Hollysys Automation Technologies Reports Unaudited Financial Results for the Third Quarter and the First Nine Months Ended March 31, 2022

Rhea-AI Summary

Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) reported strong financial results for the third quarter and first nine months of fiscal year 2022. Total revenues reached $525.3 million, a 20.9% increase year-over-year. However, net income decreased by 11.2% to $60.2 million. The company saw a significant 41.7% revenue growth in Q3, buoyed by integrated solutions contracts. Despite challenges from rising raw materials costs and reduced efficiency due to COVID-19, Hollysys signed major contracts with BASF and Sinopec, positioning itself for future growth.

Positive

• Total revenues increased by 20.9% to $525.3 million.
• Significant revenue growth of 41.7% in Q3 2022.
• Received $299.2 million in new contracts in Q3 2022.
• Signed a framework agreement with BASF for a major investment project.
• Successful delivery of the CCUS project for Sinopec.
• Full-year revenue guidance projected between $625 million and $700 million, indicating 5% to 18% growth.

Negative

• Net income decreased by 11.2% to $60.2 million.
• Gross margin fell from 36.4% to 33.9% year-over-year.
• Net cash outflow of $47.4 million for the quarter.
• Diluted earnings per share decreased by 12.5% to $0.98.

First Nine months of Fiscal Year 2022 Financial Highlights

• Total revenues were $525.3 million, an increase of 20.9% compared to the comparable prior year period.
• Gross margin was 33.9%, compared to 36.4% for the comparable prior year period. Non-GAAP gross margin was 34.1%, compared to 36.4% for the comparable prior year period.
• Net income attributable to Hollysys was $60.2 million, a decrease of 11.2% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $69.5 million, a decrease of 3.0% compared to the comparable prior year period.
• Diluted earnings per share was $0.98, a decrease of 12.5% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $1.13, a decrease of 4.2% compared to the comparable prior year period.
• Net cash provided by operating activities was $15.7 million.
• Days sales outstanding ("DSO") of 183 days, compared to 186 days for the comparable prior year period.
• Inventory turnover days of 58 days, compared to 52 days for the comparable prior year period.

Third Quarter of Fiscal Year 2022 Financial Highlights

• Total revenues were $155.7 million, an increase of 41.7% compared to the comparable prior year period.
• Gross margin was 30.6%, compared to 37.4% for the comparable prior year period. Non-GAAP gross margin was 30.8%, compared to 37.5% for the comparable prior year period.
• Net income attributable to Hollysys was $15.8 million, a decrease of 0.2% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $18.3 million, a decrease of 2.2% compared to the comparable prior year period.
• Diluted earnings per share was $0.26, which remained relatively stable compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.30, a decrease of 3.2% compared to the comparable prior year period.
• Net cash used in operating activities was $35.4 million.
• DSO of 215 days, compared to 279 days for the comparable prior year period.
• Inventory turnover days of 69 days, compared to 58 days for the comparable prior year period.

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

To further align the management's interests with the shareholders' and deliver value to our shareholders through share purchases, Dr. Changli Wang, the CEO and director of Hollysys, through a special purpose vehicle beneficially owned and funded by him, recently purchased a total of 1,055,000 ordinary shares in the open market in accordance with applicable SEC rules and regulations.

BEIJING, April 29, 2022 /PRNewswire/ -- Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the third quarter of fiscal year 2022 ended March 31, 2022. Dr. Changli Wang, the CEO and director of Hollysys, stated:

"We are pleased to report another fiscal quarter with solid financial and operational performance and carried forward of our mission of automation for better lives, even though the COVID-19 continues bringing challenges, such as the rising raw materials costs and the reduced engineering efficiency. I am confident with a promising business future as I am witnessing the self-motivated and goal-oriented management team and employees, raising jointly and heading towards a more prosperous and vigorous Hollysys with clear overall industrial maps and wise developing plans."

The Industrial Automation ("IA") business maintained its strong momentum with augmented market shares as Hollysys had been poised to capitalize on opportunities of the evolving IA industry and had gained wider market recognition.

In the field of chemical and petrochemical industry, we maintained a fast mounting pace. In this fiscal quarter, Hollysys signed a framework agreement with BASF Group for its largest overseas investment project, Zhanjiang Project for the construction of its third largest integrated production base around the globe. Hollysys is the only domestic automation control system supplier in China for this project, providing Gas Detection System ("GDS") and Safety Instrumented System ("SIS"). Furthermore, Hollysys successfully delivered the Carbon Capture, Utilization and Storage ("CCUS") project of Sinopec Group, in which the Company provided Distributed Control System ("DCS"), SIS, GDS, integrated control system and solution. The project is the first one million ton CCUS project in China, and is expected to become the largest CCUS base and a benchmark project in China after its completion. In the future, the Company will continue to strengthen its advantages and competitiveness, helping chemical and petrochemical customers achieve green energy and low carbon goals.

In the thermal power sector, we continued to strengthen our market position in the high-end market and won the bid of several power contracts. For instance, we signed 2*660MW power units in Yan'an, and 2*660MW power units in Xinlin Gol, among others. Despite the slowdown in the thermal power market, our advanced solutions and matured service help us win the favor, adherence and follow-up cooperation of customers, which will inject new vigor into future after-sell performance. Meanwhile, we are making progress on advanced intelligent technologies in the power sector, which will facilitate customers' construction of low-carbon and environmentally friendly projects. For example, the Jimsar Power Generation Project in which the Company participated had successfully passed the trial operation and embraced considerable satisfaction by the customer. Hollysys developed the "Whole-process Intelligent Collaborative Center" solution for the project that covers four functional modules of smart power generation platform, smart management service platform, smart facility application and active information security defense, aiming to build up a low-carbon, environmentally friendly and technology-leading intelligent power station. The Company also set up a new model for the construction of smart power plants in the whole process of the thermal power industry in China.

In addition, the Company is becoming more influential in the food and pharmaceutical field, which was attributable to its accelerated improvements, upgraded products and solutions, and vast breakthroughs on the development of its business among leading customers in the industry. In this fiscal quarter, Hollysys signed a contract with a customer in the pharmaceutical industry in Hubei, who will employ HOLI comprehensive solution including instruments, SIS, Batch Processing System ("BATCH"), Industrial Optical Bus Control System ("OCS"), among others. The Company's solution is expected to help the customer reduce construction costs for users, enhance the reliability and security of the control system and bring remarkable value experience.

In Rail Transportation Automation ("RTA") business, our market position has strengthened, and we take pride in our dedication to national transportation. For example, our technical team dedicated themselves to working at the front line during the Chinese New Year and assisted in maintaining the smooth operation of transportation for Beijing 2022 Winter Olympics and Paralympics. As the Automatic Train Protection ("ATP") supplier of Beijing-Zhangjiakou high-speed railway, Hollysys offered 7x24 hours' world-leading intelligent guard during the events, ensuring the transportation and providing safe, fast, warm and comfortable experience for athletes, coaches and guests around the world. In the metro field, benefiting from our good customer relationships, we won the bid of Supervisory Control and Data Acquisition ("SCADA") project of Chengdu Metro Ziyang Line after winning the Chengdu 30 Line Project in the last few months. With respect to new market opportunities, Hollysys is seeking to leverage self-competitive advantage to sustain its leading position. Hollysys, as the chief editor, participated in the edit of Technical Standard for Precise Traffic Weather System of Highway (the "Standard"), regulating the structure, function, construction and application of highway traffic meteorological system. The implementation of the Standard is expected to further extend Hollysys' competitiveness, which will boost the development of the industry and help the construction of intelligent highways.

COVID-19 remains a challenge to our business, especially to the unit of mechanical and electrical solutions ("M&E") and other overseas business in general. We will continue to monitor the impact of COVID-19 on our business, and risk control remains our key focus.

With our continuous dedication and experienced passionate expertise, we believe that we will continue to create greater value for our clients and shareholders.

Third Quarter and the First Nine months Ended March 31, 2022 Unaudited Financial Results Summary
(In USD thousands, except for %, number of shares and per share data)
		Three months ended March 31,				Nine months ended March 31,
		2022	2021	% Change		2022	2021	% Change
Revenues	$	155,711	109,907	41.7%	$	525,346	434,702	20.9%
Integrated solutions contracts revenue	$	133,206	85,769	55.3%	$	424,274	333,943	27.0%
Products sales	$	7,146	6,543	9.2%	$	26,663	21,569	23.6%
Service rendered	$	15,359	17,595	(12.7)%	$	74,409	79,190	(6.0)%
Cost of revenues	$	108,070	68,807	57.1%	$	347,324	276,482	25.6%
Gross profit	$	47,641	41,100	15.9%	$	178,022	158,220	12.5%
Total operating expenses	$	30,651	23,728	29.2%	$	122,599	86,633	41.5%
Selling	$	11,409	7,160	59.3%	$	34,438	25,596	34.5%
General and administrative	$	13,878	14,965	(7.3)%	$	56,918	39,723	43.3%
Research and development	$	16,291	13,159	23.8%	$	52,951	41,760	26.8%
VAT refunds and government subsidies	$	(10,927)	(11,556)	(5.4)%	$	(21,708)	(20,446)	6.2%
Income from operations	$	16,990	17,372	(2.2)%	$	55,423	71,587	(22.6)%
Other income, net	$	967	813	18.9%	$	1,927	3,587	(46.3)%
Foreign exchange (loss) gain	$	(498)	391	(227.4)%	$	(2,212)	(5,277)	(58.1)%
Gains on disposal of investments in an    equity investee	$	-	-	-		7,995	-	-
Share of net (loss) income of equity    investees	$	(428)	(2,725)	(84.3)%	$	558	1,934	(71.1)%
Losses on disposal of subsidiaries	$	(3)	-	-		(3)	-	-
Dividend income from equity investments	$	(93)	453	(120.5)%	$	86	456	(81.1)%
Interest income	$	3,151	3,132	0.6%	$	9,335	9,852	(5.2)%
Interest expenses	$	(224)	(151)	48.3%	$	(590)	(428)	37.9%
Income tax expenses	$	4,038	3,571	13.1%	$	12,706	14,237	(10.8)%
Net loss attributable to non-controlling    interests	$	(3)	(145)	(97.9)%	$	(343)	(296)	15.9%
Net income attributable to Hollysys    Automation Technologies Ltd.	$	15,827	15,859	(0.2)%	$	60,156	67,770	(11.2)%
Basic earnings per share	$	0.26	0.26	0.0%	$	0.99	1.12	(11.6)%
Diluted earnings per share	$	0.26	0.26	0.0%	$	0.98	1.12	(12.5)%
Share-based compensation expenses	$	2,076	2,750	(24.5)%	$	8,382	3,688	127.3%
Amortization of acquired intangible assets	$	370	70	428.6%	$	1,002	225	345.3%
Non-GAAP net income attributable to    Hollysys Automation Technologies Ltd.(1)	$	18,273	18,679	(2.2)%	$	69,540	71,683	(3.0)%
Non-GAAP basic earnings per share(1)	$	0.30	0.31	(3.2)%	$	1.14	1.18	(3.4)%
Non-GAAP diluted earnings per share(1)	$	0.30	0.31	(3.2)%	$	1.13	1.18	(4.2)%
Basic weighted average number of ordinary    shares outstanding		61,068,732	60,522,107	0.9%		60,945,131	60,502,714	0.7%
Diluted weighted average number of ordinary    shares outstanding		61,644,902	60,559,890	1.8%		61,560,896	60,736,180	1.4%
(1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures.

Operational Results Analysis for the Third Quarter Ended March 31, 2022

Compared to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2022 increased from $109.9 million to $155.7 million, representing an increase of 41.7%. In terms of revenues by type, integrated contracts revenue increased by 55.3% to $133.2 million, products sales revenue increased by 9.2% to $7.1 million, and services revenue decreased by 12.7% to $15.4 million.

The following table sets forth the Company's total revenues by segment for the periods indicated.

(In USD thousands, except for %)
		Three months ended March 31,								Nine months ended March 31,
		2022				2021				2022			2021
		$		% of		$		% of		$	% of		$	% of
				Total				Total			Total			Total
				Revenue				Revenue			Revenue			Revenue
Industrial Automation		101,854		65.4		67,454		61.4		318,147	60.5		242,273	55.7
Rail Transportation Automation		34,224		22.0		30,673		27.9		149,570	28.5		140,638	32.4
Mechanical and Electrical		19,633		12.6		11,780		10.7		57,629	11.0		51,791	11.9
Solution
Total		155,711		100.0		109,907		100.0		525,346	100.0		434,702	100.0

Gross margin was 30.6% for the three months ended March 31, 2022, as compared to 37.4% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to changes in product and service mix. Gross margin of integrated solutions contracts, product sales, and service rendered was 25.4%, 65.9% and 59.5% for the three months ended March 31, 2022, as compared to 25.9%, 81.2% and 77.4% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 30.8% for the three months ended March 31, 2022, as compared to 37.5% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 25.7% for the three months ended March 31, 2022, as compared to 25.9% for the same period of the prior fiscal year. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin and non-GAAP gross margin of integrated solutions contracts.

Selling expenses were $11.4 million for the three months ended March 31, 2022, representing an increase of $4.2 million, or 59.3%, compared to $7.2 million for the same period of the prior fiscal year. The increase was primarily due to the significant increase in sales. Selling expenses as a percentage of total revenues were 7.3% and 6.5% for the three months ended March 31, 2022 and 2021, respectively.

General and administrative expenses were $13.9 million for the quarter ended March 31, 2022, representing a decrease of $1.1 million or 7.3% compared to $15.0 million for the same quarter of the prior year, which was primarily due to a $1.3 million decrease in credit losses. Share-based compensation expenses were $2.1 million and $2.8 million for the three months ended March 31, 2022 and 2021, respectively. General and administrative expenses as a percentage of total revenues were 8.9% and 13.6% for the three months ended March 31, 2022 and 2021, respectively. 

Research and development expenses were $16.3 million for the three months ended March 31, 2022, representing an increase of $3.1 million, or 23.8%, compared to $13.2 million for the same period of the prior fiscal year, which was primarily due to increased investments in research and development, including the upgrading of mainstream products and new products developed to meet the needs of the digital infrastructure market, such as the new generation DCS Macs V7, smart factory and smart city rail. Research and development expenses as a percentage of total revenues were 10.5% and 12.0% for the three months ended March 31, 2022 and 2021, respectively.

The VAT refunds and government subsidies were $10.9 million for three months ended March 31, 2022, as compared to $11.6 million for the same period in the prior fiscal year, representing a $0.6 million, or 5.4%, decrease.

The income tax expenses and the effective tax rate were $4.0 million and 20.3% for the three months ended March 31, 2022, respectively, as compared to $3.6 million and 18.5% for comparable period in the prior fiscal year, respectively. The effective tax rate fluctuates, as the Company's subsidiaries contributed different pre-tax income at different tax rates.

Net income attributable to Hollysys was $15.8 million, representing a decrease of 0.2% from $15.9 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys, was $18.3 million or $0.30 per diluted share. See the section entitled "Non-GAAP Measures" for more information about non-GAAP net income attributable to Hollysys.

Diluted earnings per share was $0.26 for the three months ended March 31, 2022, which remained relatively stable compared to the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.30 for the three months ended March 31, 2022, a decrease of 3.2% from $0.31 reported in the comparable period in the prior fiscal year. These were calculated based on 61.7 million and 60.6 million diluted weighted average ordinary shares outstanding for the three months ended March 31, 2022 and 2021, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $299.2 million of value of new contracts for the three months ended March 31, 2022. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $924.0 million as of March 31, 2022. The following table sets forth a breakdown of the value of new contracts achieved and backlog by segment.

(In USD thousands, except for %)
	Value of new contracts achieved					Backlog
	for the three months  ended March 31, 2022					as of March 31, 2022
	$			% of Total Contract Value		$	% of Total Backlog
Industrial Automation		163,699		54.7		357,340	38.7
Rail Transportation Automation		25,108		8.4		342,224	37.0
Mechanical and Electrical Solutions		110,410		36.9		224,477	24.3
Total		299,217		100.0		924,041	100.0

Cash Flow Highlights

For the three months ended March 31, 2022, the total net cash outflow was $47.4 million. The net cash used in operating activities was $35.4 million. The net cash used in investing activities was $14.3 million, mainly consisting of $31.2 million purchases of short-term investments, $8.0 million purchases of property, plant and equipment, and $1.3 million investment of an equity investee, partially offset by $3.8 million of proceeds from disposal of a subsidiary, and 22.3 million of maturity of short-term investments.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $669.8 million, $715.5 million, and $466.1 million as of March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

For the three months ended March 31, 2022, DSO was 215 days, as compared to 279 days for the comparable prior fiscal year and 147 days for the last fiscal quarter; inventory turnover days were 69 days, as compared to 58 days for the comparable prior fiscal year and 50 days for the last fiscal quarter. The inventory balance as of March 31, 2022 was $89.2 million, compared to $67.7 million as of December 31, 2021, as we strategically stocked up inventories to minimize the adverse impacts of the ongoing global supply chain constraints following the COVID-19 outbreak.

Financial Performance Guidance

Based on information available as of the date of this press release, we provide the following financial performance guidance update for the full fiscal year 2022:

• Full-year total value of new contracts is expected to be between $900 million and $1 billion, up 23% to 36% year-over-year.
• Revenue is expected to be in the range of $625 million to $700 million, up 5% to 18% year-over-year.

About Hollysys Automation Technologies Ltd.

Hollysys is a leading automation control system solutions provider in China, with overseas operations in eight other countries and regions throughout Asia. Leveraging its proprietary technology and deep industry know-how, Hollysys empowers its customers with enhanced operational safety, reliability, efficiency, and intelligence which are critical to their businesses. Hollysys derives its revenues mainly from providing integrated solutions for industrial automation and rail transportation automation. In industrial automation, Hollysys delivers the full spectrum of automation hardware, software, and services spanning field devices, control systems, enterprise manufacturing management and cloud-based applications. In rail transportation automation, Hollysys provides advanced signaling control and SCADA (Supervisory Control and Data Acquisition) systems for high-speed rail and urban rail (including subways). Founded in 1993, with technical expertise and innovation, Hollysys has grown from a research team specializing in automation control in the power industry into a group providing integrated automation control system solutions for customers in diverse industry verticals. As of June 30, 2021, Hollysys had cumulatively carried out more than 35,000 projects for approximately 20,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions.

SAFE HARBOR STATEMENTS

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

For further information, please contact:

Hollysys Automation Technologies Ltd.
www.hollysys.com
+8610-58981386
investors@hollysys.com

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In USD thousands except for number of shares and per share data)
		Three months ended March 31,				Nine months ended March 31,
		2022		2021		2022		2021
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net revenues
Integrated solutions contracts revenue	$	133,206	$	85,769	$	424,274	$	333,943
Products sales		7,146		6,543		26,663		21,569
Revenue from services		15,359		17,595		74,409		79,190
Total net revenues		155,711		109,907		525,346		434,702
Costs of integrated solutions contracts		99,406		63,593		313,369		245,330
Cost of products sold		2,436		1,230		7,334		4,177
Costs of services rendered		6,228		3,984		26,621		26,975
Gross profit		47,641		41,100		178,022		158,220
Operating expenses
Selling		11,409		7,160		34,438		25,596
General and administrative		13,878		14,965		56,918		39,723
Research and development		16,291		13,159		52,951		41,760
VAT refunds and government subsidies		(10,927)		(11,556)		(21,708)		(20,446)
Total operating expenses		30,651		23,728		122,599		86,633
Income from operations		16,990		17,372		55,423		71,587
Other income, net		967		813		1,927		3,587
Foreign exchange (loss) gain		(498)		391		(2,212)		(5,277)
Gains on disposal of an investment in an equity investee		-		-		7,995		-
Losses on disposal of subsidiaries		(3)		-		(3)		-
Share of net (loss) income of equity investees		(428)		(2,725)		558		1,934
Dividend income from equity investments		(93)		453		86		456
Interest income		3,151		3,132		9,335		9,852
Interest expenses		(224)		(151)		(590)		(428)
Income before income taxes		19,862		19,285		72,519		81,711
Income taxes expenses		4,038		3,571		12,706		14,237
Net income		15,824		15,714		59,813		67,474
Net loss attributable to non-controlling interests		(3)		(145)		(343)		(296)
Net income attributable to Hollysys Automation Technologies Ltd.	$	15,827	$	15,859	$	60,156	$	67,770
Other comprehensive income, net of tax of nil
Translation adjustments		3,954		(5,356)		20,513		78,297
Comprehensive income		19,778		10,358		80,326		145,771
Less: comprehensive loss attributable to non-controlling    interests		(1,199)		(165)		(1,374)		(113)
Comprehensive income attributable to Hollysys Automation Technologies Ltd.	$	20,977	$	10,523	$	81,700	$	145,884
Net income per ordinary share:
Basic		0.26		0.26		0.99		1.12
Diluted		0.26		0.26		0.98		1.12
Shares used in net income per share computation:
Basic		61,068,732		60,522,107		60,945,131		60,502,714
Diluted		61,644,902		60,559,890		61,560,896		60,736,180

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(In USD thousands except for number of shares and per share data)
				March 31,		December 31,
				2022		2021
ASSETS				(Unaudited)		(Unaudited)
	Current assets
		Cash and cash equivalents	$	669,799	$	715,537
		Short-term investments		44,085		34,769
		Restricted cash		36,298		37,998
		Accounts receivable, net of allowance for credit losses of $76,061 and $74,331 as    of March 31, 2022 and December 31, 2021, respectively		360,589		359,816
		Costs and estimated earnings in excess of billings, net of allowance for credit losses    of $11,077 and $11,747 as of March 31, 2022 and December 31, 2021,    respectively		220,645		222,480
		Accounts receivable retention		6,002		6,219
		Other receivables, net of allowance for credit losses of $15,798 and $16,335 as of    March 31, 2022 and December 31, 2021, respectively		28,734		16,318
		Advances to suppliers		32,348		29,171
		Amounts due from related parties		21,064		28,310
		Inventories		89,175		67,656
		Prepaid expenses		756		779
		Income tax recoverable		164		393
	Total current assets			1,509,659		1,519,446
	Non-current assets
		Restricted cash		6,026		6,015
		Costs and estimated earnings in excess of billings		2,648		2,482
		Accounts receivable retention		5,850		4,558
		Prepaid expenses		2		2
		Property, plant and equipment, net		97,700		109,297
		Prepaid land leases		13,135		18,120
		Intangible assets, net		11,767		12,152
		Investments in equity investees		42,152		46,920
		Investments securities		2,576		2,659
		Goodwill		20,822		22,527
		Deferred tax assets		16,186		13,635
		Operating lease right-of-use assets		4,447		5,221
	Total non-current assets			223,311		243,588
	Total assets			1,732,970		1,763,034
LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities
		Short-term bank loans		-		12
		Current portion of long-term loans		15,346		15,371
		Accounts payable		176,849		180,653
		Construction costs payable		98		3,540
		Deferred revenue		211,593		208,173
		Accrued payroll and related expenses		17,878		33,263
		Income tax payable		9,068		6,054
		Warranty liabilities		6,814		6,474
		Other tax payables		4,443		16,138
		Accrued liabilities		36,051		47,653
		Amounts due to related parties		2,250		8,544
		Other liability		3		3
		Operating lease liabilities		2,224		378
	Total current liabilities			482,617		526,256
	Non-current liabilities
		Accrued liabilities		2,047		4,535
		Long-term loans		523		568
		Accounts payable		1,338		994
		Deferred tax liabilities		13,600		13,617
		Warranty liabilities		2,618		3,038
		Operating lease liabilities		1,912		4,432
		Other liability		76		78
	Total non-current liabilities			22,114		27,262
	Total liabilities			504,731		553,518
	Commitments and contingencies			-		-
	Stockholders' equity:
		Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;    61,962,249 shares and 61,961,324 shares issued and outstanding as of March    31, 2022 and December 31, 2021,		62		62
		Additional paid-in capital		242,149		240,073
		Statutory reserves		64,978		76,829
		Retained earnings		866,215		838,547
		Accumulated other comprehensive income		54,358		49,207
	Total Hollysys Automation Technologies Ltd. stockholder's equity			1,227,762		1,204,718
		Non-controlling interests		477		4,798
	Total equity			1,228,239		1,209,516
	Total liabilities and equity		$	1,732,970	$	1,763,034

 

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD CONSOLIDATED STATEMENTS OF CASH FLOWS (In USD thousands).
			Three months ended		Nine months ended
			March 31, 2022		March 31, 2022
			(Unaudited)		(Unaudited)
Cash flows from operating activities:
	Net income	$	15,824	$	59,813
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation of property, plant and equipment		2,612		7,696
	Amortization of prepaid land leases		101		312
	Amortization of intangible assets		384		1,045
	Allowance for credit losses		708		8,710
	Gains on disposal of property, plant and equipment		(22)		(23)
	Share of net income (loss) of equity investees		428		(558)
	Share-based compensation expenses		2,076		8,382
	Deferred income tax expenses		(2,515)		(6,802)
	Gains on disposal of an investment in an equity investee		(25)		(8,020)
Changes in operating assets and liabilities:
	Accounts receivable and retention		323		(24,489)
	Costs and estimated earnings in excess of billings		2,402		(19,395)
	Inventories		(20,760)		(33,371)
	Advances to suppliers		(3,084)		(11,090)
	Other receivables		(7,837)		(4,676)
	Prepaid expenses		23		177
	Due from related parties		7,359		13,431
	Accounts payable		(6,481)		22,900
	Deferred revenue		2,623		13,681
	Accruals and other payables		(13,941)		(16,270)
	Due to related parties		(6,294)		589
	Income tax payable		3,224		5,796
	Other tax payables		(12,566)		(2,139)
	Net cash (used in) provided by operating activities		(35,438)		15,699
Cash flows from investing activities:
	Purchases of short-term investments		(31,186)		(57,445)
	Purchases of property, plant and equipment		(7,983)		(19,078)
	Proceeds from disposal of a subsidiary		3,797		3,797
	Proceeds from disposal of property, plant and equipment		33		77
	Maturity of short-term investments		22,319		62,749
	Investment of an equity investee		(1,261)		(1,261)
	Receipts from collection of advances to equity investees		-		9,497
	Acquisition of a subsidiary, net of cash acquired		-		(8,726)
	Net cash used in investing activities		(14,281)		(10,390)
Cash flows from financing activities:
	Proceeds from short-term bank loans		11		60
	Repayments of short-term bank loans		(23)		(60)
	Proceeds from long-term bank loans		110		339
	Repayments of long-term bank loans		(157)		(522)
	Net cash used in financing activities		(59)		(183)
	Effect of foreign exchange rate changes		2,351		11,450
	Net (decrease) increase in cash, cash equivalents and restricted cash	$	(47,427)		16,576
	Cash, cash equivalents and restricted cash, beginning of period	$	759,550		695,547
	Cash, cash equivalents and restricted cash, end of period		712,123		712,123

Non-GAAP Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, in evaluating our results, we use the following non-GAAP financial measures: non-GAAP gross profit and non-GAAP gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share.

These non-GAAP financial measures serve as additional indicators of our operating performance and not as any replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures help identify underlying trends in the Company's business that could otherwise be distorted by the effect of the share-based compensation expenses, which are calculated based on the number of shares or options granted and the fair value as of the grant date, and amortization of acquired intangible assets. They will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects.

Non-GAAP gross profit and non-GAAP gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share should not be considered in isolation or construed as an alternative to gross profit and gross margin, gross profit and gross margin of integrated solutions contracts, net income attributable to Hollysys Automation Technologies Ltd., basic and diluted earnings per share, or any other measure of performance, or as an indicator of the Company's operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Non-GAAP gross profit and gross margin, non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts, non-GAAP net income attributable to Hollysys Automation Technologies Ltd., as well as non-GAAP basic and diluted earnings per share presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company's data. The Company encourages investors and others to review the Company's financial information in its entirety and not rely on a single financial measure.

We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, adjusted to exclude non-cash amortization of acquired intangibles. The following table provides a reconciliation of our gross profit and gross margin to non-GAAP gross profit and non-GAAP gross margin for the periods indicated.

(In USD thousands, except for %)
			Three months ended				Nine months ended
			March 31,				March 31
			2022		2021		2022		2021
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Gross profit		$	47,641	$	41,100		178,022	$	158,220
Gross margin(1)			30.6%		37.4%		33.9%		36.4%
Add:
Amortization of acquired intangible assets			370		70		1,002		225
Non-GAAP gross profit		$	48,011	$	41,170	$	179,024	$	158,445
Non-GAAP gross margin(2)			30.8%		37.5%		34.1%		36.4%
(1) Gross margin represents gross profit for the period as a percentage of revenue for such period.
(2) Non-GAAP gross margin represents non-GAAP gross profit for the period as a percentage of revenue for such period.

We define non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts as gross profit and gross margin of integrated solutions contracts, respectively, adjusted to exclude non-cash amortization of acquired intangibles associated with integrated solutions contracts. The following table provides a reconciliation of the gross profit of integrated solutions contracts to non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts for the periods indicated.

(In USD thousands, except for %)
		Three months ended March 31,				Nine months ended March 31,
		2022		2021		2022		2021
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Gross profit of integrated    solutions contracts	$	33,800	$	22,176	$	110,905	$	88,613
Gross margin of integrated    solutions contracts(1)		25.4%		25.9%		26.1%		26.5%
Add:   Amortization of acquired intangible    assets		370		70		1,002		225
Non-GAAP gross profit of    integrated solutions contracts	$	34,170	$	22,246	$	111,907	$	88,838
Non-GAAP gross margin of    integrated solutions contracts(2)		25.7%		25.9%		26.4%		26.6%
(1) Gross margin of integrated solutions contracts represents gross profit of integrated solutions contracts for the period as a percentage of integrated solutions contracts revenue for such period.
(2) Non-GAAP gross margin of integrated solutions contracts represents non-GAAP gross profit of integrated solutions contracts for the period as a percentage of integrated solutions contracts revenue for such period.

We define non-GAAP net income attributable to Hollysys as net income attributable to Hollysys adjusted to exclude the share-based compensation expenses and non-cash amortization of acquired intangible assets. The following table provides a reconciliation of net income attributable to Hollysys to non-GAAP net income attributable to Hollysys for the periods indicated.

(In USD thousands)
			Three months ended				Nine months ended
			March 31,				March 31,
			2022		2021		2022		2021
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income attributable to Hollysys Automation    Technologies Ltd.		$	15,827	$	15,859	$	60,156	$	67,770
Add:
	Share-based compensation expenses		2,076		2,750		8,382		3,688
	Amortization of acquired intangible assets		370		70		1,002		225
Non-GAAP net income attributable to Hollysys    Automation Technologies Ltd.		$	18,273	$	18,679	$	69,540	$	71,683

Non-GAAP basic (or diluted) earnings per share represents non-GAAP net income attributable to Hollysys divided by the weighted average number of ordinary shares outstanding during the periods (or on a diluted basis). The following table provides a reconciliation of our basic (or diluted) earnings per share to non-GAAP basic (or diluted) earnings per share for the periods indicated.

(In USD thousands, except for number of shares and per share data)
				Three months ended				Nine months ended
				March 31,				March 31,
				2022		2021		2022		2021
				(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income attributable to Hollysys Automation    Technologies Ltd.			$	15,827	$	15,859	$	60,156	$	67,770
Add:
Share-based compensation expenses				2,076		2,750		8,382		3,688
Amortization of acquired intangible assets				370		70		1,002		225
Non-GAAP net income attributable to    Hollysys Automation Technologies Ltd.			$	18,273	$	18,679	$	69,540	$	71,683
Weighted average number of basic ordinary    shares				61,068,732		60,522,107		60,945,131		60,502,714
Weighted average number of diluted ordinary    shares				61,644,902		60,559,890		61,560,896		60,736,180
Basic earnings per share(1)				0.26		0.26		0.99		1.12
Add: Non-GAAP adjustments to net income per    share(2)				0.04		0.05		0.15		0.06
Non-GAAP basic earnings per share(3)		$		0.30	$	0.31	$	1.14	$	1.18
Diluted earnings per share(1)				0.26		0.26		0.98		1.12
Add: Non-GAAP adjustments to net income per    share(2)				0.04		0.05		0.15		0.06
Non-GAAP diluted earnings per share(3)		$		0.30	$	0.31	$	1.13	$	1.18
(1) Basic (or diluted) earnings per share is derived from net income attributable to ordinary shareholders for computing basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).
(2) Non-GAAP adjustments to net income per share is derived from non-GAAP adjustments to net income divided by weighted average number of shares (or on a diluted basis).
(3) Non-GAAP basic (or diluted) earnings per share is derived from non-GAAP net income attributable to ordinary shareholders for computing non-GAAP basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).

 

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SOURCE Hollysys Automation Technologies Ltd

FAQ

What were Hollysys' total revenues for the first nine months of fiscal year 2022?

Hollysys reported total revenues of $525.3 million, a 20.9% increase compared to the previous year.

How much did Hollysys' net income change in Q3 2022?

Net income for Hollysys in Q3 2022 was $15.8 million, a decrease of 0.2% compared to the same quarter in the prior year.

What is the revenue growth forecast for Hollysys in fiscal year 2022?

Hollysys expects revenue to be in the range of $625 million to $700 million, which represents a year-over-year growth of 5% to 18%.

What significant contracts did Hollysys secure recently?

Hollysys signed a framework agreement with BASF for a major project and successfully delivered a CCUS project for Sinopec.

What were the diluted earnings per share for Hollysys in Q3 2022?

Diluted earnings per share in Q3 2022 were $0.26, unchanged from the same period in the previous year.