replacement contract to provide DCS solution to one 660 MW power unit of the power plant of Datang International Power Generation CO., LTD (601991.SH) in Tianjin.
-- In chemical and petro-chemical sector, we continued our effort in key
projects winning, key client cooperation, key marketing events and
collaboration with valued partners along the value chain to explore the
market and build our reputation.
Sector highlight of the past quarter include:
- Winning the bidding of DCS solution contract for the 1.8 million tons per year ethylene glycol project of Shaanxi Coal and Chemical Industry Group CO.,LTD ("SHCCIG") in Yulin, Shaanxi Province. The client is a renowned player in the industry, while the project is currently the largest coal-chemical project under construction in China, and our solution will cover DCS control points of approximately 50,000.
- Signing a DCS+SIS+GDS integrated solution contract for the 200 thousand tons per year purified adipic acid, cyclohexanol and cyclohexanone project of Hualu Hesheng (600426.SH). This project, in terms of DCS control point, is the largest one of similar type that the Company has ever signed.
- Establishing strategic cooperation relationship with SINOCHEM Hongrun Petrochemical Co.,LTD on providing control solution to their aromatics complex plant. Our previous milestone SINOPEC Hainan refining projects have served as meaningful track record and reference for the client.
- Continuing to collaborate with valued partners along the value chain to jointly develop and improve solution for verticals including coal-chemical and oil & gas, etc.
- Becoming the qualified supplier of SCADA+DCS+PLC for Tarim oilfield operated by China National Petroleum Corporation (CNPC).
- Joining hands with valued partners on significant research project, including with National Petroleum and natural gas pipe network Group Co., Ltd on research project related to oil and gas pipe profibus (process field bus), and with SINOPEC Engineering incorporation (SEI) on research project related to innovative integration of DCS and digital factory for creative modeling and factory maintenance services.
-- In smart factory business, we continued to review client date base for
potential cooperation in various industries. In this quarter, we signed
a new contract with an existing client, Shaanxi Guohua Jinjie Power
Plant. This contract involves the construction of a smart control
platform and the development and installation of optimizing control
solution for power unit.
-- In aftersales business, we continue to address our existing client base
and respond to their various demand covering regular initiatives such as
old system upgrade and replacement, part component sales, annual
maintenance and increasingly, value-adding initiatives such as control
optimization, data integration and energy management, etc.
Contract highlight of the part quarter include:
- Signing an annual maintenance contract with Zhong'an coal-chemical project. The Zhong'an methanol and olefin project is by far one of the two key milestone projects in chemical and petro-chemical business. This project has been under operation since July 2019, and the client has been satisfied with the Company's comprehensive service capability.
Rail business finished the fiscal year with revenue and contract at $201.3 million and $153.7 million, recording 3.6% and 54.8% YOY decrease, respectively. For the fourth quarter of the fiscal year, revenue and contract were $49.3 million and $23.9 million, representing 2.0% YOY growth and 60.6% YOY decrease, respectively.
-- In high-speed rail ("HSR") sector, major contracts signed in the past
quarter include TCC (Train Control Center) solution for sections of the
Taiyuan-Jiaozuo line, Zhengzhou-Wangzhou line and the inter-city line of
Southern Sichuan.
-- In subway sector, no significant contracts were signed this quarter,
while the effort continued in strengthening quality management, covering
supply chain management and engineering standardization.
-- In aftersales business, we continued to strengthen local service
network, to expand service solution and to develop
technology-and-service-centered service for better differentiation. In
HSR sector, we continued to respond to regular services including
advanced maintenance, system and software upgrade and part component
sales, etc. In subway sector, we continued to explore potentials from
the current client base and signed several contracts covering system
upgrade, maintenance and product sales.
-- On digital empowerment for the current product line, we continued the
effort in development and testing of our smart solution initiatives,
covering smart maintenance, smart workshop and smart services, etc.
Mechanical and Electrical Solutions ("M&E") business finished the fiscal year with revenue and contract at $62.0 million and $81.0 million, recording 51.4% and 13.3% YOY decrease respectively. For the fourth quarter of the fiscal year, revenue and contract were $8.1 million and $11.8 million, representing 80.7% and 53.0% YOY decrease respectively.
COVID-19 brought new challenges to the macro economy in Southeast Asia and the Middle East, laying impact on our M&E business and overseas business. For M&E business, risk control remains to be the key focus. For our industrial automation overseas business, we continued to explore opportunities through direct sales, sales agent and China EPC projects, with a current focus in Singapore, Malaysia, Indonesia and India. Meanwhile, effort continued in strengthening localization and synergy of the overseas business.
Fiscal year and the Fourth Quarter Ended June 30, 2020 Unaudited Financial Results Summary
(In USD thousands, except for number of shares and per share data)
---
Three months ended
Fiscal year ended
Jun 30,
Jun 30,
%
Jun 30,
Jun 30,
%
2020 2019 Change 2020 2019 Change
Revenues $
129,223 156,991 (17.7)% $
503,327 570,341 (11.7)%
Integrated solutions contracts revenue $
112,459 132,753 (15.3)% $
414,272 467,371 (11.4)%
Products sales $
3,895 5,958 (34.6)% $
20,144 33,102 (39.1)%
Service rendered $
12,869 18,280 (29.6)% $
68,911 69,868 (1.4)%
Cost of revenues $
71,482 103,645 (31.0)% $
312,459 358,864 (12.9)%
Gross profit $
57,741 53,346 8.2% $
190,868 211,477 (9.7)%
Total operating expenses $
55,610 31,408 77.1% $
120,730 87,302 38.3%
Selling $
6,804 6,883 (1.1)% $
30,642 28,926 5.9%
General and administrative $
8,575 11,524 (25.6)% $
38,704 40,463 (4.3)%
Goodwill impairment charge $
35,767 11,623 207.7% $
35,767 11,623 207.7%
Research and development $
8,907 9,200 (3.2)% $
41,876 37,025 13.1%
VAT refunds and government subsidies $
(4,443) (7,822) (43.2)% $
(26,259) (30,735) (14.6)%
Income from operations $
2,131 21,938 (90.3)% $
70,138 124,175 (43.5)%
Other income, net $
325 1,139 (71.5)% $
4,683 3,056 53.2%
Foreign exchange (loss) income $
(50) 2 (2600.0)% $
599 (1,161) (151.6)%
Gains on deconsolidation of subsidiaries where the Company retains an equity interest
$
$ 5,768 (100.0)%
Gains on disposal of an investment in an equity investee
$ $
5,763 100.0%
Share of net (loss) income of equity investees $
(976) 1,576 (161.9)% $
3,131 404 675.0%
Dividend income from equity security investments
$ $
1,139 1,112 2.4%
Interest income $
3,661 2,863 27.9% $
13,060 11,839 10.3%
Interest expenses $
(171) (204) (16.2)% $
(306) (575) (46.8)%
Income tax expenses $
2,748 1,471 86.8% $
18,171 18,184 (0.1)%
Net (loss) income attributable to non-controlling interests $
(64) 145 (144.1)% $
(70) 278 (125.2)%
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. $
2,236 25,698 (91.3)% $
80,106 126,156 (36.5)%
Non-GAAP basic EPS $
0.04 0.43 (90.7)% $
1.32 2.09 (36.8)%
Non-GAAP diluted EPS $
0.04 0.42 (90.5)% $
1.32 2.07 (36.2)%
Share-based compensation expenses $
354 37 856.8% $
410 238 72.3%
Amortization of acquired intangible assets $
75 77 (2.6)% $
300 311 (3.5)%
Fair value adjustments of a bifurcated derivative
$ 326 (100.0)%
$ 346 (100.0)%
GAAP Net income attributable to Hollysys Automation Technologies Ltd. $
1,807 25,258 (92.8)% $
79,396 125,261 (36.6)%
GAAP basic EPS $
0.03 0.42 (92.9)% $
1.31 2.07 (36.7)%
GAAP diluted EPS $
0.03 0.42 (92.9)% $
1.31 2.05 (36.1)%
Basic weighted average common shares outstanding 60,489,777 60,465,005 0.0% 60,480,522 60,456,524 0.0%
Diluted weighted average common shares outstanding 60,489,777 61,278,773 (1.3)% 60,611,047 61,273,884 (1.1)%
Operational Results Analysis for the Fiscal year Ended June 30, 2020
Comparing to the prior fiscal year, the total revenues for fiscal year 2020 decreased from $570.3 million to $503.3 million, representing a decrease of 11.7%. Broken down by the revenue types, integrated solutions contracts revenue decreased by 11.4% to $414.3 million, products sales revenue decreased by 39.1% to $20.1 million, and services revenue decreased by 1.4% to $68.9 million.
The Company's total revenues can also be presented in segments as shown in the following chart:
(In USD thousands)
Fiscal year ended Jun 30,
2020 2019
$ % to Total
$ % to Total
Revenue Revenue
Industrial Automation 239,971 47.7% 233,798 41.0%
Rail Transportation Automation 201,339 40.0% 208,917 36.6%
Mechanical and Electrical Solution 62,017 12.3% 127,626 22.4%
Total 503,327 100.0% 570,341 100.0%
Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 37.9% for fiscal year 2020, as compared to 37.1% for the prior year. The non-GAAP gross margin for integrated solutions contracts, product sales, and services rendered were 32.0%, 72.9% and 63.0% for fiscal year 2020, as compared to 30.4%, 77.1% and 62.7% for the prior year, respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margins. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 37.9% for fiscal year 2020, as compared to 37.0% for the prior year. The GAAP gross margin for integrated solutions contracts, product sales, and service rendered were 32.0%, 72.9% and 63.0% for fiscal year 2020, as compared to 30.4%, 77.1% and 62.7% for the prior year, respectively.
Selling expenses were $30.6 million for fiscal year 2020, representing an increase of $1.7 million or 5.9% compared to $28.9 million for the prior year. Presented as a percentage of total revenues, selling expenses were 6.1% and 5.1% for fiscal year 2020, and 2019, respectively.
General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $38.7 million for fiscal year 2020, representing a decrease of $1.8 million or 4.3% compared to $40.5 million for the prior year. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.7% and 7.1% for fiscal year 2020 and 2019, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $39.1 million and $40.7 million for fiscal year 2020 and 2019, respectively.
Goodwill impairment charge were $35.8 million for fiscal year 2020, representing an increase of $24.2 million or 207.7% compared to $11.6 million for the prior year. Such impairment charge is related to Bond Group. The annual impairment test, which take into consideration the macro environment and other relevant factors when forecasting future performance, implied such a charge.
Research and development expenses were $41.9 million for fiscal 2020, representing an increase of $4.9 million or 13.1% compared to $37.0 million for the prior year. Presented as a percentage of total revenues, R&D expenses were 8.3% and 6.5% for fiscal year 2020 and 2019, respectively.
The VAT refunds and government subsidies were $26.3 million for fiscal year 2020, as compared to $30.7 million for the prior year, representing a $4.5 million or 14.6% decrease, which was primarily due to a decrease of the VAT refunds.
The income tax expenses and the effective tax rate were $18.2 million and 18.6% for fiscal year 2020, as compared to $18.2 million and 12.7% for the prior year. During the fourth quarter of fiscal year 2020, the Company recorded a goodwill impairment charge of $35.8 million. Excluding the impact of the goodwill impairment charge, the effective tax rate for fiscal year 2020 should be 13.6%.
The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on the grant-date fair value of shares or options granted, and amortization of acquired intangible assets was $80.1 million or $1.32 per diluted share based on 60.6 million diluted weighted average common shares outstanding for fiscal year 2020. This represents a 36.5% decrease over $126.2 million or $2.07 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 $79.4 million or $1.31 per diluted share representing a decrease of 36.6% over $125.3 million or $2.05 per diluted share reported in the comparable prior year period.
Operational Results Analysis for the Fourth Quarter Ended June 30, 2020
Comparing to the fourth quarter of the prior fiscal year, the total revenues for the three months ended June 30 2020 decreased from $157.0 million to $129.2 million, representing a decrease of 17.7%. Broken down by the revenue types, integrated solutions contracts revenue decreased by 15.3% to $112.5 million, products sales revenue decreased by 34.6% to $3.9 million, and services revenue decreased by 29.6% to $12.9 million.
The Company's total revenues can also be presented in segments as shown in the following chart:
(In USD thousands)
Three months ended June 30,
2020 2019
$ % to Total
$ % to Total
Revenue Revenue
Industrial Automation 71,819 55.6% 66,557 42.4%
Rail Transportation Automation 49,267 38.1% 48,288 30.8%
Mechanical and Electrical Solution 8,137 6.3% 42,146 26.8%
Total 129,223 100.0% 156,991 100.0%
Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 44.7% for the three months ended June 30, 2020, as compared to 34.0% for the same period of the prior year. The non-GAAP gross margin for integrated solutions contracts, product sales, and services rendered were 42.1%, 74.5% and 58.4% for the three months ended June 30, 2020, as compared to 29.9%, 66.3% and 52.9% for the same period of the prior year, respectively. The gross margin fluctuated mainly due to the different revenue mix with different margins. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 44.6% for the three months ended June 30, 2020, as compared to 33.9% for the same period of the prior year. The GAAP gross margin for integrated solutions contracts, product sales, and service rendered was 42.0%, 74.5% and 58.4% for the three months ended June 30, 2020, as compared to 29.9%, 66.3% and 52.9% for the same period of the prior year, respectively.
Selling expenses were $6.8 million for the three months ended June 30, 2020, representing a decrease of $0.1 million or 1.1% compared to $6.9 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 5.3% and 4.4% for the three months ended June 30, 2020, and 2019, 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 June 30, 2020, representing a decrease of $2.9 million or 25.6% compared to $11.5 million for the same quarter of the prior year. Presented as a percentage of total revenues, non-GAAP G&A expenses were 6.6% and 7.3% for quarters ended June 30, 2020 and 2019, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $8.9 million and $11.6 million for the three months ended June 30, 2020 and 2019, respectively.
Research and development expenses were $8.9 million for the three months ended June 30, 2020, representing a decrease of $0.3 million or 3.2% compared to $9.2 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 6.9% and 5.9% for the quarter ended June 30, 2020 and 2019, respectively.
The VAT refunds and government subsidies were $4.4 million for three months ended June 30, 2020, as compared to $7.8 million for the same period in the prior year, representing a $3.4 million or 43.2% decrease, which was primarily due to decrease of the VAT refunds.
The income tax expenses and the effective tax rate were $2.7 million and 61.2% for the three months ended June 30, 2020, respectively, as compared to $1.5 million and 5.5% for comparable prior year period, respectively. During the fourth quarter of fiscal year 2020, the Company recorded a goodwill impairment charge of $35.8 million. Excluding the impact of the goodwill impairment charge, the effective tax rate for the three months ended June 30, 2020 should be 6.8%.
The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on the grant-date fair value of shares or options granted, and amortization of acquired intangible assets was $2.2 million or $0.04 per diluted share based on 60.5 million diluted weighted average ordinary shares outstanding for the three months ended June 30, 2020. This represents a 91.3% decrease from $25.7 million or $0.42 per share based on 61.3 million diluted weighted average ordinary shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $1.8 million or $0.03 per diluted share representing a decrease of 92.8% from $25.3million or $0.42 per diluted share reported in the comparable prior year period.
Contracts and Backlog Highlights
Hollysys achieved $134.8 million of new contracts for the three months ended June 30, 2020. The backlog as of June 30, 2020 was $571.8 million. The detailed breakdown of new contracts and backlog by segments is shown below:
(In USD thousands) New contracts achieved New contracts achieved Backlog
for the fiscal year for the three months as of Jun 30, 2020
ended Jun 30, 2020 ended Jun 30, 2020
$ % to Total
$ % to Total
$ % to Total
Contract Contract Backlog
Industrial Automation 314,489 57.3% 99,048 73.4% 227,990 39.9%
Rail Transportation 153,704 28.0% 23,945 17.8% 251,571 44.0%
Mechanical and Electrical Solutions 80,961 14.7% 11,825 8.8% 92,198 16.1%
Total 549,154 100.0% 134,818 100.0% 571,759 100.0%
Cash Flow Highlights
For the fiscal year ended June 30, 2020, the total net cash outflow was $39.3 million. The net cash provided by operating activities was $175.1 million. The net cash used in investing activities was $187.6 million, mainly consisted of $8.1 million purchases of property, plant and equipment, and $426.8 million time deposits placed with banks, which was partially offset by $242.2 million maturity of time deposits, $4.5 million proceeds from disposal of investments in equity investee. The net cash used in financing activities was $18.2 million, mainly consisted of $20.8 million repayments of convertible bond, and $12.7 million payment of dividends, and $4.2 million repayments of short-term bank loans, which were partially offset by $2.4 million proceeds from short-term bank loans, and $15.4 million proceeds from long-term bank loans, and $2.1 million cash injected by noncontrolling interests.
For the three months ended June 30, 2020, the total net cash outflow was $47.3 million. The net cash provided by operating activities was $57.7 million. The net cash used in investing activities was $123.8 million and mainly consisted of $3.1 million purchases of property, plant and equipment, and $186.2 million of time deposits placed with banks, which were partially offset by $65.1 million of matured time deposits. The net cash provided by financing activities was $16.9 million and mainly consisted of $15.1 million proceeds from long-term bank loans, and $2.1 million cash injected by noncontrolling interests.
Balance Sheet Highlights
The total amount of cash and cash equivalents were $288.8 million, $344.0 million, and $332.5 million as of June 30, 2020, March 31, 2020 and June 30, 2019, respectively.
For fiscal year ended June 30, 2020, Days Sales Outstanding ("DSO") was 195 days, as compared to 180 days from the prior year; and inventory turnover was 57 days, as compared to 55 days from the prior year.
For the three months ended June 30, 2020, DSO was 166 days, as compared to 160 days for the comparable prior year period and 266 days for the last quarter; and inventory turnover was 66 days, as compared to 42 days for the comparable prior year period and 71 days for the last quarter.
Business Outlook
The management concluded, "Based on our backlog currently on-hand and sales pipeline envisioned so far, we expect a 6% to 8% revenue growth in fiscal year 2021."
The business outlook stated above includes the anticipated effects of COVID-19 impact to our business for the upcoming fiscal year and Company will provide further update on quarterly basis.
Conference Call
The Company will host a conference call at 9:00 pm August 13, 2020 U.S. Eastern Time / 9:00 am August 14, 2020 Beijing Time, to discuss the financial results for fiscal year 2020 and the fourth quarter ended June 30, 2020 and business outlook.
Joining the Conference Call:
1. Please register in advance of the conference using the link provided below. Upon registering, you will be provided with participant dial-in numbers, Direct Event passcode and unique registrant ID.
2. In the 10 minutes prior to the call start time, you will need to use the conference access information provided in the email received at the point of registering.
Note: Due to regional restrictions some participants may receive operator assistance when joining this conference call and will not be automatically connected.
Helpful keypad commands:
*0 - Operator assistance
*6 - Self mute/unmute
Direct Event online registration: http://apac.directeventreg.com/registration/event/6396983. Please use Conference ID 6396983 for entry if the link fails to lead directly to the registration page.
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 is a leading automation control system solutions provider in China, with overseas operations in eight other countries and regions throughout Asia. Leveraging its proprietary technology and deep industry know-how, Hollysys empowers its customers with enhanced operational safety, reliability, efficiency, and intelligence which are critical to their businesses. Hollysys derives its revenues mainly from providing integrated solutions for industrial automation and rail transportation. In industrial automation, Hollysys delivers the full spectrum of automation hardware, software, and services spanning field devices, control systems, enterprise manufacturing management and cloud-based applications. In rail transportation, Hollysys provides advanced signaling control and SCADA (Supervisory Control and Data Acquisition) systems for high-speed rail and urban rail (including subways). Founded in 1993, with technical expertise and innovation, Hollysys has grown from a research team specializing in automation control in the power industry into a group providing integrated automation control system solutions for customers in diverse industry verticals. Hollysys had cumulatively carried out more than 25,000 projects for approximately 15,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions.
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.
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 Fiscal year ended
June 30, June 30,
2020 2019 2020 2019
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net revenues
Integrated solutions
contracts revenue $
112,459 $
132,753 $
414,272 $
467,371
Products sales 3,895 5,958 20,144 33,102
Revenue from services 12,869 18,280 68,911 69,868
Total net revenues 129,223 156,991 503,327 570,341
Costs of integrated solutions
contracts 65,205 93,112 281,818 325,523
Cost of products sold 995 2,005 5,456 7,571
Costs of services rendered 5,357 8,605 25,485 26,081
Gross profit 57,666 53,269 190,568 211,166
Operating expenses
Selling 6,804 6,883 30,642 28,926
General and administrative 8,929 11,561 39,114 40,701
Goodwill impairment charge 35,767 11,623 35,767 11,623
Research and development 8,907 9,200 41,876 37,025
VAT refunds and government
subsidies (4,443) (7,822) (26,259) (30,735)
Total operating expenses 55,964 31,445 121,140 87,540
Income from operations 1,702 21,824 69,428 123,626
Other income, net 325 813 4,683 2,710
Foreign exchange (loss) gain (50) 2 599 (1,161)
Gains on deconsolidation of
subsidiaries where the Company
retains an equity interest 5,768
Gains on disposal of an investment
in an equity investee 5,763
Share of net (loss) income of
equity investees (976) 1,576 3,131 404
Dividend income from equity
security investments 1,139 1,112
Interest income 3,661 2,863 13,060 11,839
Interest expenses (171) (204) (306) (575)
Income before income taxes 4,491 26,874 97,497 143,723
Income tax expenses 2,748 1,471 18,171 18,184
Net income 1,743 25,403 79,326 125,539
Less: net (losses) income
attributable to non-controlling
interests (64) 145 (70) 278
Net income attributable
to Hollysys Automation
Technologies Ltd. $
1,807 $
25,258 $
79,396 $
125,261
Other comprehensive income (loss), net of tax of nil
Translation adjustments 3,434 (19,998) (28,313) (31,602)
Comprehensive income 5,177 5,405 51,013 93,937
Less: comprehensive (loss) income
attributable to non-controlling
interests (1,417) 145 (387) 17
Comprehensive income
attributable to Hollysys
Automation Technologies
Ltd. $
6,594 $
5,260 $
51,400 $
93,920
Net income per share:
Basic 0.03 0.42 1.31 2.07
Diluted 0.03 0.42 1.31 2.05
Shares used in net income per share
computation:
Basic 60,489,777 60,465,005 60,480,522 60,456,524
Diluted 60,489,777 61,278,773 60,611,047 61,273,884
HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(In USD thousands except for number of shares and per share data)
June 30, March 31,
2020 2020
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $
288,782 $
344,000
Time deposits with original
maturities over three months 324,949 203,542
Restricted cash 8,663 15,020
Accounts receivable, net of allowance
for doubtful accounts of $43,733 and
$45,704 as of June 30, 2020 and
March 31, 2020, respectively 240,334 215,247
Costs and estimated earnings in
excess of billings, net of allowance
for doubtful accounts of $6,037 and
$6,189 as of June 30, 2020 and March
31, 2020, respectively 186,992 214,057
Accounts receivable retention 6,088 4,142
Other receivables, net of allowance
for doubtful accounts of $4,221 and
$4,346 as of June 30, 2020 and March
31, 2020, respectively 30,259 27,795
Advances to suppliers 17,255 16,228
Amounts due from related parties 21,444 24,808
Inventories 48,210 49,609
Prepaid expenses 648 821
Income tax recoverable 870 1,541
Total current
assets 1,174,494 1,116,810
Non-current
assets
Restricted cash 21,652 7,368
Costs and estimated earnings in
excess of billings 2,309 2,542
Accounts receivable retention 4,717 6,490
Other non-current assets 6 7
Property, plant and equipment, net 78,050 75,778
Prepaid land leases 15,742 15,719
Intangible assets, net 1,713 1,116
Investments in equity investees 41,133 40,052
Investments in equity securities 4,640 4,623
Goodwill 1,193 35,834
Deferred tax assets 8,909 8,947
Operating lease right-of-use assets 6,010 5,084
Total non-current
assets 186,074 203,560
Total assets 1,360,568 1,320,370
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities
Short-term bank loans 279
Current portion of long-term loans 320 316
Accounts payable 117,460 114,363
Construction costs payable 2,350 1,461
Deferred revenue 139,242 133,176
Accrued payroll and related expenses 17,245 11,972
Income tax payable 3,142 2,349
Warranty liabilities 6,604 6,205
Other tax payables 3,279 2,320
Accrued liabilities 31,595 31,315
Amounts due to related parties 3,576 3,534
Operating lease liabilities 2,489 1,679
Total current
liabilities 327,302 308,969
Non-current
liabilities
Accrued liabilities 5,635 5,534
Long-term loans 15,780 829
Accounts payable 2,530 3,690
Deferred tax liabilities 13,940 14,252
Warranty liabilities 3,460 3,681
Operating lease liabilities 3,302 3,075
Total non-current
liabilities 44,647 31,061
Total liabilities 371,949 340,030
Commitments and
contingencies -
Stockholders'
equity:
Ordinary shares, par value $0.001 per
share, 100,000,000 shares
authorized; 60,537,099 shares issued
and outstanding as of June 30, 2020
and March 31, 2020 61 61
Additional paid-in capital 224,043 223,690
Statutory reserves 49,423 49,424
Retained earnings 774,473 772,666
Accumulated other comprehensive loss (63,517) (68,305)
Total Hollysys
Automation
Technologies Ltd.
stockholder's
equity 984,483 977,536
Non-controlling interests 4,136 2,804
Total equity 988,619 980,340
Total liabilities
and equity $
1,360,568 $
1,320,370
HOLLYSYS AUTOMATION TECHNOLOGIES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In USD thousands).
Fiscal year ended
Three months ended
June 30, 2020 June 30, 2020
---
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $
1,743 $
79,326
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of property, plant and
equipment 1,382 8,483
Amortization of prepaid land leases 90 384
Amortization of intangible assets 75 300
Allowance for doubtful accounts (621) 690
Gains on disposal of property,
plant and equipment (66) (67)
Goodwill impairment charge 35,767 35,767
Impairment loss on property, plant
and equipment 17 17
Share of net loss (income) of
equity investees 976 (3,131)
Share-based compensation expenses 354 410
Deferred income tax expenses (300) 6,413
Accretion of convertible bond 57
Gains on disposal of an investment
of an equity investee (5,763)
Changes in operating assets and
liabilities:
Accounts receivable and retention (24,699) 33,024
Costs and estimated earnings in
excess of billings 28,542 3,073
Inventories 1,588 (6,474)
Advances to suppliers (952) (4,745)
Other receivables (2,199) (3,920)
Deposits and other assets 184 (19)
Due from related parties 1,548 11,988
Accounts payable 1,629 15,010
Deferred revenue 5,501 1,825
Accruals and other payables 4,649 (1,658)
Due to related parties 42 (1,819)
Income tax payable 1,463 3,337
Other tax payables 947 2,616
Net cash provided by operating
activities 57,660 175,124
Cash flows from investing activities:
Time deposits placed with banks (186,203) (426,846)
Purchases of property, plant and
equipment (3,062) (8,098)
Proceeds from disposal of property,
plant and equipment 427 983
Maturity of time deposits 65,130 242,174
Acquisition of a subsidiary, net of
cash acquired (100) (251)
Proceeds received for the disposal
of an equity investment 4,458
Net cash used in investing
activities (123,808) (187,580)
Cash flows from financing activities:
Proceeds from short-term bank
loans 2,371
Repayments of short-term bank
loans (284) (4,243)
Proceeds from long-term bank loans 15,129 15,423
Repayments of long-term bank loans (58) (437)
Cash injected by noncontrolling
interests 2,139 2,139
Payment of dividends (12,713)
Repayments of convertible bond (20,753)
Net cash provided by (used in)
financing activities 16,926 (18,213)
Effect of foreign exchange rate
changes 1,931 (8,621)
Net decrease in cash, cash
equivalents and restricted cash $
(47,291) $
(39,290)
Cash, cash equivalents and
restricted cash, beginning of
period 366,388 358,387
Cash, cash equivalents and
restricted cash, end of period $
319,097 $
319,097
Non-GAAP Measures
In evaluating our results, the non-GAAP measures of "Non-GAAP cost of integrated contracts", "Non-GAAP general and administrative expenses", "Non-GAAP other income (expenses), net", "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 the non-GAAP measures with the most directly comparable U.S. GAAP measures for the periods indicated:
(In USD thousands, except for number of shares and per share data)
---
Three months ended Fiscal year ended
June 30, June 30,
2020 2019 2020 2019
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cost of integrated solutions contracts $
65,205 $
93,112 $
281,818 $
325,523
Less: Amortization of acquired intangible assets 75 77 300 311
Non-GAAP cost of integrated solutions contracts $
65,130 $
93,035 $
281,518 $
325,212
General and administrative expenses $
8,929 $
11,561 $
39,114 $
40,701
Less: Share-based compensation expenses 354 37 410 238
Non-GAAP general and administrative expenses $
8,575 $
11,524 $
38,704 $
40,463
Other
income
, net $
325 $
813 $
4,683 $
2,710
Add: Fair value adjustments of a bifurcated derivative 326 346
Non-GAAP other
income
, net $
325 $
1,139 $
4,683 $
3,056
Net income attributable to Hollysys Automation Technologies Ltd. $
1,807 $
25,258 $
79,396 $
125,261
Add:
Share-based compensation expenses 354 37 410 238
Amortization of acquired intangible
assets 75 77 300 311
Fair value adjustments of a bifurcated
derivative 326 346
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. $
2,236 $
25,698 $
80,106 $
126,156
Weighted average number of basic ordinary
shares 60,489,777 60,465,005 60,480,522 60,456,524
Weighted average number of diluted ordinary
shares 60,489,777 61,278,773 60,611,047 61,273,884
Non-GAAP basic earnings per share $
0.04 $
0.43 $
1.32 $
2.09
Non-GAAP diluted earnings per share $
0.04 $
0.42 $
1.32 $
2.07
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SOURCE Hollysys Automation Technologies, Ltd
