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Hollysys Automation Technologies Reports Unaudited Financial Results for the Third Quarter and the First Nine Months Ended March 31, 2023

HOLI

First Nine Months of Fiscal Year 2023 Financial Highlights

  • Total revenues were $582.4 million, an increase of 10.9% compared to the comparable prior year period.
  • Gross margin was 33.4%, compared to 33.9% for the comparable prior year period. Non-GAAP gross margin was 33.6%, compared to 34.1% for the comparable prior year period.
  • Net income attributable to Hollysys was $81.2 million, an increase of 35.0% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $85.1 million, an increase of 22.3% compared to the comparable prior year period. 
  • Diluted earnings per share was $1.31, an increase of 33.7% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $1.37, an increase of 21.2% compared to the comparable prior year period.
  • Net cash provided by operating activities was $3.2 million.
  • Days sales outstanding ("DSO") was 151 days, compared to 183 days for the comparable prior year period.
  • Inventory turnover days were 78 days, compared to 58 days for the comparable prior year period.

Third Quarter of Fiscal Year 2023 Financial Highlights

  • Total revenues were $167.6 million, an increase of 7.7% compared to the comparable prior year period.
  • Gross margin was 26.8%, compared to 30.6% for the comparable prior year period. Non-GAAP gross margin was 27.0%, compared to 30.8% for the comparable prior year period.
  • Net income attributable to Hollysys was $11.6 million, a decrease of 26.9% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $12.6 million, a decrease of 31.2% compared to the comparable prior year period.
  • Diluted earnings per share was $0.19, a decrease of 26.9% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.20, a decrease of 33.3% compared to the comparable prior year period.
  • Net cash used in operating activities was $13.3 million.
  • DSO was 176 days, compared to 215 days for the comparable prior year period.
  • Inventory turnover days were 87 days, compared to 69 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.

BEIJING, May 16, 2023 /PRNewswire/ -- Hollysys Automation Technologies Ltd. (NASDAQ:HOLI) ("Hollysys," the "Company" or "we"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the third quarter and the first nine months of fiscal year 2023 ended March 31, 2023.

The Industrial Automation segment continued its growth momentum.

In the chemical and petrochemical field, Hollysys continued to provide strong support for green and low-carbon transformation and maintained our cooperation with key customers. In terms of project delivery, we successfully assisted in the full operation of a 100,000-ton green low-carbon methanol factory. We offered integrated solutions of the Distributed Control System, Safety Instrumented System, Coordination Control System, Asset Management System, Operating Data System, Gas Detection System and information security system, which can reduce carbon dioxide emissions significantly. This represents another step forward in our efforts to support the national goals of carbon peaking and carbon neutrality in China. Additionally, we reinforced the Hia Advanced Process Control ("Hia APC") platform in one of our petrochemical customers to optimize the iso-octane unit. This has led to an improvement in the overall automation level of the system, helping to achieve the ultimate goals of energy conservation and emission reduction, while enhancing quality and efficiency and providing a strong basis for the follow-up digital transformation of the petrochemical industry. Moreover, the Sinopec Power Center Simulation Project was successfully put into operation this quarter. This project covers the entire range and the whole process of the Sinopec thermal power plant. The simulation system has overcome the limitations of traditional simulation systems, providing a diversified application platform for new employee training and control strategy verification.

In the electricity field, we provided control systems for stabilizing isolated grids. These systems are suitable for various enterprise-level grid systems and were successfully put into operation at a thermal power company in this quarter. We provided strong technical support and solved the power outage problem encountered by thermal power companies. This successful operation sets an example of multi-party cooperation and network-related cooperation for future isolated grid stability control system projects.

In the smart factory field, we successfully signed a whole-process APC control project for calcium carbide production. This project utilizes Hollysys' whole-process APC optimization control technology to accurately control various process parameters and ensure the safe and reliable operation of calcium carbide production, achieving the goals of energy conservation and cost reduction. This project represents a breakthrough in the APC control field of calcium carbide furnaces for Hollysys, laying a solid foundation for our market development in this area and even the entire submerged arc furnace industry.

In Rail Transportation segment, Hollysys continues to expand its technology innovation skills and expedite the modernization of railway construction. Our ZPW-2000S communication coding track circuit product, which has been widely deployed on numerous domestic lines, was certified by the Safety Integrity Level 4 and the China Railway Product Certification Center. Meanwhile, our technological achievements have been recognized by the industry. Hollysys won "the First Prize of Science and Technology Award of China Railway Society of 2022" with three scientific and technological accomplishments projects.

The Mechanical and Electrical Solution segment also manifested a stable performance with smooth executions on various projects.

With our continuous dedication to the industry and the support of experienced and passionate experts, we believe that we will continue to create more value for our clients and shareholders.

Third Quarter and the First Nine months Ended March 31, 2023 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,









2023



2022



%

Change



2023



2022



%

Change



























Revenues

$

167,636



155,711



7.7 %

$

582,410



525,346



10.9 %

    Integrated solutions contracts

$

139,149



133,206



4.5 %

$

471,204



424,274



11.1 %

    Products sales

$

10,386



7,146



45.3 %

$

34,174



26,663



28.2 %

    Service rendered

$

18,101



15,359



17.9 %

$

77,032



74,409



3.5 %

Cost of revenues

$

122,641



108,070



13.5 %

$

387,727



347,324



11.6 %

Gross profit

$

44,995



47,641



(5.6) %

$

194,683



178,022



9.4 %

Total operating expenses

$

33,973



30,651



10.8 %

$

119,269



122,599



(2.7) %

    Selling

$

14,577



11,409



27.8 %

$

43,615



34,438



26.6 %

    General and administrative

$

11,921



13,878



(14.1) %

$

44,394



56,918



(22.0) %

    Research and development

$

15,662



16,291



(3.9) %

$

53,452



52,951



0.9 %

    VAT refunds and government subsidies

$

(8,187)



(10,927)



(25.1) %

$

(22,192)



(21,708)



2.2 %

Income from operations

$

11,022



16,990



(35.1) %

$

75,414



55,423



36.1 %

Other income, net

$

1,626



967



68.1 %

$

2,748



1,927



42.6 %

Foreign exchange (loss) gain

$

(1,244)



(498)



149.8 %

$

2,280



(2,212)



(203.1) %

Gains on disposal of investments in an

    equity investee

$

-



-



-

$

-



7,995



(100.0) %

Share of net income (loss) of equity

    investees

$

690



(428)



(261.2) %

$

2,355



558



322.0 %

Gains (loss) on disposal of an investment in

    securities

$

-



(3)



(100.0) %

$

845



(3)



(100.0) %

Dividend (loss) income from equity

    investments

$

-



(93)



(100.0) %

$

-



86



(100.0) %

Interest income

$

2,941



3,151



(6.7) %

$

9,020



9,335



(3.4) %

Interest expenses

$

(252)



(224)



12.5 %

$

(621)



(590)



5.3 %

Income tax expenses

$

3,188



4,038



(21.1) %

$

10,694



12,706



(15.8) %

Net income (loss) attributable to non-

    controlling interests

$

27



(3)



(100.0) %

$

136



(343)



(139.7) %

Net income attributable to Hollysys

    Automation Technologies Ltd.

$

11,568



15,827



(26.9) %

$

81,211



60,156



35.0 %

Basic earnings per share

$

0.19



0.26



(26.9) %

$

1.32



0.99



33.3 %

Diluted earnings per share

$

0.19



0.26



(26.9) %

$

1.31



0.98



33.7 %



























Share-based compensation expenses

$

672



2,076



(67.6) %

$

2,849



8,382



(66.0) %

Amortization of acquired intangible assets

$

340



370



(8.1) %

$

1,017



1,002



1.5 %

Non-GAAP net income attributable to

    Hollysys Automation Technologies Ltd.(1)

$

12,580



18,273



(31.2) %

$

85,077



69,540



22.3 %

Non-GAAP basic earnings per share(1)

$

0.20



0.30



(33.3) %

$

1.38



1.14



21.1 %

Non-GAAP diluted earnings per share(1)

$

0.20



0.30



(33.3) %

$

1.37



1.13



21.2 %

Basic weighted average number of ordinary

    shares outstanding



61,595,286



61,068,732



0.9 %



61,449,939



60,945,131



0.8 %

Diluted weighted average number of

    ordinary shares outstanding



62,127,557



61,644,902



0.8 %



62,015,929



61,560,896



0.7 %



























(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, 2023

Total revenues for the three months ended March 31, 2023 were $167.6 million, as compared to $155.7 millon for the same period of the prior fiscal year, representing an increase of 7.7%. In terms of revenues by type, integrated contracts revenue increased by 4.5% to $139.1 million, products sales revenue increased by 45.3% to $10.4 million, and services revenue increased by 17.9% to $18.1 million. Unfavorable impact from depreciation of Renminbi against the U.S. dollar has adversely affected our revenues in the past three fiscal quarters. Based on current expectations of Hollysys' management, such unfavorable foreign exchange rate change is expected to adversely affect our full-year revenue for fiscal year 2023; however, the actual results may differ materially.

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,







2023



2022



2023



2022







$

% of Total

Revenues



$

% of Total

Revenues



$

% of Total

Revenues



$

% of Total

Revenues



Industrial Automation



112,407

67.0



101,854

65.4



365,183

62.7



318,147

60.5



Rail Transportation



36,197

21.6



34,224

22.0



153,265

26.3



149,570

28.5



Mechanical and Electrical Solution



19,032

11.4



19,633

12.6



63,962

11.0



57,629

11.0



Total



167,636

100.0



155,711

100.0



582,410

100.0



525,346

100.0



Gross margin was 26.8% for the three months ended March 31, 2023, as compared to 30.6% for the same period of the prior fiscal year. The overall gross margin fluctuated, as the gross margin for integrated solutions contracts varied. Gross margin of integrated solutions contracts, product sales, and service rendered was 18.3%, 69.5% and 68.3% for the three months ended March 31, 2023, respectively, as compared to 25.4%, 65.9% and 59.5% for the same period of the prior fiscal year. Non-GAAP gross margin was 27.0% for the three months ended March 31, 2023, as compared to 30.8% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 18.5% for the three months ended March 31, 2023, as compared to 25.7% 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 $14.6 million for the three months ended March 31, 2023, representing an increase of $3.2 million, or 27.8%, compared to $11.4 million for the same period of the prior fiscal year. The increase in selling expenses was mainly due to the increase in sales headcount, in line with the business growth. Selling expenses as a percentage of total revenues were 8.7% and 7.3% for the three months ended March 31, 2023 and 2022, respectively.

General and administrative expenses were $11.9 million for the quarter ended March 31, 2023, representing a decrease of $2.0 million, or 14.1%, compared to $13.9 million for the same period of the prior fiscal year. The decrease was primarily attributable to a $1.4 million decrease in share-based compensation. Share-based compensation expenses were $0.7 million and $2.1 million for the three months ended March 31, 2023 and 2022, respectively. General and administrative expenses as a percentage of total revenues were 7.1% and 8.9% for the three months ended March 31, 2023 and 2022, respectively.

Research and development expenses were $15.7 million for the three months ended March 31, 2023, representing a decrease of $0.6 million, or 3.9%, compared to $16.3 million for the same period of the prior fiscal year. Research and development expenses as a percentage of total revenues were 9.3% and 10.5% for the three months ended March 31, 2023 and 2022, respectively.

The VAT refunds and government subsidies were $8.2 million for three months ended March 31, 2023, as compared to $10.9 million for the same period of the prior fiscal year, representing a $2.7 million, or 25.1%, decrease.

The income tax expenses and the effective tax rate were $3.2 million and 21.6% for the three months ended March 31, 2023, respectively, as compared to $4.0 million and 20.3% 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 $11.6 million, representing a decrease of 26.9% from $15.8 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys was $12.6 million or $0.20 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 $0.19 for the three months ended March 31, 2023, a decrease of 26.9% from $0.26 reported in the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.20 for the three months ended March 31, 2023, a decrease of 33.3% from $0.30 reported in the comparable period in the prior fiscal year. These were calculated based on 62.1 million and 61.6 million diluted weighted average ordinary shares outstanding for the three months ended March 31, 2023 and 2022, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $216.4 million of value of new contracts for the three months ended March 31, 2023. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $906.0 million as of March 31, 2023. 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, 2023



as of March 31, 2023



$

% of Total

Contract

Value



$

% of Total

Backlog

Industrial Automation

170,853

78.9



403,172

44.5

Rail Transportation

12,961

6.0



306,707

33.9

Mechanical and Electrical Solutions

32,634

15.1



196,079

21.6

Total

216,448

100.0



905,958

100.0

Cash Flow Highlights

For the three months ended March 31, 2023, the total net cash inflow was $13.4 million. The net cash used in operating activities was $13.3 million. The net cash provided by investing activities was $3.1 million, mainly consisting of $30.2 million of maturity of short-term investments, partially offset by $14.8 million purchases of short-term investments and $12.4 million purchases of property, plant and equipment. The net cash provided by financing activities was $12.8 million, mainly consisting of $13.2 million proceeds from long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $640.2 million, $627.6 million, and $669.8 million as of March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

For the three months ended March 31, 2023, DSO was 176 days, as compared to 215 days for the comparable period of prior fiscal year and 119 days for the last fiscal quarter; inventory turnover days were 87 days, as compared to 69 days for the comparable period of prior fiscal year and 72 days for the last fiscal quarter.

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, 2022, Hollysys had cumulatively carried out more than 40,000 projects for approximately 22,000 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,





2023



2022



2023



2022





(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)

Net revenues

















Integrated solutions contracts

$

139,149

$

133,206

$

471,204

$

424,274

Products sales



10,386



7,146



34,174



26,663

Revenue from services



18,101



15,359



77,032



74,409

Total net revenues



167,636



155,711



582,410



525,346



















Costs of integrated solutions contracts



113,732



99,406



351,879



313,369

Cost of products sold



3,170



2,436



8,410



7,334

Costs of services rendered



5,739



6,228



27,438



26,621

Gross profit



44,995



47,641



194,683



178,022



















Operating expenses

















Selling



14,577



11,409



43,615



34,438

General and administrative



11,921



13,878



44,394



56,918

Research and development



15,662



16,291



53,452



52,951

VAT refunds and government subsidies



(8,187)



(10,927)



(22,192)



(21,708)

Total operating expenses



33,973



30,651



119,269



122,599



















Income from operations



11,022



16,990



75,414



55,423



















Other income, net



1,626



967



2,748



1,927

Foreign exchange (loss) gain



(1,244)



(498)



2,280



(2,212)

Gains on disposal of an investment in an equity investee



-



-



-



7,995

Gains (loss) on disposal of an investment in securities



-



(3)



845



(3)

Share of net income (loss) of equity investees



690



(428)



2,355



558

Dividend (loss) income from equity investments



-



(93)



-



86

Interest income



2,941



3,151



9,020



9,335

Interest expenses



(252)



(224)



(621)



(590)

Income before income taxes



14,783



19,862



92,041



72,519



















Income taxes expenses



3,188



4,038



10,694



12,706

Net income



11,595



15,824



81,347



59,813



















Net income (loss) attributable to non-controlling interests

27



(3)



136



(343)

Net income attributable to Hollysys Automation

Technologies Ltd.

$

11,568

$

15,827

$

81,211

$

60,156



















Other comprehensive income, net of tax of nil















Translation adjustments



20,805



3,954



(29,577)



20,513

Comprehensive income



32,400



19,778



51,770



80,326



















Less: comprehensive income (loss) attributable to non-

    controlling interests

345



(1,199)



536



(1,374)

Comprehensive income attributable to Hollysys

Automation Technologies Ltd.

$

32,055

$

20,977

$

51,234

$

81,700



















Net income per ordinary share:

















Basic



0.19



0.26



1.32



0.99

Diluted



0.19



0.26



1.31



0.98

Shares used in net income per share computation:

















Basic

61,595,286



61,068,732



61,449,939



60,945,131

Diluted

62,127,557



61,644,902



62,015,929



61,560,896

 

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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











March 31,



December 31,









2023



2022









(Unaudited)



(Unaudited)

ASSETS











Current assets













Cash and cash equivalents

$

640,249

$

627,589





Short-term investments



23,519



38,569





Restricted cash



26,381



39,926





Accounts receivable, net of allowance for credit losses of $73,283 and $72,800 as

    of March 31, 2023 and December 31, 2022, respectively



308,212



318,341





Costs and estimated earnings in excess of billings, net of allowance for credit losses

    of $14,505 and $13,646 as of March 31, 2023 and December 31, 2022,

    respectively



259,778



252,630





Accounts receivable retention



7,729



7,010





Other receivables, net of allowance for credit losses of $12,379 and $12,489 as of

    March 31, 2023 and December 31, 2022, respectively



21,719



20,103





Advances to suppliers



29,321



35,618





Amounts due from related parties



23,968



23,630





Inventories



117,452



108,910





Prepaid expenses



888



997





Income tax recoverable



282



341



Total current assets



1,459,498



1,473,664















Non-current assets













Restricted cash



14,259



-





Costs and estimated earnings in excess of billings



1,988



2,405





Accounts receivable retention



7,069



6,944





Prepaid expenses



3



-





Property, plant and equipment, net



137,434



128,066





Prepaid land leases



12,135



12,037





Intangible assets, net



9,343



9,555





Investments in equity investees



47,774



46,293





Investments securities



1,651



1,623





Goodwill



20,020



19,683





Deferred tax assets



9,589



6,429





Operating lease right-of-use assets



3,154



3,283



Total non-current assets



264,419



236,318



Total assets



1,723,917



1,709,982















LIABILITIES AND STOCKHOLDERS' EQUITY











Current liabilities













Short-term bank loans



-



48





Current portion of long-term loans



262



255





Accounts payable



167,070



171,040





Construction costs payable



11,384



12,665





Deferred revenue



185,564



198,302





Accrued payroll and related expenses



18,537



32,610





Income tax payable



4,422



5,017





Warranty liabilities



4,573



4,556





Other tax payables



7,430



13,187





Accrued liabilities



38,326



36,136





Amounts due to related parties



6,181



6,379





Operating lease liabilities



1,510



1,870



Total current liabilities



445,259



482,065















Non-current liabilities













Accrued liabilities



5,513



3,045





Long-term loans



32,740



19,613





Accounts payable



2,717



2,782





Deferred tax liabilities



13,335



11,200





Warranty liabilities



2,557



2,642





Operating lease liabilities



1,343



1,200





Other liability



68



60



Total non-current liabilities



58,273



40,542



Total liabilities



503,532



522,607

















Commitments and contingencies



-



-

















Stockholders' equity:













Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;

    62,020,441 shares and 61,972,317 shares issued and outstanding as of March

    31, 2023 and December 31, 2022.



62



62





Additional paid-in capital



261,378



245,654





Statutory reserves



68,874



78,932





Retained earnings



931,625



925,114





Accumulated other comprehensive income



(42,631)



(63,118)



Total Hollysys Automation Technologies Ltd. stockholder's equity



1,219,308



1,186,644





Non-controlling interests



1,077



731



Total equity



1,220,385



1,187,375



Total liabilities and equity

$

1,723,917

$

1,709,982

 



HOLLYSYS AUTOMATION TECHNOLOGIES LTD.



CONSOLIDATED STATEMENTS OF CASH FLOWS



(In USD thousands)











 

Three months

ended



Nine months

ended

March 31,

2023



March 31,

2023







(Unaudited)



(Unaudited)

Cash flows from operating activities:











Net income

$

11,595

$

81,347

Adjustments to reconcile net income to net cash provided by operating

activities:











Depreciation of property, plant and equipment



2,169



6,692



Amortization of prepaid land leases



87



254



Amortization of intangible assets



340



1,017



Allowance for credit losses



276



2,849



Loss (gain) on disposal of property, plant and equipment



(52)



42



Share of net income (loss) of equity investees



(690)



(2,355)



Share-based compensation expenses



672



2,849



Deferred income tax expenses



(1,708)



(5,269)



Gains on disposal of an investment in securities



-



(845)

Changes in operating assets and liabilities:











Accounts receivable and retention



15,643



(4,730)



Costs and estimated earnings in excess of billings



(2,452)



(34,192)



Inventories 



(6,686)



(28,337)



Advances to suppliers



6,860



3,720



Other receivables 



(1,260)



(348)



Prepaid expenses



108



(212)



Due from related parties



71



2,683



Accounts payable



(6,789)



(4,198)



Deferred revenue



(15,989)



(15,982)



Accruals and other payables



(8,702)



2,198



Due to related parties



(198)



(118)



Income tax payable



(612)



5



Other tax payables



(5,943)



(3,858)



Net cash (used in) provided by operating activities



(13,260)



3,212













Cash flows from investing activities:











Purchases of short-term investments



(14,750)



(100,629)



Purchases of property, plant and equipment



(12,379)



(36,811)



Proceeds from disposal of a subsidiary



-



4,175



Proceeds from disposal of property, plant and equipment



79



162



Maturity of short-term investments



30,181



89,499



Proceeds received from disposal of  investment in securities



-



845



Acquisition of a subsidiary, net of cash acquired



(73)



(73)



Net cash provided by (used in) investing activities



3,058



(42,832)













Cash flows from financing activities:











Proceeds from short-term bank loans



1



295



Repayments of short-term bank loans



(49)



(360)



Proceeds from long-term bank loans



13,227



18,519



Repayments of long-term bank loans



(413)



(679)



Net cash provided by financing activities



12,766



17,775















Effect of foreign exchange rate changes



10,810



(16,293)



Net increase in (decrease) cash, cash equivalents and restricted cash

$

13,374



(38,138)















Cash, cash equivalents and restricted cash, beginning of period

$

667,515



719,027



Cash, cash equivalents and restricted cash, end of period



680,889



680,889

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,







2023



2022



2023



2022







(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)





















Gross profit

$

44,995

$

47,641

$

194,683

$

178,022

Gross margin(1)



26.8 %



30.6 %



33.4 %



33.9 %

Add:

















  Amortization of acquired intangible assets



340



370



1,017



1,002

Non-GAAP gross profit

$

45,335

$

48,011

$

195,700

$

179,024

Non-GAAP gross margin(2)



27.0 %



30.8 %



33.6 %



34.1 %



(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,





2023



2022



2023



2022





(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)

Gross profit of integrated

















     solutions contracts

$

25,417

$

33,800

$

119,325

$

110,905

Gross margin of integrated

















    solutions contracts(1)



18.3 %



25.4 %



25.3 %



26.1 %



















Add:

     Amortization of acquired intangible

















     assets



340



370



1,017



1,002

Non-GAAP gross profit of

















     integrated solutions contracts

$

25,757

$

34,170

$

120,342

$

111,907

Non-GAAP gross margin of

















     integrated solutions contracts(2)



18.5 %



25.7 %



25.5 %



26.4 %



(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,







2023



2022



2023



2022







(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)





















Net income attributable to Hollysys Automation

    Technologies Ltd.

$

11,568

$

15,827

$

81,211

$

60,156

Add:



















Share-based compensation expenses



672



2,076



2,849



8,382



Amortization of acquired intangible assets



340



370



1,017



1,002

Non-GAAP net income attributable to Hollysys

    Automation Technologies Ltd.

$

12,580

$

18,273

$

85,077

$

69,540

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,







2023



2022



2023



2022







(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)





















Net income attributable to Hollysys Automation

    Technologies Ltd.

$

11,568

$

15,827

$

81,211

$

60,156

Add:

















     Share-based compensation expenses



672



2,076



2,849



8,382

     Amortization of acquired intangible assets



340



370



1,017



1,002

Non-GAAP net income attributable to

    Hollysys Automation Technologies Ltd.

$

12,580

$

18,273

$

85,077

$

69,540



















Weighted average number of basic ordinary

    shares



61,595,286



61,068,732



61,449,939



60,945,131

Weighted average number of diluted ordinary

    shares



62,127,557



61,644,902



62,015,929



61,560,896



















Basic earnings per share(1)



0.19



0.26



1.32



0.99

Add:

     Non-GAAP adjustments to net income per

     share(2)



0.01



0.04



0.06



0.15

Non-GAAP basic earnings per share(3)

$

0.20

$

0.30

$

1.38

$

1.14



















Diluted earnings per share(1)



0.19



0.26



1.31



0.98

Add:

     Non-GAAP adjustments to net income per

     share(2)



0.01



0.04



0.06



0.15

Non-GAAP diluted earnings per share(3)

$

0.20

$

0.30

$

1.37

$

1.13



(1)           Basic (or diluted) earnings per share is derived from net income attributable to Hollysys Automation Technologies Ltd. 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 Hollysys Automation

Technologies Ltd. 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