ACROFAN

Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal year and the Fourth Quarter Ended June 30, 2019

Published : Thursday, August 15, 2019, 5:00 am
ACROFAN=PRNewswire | mediainquiries@prnewswire.com | SNS

Fiscal Year 2019 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $126.2 million, an increase of 15.9% compared to the prior year.
  • Total revenues were $570.3 million, an increase of 5.5% compared to the prior year.
  • Non-GAAP gross margin was at 37.1%, compared to 38.2% for the prior year.
  • Non-GAAP diluted EPS was $2.07, an increase of 16.3% compared to the prior year.
  • Net cash provided by operating activities was $100.5 million for the fiscal year 2019.
  • DSO of 180 days, compared to 174 days for the prior year.
  • Inventory turnover days of 55 days, compared to 58 days for the prior year.

Fourth Quarter of Fiscal Year 2019 Financial Highlights

  • Non-GAAP net income attributable to Hollysys was $25.7 million, a decrease of 10.1% compared to the comparable prior year period.
  • Total revenues were $157.0 million, an increase of 6.6% compared to the comparable prior year period.
  • Non-GAAP gross margin was at 34.0%, compared to 39.6% for the comparable prior year period.
  • Non-GAAP diluted EPS was $0.42, a decrease of 8.7% compared to the comparable prior year period.
  • Net cash provided by operating activities was $13.8 million for the current quarter.
  • DSO of 160 days, compared to 166 days for the comparable prior year period.
  • Inventory turnover days of 42 days, compared to 59 days for the comparable prior year period.

BEIJING, Aug. 15, 2019 /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 2019 and the fourth quarter ended June 30, 2019 (see attached tables). The management of Hollysys, stated:

IA business finished the fiscal year with revenue and contract at $233.8 million and $291.3 million, achieving 4.0% and 2.5% YOY growth respectively. For the quarter, revenue and new contract were $66.6 million and $83.9 million, representing 4.0% and 0.9% YOY growth respectively. We continued our effort in market penetration and addressing the demand from current customer base. Within high-end coal fire market, we signed contracts to provide DEH (Digital Electric Hydraulic Control System) to Guohua Jinjie 2*660MW and Huaneng Shengli 2*660MW power stations. Despite slowdown in coal fire, we continued to explore opportunities in new energy, and managed to maintain our leading position, especially in garbage power. In the chemical and petrochemical industries, we have optimized our team to facilitate market penetration and comprehensive solution offering in different sub-verticals. Meanwhile, our milestone Zhong'an coal-chemical project is approaching its completion. We provided in total over 70,000 DCS control points and the execution of the project last for more than two years. Our capability has been highly praised by our client and we believe this project will help build up our reputation as a competitive solution provider for large-size projects and high-end clients in the industry. The momentum of after-sales services continued, driven by the demand from rebuilding and upgrade. We are also improving internal coordination when connecting with our customer base. Through visiting our clients in a team of members from different product divisions, we hope to create better engagement and explore the opportunities of cross-selling. Furthermore, we are actively promoting our smart plant initiatives through direct communication with key potential clients as well as open marketing activities involving clients, governments and other industry players.  

Rail business finished the fiscal year with revenue and contract at $208.9 million and $340.3 million, recording 9.6% and 37.7% YOY growth respectively. For the last quarter, revenue and contract were $48.3 million and $60.8 million, representing 19.6% and 4.6% YOY growth respectively. We signed several contracts to provide ATP advanced maintenance to local railway bureaus. Going forward and given a visible long-term railway construction plan, we will continue to adhere to the diversity strategy for stable and healthy growth and to improve our local service network for more value-adding and differentiated services. With urbanization as an ongoing process, we will keep leveraging our strong R&D capacity and prepare for the application of various types of railway transportation systems in the future.  

In our overseas business, M&E finished the fiscal year with revenue and contract at $127.6 million and $93.4 million, recording 1.8% YOY growth and 9.1% YOY decrease respectively. For the quarter, revenue and contract were $42.1 million and $25.2 million, representing 1.7% and 37.0% YOY decrease. Given the macro economy in Southeast Asia and the Middle East, risk control remains to be the key focus of our M&E business. Going forward, we will continue our effort in developing partnership with key EPC players, and strengthening localization in manufacture, marketing and services.

Fiscal year and the Fourth Quarter Ended June 30, 2019 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 for number of shares and per share data)

 



Fiscal year ended


Three months ended



Jun 30,
2019

 Jun 30,
2018

%
Change


Jun 30,
2019

 Jun 30,
2018

%
Change










Revenues

$

570,341

540,768

5.5%

$

156,991

147,239

6.6%

    Integrated contract revenue

$

467,371

466,461

0.2%

$

132,753

131,616

0.6%

    Products sales

$

33,102

40,233

(17.7)%

$

5,958

11,149

(46.6)%

    Service rendered

$

69,868

34,074

105.0%

$

18,280

4,474

308.6%

Cost of revenues

$

358,864

334,290

7.4%

$

103,645

88,890

16.6%

Gross profit

$

211,477

206,478

2.4%

$

53,346

58,349

(8.6)%

Total operating expenses

$

87,302

84,429

3.4%

$

31,408

25,459

23.4%

    Selling

$

28,926

27,158

6.5%

$

6,883

6,515

5.6%

    General and administrative

$

40,463

45,116

(10.3)%

$

11,524

14,365

(19.8)%

Goodwill impairment charge

$

11,623

-

100%

$

11,623

-

100%

    Research and development

$

37,025

36,605

1.1%

$

9,200

8,630

6.6%

    VAT refunds and government subsidies

$

(30,735)

(24,450)

25.7%

$

(7,822)

(4,051)

93.1%

Income from operations

$

124,175

122,049

1.7%

$

21,938

32,890

(33.3)%

Other income, net

$

8,824

4,274

106.5%

$

1,139

1,212

(6.0)%

Foreign exchange (loss) gain

$

(1,161)

(1,099)

5.6%

$

2

882

(99.8)%

Share of net income (loss) of equity investees

$

404

(1,571)

(125.7)%

$

1,576

(4,038)

(139.0)%

Dividend income from investment securities


1,112

1,093

1.7%

$

-

-

-

Interest income

$

11,839

7,318

61.8%

$

2,863

2,275

25.8%

Interest expenses

$

(575)

(692)

(16.9)%

$

(204)

116

(275.9)%

Income tax expenses

$

18,184

22,205

(18.1)%

$

1,471

4,621

(68.2)%

Net income attributable to non-controlling interests

$

278

276

0.7%

$

145

115

26.1%

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

$

126,156

108,891

15.9%

$

25,698

28,601

(10.1)%

Non-GAAP basic EPS

$

2.09

1.80

16.1%

$

0.43

0.47

(8.5)%

Non-GAAP diluted EPS

$

2.07

1.78

16.3%

$

0.42

0.46

(8.7)%










Share-based compensation expenses

$

238

1,207

(80.3)%

$

37

625

(94.1)%

Amortization of acquired intangible assets

$

311

598

(48.0)%

$

77

321

(76.0)%

Fair value adjustments of a bifurcated
     derivative

$

346

(75)

(561.3)%

$

326

(75)

(534.7)%

GAAP Net income attributable to Hollysys
     Automation Technologies Ltd.

$

125,261

107,161

16.9%

$

25,258

27,730

(8.9)%

GAAP basic EPS

$

2.07

1.77

16.9%

$

0.42

0.46

(8.7)%

GAAP diluted EPS

$

2.05

1.75

17.1%

$

0.42

0.45

(6.7)%










Basic weighted average common shares
     outstanding


60,456,524

60,434,019

0.0%


60,465,005

60,442,504

0.0%

Diluted weighted average common shares
     outstanding


61,273,884

61,248,565

0.0%


61,278,773

61,277,059

0.0%

Operational Results Analysis for the Fiscal year Ended June 30, 2019

Comparing to the prior fiscal year, the total revenues for fiscal year 2019 increased from $540.8 million to $570.3 million, representing an increase of 5.5%. Broken down by the revenue types, integrated contracts revenue increased by 0.2% to $467.4 million, products sales revenue decreased by 17.7% to $33.1 million, and services revenue increased by 105.0% to $69.9 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

(In USD thousands)








Fiscal year ended Jun 30,




2019


2018




$

% to Total Revenue


$

% to Total Revenue


Industrial Automation


233,798

41.0%


224,793

41.5%


Rail Transportation Automation


208,917

36.6%


190,645

35.3%


Mechanical and Electrical Solution


127,626

22.4%


125,330

23.2%


Total


570,341

100.0%


540,768

100.0%












Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 37.1% for fiscal year 2019, as compared to 38.2% for the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 30.4%, 77.1% and 62.7% for fiscal year 2019, as compared to 32.8%, 73.2% and 71.0% for the prior year, respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margins. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 37.0% for fiscal year 2019, as compared to 38.1% for the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 30.4%, 77.1% and 62.7% for fiscal year 2019, as compared to 32.6%, 73.2% and 71.0% for the prior year, respectively.

Selling expenses were $28.9 million for fiscal year 2019, representing an increase of $1.8 million or 6.5% compared to $27.2 million for the prior year. Presented as a percentage of total revenues, selling expenses were 5.1% and 5.0% for fiscal year 2019, and 2018, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $40.5 million for fiscal year 2019, representing a decrease of $4.7 million or 10.3% compared to $45.1 million for the prior year, which was primarily due to decrease of bad debt allowance. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.1% and 8.3% for fiscal year 2019 and 2018, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $40.7 million and $46.3 million for fiscal year 2019 and 2018, respectively.

Goodwill impairment charge was $11.6 million for fiscal year 2019. Taking into consideration the macro environment and other relevant factors, Concord expects future lower profit resulting from increased competition and decrease in market demand.

Research and development expenses were $37.0 million for fiscal 2019, representing an increase of $0.4 million or 1.1% compared to $36.6 million for the prior year. Presented as a percentage of total revenues, R&D expenses were 6.5% and 6.8% for fiscal year 2019 and 2018, respectively.

The VAT refunds and government subsidies were $30.7 million for fiscal year 2019, as compared to $24.5 million for the prior year, representing a $6.3 million or 25.7% increase, which was primarily due to an increase of the VAT refunds.

The income tax expenses and the effective tax rate were $18.2 million and 12.7% for fiscal year 2019, as compared to $22.2 million and 17.1% for the prior year. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates, as the Company's subsidiaries are subject to different tax rates in various jurisdictions.

The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on the grant-date fair value of shares or options granted, amortization of acquired intangible assets, and fair value adjustments of a bifurcated derivative, was $126.2 million or $2.07 per diluted share based on 61.3 million diluted weighted average common shares outstanding for fiscal year 2019. This represents a 15.9% increase over $108.9 million or $1.78 per share based on 61.2 diluted weighted average common million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $125.3 million or $2.05 per diluted share representing an increase of 16.9% over $107.2 million or $1.75 per diluted share reported in the comparable prior year period.  

Operational Results Analysis for the Fourth Quarter Ended June 30, 2019

Comparing to the fourth quarter of the prior fiscal year, the total revenues for the three months ended June 30, 2019 increased from $147.2 million to $157.0 million, representing an increase of 6.6%. Broken down by the revenue types, integrated contracts revenue increased by 0.9% to $132.8 million, products sales revenue decreased by 46.6% to $6.0 million, and services revenue increased by 308.6% to $18.3 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

(In USD thousands)









Three months ended Jun 30,




2019


2018




$

% to Total Revenue


$

% to Total Revenue


Industrial Automation


66,557

42.4%


64,013

43.5%


Rail Transportation Automation


48,288

30.8%


40,368

27.4%


Mechanical and Electrical Solution


42,146

26.8%


42,858

29.1%


Total


156,991

100.0%


147,239

100.0%














Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 34.0% for the three months ended June 30, 2019, as compared to 39.6% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 29.9%, 66.3% and 52.9% for the three months ended June 30, 2019, as compared to 35.7%, 72.4% and 73.2% for the same period of the prior year, respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margins. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 33.9% for the three months ended June 30, 2019, as compared to 39.4% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 29.9%, 66.3% and 52.9% for the three months ended June 30, 2019, as compared to 35.5%, 72.4% and 73.2% for the same period of the prior year, respectively.

Selling expenses were $6.9 million for the three months ended June 30, 2019, representing an increase of $0.4 million or 5.6% compared to $6.5 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.4% and 4.4% for the three months ended June 30, 2019, and 2018, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $11.5 million for the quarter ended June 30, 2019, representing a decrease of $2.8 million or 19.8% compared to $14.4 million for the same quarter of the prior year, which was primarily due to decrease of bad debt allowance. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.3% and 9.8% for quarters ended June 30, 2019 and 2018, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $11.6 million and $15.0 million for the three months ended June 30, 2019 and 2018, respectively.

Research and development expenses were $9.2 million for the three months ended June 30, 2019, representing an increase of $0.6 million or 6.6% compared to $8.6 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 5.9% and 5.9% for the quarter ended June 30, 2019 and 2018, respectively.

The VAT refunds and government subsidies were $7.8 million for three months ended June 30, 2019, as compared to $4.1 million for the same period in the prior year, representing a $3.8 million or 93.1% increase, which was primarily due to an increase of the VAT refunds.

The income tax expenses and the effective tax rate were $1.5 million and 5.5% for the three months ended June 30, 2019, as compared to $4.6 million and 14.2% for comparable prior year period. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates, as the Company's subsidiaries are subject to different tax rates in various jurisdictions.

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