Hollysys Automation Technologies Reports Unaudited Financial Results for Fiscal Year 2014 Second Quarter Ended on December 31, 2013

BEIJING, Feb. 17, 2014 /PRNewswire-FirstCall/ -- Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for the fiscal year 2014 second quarter ended on December 31, 2013 (see attached tables).

Q2 Financial Highlights

• Quarterly revenues of $153.4 million, representing an increase of 75.9% compared to $87.2 million year over year, and an increase of 35.5% compared to $113.2 million quarter over quarter.
• Gross margin at 31.0%, as compared to 32.1% year over year, and 35.7% quarter over quarter.
• Non-GAAP net income attributable to Hollysys of $25.9 million, a 90.7% increase compared to $13.6 million year over year, and a 27.4% increase compared to $20.4 million quarter over quarter.
• Non-GAAP Diluted EPS at $0.45 reported for the quarter, as compared to $0.24 year over year, and $0.35 quarter over quarter.
• Backlog of $503.3 million as of December 31, 2013, a 40.0% increase compared to $359.6 million year over year, and 2.4% decrease compared to $515.9 million quarter over quarter.
• Quarterly DSO of 156 days, as compared to 161 days year over year, and 175 days quarter over quarter.
• Inventory turnover days of 27 days for the current quarter compared to 42 days year over year, and 43 days quarter over quarter.
• The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.1 million as of the current quarter end.

The management of Hollysys stated: "We are very excited to report a solid financial and operational result for the second quarter of this fiscal year, here I would like to discuss some key events during this quarter:

"During this quarter, we insisted in executing our strategies to vertically penetrate in the high-end industrial automation market and improve our market share in mid to low end markets, and to horizontally explore the potentials of each customer to supply entire automation and control solutions and service leveraging our complete and mature products and platforms. Both new orders and revenue of industrial automation delivered strong growth, there were satisfied achievements in some particular industries, for instance, thermal power, chemical, petrol chemical, cement, metallurgy and etc. Going forward, we believe that we will increase our overall market share in the industrial automation, nurture and quickly take commanding height in our new businesses leveraging our advanced technologies, experienced professionals, profound industry expertise, and customization and innovation capability.

"In rail transportation, we have seen meaningful progress and consistent revenue contribution in high-speed rail signaling field. We are encouraged by the continuous contract wins to provide the Automatic Train Protection (ATP) equipment and system for 200-250km/h and 300-350km/h high-speed trains recently. Moreover, our proprietary ZPW-2000s Track Circuit was successfully applied in Beijing Xiaohongmen - Baiziwan trial railway line, and passed the trail operation examination by Beijing Railway Bureau. This will expand our products providing in the railway transportation market and will grow to be another revenue growth driver for Hollysys in the future. All in all, as a well-recognized rail signaling system provider, we are confident that with strong R&D capability, solid execution and reliable products, Hollysys will continue to penetrate China's vast railway construction market and explore international opportunities.

"For the overseas industrial automation and rail transportation expansion, we are sending qualified and experienced engineers from China to overseas, and recruiting local engineers to expand our overseas team. With our proprietary technology, industry expertise and strong competitive advantages, together with our expanded local channels through Bond and Concord, we will continue to make exciting achievements in the international market in both industrial and rail transportation fields."

The Second Quarter Ended December 2013 Unaudited Financial Results Summary

To facilitate a clear understanding of Hollysys' operational results, a summary of unaudited non-GAAP financial results is shown as below:

In USD thousands, except share numbers and EPS

Operational Results Analysis for the Second Quarter Ended December 31, 2013

For the three months ended December 31, 2013, total revenues increased by 75.9% to $153.4 million, from $87.2 million for the same period in the prior year. Of the total revenues, revenue from integrated contracts increased by 81.8% to $147.6 million, as compared to $81.2 million for the same period of the prior year; revenue from products sales decreased by 2.9% to $5.8 million, as compared to $6.0 million for the same period of the prior year. The Company's total revenue by segment was as follows:

As a percentage of total revenues, overall gross margin excluding non-cash amortization of acquired intangibles was 32.3% for the three months ended December 31, 2013, as compared to 32.1% for the same period of the prior year. The gross margin for integrated contracts and product sales excluding non-cash amortization of acquired intangibles were 30.6% and 74.2% for the three months ended December 31, 2013, as compared to 29.8% and 63.8% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. Including non-cash amortization of acquired intangibles, recorded on a GAAP basis, overall gross margin was 31.0% for the three months ended December 31, 2013, as compared to 32.1% for the same period of the prior year. The gross margin for integrated contracts and product sales including non-cash amortization of acquired intangibles, were 29.2% and 74.2% for the three months ended December 31, 2013, as compared to 29.8% and 63.8% for the same period of the prior year respectively.

For the three months ended December 31, 2013, selling expenses were $9.5 million, as compared to $8.1 million for the same quarter of the prior year, representing an increase of $1.4 million or 16.9% year over year. As a percentage of total revenues, selling expenses were 6.2% and 9.3% for the three months ended December 31, 2013, and 2012, respectively.

General and administrative expenses, excluding non-cash share-based compensation expense, were $8.9 million for the quarter ended December 31, 2013, representing an increase of $4.8 million, or 115.0%, as compared to $4.1 million for the same period of the prior year. The increase was mainly consisted of an increase of $1.5 million from the newly acquired company Bond Corporation Pte. Ltd. and its subsidiaries (Bond), and an increase of $1.9 million in bad debt allowance. As a percentage of total revenues, G&A expenses were 5.8% and 4.8% for the three months ended December 31, 2013 and 2012, respectively. Including the non-cash share-based compensation expense, recorded on a GAAP basis, G&A expenses were $10.1 million and $4.7 million for the three months ended December 31, 2013 and 2012, respectively.

Research and development expenses were $12.2 million for the three months ended December 31, 2013, as compared to $8.3 million for the same quarter of the prior year, representing a year over year increase of $3.9 million, or 46.9%. The increase was mainly due to an increase in certification fees. As a percentage of total revenues, R&D expenses were 8.0% and 9.6% for the quarter ended December 31, 2013 and 2012, respectively.

The VAT refunds and government subsidies amounted to $10.4 million for three months ended December 31, 2013, as compared to $7.3 million for the same period in the prior year.  

The income tax expenses and the effective tax rate were $3.6 million and 16.3% for the three months ended December 31, 2013, as compared to $2.6 million and 16.8% for the same prior year period.

For the three months ended December 31, 2013, the non-GAAP net income attributable to Hollysys excluding non-cash stock compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $25.9 million or $0.45 per diluted share based on 58.2 million shares outstanding. This represents an increase of $12.3 million, or 90.7%, over the $13.6 million, or $0.24 per share based on 56.1 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $18.3 million, or $0.32 per diluted share representing an increase of $5.2 million or 40.1%, over the $13.1 million, or $0.23 per diluted share reported in the prior year period.  

Backlog Highlights

Hollysys' backlog as of December 31, 2013 was $503.3 million, representing a decrease of 2.4% compared to $515.9 million as of September 30, 2013, and an increase of 40.0% compared to $359.6 million as of December 31, 2013. The detailed breakdown of the backlog by segment was as follows:

Cash Flow Highlights

The net cash provided by operating activities was $24.4 million for the three months ended December 31, 2013; including investing and financing activities, the total net cash inflows for this quarter was $22.4 million. Of the total net cash inflows, there was a net cash inflow of matured time deposits with original maturities over three months amounting to $2.4 million and proceeds from bank loan amounting to $3.8 million, a net cash outflow of repayment bank loans amounting to $4.3 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $150.1 million, $129.4 million, and $133.5 million as of December 31, September 30, 2013, and December 31, 2012, respectively. Of the total $150.1 million as of December 31, 2013, cash and cash equivalents were $135.1 million, and time deposits with original maturities over three months were $15.0 million.

For the three months ended December 31, 2013, Days Sales Outstanding ("DSO") was 156 days, as compared to 161 days year over year and 175 days quarter over quarter; and inventory turnover was 27 days, as compared to 42 days year over year and 44 days quarter over quarter.

Outlook for FY 2014

Hollysys management concluded, "In view of solid industrial automation growth, strong recovery of high-speed rail signaling segment, and future exciting growth momentum envisioned, we are revising up our fiscal year 2014 revenue guidance from previous $460 million to $490 million, to $500 million to $530 million and non-GAAP net income guidance from previous $65 million to $69 million, to $84 million to $86 million. Going into the future, Hollysys will continue to leverage on its core growth pillar foundations of its proprietary technology, profound industry expertise and solution capabilities to increase its market share in respective high-growth end markets. Besides, Hollysys will continue to set up strategic alliance with industry leading organizations to penetrate into the new market and accelerate its growth pace, to create long-term value for our shareholders."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 a.m. Beijing Time on February 18, 2014 / 8:00 p.m. U.S. Eastern Time on February 17, 2014. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Hollysys Automation Technologies conference call. The conference call identification number is 7665757.

4001-200-539 (China)
+1-855-298-3404 (United States)
800-905-927 (Hong Kong)
+852-5808-3202 (Hong Kong)
0800-015-9725 (United Kingdom)
+44(0)20 3078 7622 (United Kingdom)
800-616-3222 (Singapore)
+65 6823 2299 (Singapore)

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at: http://ir.hollysys.com/.

About Hollysys Automation Technologies, Ltd.

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,800 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 5,000 customers more than 20,000 projects in the industrial, railway, subway & nuclear industries in China, South-East Asia, and the Middle East. Its proprietary technologies are applied in its industrial automation solution suite including DCS (Distributed Control System), PLC (Programmable Logic Controller), RMIS (Real-time Management Information System), HAMS (HolliAS Asset Management System), OTS (Operator Training System), HolliAS BATCH (Batch Application Package), HolliAS APC Suite (Advanced Process Control Package), SIS (Safety Instrumentation System), high-speed railway signaling system of TCC (Train Control Center), ATP (Automatic Train Protection), Subway Supervisory and Control platform, SCADA (Surveillance Control and Data Acquisition), nuclear power automation and control system and other products.

SAFE HARBOUR:

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

Contact Information:

Hollysys Automation Technologies, Ltd.
www.hollysys.com

Investor Relations
+8610-58981386
[email protected]

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP general and administrative expenses (hereafter "Non-GAAP G&A expenses"), "Non-GAAP cost of integrated contracts", "Non-GAAP other income, net", "Non-GAAP interest expenses", "Non-GAAP net income attributable to Hollysys" and "Non-GAAP earnings per share" serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with US GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the 1) share-based compensation expenses, 2) amortization of acquired intangibles and 3) acquisition-related consideration adjustments. They will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects. In addition, given the business nature of Hollysys, it has been a common practice for investors and analysts to use such non-GAAP measures to evaluate the Company. 

The following table provides a reconciliation of U.S. GAAP measures to the non-GAAP measures for the periods indicated:

SOURCE Hollysys Automation Technologies, Ltd.