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Hollysys Automation Technologies Reports Unaudited Financial Results for the Fourth Quarter and Fiscal Year 2014 Ended June 30, 2014

BEIJING, Aug. 13, 2014 /PRNewswire-FirstCall/ --

Q4  Financial Highlights

  • Quarterly revenues of $158.9 million, representing an increase of 40.0% compared to $113.4 million year over year, and an increase of 65.7% compared to $95.8 million quarter over quarter.
  • Non-GAAP gross margin at 34.9%, as compared to 36.8% year over year, and 36.2% quarter over quarter.
  • Non-GAAP net income attributable to Hollysys of $25.8 million, a 55.6% increase compared to $16.6 million year over year, and a 70.3% increase compared to $15.1 million quarter over quarter
  • Non-GAAP diluted EPS at $0.44 reported for the quarter, as compared to $0.29 year over year, and $0.26 quarter over quarter.
  • Backlog of $556.0 million as of June 30, 2014, a 13.8% increase compared to $488.7 million year over year, and 7.8% decrease compared to $602.9 million quarter over quarter.
  • Quarterly DSO of 148 days, as compared to 153 days year over year, and 248 days quarter over quarter.
  • Inventory turnover days of 31 days, as compared to 40 days year over year, and 45 days quarter over quarter.
  • The total amount of cash and cash equivalents and time deposits with original maturities over three months were $190.5 million as of the current quarter end.

Fiscal Year Financial Highlights

  • Revenues of $521.3 million, representing an increase of 49.4% compared to $349.1 million year over year.
  • Non-GAAP gross margin at 34.7%, as compared to 36.2% year over year.
  • Non-GAAP net income attributable to Hollysys of $87.2 million, a 51.3% increase compared to $57.6 million year over year.
  • Non-GAAP diluted EPS at $1.49 reported for current year, as compared to $1.02 year over year.
  • DSO of 150 days, as compared to 180 days year over year.
  • Inventory turnover of 36 days, versus 52 days year-over-year.

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 fiscal year 2014 fourth quarter and fiscal year ended on June 30, 2014 (see attached tables). The management of Hollysys, stated:

In fiscal year 2014, we made solid achievements and delivered robust growth in several areas in terms of financial performance and business operation, and outperformed the challenging earnings guidance we announced previously. When we enjoy the exciting moment, we also calmly evaluate the future opportunities and challenges and carefully plan for the future growth. Here we would like to discuss the achievements in the past fiscal year and strategies in the future in the respective segments:

The industrial automation delivered solid growth during fiscal year 2014, the actual growth rate was not as fast as we previously expected, mainly because of the influence by the general economic environment. During the past fiscal year, China began to adjust its industry structure and reducing the capacity in some industries such as metallurgy, building material, paper mill and coal fire power, but we gained more market share from rising industries to make up the loss from decreasing industries, we were doing well in chemical which took up the largest portion of our revenue in industrial automation, and we were doing better in food & beverage industry and medical industry. In order to better cope with such situation, firstly, we have been continuously improving our industry solution capability and competition capability to strengthen industry marketing and influence on the base of regional network construction few years ago, and focus more on larger projects with more total solution supply. Secondly, we increased the higher gross margin products providing including Distributed Control System ("DCS"), Safety Instrumentation System ("SIS") and advanced control software, and reduced the lower gross margin instrumentation business, to improve operation quality and profitability. Thirdly, we continued to provide quality service and maintenance to our customers, to set up long term working relationship with old customers and provide more value adding technologies to improve their operation. Fourthly, capture the new growth opportunities of energy conservation and emission reduction, and pursue the new business opportunities driven by intelligent and automated production and working.

The factory automation which is categorized in the industrial automation is relatively a new business but with strong potential, in this area we provide proprietary Programmable Logic Controller ("PLC") and develop our proprietary solution and equipment, to the industries such as coal mining, waste water treatment, and Traditional Chinese Medicine ("TCM"). We have built up the advanced technology platform, mature products and successful application track record in the above areas, and we'd like to seek more opportunities to replace labor and improve production efficiency for our customers.

Besides, we are expecting another strong growth driver of industrial automation from overseas market, we have established subsidiary companies and offices in India, Malaysia, and Singapore few years ago to provide our industrial automation products. We are currently enhancing the localization such as recruiting local talents and establishing local partnership, we believe that we will have the same strong advantages as in China like the quality products, better service, better value for money which will enable us to win more customers and enlarge overseas business scale.

Nuclear power business was gradually recovering since the second half of calendar year 2013, and we successful provided and installed our proprietary HOLLiAS-N Distributed Control System ("HOLLiAS-N DCS") in Unit 1 and Unit 2 of Hongyanhe Nuclear Power Plant, Unit 1 and unit 2 of Ningde Nuclear Power Plant, and Unit 1 of Yangjiang Nuclear Power Plant and assist these units' successful commercial operation and delivered outstanding performance.

In high-speed rail sector, we made remarkable achievements in fiscal year 2014. The revenue in rail transportation sector in fiscal year 2014 was doubled compared with fiscal year 2013, mainly because of the strong rail industry recovery since the second half of last year after China Railway Corporation ("CRC") was established. In the fiscal year 2014, we signed several sizable ground-based high-speed rail signaling system contracts to provide the Train Control Centers ("TCC") and other related products consecutively, including the Lanzhou-Xinjiang high-speed rail line Xinjiang section, Mudanjiang-Suifenhe high-speed rail line, Qingdao-Rongcheng high-speed rail line, Jilin-huichun high-speed rail line, Guiyang-Guangzhou high-speed rail line Guizhou section, and Shenyang-Dandong high-speed rail line; and several batches of significant Automatic Train Protection ("ATP") equipment providing contracts. The strong backlog and booming order pipeline make certain for another strong year ahead. We believe with our key position in China's high-speed rail signaling system providing, superior products performance and well-reputed track record, we are well prepared to take more market share in the high-speed rail signaling in the near future.

In subway sector, we signed the contract with Land Transport Authority ("LTA") to provide Supervisory Control and Data Acquisition System ("SCADA") for the Thomson & Eastern Region Lines in Singapore in June this year, which was a major breakthrough for us to provide our proprietary SCADA system to the international market. In the future, we will closely work with international local rail authorities to explore the SCADA and subway signaling business opportunities.

Overseas, we were excited of Bond Group's solid financial and operational performance and strong orders backlog, and we were pleased to see that Concord Group worked together with our domestic team to provide Integrated Supervisory Control System for Thomson & Eastern Region Lines in Singapore. In the next phrase, we will accelerate the overseas business expansion, ensure the healthy development of Bond and Concord's original business, and increase our proprietary products and systems providing leveraging their market resources, and improve our overseas business gross margin.

In addition, analysts and investors are invited to attend our Annual Investor Day around mid-October at our Beijing premises, which will be filled with showcasing our whole executive team, insightful presentations from various corporate executives and facility tour, to further enhance our transparency, corporate investor relations and communication. Our shareholders who would like to participate in this annual event shall contact their brokerage firms or contact us directly to arrange the reservation; we are looking forward to meeting with you in October at our premises.

The Fourth Quarter and Fiscal year 2014 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 share numbers and EPS



Three months ended


Fiscal year ended



June 30,
2014

June 30,
2013

%
Change


June 30,
2014

June 30,
2013

%
Change










Revenues

$

158,851

113,432

40.0%

$

521,332

349,055

49.4%

    Integrated contract revenue

$

137,216

108,071

27.0%

$

478,261

328,551

45.6%

    Products sales

$

13,381

5,361

149.6%

$

31,922

20,504

55.7%

    Service rendered

$

8,255

-


$

11,149

-


Cost of revenues

$

103,475

71,635

44.4%

$

340,296

222,539

52.9%

Gross profit

$

55,376

41,797

32.5%

$

181,036

126,516

43.1%

Total operating expenses

$

21,134

20,097

5.2%

$

75,535

64,367

17.4%

    Selling

$

6,232

6,770

(7.9)%

$

28,257

26,794

5.5%

    General and administrative

$

12,276

11,709

4.8%

$

36,730

28,048

31.0%

    Research and development

$

8,443

9,137

(7.6)%

$

36,486

32,507

12.2%

    VAT refunds and government subsidies

$

(5,818)

(7,519)

(22.6)%

$

(25,938)

(22,982)

12.9%

Income from operations

$

34,243

21,700

57.8%

$

105,500

62,149

69.8%

Other income (expenses), net

$

730

161

353.9%

$

1,536

934

64.4%

Foreign exchange gains (losses)

$

1,258

(1,412)

(189.1)%

$

2,332

800

191.6%

Share of net (losses) gains of equity investees

$

(915)

815

(212.2)%

$

(2,692)

297

(1005.9)%

Dividend income from a cost investee

$

-

-

-

$

-

834

(100.0)%

Interest income

$

906

659

37.6%

$

3,253

3,075

5.8%

Interest expenses

$

(311)

(300)

3.8%

$

(1,067)

(1,861)

(42.6)%

Income tax expenses

$

9,581

4,741

102.1%

$

19,861

8,097

145.3%

Net income  attributable to non-controlling interest

$

575

327

75.8%

$

1,831

526

247.8%

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

$

25,755

16,556

55.6%

$

87,171

57,605

51.3%

Non-GAAP basic EPS

$

0.44

0.29

51.7%

$

1.50

1.03

45.6%

Non-GAAP diluted EPS

$

0.44

0.29

51.7%

$

1.49

1.02

46.1%










Share based compensation expenses

$

870

29

2891.0%

$

2,986

1,599

86.7%

Amortization of acquired intangibles

$

1,410

2,848

(50.5)%

$

5,413

2,848

90.1%

Acquisition-related  incentive share consideration fair value adjustments

$

1,782

855

108.6%


7,989

855

834.8%

Acquisition-related cash consideration fair value adjustments

$

198

309

(35.7)%

$

931

309

201.7%

GAAP Net income attributable to Hollysys Automation Technologies Ltd.

$

21,494

12,516

71.7%

$

69,852

51,994

34.3%

GAAP basic EPS

$

0.37

0.22

68.2%

$

1.21

0.93

30.1%

GAAP diluted EPS

$

0.36

0.22

63.6%

$

1.20

0.92

30.4%










Basic weighted average common
   shares outstanding


58,261,824

56,604,423

2.9%


57,926,333

56,167,592

3.1%

Diluted weighted average common
   shares outstanding


59,045,703

56,918,626

3.7%


58,426,642

56,412,469

3.6%

Operational Results Analysis for the Fourth quarter ended June 30, 2014

For the three months ended June 30, 2014, total revenues increased by 40.0% to $158.9 million, from $113.4 million for the same period in the prior year. Of the total revenues, revenue from integrated contracts increased by 27.0% to $137.2 million, as compared to $108.1 million for the same period of the prior year; revenue from products sales increased by 149.6% to $13.4 million, as compared to $5.4 million for the same period of the prior year; and revenue from services rendered was $8.3 million for the current quarter. The Company's total revenue by segment was as follows:



Three months ended June 30,



2014


2013



$

% to Total Revenue


$

% to Total Revenue

Industrial Automation


61.6

38.7%


59.1

52.2%

Rail Transportation Automation


60.4

38.0%


28.5

25.1%

Mechanical and Electrical Solution


34.4

21.7%


23.2

20.4%

Miscellaneous


2.5

1.6%


2.6

2.3%

Total


158.9

100.0%


113.4

100.0%

As a percentage of total revenues, overall gross margin excluding non-cash amortization of acquired intangibles was 34.9% for the three months ended June 30, 2014, as compared to 36.8% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered excluding non-cash amortization of acquired intangibles were 29.8%, 62.6% and 73.9% for the three months ended June 30, 2014, as compared to 35.0%, 74.5%, and nil for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. Including non-cash amortization of acquired intangibles, recorded on a GAAP basis, overall gross margin was 34.0% for the three months ended June 30, 2014, as compared to 34.3% for the same period of the prior year. The gross margin for integrated contracts, product sales, and service rendered including non-cash amortization of acquired intangibles, were 28.8%, 62.6% and 73.9% for the three months ended June 30, 2014, as compared to 32.3%, 74.5%, and nil for the same period of the prior year respectively.

For the three months ended June 30, 2014, selling expenses were $6.2 million, as compared to $6.8 million for the same quarter of the prior year, representing a decrease of $0.6 million or 7.9% year over year. As a percentage of total revenues, selling expenses were 3.9% and 6.0% for the three months ended June 30, 2014, and 2013, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses, were $12.3 million for the quarter ended June 30, 2014, representing an increase of $0.6 million, or 4.8%, as compared to $11.7 million for the same period of the prior year. The increase was mainly due to an increase of $2.3 million in bad debt allowance. As a percentage of total revenues, G&A expenses were 7.7% and 10.3% for the three months ended June 30, 2014 and 2013, respectively. Including the non-cash share-based compensation expense, recorded on a GAAP basis, G&A expenses were $13.1 million and $11.7 million for the three months ended June 30, 2014 and 2013, respectively.

Research and development expenses were $8.4 million for the three months ended June 30, 2014, as compared to $9.1 million for the same quarter of the prior year, representing a year over year decrease of $0.7 million, or 7.6%. As a percentage of total revenues, R&D expenses were 5.3% and 8.1% for the quarter ended June 30, 2014 and 2013, respectively.

The VAT refunds and government subsidies amounted to $5.8 million for three months ended June 30, 2014, as compared to $7.5 million for the same period in the prior year, representing a decrease of $1.7 million, or 22.6%.  The decrease was mainly due to a decrease of $1.4 million in government subsidies.

The income tax expenses and the effective tax rate were $9.6 million and 30.3% for the three months ended June 30, 2014, as compared to $4.7 million and 27.0% for the same prior year period. Of the $9.6 million expenses for the current quarter, $1.4 million was accrued and withheld for the potential profits distribution from PRC to overseas.  Excluding the withholding tax impact, the effective tax rate for the current quarter is 25.9%. Beijing Hollysys & HangZhou Hollysys are now in the process of renewing their High-tech certification, which would grant the Company a preferential tax rate of 15%, for calendar year 2014 to 2016, and expected to get the renewed certificate in late 2014. For the current quarter, the Company used the statutory tax rate of 25% to calculate the current and deferred tax from a conservative stand point.

For the three months ended June 30, 2014, the non-GAAP net income attributable to Hollysys excluding non-cash share-based compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $25.8 million or $0.44 per diluted share based on 59.1 million shares outstanding. This represents an increase of $9.2 million, or 55.6%, over the $16.6 million, or $0.29 per share based on 56.9 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $21.5 million, or $0.36 per diluted share representing an increase of $9.0 million or 71.7%, over the $12.5 million, or $0.22 per diluted share reported in the prior year period.  

Operational Results Analysis for the fiscal year ended June 30, 2014

For the fiscal year 2014, total revenues increased by 49.4% to $521.3 million, from $349.1 million of the prior year. Of the total revenues, revenue from integrated contracts increased by 45.6% to $478.3 million, as compared to $328.6 million of the prior year; revenue from products sales increased by 55.7% to $31.9 million, as compared to $20.5 million for the prior fiscal year; and revenue from services rendered was $11.1 million for the current year..  The Company's total revenue by segment was as follows:



Fiscal year ended June 30,



2014


2013



$

% to Total Revenue


$

% to Total Revenue

Industrial Automation


224.4

43.0%


211.7

60.6%

Rail Transportation Automation


178.1

34.2%


82.3

23.6%

Mechanical and Electrical Solution


108.8

20.9%


36.2

10.4%

Miscellaneous


10.0

1.9%


18.9

5.4%

Total


521.3

100.0%


349.1

100.0%

As a percentage of total revenues, overall gross margin excluding non-cash amortization of acquired intangibles was 34.7% for the fiscal year 2014, as compared to 36.2% for the prior year. The non-GAAP gross margin for integrated contracts, product sales, and service rendered excluding non-cash amortization of acquired intangibles were 32.1%, 63.7%, and 63.3% for the fiscal year 2014, as compared to 34.3%, 66.8%, and nil for the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. Including non-cash amortization of acquired intangibles, recorded on a GAAP basis, overall gross margin was 33.7% for the fiscal year 2014, as compared to 35.4% for the prior year. The gross margin for integrated contracts, product sales, and services rendered including non-cash amortization of acquired intangibles were 31.0%, 63.7%, and 63.3% for the year ended June 30, 2014, as compared to 33.5%, 66.8%, and nil for the prior year respectively.

For fiscal year 2014, selling expenses were $28.3 million, representing a slight increase of $1.5 million, or 5.5%, as compared to $26.8 million year over year.  As a percentage of total revenues, selling expenses were 5.4% and 7.7% for fiscal year 2014 and 2013, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses, were $36.7 million for the fiscal year 2014, representing an increase of $8.7 million, or 31.0%, as compared to $28.0 million year over year. The increase was mainly due to an increase of $3.7 million incurred by the newly acquired company Bond Corporation Pte. Ltd. and its subsidiaries (Bond) as well as an increase of $4.2 million in bad debt allowance. As a percentage of total revenues, G&A expenses were 7.0% and 8.0% for fiscal year 2014 and 2013, respectively. Including the non-cash share-based compensation expenses, recorded on a GAAP basis, G&A expenses were $39.7 million and $29.6 million for the fiscal year 2014 and 2013, respectively.

Research and development expenses were $36.5 million for the fiscal year 2014, as compared to $32.5 million of the prior year, representing an increase of $4.0 million, or 12.2%. As a percentage of total revenues, R&D expenses were 7.0% and 9.3% for the year ended June 30, 2014 and 2013, respectively.

The VAT refunds and government subsidies amounted to $25.9 million for the year ended June 30, 2014, as compared to $23.0 million for the prior year, representing an increase of $2.9 million, or 12.9%. The increase was consisted of an increase of $4.0 million in VAT refunds which was partially offset by a decrease of $1.1 million in government subsidies.

The income tax expenses and the effective tax rate were $19.9 million and 21.7% for the fiscal year 2014, as compared to $8.1 million and 13.4% for the prior year. Of the $19.9 million expenses for the current year, $1.4 million was accrued and withheld for the potential profits distribution from PRC to overseas. Excluding the withholding tax impact, the effective tax rate for the current year is 20.2%. Beijing Hollysys & HangZhou Hollysys are now in the process of renewing their High-tech certification, which would grant the Company a preferential tax rate of 15%, for calendar year 2014 to 2016, and expected to get the renewed certificate in late 2014. For the January to June 2014, the Company used the statutory tax rate of 25% to calculate the current and deferred tax from a conservative stand point.

For the fiscal year 2014, the non-GAAP net income attributable to Hollysys excluding non-cash share-based compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $87.2 million or $1.49 per diluted share based on 58.4 million shares outstanding. This represents an increase of $29.6 million, or 51.3%, over the $57.6 million or $1.02 per diluted share based on 56.4 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $69.9 million, or $1.20 per diluted share representing an increase of $17.9 million or 34.3%, over the $52.0 million, or $0.92 per diluted share reported in the prior year period.

Backlog Highlights

Hollysys' backlog as of June 30, 2014 was $556.0 million, representing an decrease of 7.8% compared to $602.9 million as of March 31, 2014, and an increase of 13.8% compared to $488.7 million as of June 30, 2013.The detailed breakdown of the backlog by segment was as followings:






Quarter-over-Quarter Analysis


Year-over-Year Analysis



2014-6-30


2014-3-31


2013-6-30



$

% to
Total
Backlog


$

% to
Total
Backlog


%
Change


$

% to
Total
Backlog


%
Change

Industrial Automation


178.7

32.2%


172.1

28.5%


3.8%


155.5

31.8%


14.9%

Rail Transportation Automation


262.1

47.1%


278.3

46.2%


(5.8%)


210.0

43.0%


24.8%

Mechanical and Electrical Solution


115.2

20.7%


152.4

25.3%


(24.4%)


94.5

19.3%


-

Miscellaneous


-

0.0%


0.1

0.0%


(100.0%)


28.7

5.9%


(100.0%)

Total


556.0

100.0%


602.9

100.0%


(7.8%)


488.7

100.0%


13.8%

Cash Flow Highlights

For the three months ended June 30, 2014, the net cash provided by operating activities was $45.2 million; including investing and financing activities, the total net cash inflow for this quarter was $38.0 million. During the quarter, the net cash used in investing activities was $2.7 million, majorly consisted of $2.0 million placed with banks as time deposits. The net cash used in financing activities was $3.7 million, majorly consisted of $6.8 million used in prepayment of short-term bank loans, $1.5 million used in repayment of long-term bank loans, and partially offset by $4.7 million proceeds from short-term bank loans.

For the fiscal year ended June 30, 2014, the net cash provided by operating activities was $84.8 million; including investing and financing activities, the total net cash inflow for this year was $49.9 million. During this year, the net cash used in investing activities was $25.2 million, majorly consisted of $18.9 million placed with banks as time deposits, $8.4 million used in purchase of property, plant and equipment, $5.5 million paid for the second batch of cash consideration for Bond acquisition, and partially offset by $11.6 million proceeds from maturity of time deposits. The net cash used in financing activities was $8.3 million, majorly consisted of $13.8 million used in repayment of short-term bank loans, $9.2 million used in repayment of long-term bank loans, and partially offset by $14.6 million proceeds from short-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $190.5 million, $150.5 million, and $133.1 million as of June 30, March 31, 2014, and June 30, 2013, respectively. Of the total $190.5 million as of June 30, 2014, cash and cash equivalents were $162.2 million, and time deposits with original maturities over three months were $28.3 million.

For the three months ended June 30, 2014, Days Sales Outstanding ("DSO") was 148 days, as compared to 153 days year over year and 248 days quarter over quarter; and inventory turnover was 31 days, as compared to 40 days year over year and 45 days quarter over quarter. For the fiscal year ended June 30, 2014, DSO is 150 days as compared to 180 days for the prior year; and inventory turnover is 36 days as compared to 52 days for the prior year.

Outlook for FY 2015

The management concluded, "Given our strong backlog currently on-hand and sales pipeline envisioned so far, we set our guidance for fiscal year 2015 with revenue in the range of $565 million to $600 million and non-GAAP net income in the range of $94 million to $98 million."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 a.m. Beijing Time on August 14, 2014 / 9:00 p.m. U.S. Eastern Time on Aug 13, 2014. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Hollysys Automation Technologies conference call.  The conference call identification number is 3256125.

4001-200-539

(Mainland China)

+1-855-298-3404

(United States)

800-905-927

(Hong Kong)

+852-5808-3202

(Hong Kong)

0800-015-9725

(United Kingdom)

+44(0)20 3078 7622

(United Kingdom)

800-616-3222

(Singapore)

+65 6823 2299

(Singapore/International)

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at: http://www.hollysys.com.sg/home/index.php/investor-relations/events-a-webcast

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 3,800 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 5,000 customers more than 20,000 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 (Surveillance Control and Data Acquisition), nuclear conventional island 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.

Contact Information:

Hollysys Automation Technologies, Ltd.
www.hollysys.com

Investor Relations
+8610-58981386
[email protected]

 


 


HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In US Dollars except for per-share data)












Three months ended
June 30,


Fiscal year ended
June 30,



2014


2013


2014


2013



(Unaudited)


(Unaudited)


(Unaudited)


 (Audited)

Revenues









Integrated contract revenue

$

137,215,836

$

108,071,426

$

478,261,196


328,551,083

Products sales


13,380,649


5,360,640


31,921,551


20,503,919

Service rendered


8,254,598


-


11,149,099


-

Total revenues


158,851,083


113,432,066


521,331,846


349,055,002










Cost of integrated contracts


97,723,457


73,115,802


330,038,563


218,586,778

Cost of products sold


5,006,365


1,366,913


11,580,031


6,799,536

Cost of Service rendered


2,154,924


-


4,090,340


-

Gross profit


53,966,337


38,949,351


175,622,912


123,668,688










Operating expenses









Selling


6,232,342


6,769,907


28,257,497


26,793,752

General and administrative


13,146,453


11,737,606


39,716,156


29,647,665

Research and development


8,443,215


9,137,481


36,486,074


32,507,314

VAT refunds and government subsidies


(5,818,217)


(7,518,922)


(25,938,251)


(22,982,148)

Total operating expenses


22,003,793


20,126,072


78,521,476


65,966,583










Income from operations


31,962,544


18,823,279


97,101,436


57,702,105










Other (losses) incomes , net


(1,052,367)


(693,741)


(6,452,434)


79,818

Foreign exchange gains (losses)


1,257,605


(1,411,694)


2,331,986


799,609

Share of net (losses) gains of equity investees


(914,765)


815,484


(2,692,052)


297,177

Dividend income from cost investees


-


-


-


833,567

Interest income


906,366


658,851


3,253,333


3,075,072

Interest expenses


(509,464)


(608,362)


(1,998,311)


(2,169,667)

Income before income taxes


31,649,919


17,583,817


91,543,958


60,617,681










Income taxes expenses


9,580,922


4,740,711


19,860,835


8,096,798

Net income


22,068,997


12,843,106


71,683,123


52,520,883










Net income attributable to non-controlling interest


574,507


326,865


1,831,057


526,481

Net income attributable to Hollysys Automation
   Technologies Ltd. stockholders

$

21,494,490

$

12,516,241

$

69,852,066


51,994,402










Other comprehensive income, net of tax









Foreign currency translation adjustments, net of nil tax


148,819


3,433,382


607,975


4,193,473

Comprehensive income


22,217,816


16,276,488


72,291,098


56,714,356










Comprehensive income attributable to non-controlling interest


573,911


351,796


1,836,624


562,843

Comprehensive income attributable to Hollysys
   Automation Technologies Ltd.stockholders

$

21,643,905

$

15,924,692

$

70,454,474


56,151,513










Net income per ordinary share:









Basic


0.37


0.22


1.21


0.93

Diluted


0.36


0.22


1.20


0.92

Weighted average ordinary shares used in income per
   share computation:









Basic


58,261,824


56,604,423


57,926,333


56,167,592

Diluted


59,045,703


56,918,626


58,426,642


56,412,469

 


HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In US Dollars)












June 30,


March 31,





2014


2014





(Unaudited)


(Unaudited)

ASSETS






Current Assets







Cash and cash equivalents

$

162,159,098

$

124,164,048



Time deposits with original maturities over three months


28,334,126


26,338,774



Restricted cash


8,359,000


8,098,290



Accounts receivable, net of allowance for doubtful accounts of  
   $26,109,923 and $23,924,623 as of June 30, 2014 and
   March 31, 2014, respectively


258,885,135


264,639,439



Costs and estimated earnings in excess of billings, net of
   allowance for doubtful accounts of $6,060,441 and
   $2,908,179 as of June 30, 2014 and March 31, 2014,
   respectively


179,688,181


164,191,999



Other receivables, net of allowance for doubtful accounts of
   $333,562 and $299,807  as of June 30, 2014 and March 31,
   2014, respectively


11,039,350


11,431,211



Advances to suppliers


11,588,354


14,524,937



Amount due from related parties


23,719,670


22,090,314



Inventories, net


35,053,243


34,624,528



Prepaid expenses


866,429


827,315



Income tax recoverable


666,377


564,165



Deferred tax assets


6,686,685


5,844,864



Assets held for sale


2,847,008


2,797,980


Total current assets


729,892,656


680,137,864










Restricted cash


7,498,485


5,768,814



Prepaid expenses


108,082


329,979



Property, plant and equipment, net


82,344,825


82,553,765



Prepaid land leases


12,396,624


12,405,510



Acquired intangible assets, net


6,509,571


7,850,435



Investments in equity investees


15,062,054


16,108,375



Investments in cost investees


4,435,858


4,436,363



Goodwill


66,640,303


66,032,319



Deferred tax assets


1,806,047


1,787,607









Total assets


926,694,505


877,411,031








LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities







Short-term bank loans


4,493,846


7,769,234



Current portion of long-term loans


8,517,268


11,449,333



Accounts payable


135,669,331


134,224,272



Construction cost payable


4,902,651


6,143,893



Deferred revenue


130,696,303


128,283,461



Accrued payroll and related expenses


10,601,265


7,524,957



Income tax payable


12,040,206


7,921,609



Warranty liabilities


7,616,331


2,181,098



Other tax payables


28,936,706


21,989,008



Accrued liabilities


24,424,491


18,393,174



Amounts due to related parties


3,988,408


3,017,591



Deferred tax liabilities


1,627,149


284,969



Current portion of acquisition-related payment


30,285,478


28,173,481


Total current liabilities


403,799,433


377,356,080










Long-term bank loans


14,978,257


12,378,561



Deferred tax liabilities


2,371,468


2,632,878



Long-term warranty liabilities


-


2,454,820



Long-term acquisition-related payment


14,793,062


14,924,398


Total liabilities


435,942,220


409,746,737









Commitments and contingencies


-


-









Equity







Ordinary shares


57,555


57,555



Additional paid-in capital


173,765,442


172,895,267



Statutory reserves


23,288,778


23,288,812



Retained earnings


252,583,104


231,088,580



Accumulated other comprehensive income


37,474,075


37,324,660


Total Hollysys Automation Technologies Ltd. stockholder's
     equity


487,168,954


464,654,874










Non-controlling interests


3,583,331


3,009,420


Total equity


490,752,285


467,664,294









Total liabilities and equity

$

926,694,505

$

877,411,031

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In US Dollars)










Three months ended
June 30, 2014


Fiscal year ended
June 30, 2014




(Unaudited)


(Unaudited)

Cash flows from operating activities:






Net income

$

22,068,997

$

71,683,123

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


Depreciation of property, plant and equipment


1,867,441


7,050,577


Amortization of prepaid land leases


72,666


244,948


Amortization of intangible assets


1,409,799


5,412,766


Allowance for doubtful accounts


5,515,431


10,545,263


Gain on disposal of property, plant and equipment


(130,055)


(131,632)


Impairment loss on investment in a cost investee


-


325,373


Share of net losses from equity investees


914,765


2,692,052


Dividends received from an equity investee


-


2,407,757


Share based compensation expenses


870,175


2,986,192


Deferred income tax expenses (benefits)


220,282


(5,427,366)


Acquisition-related consideration fair value adjustments


1,980,661


8,919,629

Changes in operating assets and liabilities:






Accounts receivable


3,189,063


(88,592,672)


Costs and estimated earnings in excess of billings


(18,444,686)


(38,810,335)


Inventories 


(432,523)


(805,998)


Advances to suppliers


2,935,617


(2,959,070)


Other receivables 


357,024


696,744


Deposits and other assets


(1,808,374)


(5,141,709)


Due from related parties


(1,497,576)


2,775,626


Accounts payable


1,455,064


24,160,888


Deferred revenue


2,420,293


63,348,056


Accruals and other payable


10,296,905


7,978,760


Due to related parties


971,055


1,898,780


Income tax payable


4,016,693


6,762,941


Other tax payables


6,950,241


6,795,402


Net cash provided by operating activities


45,198,958


84,816,095







Cash flows from investing activities:






Time deposits placed with banks


(2,001,109)


(18,881,389)


Purchases of property, plant and equipment


(1,688,224)


(8,359,115)


Proceeds from disposal of property, plant and equipment


849,562


866,494


Maturity of time deposits


101,150


11,589,142


Acquisition of a subsidiary, net of cash acquired


-


(5,510,000)


Capital contributions to an equity investee


-


(3,904,471)


Capital contributions to a cost investee


-


(1,030,469)


Net cash used in investing activities


(2,738,621)


(25,229,808)







Cash flows from financing activities:






Proceeds from short-term bank loans


4,689,289


14,582,047


Repayments of short-term bank loans


(6,837,627)


(13,826,110)


Proceeds from long-term bank loans


25,342


108,317


Repayments of long-term bank loans


(1,537,204)


(9,191,655)


Net cash used in financing activities


(3,660,200)


(8,327,401)








Effect of foreign exchange rate changes


(805,087)


(1,328,367)


Net  increase in cash and cash equivalents

$

37,995,050

$

49,930,519








Cash and cash equivalents, beginning of period

$

124,164,048

$

112,228,579


Cash and cash equivalents, end of period


162,159,098


162,159,098

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 intangibles and acquisition-related consideration fair value adjustments. 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 Hollysys, 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


Fiscal year ended




June 30,


June 30,




2014


2013


2014


2013




(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)











Cost of integrated contracts

$

97,723,457

$

73,115,802

$

330,038,563

$

218,586,778

Less: amortization of acquired intangibles


1,409,799


2,847,773


5,412,766


2,847,773

Non-GAAP cost of integrated contracts

$

96,313,658

$

70,268,029

$

324,625,797

$

215,739,005











General and administrative expenses

$

13,146,453

$

11,737,606

$

39,716,156

$

29,647,665

Less: Share-based compensation expenses


870,175


29,093


2,986,192


1,599,496

Non-GAAP general and administrative expenses

$

12,276,278

$

11,708,513

$

36,729,964

$

28,048,169











Other (expenses) income, net

$

(1,052,367)

$

(693,741)

$

(6,452,434)

$

79,818

Add: acquisition-related  incentive share consideration fair value adjustments


1,782,320


854,549


7,988,640


854,549

Non-GAAP other income , net

$

729,953

$

160,808

$

1,536,206

$

934,367











Interest expenses

$

(509,464)

$

(608,362)

$

(1,998,311)

$

(2,169,667)

Add: acquisition-related cash consideration fair value adjustments


198,341


308,630


930,988


308,630

Non-GAAP Interest expenses

$

(311,123)

$

(299,732)

$

(1,067,323)

$

(1,861,037)











Net income attributable to Hollysys 
Automation Technologies Ltd. stockholders

$

21,494,490

$

12,516,241

$

69,852,066

$

51,994,402

Add:










Share based compensation expenses


870,175


29,093


2,986,192


1,599,496


Amortization of acquired intangible assets


1,409,799


2,847,773


5,412,766


2,847,773


Acquisition-related consideration adjustments


1,980,661


1,163,179


8,919,629


1,163,179

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

$

25,755,125

$

16,556,287

$

87,170,653

$

57,604,851












Weighted average number of basic ordinary shares


58,261,824


56,604,423


57,926,333


56,167,592


Weighted average number of diluted ordinary shares


59,045,703


56,918,626


58,426,642


56,412,469

Non-GAAP basic earnings per share

$

0.44

$

0.29

$

1.50

$

1.03

Non-GAAP diluted earnings per share

$

0.44

$

0.29

$

1.49

$

1.02

 

SOURCE Hollysys Automation Technologies, Ltd.

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