Hollysys Automation Technologies Reports Unaudited Financial Results for the Third Quarter and the First Nine Months Ended March 31, 2024

First Nine Months of Fiscal Year 2024 Financial Highlights

Total revenues were $597.1 million, an increase of 2.5% compared to the comparable prior year period. Gross margin was 31.0%, compared to 33.4% for the comparable prior year period. Non-GAAP gross margin was 31.2%, compared to 33.6% for the comparable prior year period. Net income attributable to Hollysys was $49.7 million, a decrease of 38.8% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $51.0 million, a decrease of 40.1% compared to the comparable prior year period.  Diluted earnings per share was $0.80, a decrease of 38.9% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.82, a decrease of 40.1% compared to the comparable prior year period. Net cash provided by operating activities was $50.9 million. Days sales outstanding ("DSO") was 151 days, compared to 151 days for the comparable prior year period. Inventory turnover days were 79 days, compared to 78 days for the comparable prior year period.

Third Quarter of Fiscal Year 2024 Financial Highlights

Total revenues were $173.5 million, an increase of 3.5% compared to the comparable prior year period. Gross margin was 28.9%, compared to 26.8% for the comparable prior year period. Non-GAAP gross margin was 29.1%, compared to 27.0% for the comparable prior year period. Net income attributable to Hollysys was $3.9 million, a decrease of 66.2% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $4.2 million, a decrease of 66.6% compared to the comparable prior year period. Diluted earnings per share was $0.06, a decrease of 68.4% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.07, a decrease of 65.0% compared to the comparable prior year period. Net cash used in operating activities was $37.4 million. DSO was 183 days, compared to 176 days for the comparable prior year period. Inventory turnover days were 84 days, compared to 87 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 17, 2024 /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 2024 ended March 31, 2024.

In this fiscal quarter, Hollysys overcame numerous challenges and achieved remarkable breakthroughs. Leveraging its years of technological strength, the Company was recognized as one of the Top 50 Brands in China’s Automation and Digitalization Industry for 2024. Additionally, the Company was successfully named in the first batch in the classification and grading assessment for intelligent manufacturing system solution providers, receiving AAA-level rating for integrated implementation. The Company was also honored with the titles of "Enterprise of the Year 2023 in China’s Automation Field" and "2023 Beijing Benchmark Enterprise for Digital Empowerment." Furthermore, the Company secured national high-tech enterprise accreditation for the sixth consecutive times in this quarter, which demonstrates its innovation capabilities.

In the Industrial Automation segment, the Company successfully collaborated with a subsidiary of Ansteel Group to carry out the retrofit and upgrade of a 2*2.4 million tons coal pelletizing DCS/IODS project, providing multiple products including the MACS V6 series DCS controller. This project achieved independent control and intelligent transformation of the pelletizing production process control in the iron and steel industry. Meanwhile, the Company successfully supported the grid-connected power generation project of a 300-megawatt compressed air energy storage power station in China, which was designated as a national pilot demonstration for new energy storage. In this project, the Company utilized its key product K-series hardware for the core expander control system and designed Automatic Power Plant Startup and Shutdown System with outstanding advantages such as simple operation, high reliability, strong safety, and convenient start-stop, to accommodate frequent startup and shutdown conditions. This project innovatively integrated Hollysys’ diverse range of superior products, showcasing the exceptional compatibility and operability between Hollysys products. The Company also successfully signed a contract within the food and pharmaceutical sectors to undertake the integrated intelligent management and control project for an ampicillin workshop. The Company will provide its HiaPlant intelligent factory solution, which encompassed an integrated intelligent management and control system including instrumentation, Distributed Control System (DCS), Intelligent Operating Data System (IODS), Operator Training Simulator (OTS), among others, aiming to achieve the overall intelligence of the project. Additionally, the Company will also adopt the Industrial Optical Bus Control System (OCS) based on the actual situation of the client, which is expected to effectively save total cost, significantly reduce the cabinet space, and ensure the safety and reliability of the production process.

In the Rail Transportation Automation segment, the Company continued to promote the innovation and integration of new technologies and industries, and foster diverse cooperation mechanisms to promote the high-quality development of the rail transit industry. Meanwhile, the Company’s technological strength gained recognition in the industry. In this fiscal quarter, Hollysys was certified with International Railway Industry Standard (IRIS) silver level. Notably, the scientific and technological achievements of "ZPW-2000S Track Circuit contactless key technology research and high-altitude engineering application" won the First Prize of the Science and Technology Progress Award. Additionally, the "research and demonstration application of key technologies of urban rail transit cloud edge computing platform" was awarded the Second Prize of 2023 Urban Rail Transit Science and Technology Progress Award. In the high-speed rail sector, the Company signed the contract for the train control project of the new-build Xiangyang-Jingmen high-speed railway, providing Train Control Center (TCC), Lineside Electronic Unit (LEU), and safety data network for the project. The project presents great significance for the Company in terms of sustainable development, enabling it to introduce other projects for expansion and renovation in the future. In addition, the full site testing of the first station of the Ziyang Rail Transit Line, in which the Company participated, achieved phased results. The Company provided Integrated Supervisory Control System (ISCS), Building Automation System (BAS), Supervisor Control and Data Acquisition (SCADA), communication systems and so forth for the project.

In the mechanical and electrical solutions ("M&E") segment, the Company achieved stable performance with smooth executions on various projects.

With the Company’s continuous dedication to the industry and the support of experienced and passionate experts, Hollysys believes that it will continue to create greater value for clients and shareholders.

Third Quarter and the First Nine months Ended March 31, 2024 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,

2024

2023

% Change

2024

2023

% Change

Revenues

$

173,466

167,636

3.5 %

$

597,090

582,410

2.5 %

    Integrated solutions contracts

$

138,455

139,149

(0.5) %

$

468,674

471,204

(0.5) %

    Products sales

$

16,474

10,386

58.6 %

$

40,195

34,174

17.6 %

    Service rendered

$

18,537

18,101

2.4 %

$

88,221

77,032

14.5 %

Cost of revenues

$

123,343

122,641

0.6 %

$

411,779

387,727

6.2 %

Gross profit

$

50,123

44,995

11.4 %

$

185,311

194,683

(4.8) %

Total operating expenses

$

47,404

33,973

39.5 %

$

134,569

119,269

12.8 %

    Selling

$

15,470

14,577

6.1 %

$

51,524

43,615

18.1 %

    General and administrative

$

22,771

11,921

91.0 %

$

47,165

44,394

6.2 %

    Research and development

$

19,287

15,662

23.1 %

$

65,912

53,452

23.3 %

    VAT refunds and government subsidies

$

(10,124)

(8,187)

23.7 %

$

(30,032)

(22,192)

35.3 %

Income from operations

$

2,719

11,022

(75.3) %

$

50,742

75,414

(32.7) %

Other income, net

$

1,139

1,626

(30.0) %

$

836

2,748

(69.6) %

Foreign exchange gain (loss)

$

207

(1,244)

(116.6) %

$

(847)

2,280

(137.1) %

Impairment loss of investments in securities

$

–

–

–

$

(69)

–

–

Share of net (loss) income of equity     investees

$

(912)

690

(232.2) %

$

(614)

2,355

(126.1) %

Gains on disposal of an investment in     securities

$

–

–

–

$

–

845

(100.0) %

Interest income

$

3,675

2,941

25.0 %

$

10,343

9,020

14.7 %

Interest expenses

$

(704)

(252)

179.4 %

$

(1,435)

(621)

131.1 %

Income tax expenses

$

2,320

3,188

(27.2) %

$

9,444

10,694

(11.7) %

Net (loss) income attributable to non-    controlling interests

$

(105)

27

(488.9) %

$

(177)

136

(230.1) %

Net income attributable to Hollysys     Automation Technologies Ltd.

$

3,909

11,568

(66.2) %

$

49,689

81,211

(38.8) %

Basic earnings per share

$

0.06

0.19

(68.4) %

$

0.80

1.32

(39.4) %

Diluted earnings per share

$

0.06

0.19

(68.4) %

$

0.80

1.31

(38.9) %

Share-based compensation expenses

$

–

672

(100.0) %

$

348

2,849

(87.8) %

Amortization of acquired intangible assets

$

290

340

(14.7) %

$

937

1,017

(7.9) %

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

$

4,199

12,580

(66.6) %

$

50,974

85,077

(40.1) %

Non-GAAP basic earnings per share(1)

$

0.07

0.20

(65.0) %

$

0.82

1.38

(40.6) %

Non-GAAP diluted earnings per share(1)

$

0.07

0.20

(65.0) %

$

0.82

1.37

(40.1) %

Basic weighted average number of ordinary     shares outstanding

62,127,607

61,595,286

0.9 %

61,987,252

61,449,939

0.9 %

Diluted weighted average number of     ordinary shares outstanding

62,426,784

62,127,557

0.5 %

62,312,957

62,015,929

0.5 %

(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, 2024

Total revenues for the three months ended March 31, 2024 were $173.5 million, as compared to $167.6 million for the same period of the prior fiscal year, representing an increase of 3.5%. In terms of revenues by type, integrated contracts revenue decreased by 0.5% to $138.5 million, products sales revenue increased by 58.6% to $16.5 million, and services revenue increased by 2.4% to $18.5 million.

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

(In USD thousands, except for %)

Three months ended March 31,

Nine months ended March 31,

2024

2023

2024

2023

$

% of Total Revenues

$

% of Total Revenues

$

% of Total Revenues

$

% of Total Revenues

Industrial Automation

117,361

67.6

112,407

67.0

369,764

61.9

365,183

62.7

Rail Transportation

39,998

23.1

36,197

21.6

164,333

27.5

153,265

26.3

Mechanical and Electrical Solution

16,107

9.3

19,032

11.4

62,993

10.6

63,962

11.0

Total

173,466

100.0

167,636

100.0

597,090

100.0

582,410

100.0

Gross margin was 28.9% for the three months ended March 31, 2024, as compared to 26.8% 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 18.9%, 75.3% and 62.4% for the three months ended March 31, 2024, respectively, as compared to 18.3%, 69.5% and 68.3% for the same period of the prior fiscal year. Non-GAAP gross margin was 29.1% for the three months ended March 31, 2024, as compared to 27.0% for the same period of the prior fiscal year. Non-GAAP gross margin of integrated solutions contracts was 19.1% for the three months ended March 31, 2024, as compared to 18.5% 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 $15.5 million for the three months ended March 31, 2024, representing an increase of $0.9 million, or 6.1%, compared to $14.6 million for the same period of the prior fiscal year. Selling expenses as a percentage of total revenues were 8.9% and 8.7% for the three months ended March 31, 2024 and 2023, respectively.

General and administrative expenses were $22.8 million for the quarter ended March 31, 2024, representing an increase of $10.9 million, or 91.0%, compared to $11.9 million for the same period of the prior fiscal year. The increase was primarily attributable to a $6.9 million increase in third-party consulting fees and a $2.6 million increase in credit losses. General and administrative expenses as a percentage of total revenues were 13.1% and 7.1% for the three months ended March 31, 2024 and 2023, respectively. 

Research and development expenses were $19.3 million for the three months ended March 31, 2024, representing an increase of $3.6 million, or 23.1%, compared to $15.7 million for the same period of the prior fiscal year, which was primarily due to a $3.7 million increase in labor cost for the increase in research and development staff for strategic technological innovation. Research and development expenses as a percentage of total revenues were 11.1% and 9.3% for the three months ended March 31, 2024 and 2023, respectively.

The VAT refunds and government subsidies were $10.1 million for three months ended March 31, 2024, as compared to $8.2 million for the same period of the prior fiscal year, representing a $1.9 million, or 23.7%, increase.

The income tax expenses and the effective tax rate were $2.3 million and 37.9% for the three months ended March 31, 2024, respectively, as compared to $3.2 million and 21.6% 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 $3.9 million, representing a decrease of 66.2% from $11.6 million reported in the comparable period in the prior fiscal year. Non-GAAP net income attributable to Hollysys, was $4.2 million or $0.07 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 $0.06 for the three months ended March 31, 2024, a decrease of 68.4% from $0.19 reported in the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.07 for the three months ended March 31, 2024, a decrease of 65.0% from $0.20 reported in the comparable period in the prior fiscal year. These were calculated based on 62.4 million and 62.1 million diluted weighted average ordinary shares outstanding for the three months ended March 31, 2024 and 2023, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $240.4 million of value of new contracts for the three months ended March 31, 2024. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won. The backlog was $992.2 million as of March 31, 2024. 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, 2024

as of March 31, 2024

$

% of Total Contract Value

$

% of Total Backlog

Industrial Automation

183,941

76.5

412,094

41.5

Rail Transportation

34,158

14.2

393,073

39.6

Mechanical and Electrical Solutions

22,328

9.3

187,053

18.9

Total

240,427

100.0

992,220

100.0

Cash Flow Highlights

For the three months ended March 31, 2024, the total net cash outflow was $50.0 million. The net cash used in operating activities was $37.4 million. The net cash used in investing activities was $6.5 million, mainly consisting of $1.5 million purchases of short-term investments and $4.9 million purchases of property, plant and equipment. The net cash provided by financing activities was $2.2 million, mainly consisting of $2.3 million proceeds from long-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $697.9 million, $747.5 million, and $640.2 million as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

For the three months ended March 31, 2024, DSO was 183 days, as compared to 176 days for the comparable period of prior fiscal year and 138 days for the last fiscal quarter; inventory turnover days were 84 days, as compared to 87 days for the comparable period of prior fiscal year and 68 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, 2023, Hollysys had cumulatively carried out more than 45,000 projects for approximately 23,000 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+8610-58981386investors@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,

2024

2023

2024

2023

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Integrated solutions contracts

$

138,455

$

139,149

$

468,674

$

471,204

Products sales

16,474

10,386

40,195

34,174

Revenue from services

18,537

18,101

88,221

77,032

Total net revenues

173,466

167,636

597,090

582,410

Costs of integrated solutions contracts

112,303

113,732

371,276

351,879

Cost of products sold

4,061

3,170

10,501

8,410

Costs of services rendered

6,979

5,739

30,002

27,438

Gross profit

50,123

44,995

185,311

194,683

Operating expenses

Selling

15,470

14,577

51,524

43,615

General and administrative

22,771

11,921

47,165

44,394

Research and development

19,287

15,662

65,912

53,452

VAT refunds and government subsidies

(10,124)

(8,187)

(30,032)

(22,192)

Total operating expenses

47,404

33,973

134,569

119,269

Income from operations

2,719

11,022

50,742

75,414

Other income, net

1,139

1,626

836

2,748

Foreign exchange gain (loss)

207

(1,244)

(847)

2,280

Gains on disposal of an investment in securities

–

–

–

845

Impairment loss of investments in investment in securities

–

–

(69)

–

Share of net (loss) income of equity investees

(912)

690

(614)

2,355

Interest income

3,675

2,941

10,343

9,020

Interest expenses

(704)

(252)

(1,435)

(621)

Income before income taxes

6,124

14,783

58,956

92,041

Income taxes expenses

2,320

3,188

9,444

10,694

Net income

3,804

11,595

49,512

81,347

Net (loss) income attributable to non-controlling interests

(105)

27

(177)

136

Net income attributable to Hollysys Automation Technologies Ltd.

$

3,909

$

11,568

$

49,689

$

81,211

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

Translation adjustments

(16,355)

20,805

4,792

(29,577)

Comprehensive income

(12,551)

32,400

54,304

51,770

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

(122)

345

(177)

536

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

$

(12,429)

$

32,055

$

54,481

$

51,234

Net income per ordinary share:

Basic

0.06

0.19

0.80

1.32

Diluted

0.06

0.19

0.80

1.31

Shares used in net income per share computation:

Basic

62,127,607

61,595,286

61,987,252

61,449,939

Diluted

62,426,784

62,127,557

62,312,957

62,015,929

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

March 31,

December 31,

2024

2023

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

697,936

$

747,507

Short-term investments

9,902

9,074

Restricted cash

24,217

24,492

Accounts receivable, net of allowance for credit losses of $64,232 and $62,968 as     of March 31, 2024 and December 31, 2023, respectively

330,311

352,399

Costs and estimated earnings in excess of billings, net of allowance for credit losses     of $12,698 and $12,431 as of March 31, 2024 and December 31, 2023,     respectively

253,859

244,154

Accounts receivable retention

5,128

5,297

Other receivables, net of allowance for credit losses of $15,796 and $15,707 as of     March 31, 2024 and December 31, 2023, respectively

21,871

16,011

Advances to suppliers

29,059

31,687

Amounts due from related parties

30,521

22,482

Inventories

111,061

106,691

Prepaid expenses

778

441

Income tax recoverable

1,109

1,115

Total current assets

1,515,752

1,561,350

Non-current assets

Restricted cash

11,297

11,425

Costs and estimated earnings in excess of billings

2,086

1,570

Accounts receivable retention

6,337

7,070

Prepaid expenses

3

2

Property, plant and equipment, net

162,225

164,833

Prepaid land leases

11,278

11,569

Intangible assets, net

8,169

8,598

Investments in equity investees

47,887

48,683

Investments securities

1,535

1,552

Goodwill

19,247

19,359

Deferred tax assets

12,404

9,454

Operating lease right-of-use assets

2,985

3,435

Total non-current assets

285,453

287,550

Total assets

1,801,205

1,848,900

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Short-term bank loans

53

67

Current portion of long-term loans

15,241

15,245

Accounts payable

173,457

181,618

Construction costs payable

15,443

18,650

Deferred revenue

216,702

223,005

Accrued payroll and related expenses

21,521

39,496

Income tax payable

5,221

4,004

Warranty liabilities

3,712

3,663

Other tax payables

5,604

10,540

Accrued liabilities

39,263

35,580

Amounts due to related parties

3,890

4,043

Operating lease liabilities

1,497

1,934

Total current liabilities

501,604

537,845

Non-current liabilities

Accrued liabilities

728

666

Long-term loans

50,279

48,638

Accounts payable

2,789

2,851

Deferred tax liabilities

11,178

11,665

Warranty liabilities

2,564

2,573

Operating lease liabilities

1,180

1,227

Total non-current liabilities

68,718

67,620

Total liabilities

570,322

605,465

Commitments and contingencies

–

–

Stockholders’ equity:

Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized;     62,199,672 shares and 62,095,839 shares issued and outstanding as of March     31, 2024 and December 31, 2023.

62

62

Additional paid-in capital

247,255

247,256

Statutory reserves

86,914

81,060

Retained earnings

1,003,430

1,005,375

Accumulated other comprehensive income

(107,625)

(91,287)

Total Hollysys Automation Technologies Ltd. stockholder’s equity

1,230,036

1,242,466

Non-controlling interests

847

969

Total equity

1,230,883

1,243,435

Total liabilities and equity

$

1,801,205

$

1,848,900

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

Three months ended

Nine months ended

March 31, 2024

March 31, 2024

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

3,804

$

49,512

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

Depreciation of property, plant and equipment

2,969

7,543

Amortization of prepaid land leases

81

244

Amortization of intangible assets

290

937

Allowance for credit losses

2,915

(4,924)

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

(70)

(136)

Share of net income (loss) of equity investees

912

614

Share-based compensation expenses

–

348

Deferred income tax expenses

(3,456)

(2,337)

Impairment loss of investments in investment in securities

–

69

Changes in operating assets and liabilities:

Accounts receivable and retention

13,100

(11,796)

Costs and estimated earnings in excess of billings

(13,117)

427

Inventories 

(5,554)

1,753

Advances to suppliers

2,266

(424)

Other receivables 

(6,033)

(2,442)

Prepaid expenses

(344)

(180)

Due from related parties

(8,280)

(4,482)

Accounts payable

(5,837)

2,089

Deferred revenue

(3,707)

33,372

Accruals and other payables

(13,646)

(10,376)

Due to related parties

(154)

(2,265)

Income tax payable

1,250

(1,679)

Other tax payables

(4,803)

(4,983)

Net cash (used in) provided by operating activities

(37,414)

50,884

Cash flows from investing activities:

Purchases of short-term investments

(1,492)

(21,965)

Purchases of property, plant and equipment

(4,873)

(25,499)

Proceeds from disposal of property, plant and equipment

111

268

Maturity of short-term investments

399

45,260

Investment of an investment in securities

–

(35)

Investment of an equity investee

(664)

(664)

Proceeds from acquisition of a subsidiary

–

390

Net cash used in investing activities

(6,519)

(2,245)

Cash flows from financing activities:

Proceeds from short-term bank loans

171

237

Repayments of short-term bank loans

(184)

(184)

Proceeds from long-term bank loans

2,348

33,915

Repayments of long-term bank loans

(136)

(510)

Net cash provided by financing activities

2,199

33,458

Effect of foreign exchange rate changes

(8,240)

3,223

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

$

(49,974)

85,320

Cash, cash equivalents and restricted cash, beginning of period

$

783,424

648,130

Cash, cash equivalents and restricted cash, end of period

733,450

733,450

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

2024

2023

2024

2023

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit

$

50,123

$

44,995

185,311

$

194,683

Gross margin(1)

28.9 %

26.8 %

31.0 %

33.4 %

Add:

  Amortization of acquired intangible assets

290

340

937

1,017

Non-GAAP gross profit

$

50,413

$

45,335

$

186,248

$

195,700

Non-GAAP gross margin(2)

29.1 %

27.0 %

31.2 %

33.6 %

(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,

2024

2023

2024

2023

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit of integrated     solutions contracts

$

26,152

$

25,417

$

97,398

$

119,325

Gross margin of integrated     solutions contracts(1)

18.9 %

18.3 %

20.8 %

25.3 %

Add:

  Amortization of acquired intangible     assets

290

340

937

1,017

Non-GAAP gross profit of     integrated solutions contracts

$

26,442

$

25,757

$

98,335

$

120,342

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

19.1 %

18.5 %

21.0 %

25.5 %

(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,

2024

2023

2024

2023

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income attributable to Hollysys Automation     Technologies Ltd.

$

3,909

$

11,568

$

49,689

$

81,211

Add:

Share-based compensation expenses

–

672

348

2,849

Amortization of acquired intangible assets

290

340

937

1,017

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

$

4,199

$

12,580

$

50,974

$

85,077

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,

2024

2023

2024

2023

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income attributable to Hollysys Automation     Technologies Ltd.

$

3,909

$

11,568

$

49,689

$

81,211

Add:

Share-based compensation expenses

–

672

348

2,849

Amortization of acquired intangible assets

290

340

937

1,017

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

$

4,199

$

12,580

$

50,974

$

85,077

Weighted average number of basic ordinary     shares

62,127,607

61,595,286

61,987,252

61,449,939

Weighted average number of diluted ordinary     shares

62,426,784

62,127,557

62,312,957

62,015,929

Basic earnings per share(1)

0.06

0.19

0.80

1.32

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

0.01

0.01

0.02

0.06

Non-GAAP basic earnings per share(3)

$

0.07

$

0.20

$

0.82

$

1.38

Diluted earnings per share(1)

0.06

0.19

0.80

1.31

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

0.01

0.01

0.02

0.06

Non-GAAP diluted earnings per share(3)

$

0.07

$

0.20

$

0.82

$

1.37

(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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