Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal Year and the Fourth Quarter Ended June 30, 2022

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    Fiscal Year 2022 Financial Highlights

    • Total revenues were $707.5 million, an increase of 19.2% compared to the comparable prior year period.
    • Gross margin was 33.8%, compared to 36.8% for the comparable prior year period. Non-GAAP gross margin was 34.0%, compared to 36.8% for the comparable prior year period.
    • Net income attributable to Hollysys was $83.2 million, a decrease of 7.3% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $94.2 million, a decrease of 5.5% compared to the comparable prior year period. 
    • Diluted earnings per share was $1.35, a decrease of 7.5% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $1.53, a decrease of 5.6% compared to the comparable prior year period.
    • Net cash provided by operating activities was $54.5 million.
    • Days sales outstanding (“DSO”) of 171 days, compared to 180 days for the comparable prior year period.
    • Inventory turnover days of 58 days, compared to 51 days for the comparable prior year period.

    Fourth Quarter of Fiscal Year 2022 Financial Highlights

    • Total revenues were $182.1 million, an increase of 14.7% compared to the comparable prior year period.
    • Gross margin was 33.7%, compared to 37.8% for the comparable prior year period. Non-GAAP gross margin was 33.9%, compared to 37.9% for the comparable prior year period.
    • Net income attributable to Hollysys was $23.0 million, an increase of 4.9% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $24.7 million, a decrease of 12.0% compared to the comparable prior year period.
    • Diluted earnings per share was $0.37, an increase of 2.8% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.40, a decrease of 13.0% compared to the comparable prior year period.
    • Net cash provided by operating activities was $38.8 million.
    • DSO of 174 days, compared to 194 days for the comparable prior year period.
    • Inventory turnover days of 73 days, compared to 47 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, Aug. 12, 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 fiscal year 2022 and the fourth quarter ended June 30, 2022. Dr. Changli Wang, the CEO and director of Hollysys, stated:

    “We are delighted to report another fiscal year and the fourth quarter with solid financial and operational performance and firmly adhered to our tenet of automation for better lives, even under an unfavorable environment of the COVID-19 pandemic which constantly brings challenges. We are confident with our outstanding technologies, satisfactory services and established huge customer bases. Looking forward, Hollysys will unswervingly make progress based on the united efforts of our motivated and inspired management team, experts and employees, and will embrace jointly with our customers and investors for a more prosperous and vigorous future.”

    The Industrial Automation (“IA”) business maintained its strong momentum with increased market shares as Hollysys undertook more key and challenging projects, which are expected to relieve the pain points of relevant industries by enhancing the efficiency in operation and contribute to achieving the national carbon peaking and carbon neutrality goals. In the chemical and petrochemical field, we adhere to the development strategy of enhancing our focus on significant projects in addition to normal projects. For example, a one-million-ton ethylene project was signed in Tianjin in which we will provide over 100,000 and 20,000 input/output (“I/O”) points that will be connected to our Optical Bus Control System (“OCS”)—the new released version of Distributed Control System (“DCS”), and Safety Instrumented System (“SIS”), along with Gas Detection System (“GDS”), respectively. The success in signing this project proves that Hollysys is capable of supplying control systems for any chemical process, as the advanced control of ethylene is known as the most sophisticated and critical process in the industry. Meanwhile, we present remarkable achievements and maintain our cooperation with national key customers like Sinopec Group and China National Petroleum Corporation (“CNPC”). For instance, a contract of huge SCADA system for the Guangxi Long-distance Natural Gas Pipeline Project was signed with Sinopec. Additionally, Hollysys also provided CNPC with Hia Advanced Process Control (“Hia APC”) for producing 450,000 tons of synthetic ammonia / 800,000 tons of urea fertilizer, which as another milestone, was the first set of a 100% domestic control system application in the large chemical fertilizer industry in China.

    We have also manifested remarkable performance and witnessed business growth in the valve and instrument market. For example, we signed with a world leading copper pipe and rod manufacturer for a Phase I project of 150,000 tons of high-performance copper foil, in which Hollysys provided holistic customized integrated, intelligent solutions, and over 4000 sets of various types of meters and valves. The project represents another milestone for Hollysys in electrical instrument installation engineering.

    We continue our business growth by upgrading the capabilities of products in the pharmaceutical field. For example, a project for a pharmaceutical company was delivered in which Hollysys provided a customized intelligent control system based on HiaBatch. HiaBatch is remarkably flexible and efficient, which facilitates customers to operate more smartly and is highly recognized among customers in the industry. We successively signed new projects, including a Good Manufacturing Practice (“GMP”) Application Programming Interface (“API”) pilot test and production project along with the supply of DCS, SIS, electrical instrument and Batch Processing System (“BATCH”).

    Meanwhile, we constantly upgrade our Engineering Procurement Construction (“EPC”) capacity. In the fourth fiscal quarter, we signed two breakthrough EPC projects regarding the whole workshop’s engineering, which the lays foundation for our further exploration of EPC projects in the future.

    Our business has witnessed continuous development in Indonesia and other overseas markets, and our control system, instruments and technologies are widely recognized. We have signed with Indonesian companies a contract for an electrical instrument engineering project and an additional contract of Phase II DCS and electrical instruments. To further cultivate and grow our business in the Central and Southeast Asia market, Hollysys will persevere in attracting talented people, optimizing market promotion and enhancing its overseas brand image.

    In the high-speed rail sector, we continued to deliver on existing projects while retaining our market position. We provided on-ground solutions for Xiangyang East-Wanzhou North high-speed railway and participated in the reconstruction of the Beijing Fengtai Hub, which is now Asia’s largest railway hub. Meanwhile, we continued to explore opportunities in service markets, covering replacement and overhaul, upgrades, spare parts sales, etc. The highlight for the service business is the successful launch of China’s fifth high-speed railway with an operating speed of 350 km/h, the Shijiazhuang-Wuhan High-speed Railway. In this project, Hollysys actively responded to our client’s demand for speed acceleration by upgrading the existing on-board and on-ground products. In the subway sector, our SCADA system for Kunming Subway Line 5 was successfully delivered. This marked another contribution of Hollysys to Kunming rail construction following the successful completion of the Kunming Subway Line 3 project and Kunming Changshui Airport Express project (“Kunming Airport project”),. In the subway signaling business, we won the automated people mover project of the T3B terminal and the fourth runway of Chongqing Jiangbei International Airport. This project, which follows our first subway signaling project—Kunming Airport project—represents another significant advancement for Hollysys in subway signaling. The project will utilize our proprietary GoA4 Fully Automatic Operation system and achieve effective and energy-saving operations. We are grateful for the industry recognition gained from our clients in the past year and we expect to make more contributions to China’s urban rail transit system in the future.

    The mechanical and electrical solutions (“M&E”) segment of the Company manifests a stable performance with our smooth executions on various projects. The risk monitor and control will still be our future focus in this field.

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

    Fiscal Year and the Fourth Quarter Ended June 30, 2022 Unaudited Financial Results Summary

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

    Three months ended

    June 30,

    Fiscal year ended

    June 30,

    ,

    2022

    2021

    %
    Change

    2022

    2021

    %
    Change

    Revenues

    $

    182,115

    158,764

    14.7 %

    $

    707,462

    593,466

    19.2 %

        Integrated solutions contracts
    revenue

    $

    149,292

    126,237

    18.3 %

    $

    573,567

    460,180

    24.6 %

        Products sales

    $

    11,823

    7,098

    66.6 %

    $

    38,486

    28,667

    34.3 %

        Service rendered

    $

    21,000

    25,429

    (17.4) %

    $

    95,409

    104,619

    (8.8) %

    Cost of revenues

    $

    120,780

    98,705

    22.4 %

    $

    468,105

    375,187

    24.8 %

    Gross profit

    $

    61,335

    60,059

    2.1 %

    $

    239,357

    218,279

    9.7 %

    Total operating expenses

    $

    42,215

    44,402

    (4.9) %

    $

    164,813

    131,034

    25.8 %

        Selling

    $

    10,863

    9,601

    13.1 %

    $

    45,301

    35,197

    28.7 %

        General and administrative

    $

    23,323

    30,260

    (22.9) %

    $

    80,241

    69,982

    14.7 %

        Research and development

    $

    16,629

    14,194

    17.2 %

    $

    69,580

    55,954

    24.4 %

        VAT refunds and government
    subsidies

    $

    (8,600)

    (9,653)

    (10.9) %

    $

    (30,309)

    (30,099)

    0.7 %

    Income from operations

    $

    19,120

    15,657

    22.1 %

    $

    74,544

    87,245

    (14.6) %

    Other income, net

    $

    256

    6,863

    (96.3) %

    $

    2,185

    10,449

    (79.1) %

    Foreign exchange gain (loss)

    $

    4,000

    (942)

    (524.6) %

    $

    1,789

    (6,219)

    (128.8) %

    Gains on disposal of investments in an
        equity investee

    $

    –

    –

    –

    $

    7,995

    –

    –

    Impairment loss of investments in cost
        investees

    $

    (773)

    –

    –

    $

    (773)

    –

    –

    Share of net income (loss) of equity
        investees

    $

    1,280

    (1,331)

    (196.2) %

    $

    1,838

    604

    204.3 %

    Losses on disposal of subsidiaries

    –

    –

    –

    (3)

    –

    –

    Gains on disposal of an investment in
        securities

    $

    –

    3,323

    (100.0) %

    $

    –

    3,323

    (100.0) %

    Dividend income from investments in
        securities

    $

    –

    456

    (100.0) %

    $

    85

    912

    (90.7) %

    Interest income

    $

    3,363

    4,278

    (21.4) %

    $

    12,698

    14,131

    (10.1) %

    Interest expenses

    $

    (141)

    (125)

    12.8 %

    $

    (731)

    (553)

    32.2 %

    Income tax expenses

    $

    3,928

    6,317

    (37.8) %

    $

    16,634

    20,554

    (19.1) %

    Net income (loss) attributable to non-

        controlling interests

    $

    155

    (75)

    (306.7) %

    $

    (189)

    (371)

    (49.1) %

    Net income attributable to Hollysys
         Automation Technologies Ltd.

    $

    23,022

    21,937

    4.9 %

    $

    83,182

    89,709

    (7.3) %

    Basic earnings per share

    $

    0.38

    0.36

    5.6 %

    $

    1.36

    1.48

    (8.1) %

    Diluted earnings per share

    $

    0.37

    0.36

    2.8 %

    $

    1.35

    1.46

    (7.5) %

    Share-based compensation expenses

    $

    1,327

    6,036

    (78.0) %

    $

    9,709

    9,724

    (0.2) %

    Amortization of acquired intangible
    assets

    $

    353

    90

    292.2 %

    $

    1,356

    316

    329.1 %

    Non-GAAP net income attributable to
         Hollysys Automation Technologies Ltd.(1)

    $

    24,702

    28,063

    (12.0) %

    $

    94,247

    99,749

    (5.5) %

    Non-GAAP basic earnings per share(1)

    $

    0.40

    0.46

    (13.0) %

    $

    1.54

    1.65

    (6.7) %

    Non-GAAP diluted earnings per share(1)

    $

    0.40

    0.46

    (13.0) %

    $

    1.53

    1.62

    (5.6) %

    Basic weighted average number of
        ordinary shares outstanding

    61,195,317

    60,698,727

    0.8 %

    61,007,506

    60,566,709

    0.7 %

    Diluted weighted average number of
        ordinary shares outstanding

    61,788,905

    61,025,425

    1.3 %

    61,568,176

    61,513,749

    0.1 %

    ________

    (1) See the section entitled “Non-GAAP Measures” for more information about these non-GAAP measures.

    Operational Results Analysis for the Fiscal Year Ended June 30, 2022

    Compared to the prior fiscal year, the total revenues for fiscal year 2022 increased from $593.5 million to $707.5 million, representing an increase of 19.2%. Broken down by the revenue types, integrated solutions contracts revenue increased by 24.6% to $573.6 million, products sales revenue increased by 34.3% to $38.5 million, and services revenue decreased by 8.8% to $95.4 million.

    The Company’s total revenues can also be presented by segment as shown in the table below:

    (In USD thousands)

    Fiscal year ended June 30,

    2022

    2021

    $

    % to Total
    Revenues

    $

    % to Total
    Revenues

    Industrial Automation

    439,918

    62.2

    337,052

    56.8

    Rail Transportation Automation

    183,785

    26.0

    188,171

    31.7

    Mechanical and Electrical Solution

    83,759

    11.8

    68,243

    11.5

    Total

    707,462

    100.0

    593,466

    100.0

    Gross margin was 33.8% for fiscal year 2022, as compared to 36.8% for the prior fiscal year. Gross margins for integrated solutions contracts, product sales, and services rendered were 26.4%, 73.4% and 62.7% for fiscal year 2022, as compared to 26.9%, 81.5% and 68.1% for the prior fiscal year, respectively. Non-GAAP gross margin was 34.0% for fiscal year 2022, as compared to 36.8% for the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 26.6% for fiscal year 2022, as compared to 27.0% for 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 $45.3 million for fiscal year 2022, representing an increase of $10.1 million, or 28.7%, compared to $35.2 million for the prior fiscal year. The increase was in line with our sales growth. Selling expenses as a percentage of total revenues were 6.4% and 5.9% for fiscal year 2022 and 2021, respectively. The increase of selling expenses was mainly due to the significant increase of sales scale year over year.

    General and administrative expenses were $80.2 million for fiscal year 2022, representing an increase of $10.3 million, or 14.7%, compared to $70.0 million for the prior fiscal year, which was primarily due to a $7.5 million increase in credit losses and a $5.7 million increase in labor cost. Share-based compensation expenses were $9.7 million and $9.7 million for fiscal year 2022 and 2021, respectively. General and administrative expenses as a percentage of total revenues were 11.3% and 11.8% for fiscal year 2022 and 2021, respectively. 

    Research and development expenses were $69.6 million for fiscal year 2022, representing an increase of $13.6 million, or 24.4%, compared to $56.0 million for the prior fiscal year, which was primarily due to our increased investments in research and development in connection with 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, SIS Upgrade, OCS, smart factory and smart city rail. R&D expenses as a percentage of total revenues were 9.8% and 9.4% for fiscal year 2022 and 2021, respectively.

    The VAT refunds and government subsidies were $30.3 million for fiscal year 2022, as compared to $30.1 million for the prior fiscal year, representing a $0.2 million, or 0.7%, increase.

    The income tax expenses and the effective tax rate were $16.6 million and 16.7% for fiscal year 2022, as compared to $20.6 million and 18.7% for the prior fiscal year. 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 $83.2 million for fiscal year 2022, representing a decrease of 7.3% from $89.7 million reported in the prior fiscal year. Non-GAAP net income attributable to Hollysys was $94.2 million or $1.53 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 $1.35 for fiscal year 2022, representing a decrease of 7.5% from $1.46 in the prior fiscal year. Non-GAAP diluted earnings per share was $1.53 for fiscal year 2022, representing a decrease of 5.6% from $1.62 in the prior fiscal year. These were calculated based on 61.6 million and 61.5 million diluted weighted average ordinary shares outstanding for the fiscal year ended June 30, 2022 and 2021, respectively. See the section entitled “Non-GAAP Measures” for more information about non-GAAP diluted earnings per share.

    Operational Results Analysis for the Fourth Quarter Ended June 30, 2022

    Compared to the fourth quarter of the prior fiscal year, the total revenues for the three months ended June 30, 2022 increased from $158.8 million to $182.1 million, representing an increase of 14.7%. Broken down by the revenue types, integrated solutions contracts revenue increased by 18.3% to $149.3 million, products sales revenue increased by 66.6% to $11.8 million, and services revenue decreased by 17.4% to $21.0 million.

    The Company’s total revenues can also be presented by segment as shown in the table below:

    (In USD thousands)

    Three months ended June 30,

    2022

    2021

    $

    % to Total
    Revenues

    $

    % to Total
    Revenues

    Industrial Automation

    121,771

    66.9

    94,779

    59.7

    Rail Transportation Automation

    34,215

    18.8

    47,533

    29.9

    Mechanical and Electrical Solution

    26,129

    14.3

    16,452

    10.4

    Total

    182,115

    100.0

    158,764

    100.0

    Gross margin was 33.7% for the three months ended June 30, 2022, as compared to 37.8% for the same period of the prior fiscal year. Gross margin of integrated solutions contracts, product sales, and service rendered was 27.1%, 75.4% and 57.1% for the three months ended June 30, 2022, as compared to 27.8%, 84.3% and 74.6% for the same period of the prior fiscal year, respectively. Non-GAAP gross margin was 33.9% for the three months ended June 30, 2022, as compared to 37.9% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 27.3% for the three months ended June 30, 2022, as compared to 27.9% 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 $10.9 million for the three months ended June 30, 2022, representing an increase of $1.3 million, or 13.1%, compared to $9.6 million for the same period of the prior fiscal year. The increase was in line with our sales growth. Selling expenses as a percentage of total revenues were 6.0% and 6.0% for the three months ended June 30, 2022 and 2021, respectively.

    General and administrative expenses were $23.3 million for the three months ended June 30, 2022, representing a decrease of $6.9 million, or 22.9%, compared to $30.3 million for the same period of the prior fiscal year, which was primarily due to a $7.4 million decrease in third-party consulting fees and a $4.7 million decrease in share-based compensation expenses. Share-based compensation expenses were $1.3 million and $6.0 million for the three months ended June 30, 2022 and 2021, respectively. General and administrative expenses as a percentage of total revenues were 12.8% and 19.1% for the three months ended June 30, 2022 and 2021, respectively. The decrease of G&A in the fourth quarter is mainly due to the lower third-party consulting fees year-over-year.

    Research and development expenses were $16.6 million for the three months ended June 30, 2022, representing an increase of $2.4 million, or 17.2%, compared to $14.2 million for the same period of the prior fiscal year. Research and development expenses as a percentage of total revenues were 9.1% and 8.9% for the three months ended June 30, 2022 and 2021, respectively.

    The VAT refunds and government subsidies were $8.6 million for three months ended June 30, 2022, as compared to $9.7 million for the same period in the prior fiscal year, representing a $1.1 million, or 10.9%, decrease.

    The income tax expenses and the effective tax rate were $3.9 million and 14.5% for the three months ended June 30, 2022, respectively, as compared to $6.3 million and 22.4% for the 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 $23.0 million for three months ended June 30, 2022, representing an increase of 4.9% from $21.9 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys was $24.7 million or $0.40 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 $0.37 for the three months ended June 30, 2022, representing an increase of 2.8% from $0.36 for the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.40 for the three months ended June 30, 2022, representing a decrease of 13.0% from $0.46 for the comparable period in the prior fiscal year. These were calculated based on 61.8 million and 61.0 million diluted weighted average ordinary shares outstanding for the three months ended June 30, 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 $1,057.9 million and $289.9 million in terms of the value of new contracts for the fiscal year and the three months ended June 30, 2022, respectively. The order backlog of contracts was $944.3 million as of June 30, 2022. The order backlog of contracts represents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The detailed breakdown of new contracts and backlog by segment is shown in the table below:

    (In USD thousands, except for %)

    Value of New contracts
    achieved for the fiscal
    year

     ended June 30, 2022

    Value of New contracts
    achieved for the three
    months

     ended June 30, 2022

    Backlog as of Jun 30,
    2022

    $

    % of  Total
    Contract
    Value

    $

    % of Total
    Contract
    Value

    $

    % of Total
    Backlog

    Industrial Automation

    582,776

    55.1

    193,980

    67.0

    384,805

    40.7

    Rail Transportation

    303,819

    28.7

    79,524

    27.4

    359,301

    38.1

    Mechanical and Electrical Solutions

    171,333

    16.2

    16,359

    5.6

    200,166

    21.2

    Total

    1,057,928

    100.0

    289,863

    100.0

    944,272

    100.0

    Cash Flow Highlights

    For the fiscal year ended June 30, 2022, the total net cash inflow was $23.5 million. The net cash provided by operating activities was $54.5 million. The net cash provided by investing activities was $13.3 million, mainly consisting of $100.6 million maturity of short-term investments, $3.8 million proceeds from disposal of a subsidiary, $9.5 million proceeds received from disposal of equity investments, which was partially offset by $26.4 million purchases of property, plant and equipment, $64.4 million purchases of short-term investments, and $8.7 million cash prepaid for acquisition of a subsidiary. The net cash used in financing activities was $19.6 million, mainly consisting of $19.8 million payment of dividends.

    For the three months ended June 30, 2022, the total net cash inflow was $6.9 million. The net cash provided by operating activities was $38.8 million. The net cash provided by investing activities was $23.6 million, mainly consisting of $37.8 million maturity of short-term investments, which was partially offset by $7.3 million purchases of property, plant and equipment, $6.9 million purchases of short-term investments. The net cash used in financing activities was $19.4 million, mainly consisting of $19.8 million payment of dividends.

    Balance Sheet Highlights

    The total amount of cash and cash equivalents was $679.8 million, $669.8 million, and $664.3 million as of June 30, 2022, March 31, 2022, and June 30, 2021, respectively.

    For fiscal year ended June 30, 2022, DSO were 171 days, as compared to 180 days from the prior year, and inventory turnover was 58 days, as compared to 51 days from the prior year.

    For the three months ended June 30, 2022, DSO was 174 days, as compared to 194 days for the comparable prior fiscal year and 215 days for the last fiscal quarter; inventory turnover days were 73 days, as compared to 47 days for the comparable prior fiscal year and 69 days for the last fiscal quarter. The significant increase in inventories was mainly due to the company’s increase in safety stock in response to supply chain fluctuations.

    Financial Performance Guidance

    Based on information available as of the date of this press release, Hollysys provides the following financial performance guidance for the full fiscal year 2023： 

     –   The revenue is expected to be between $810 million and $885 million, with a year-on-year increase of 15% to 25%.

    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

    Fiscal year ended

    June 30,

    June 30,

    2022

    2021

    2022

    2021

    (Unaudited)

    (Unaudited)

    (Unaudited)

    (Unaudited)

    Net revenues

    Integrated solutions contracts revenue

    $

    149,292

    $

    126,237

    $

    573,567

    $

    460,180

    Products sales

    11,823

    7,098

    38,486

    28,667

    Revenue from services

    21,000

    25,429

    95,409

    104,619

    Total net revenues

    182,115

    158,764

    707,462

    593,466

    Costs of integrated solutions contracts

    108,866

    91,142

    422,236

    336,471

    Cost of products sold

    2,913

    1,115

    10,247

    5,293

    Costs of services rendered

    9,001

    6,448

    35,622

    33,423

    Gross profit

    61,335

    60,059

    239,357

    218,279

    Operating expenses

    Selling

    10,863

    9,601

    45,301

    35,197

    General and administrative

    23,323

    30,260

    80,241

    69,982

    Research and development

    16,629

    14,194

    69,580

    55,954

    VAT refunds and government subsidies

    (8,600)

    (9,653)

    (30,309)

    (30,099)

    Total operating expenses

    42,215

    44,402

    164,813

    131,034

    Income from operations

    19,120

    15,657

    74,544

    87,245

    Other income, net

    256

    6,863

    2,185

    10,449

    Foreign exchange gain (loss)

    4,000

    (942)

    1,789

    (6,219)

    Gains on disposal of an investment in an equity investee

    –

    –

    7,995

    –

    Losses on disposal of subsidiaries

    –

    –

    (3)

    –

    Gains on disposal of an investment in securities

    –

    3,323

    –

    3,323

    Impairment loss of investments in cost investees

    (773)

    –

    (773)

    –

    Share of net income (loss) of equity investees

    1,280

    (1,331)

    1,838

    604

    Dividend income from investments in securities

    456

    85

    912

    Interest income

    3,363

    4,278

    12,698

    14,131

    Interest expenses

    (141)

    (125)

    (731)

    (553)

    Income before income taxes

    27,105

    28,179

    99,627

    109,892

    Income taxes expenses

    3,928

    6,317

    16,634

    20,554

    Net income

    23,177

    21,862

    82,993

    89,338

    Less: Net income (loss) attributable to non-controlling interests

    155

    (75)

    (189)

    (371)

    Net income attributable to Hollysys Automation

    \Technologies Ltd.

    $

    23,022

    $

    21,937

    $

    83,182

    $

    89,709

    Other comprehensive (loss) income, net of tax of nil

    Translation adjustments

    (67,103)

    18,280

    (46,590)

    96,577

    Comprehensive (loss) income

    (43,926)

    40,142

    36,403

    185,915

    Less: comprehensive income (loss) attributable to non-
        controlling interests

    64

    (12)

    (1,310)

    (125)

    Comprehensive (loss) income attributable to Hollysys
    Automation Technologies Ltd.

    $

    (43,990)

    $

    40,154

    $

    37,713

    $

    186,040

    Net income per ordinary share:

    Basic

    0.38

    0.36

    1.36

    1.48

    Diluted

    0.37

    0.36

    1.35

    1.46

    Shares used in net income per share computation:

    Basic

    61,195,317

    60,698,727

    61,007,506

    60,566,709

    Diluted

    61,788,905

    61,025,425

    61,568,176

    61,513,749

    HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

    CONSOLIDATED BALANCE SHEETS

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

    June 30,

    March 31,

    2022

    2022

    (Unaudited)

    (Unaudited)

    ASSETS

    Current assets

    Cash and cash equivalents

    $

    679,754

    $

    669,799

    Short-term investments

    12,203

    44,085

    Restricted cash

    38,486

    36,298

    Accounts receivable, net of allowance for credit losses of $77,603 and $76,061 as
        of June 30, 2022 and March 31, 2022, respectively

    317,763

    360,589

    Costs and estimated earnings in excess of billings, net of allowance for credit losses
        of $12,178 and $11,077 as of June 30, 2022 and March 31, 2022, respectively

    228,877

    220,645

    Accounts receivable retention

    6,005

    6,002

    Other receivables, net of allowance for credit losses of $12,449 and $15,798 as of
        June 30, 2022 and March 31, 2022, respectively

    26,100

    28,734

    Advances to suppliers

    33,851

    32,348

    Amounts due from related parties

    27,360

    21,064

    Inventories

    91,243

    89,175

    Prepaid expenses

    667

    756

    Income tax recoverable

    258

    164

    Total current assets

    1,462,567

    1,509,659

    Non-current assets

    Restricted cash

    787

    6,026

    Costs and estimated earnings in excess of billings

    3,021

    2,648

    Accounts receivable retention

    6,561

    5,850

    Prepaid expenses

    1

    2

    Property, plant and equipment, net

    98,249

    97,700

    Prepaid land leases

    12,447

    13,135

    Intangible assets, net

    10,742

    11,767

    Investments in equity investees

    46,581

    42,152

    Investments securities

    1,693

    2,576

    Goodwill

    20,539

    20,822

    Deferred tax assets

    4,540

    16,186

    Operating lease right-of-use assets

    4,045

    4,447

    Total non-current assets

    209,206

    223,311

    Total assets

    1,671,773

    1,732,970

    LIABILITIES AND STOCKHOLDERS’ EQUITY

    Current liabilities

    Short-term bank loans

    66

    –

    Current portion of long-term loans

    15,210

    15,346

    Accounts payable

    173,953

    176,849

    Construction costs payable

    92

    98

    Deferred revenue

    206,222

    211,593

    Accrued payroll and related expenses

    23,535

    17,878

    Income tax payable

    4,509

    9,068

    Warranty liabilities

    3,280

    6,814

    Other tax payables

    11,587

    4,443

    Accrued liabilities

    37,282

    36,051

    Amounts due to related parties

    6,299

    2,250

    Other liability

    3

    3

    Operating lease liabilities

    2,518

    2,224

    Total current liabilities

    484,556

    482,617

    Non-current liabilities

    Accrued liabilities

    3,349

    2,047

    Long-term loans

    434

    523

    Accounts payable

    1,556

    1,338

    Deferred tax liabilities

    12,966

    13,600

    Warranty liabilities

    1,722

    2,618

    Operating lease liabilities

    1,282

    1,912

    Other liability

    80

    76

    Total non-current liabilities

    21,389

    22,114

    Total liabilities

    505,945

    504,731

    Commitments and contingencies

    –

    –

    Stockholders’ equity:

    Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;
        61,962,449 shares and 61,962,249 shares issued and outstanding as of June 30,
        2022 and March 31, 2022, respectively

    62

    62

    Additional paid-in capital

    243,476

    242,149

    Statutory reserves

    77,263

    64,978

    Retained earnings

    857,141

    866,215

    Accumulated other comprehensive income

    (12,655)

    54,358

    Total Hollysys Automation Technologies Ltd. stockholder’s equity

    1,165,287

    1,227,762

    Non-controlling interests

    541

    477

    Total equity

    1,165,828

    1,228,239

    Total liabilities and equity

    $

    1,671,773

    $

    1,732,970

    HOLLYSYS AUTOMATION TECHNOLOGIES LTD

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (In USD thousands).

     

    Three months ended

    Fiscal year ended

    June 30, 2022

    June 30, 2022

    (Unaudited)

    (Unaudited)

    Cash flows from operating activities:

    Net income

    $

    23,177

    $

    82,993

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

    Depreciation of property, plant and equipment

    2,568

    10,263

    Amortization of prepaid land leases

    70

    382

    Amortization of intangible assets

    311

    1,356

    Allowance for credit losses

    7,411

    16,122

    Gains on disposal of property, plant and equipment

    (52)

    (75)

    Share of net income of equity investees

    (1,280)

    (1,838)

    Share-based compensation expenses

    1,327

    9,709

    Deferred income tax expenses

    10,981

    4,179

    Losses on disposal of subsidiaries

    3

    3

    Impairment loss on investment in a cost investee

    773

    773

    Gains on disposal of an investment in an equity investee

    25

    (7,995)

    Changes in operating assets and liabilities:

    Accounts receivable and retention

    12,682

    (11,807)

    Costs and estimated earnings in excess of billings

    (20,444)

    (39,839)

    Inventories 

    (6,636)

    (40,007)

    Advances to suppliers

    (3,184)

    (14,274)

    Other receivables 

    1,251

    (3,425)

    Prepaid expenses

    80

    257

    Due from related parties

    (8,528)

    4,903

    Accounts payable

    5,570

    28,470

    Deferred revenue

    5,541

    19,221

    Accruals and other payables

    (146)

    (16,417)

    Due to related parties

    4,049

    4,638

    Income tax payable

    (4,373)

    1,423

    Other tax payables

    7,650

    5,511

    Net cash provided by operating activities

    38,826

    54,526

    Cash flows from investing activities:

    Purchases of short-term investments

    (6,937)

    (64,383)

    Purchases of property, plant and equipment

    (7,291)

    (26,369)

    Proceeds from disposal of a subsidiary

     

    –

    3,797

    Proceeds from disposal of property, plant and equipment

    63

    140

    Maturity of short-term investments

    37,813

    100,562

    Investment of an equity investee

     

    –

    (1,261)

    Proceeds received from disposal of equity investments

    –

    9,497

    Acquisition of a subsidiary, net of cash acquired

    –

    (8,726)

    Net cash provided by investing activities

    23,648

    13,257

    Cash flows from financing activities:

    Proceeds from short-term bank loans

    68

    128

    Repayments of short-term bank loans

    1

    (59)

    Proceeds from long-term bank loans

    537

    876

    Repayments of long-term bank loans

    (151)

    (673)

    Payment of dividends

    (19,828)

    (19,828)

    Net cash used in financing activities

    (19,373)

    (19,556)

    Effect of foreign exchange rate changes

    (36,197)

    (24,747)

    Net increase in cash, cash equivalents and restricted cash

    $

    6,904

    23,480

    Cash, cash equivalents and restricted cash, beginning of period

    $

    712,123

    695,547

    Cash, cash equivalents and restricted cash, end of period

    719,027

    719,027

    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

    Fiscal year ended

    June 30,

    June 30,

    2022

    2021

    2022

    2021

    (Unaudited)

    (Unaudited)

    (Unaudited)

    (Unaudited)

    Gross profit

    $

    61,335

    $

    60,059

    $

    239,357

    $

    218,279

    Gross margin(1)

    33.7 %

    37.8 %

    33.8 %

    36.8 %

    Add:

      Amortization of acquired intangible assets

    353

    90

    1,356

    316

    Non-GAAP gross profit

    $

    61,688

    $

    60,149

    $

    240,713

    $

    218,595

    Non-GAAP gross margin(2)

    33.9 %

    37.9 %

    34.0 %

    36.8 %

    __________

    (1)           Gross margin represents gross profit for the period as a percentage of revenues for such period.

    (2)           Non-GAAP gross margin represents non-GAAP gross profit for the period as a percentage of revenues 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 June 30,

    Fiscal year ended June 30,

    2022

    2021

    2022

    2021

    (Unaudited)

    (Unaudited)

    (Unaudited)

    (Unaudited)

    Gross profit of integrated
        solutions contracts

    $

    40,426

    $

    35,095

    $

    151,331

    $

    123,709

    Gross margin of integrated

        solutions contracts(1)

    27.1 %

    27.8 %

    26.4 %

    26.9 %

    Add:

      Amortization of acquired intangible
        assets

    353

    90

    1,356

    316

    Non-GAAP gross profit of
        integrated solutions contracts

    $

    40,779

    $

    35,185

    $

    152,687

    $

    124,025

    Non-GAAP gross margin of
        integrated solutions contracts(2)

    27.3 %

    27.9 %

    26.6 %

    27.0 %

    __________

    (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

    Fiscal year ended

    June 30,

    June 30,

    2022

    2021

    2022

    2021

    (Unaudited)

    (Unaudited)

    (Unaudited)

    (Unaudited)

    Net income attributable to Hollysys Automation
        Technologies Ltd.

    $

    23,022

    $

    21,937

    $

    83,182

    $

    89,709

    Add:

    Share-based compensation expenses

    1,327

    6,036

    9,709

    9,724

    Amortization of acquired intangible assets

    353

    90

    1,356

    316

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

    $

    24,702

    $

    28,063

    $

    94,247

    $

    99,749

    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

    Fiscal year ended

    June 30,

    June 30,

    2022

    2021

    2022

    2021

    (Unaudited)

    (Unaudited)

    (Unaudited)

    (Unaudited)

    Net income attributable to Hollysys 
        Automation Technologies Ltd.

    $

    23,022

    $

    21,937

    $

    83,182

    $

    89,709

    Add:

    Share-based compensation expenses

    1,327

    6,036

    9,709

    9,724

    Amortization of acquired intangible assets

    353

    90

    1,356

    316

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

    $

    24,702

    $

    28,063

    $

    94,247

    $

    99,749

    Weighted average number of basic ordinary
        shares

    61,195,317

    60,698,727

    61,007,506

    60,566,709

    Weighted average number of diluted ordinary
        shares

    61,788,905

    61,025,425

    61,568,176

    61,513,749

    Basic earnings per share(1)

    $

    0.38

    $

    0.36

    $

    1.36

    $

    1.48

    Add:
        Non-GAAP adjustments to net income per

        share(2)

    0.02

    0.10

    0.18

    0.17

        Non-GAAP basic earnings per share(3)

    $

    0.40

    $

    0.46

    $

    1.54

    $

    1.65

    Diluted earnings per share(1)

    $

    0.37

    $

    0.36

    $

    1.35

    $

    1.46

    Add:
        Non-GAAP adjustments to net income per
        share(2)

    0.03

    0.10

    0.18

    0.16

    Non-GAAP diluted earnings per share(3)

    $

    0.40

    $

    0.46

    $

    1.53

    $

    1.62

    ________

    (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 are 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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