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Fiscal Year 2019 Financial Highlights
Fourth Quarter of Fiscal Year 2019 Financial Highlights
BEIJING, Aug. 14, 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:
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:
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:
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.
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 $25.7 million or $0.42 per diluted share based on 61.3 million diluted weighted average common shares outstanding for the three months ended June 30, 2019. This represents a 10.1% decrease over $28.6 million or $0.46 per share based on 61.3 diluted weighted average common million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $25.3 million or $0.42 per diluted share representing a decrease of 8.9% over $27.7 million or $0.45 per diluted share reported in the comparable prior year period.
Contracts and Backlog Highlights
Hollysys achieved $169.8 million of new contracts for the three months ended June 30, 2019. The backlog as of June 30, 2019 was $594.2 million. The detailed breakdown of the new contracts and backlog by segments is shown below:
Cash Flow Highlights
For the fiscal year ended June 30, 2019, the totalnet cash inflow was $71.1 million. Thenet cash provided by operating activities was $100.5 million. The net cash used in investing activities was $9.9 million, mainly consisted of $10.6 million purchases of property, plant and equipment and prepaid land leases, and $256.3 million time deposits placed with banks, which was partially offset by $245.9 million maturity of time deposits, $8.9 million dividends received in excess of cumulative equity in earnings from an equity investee, and $4.5 million advance from a shareholder of an equity method investee. The net cash used in financing activities was $10.2 million, mainly consisted of $10.9 million payment of dividends, and $6.9 million repayments of short-term bank loans, which were partially offset by $5.9 million proceeds from short-term bank loans, and $1.5 million cash injected by noncontrolling interests.
For the three months ended June 30, 2019, the totalnet cash inflow was $81.9 million. Thenet cash provided by operating activities was $13.8 million. The net cash provided by investing activities was $73.1 million, mainly consisted of $70.3 million maturity of time deposits, $8.9 million dividends received in excess of cumulative equity in earnings from an equity investee, and $4.5 million advance from a shareholder of an equity method investee, which was partially offset by $5.2 million purchases of property, plant and equipment and prepaid land leases, and $5.6 million time deposits placed with banks. The net cash provided by financing activities was $1.2 million, mainly consisted of $1.5 million cash injected by noncontrolling interests, and $1.0 million proceeds from short-term bank loans, which were partially offset by $1.4 million repayments of short-term bank loans.
Balance Sheet Highlights
The total amount of cash and cash equivalents were $332.5 million, $253.4 million, and $265.7 million as of June 30, 2019, March 31, 2019 and June 30, 2018, respectively.
For fiscal year ended June 30, 2019, Days Sales Outstanding ("DSO") was 180 days, as compared to 174 days from the prior year; and inventory turnover was 55 days, as compared to 58 days from the prior year.
For the three months ended June 30, 2019, DSO was 160 days, as compared to 166 days for the comparable prior year period and 193 days for the last quarter; and inventory turnover was 42 days, as compared to 59 days for the comparable prior year period and 50 days for the last quarter.
Conference Call
The Company will host a conference call at 9:00 pm August 14, 2019 U.S. Eastern Time / 9:00 amAugust 15, 2019 Beijing Time, to discuss the financial results for fiscal year 2019 and the fourth quarter ended June 30, 2019 and business outlook.
To participate, please call the following numbers ten minutes before the scheduled start of the call. The conference call identification number is 2099053.
In addition, a recording of the conference call will be accessible within 48 hours via Hollysys' website at: http://hollysys.investorroom.com
About Hollysys Automation Technologies Ltd. (NASDAQ: HOLI)
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. 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, 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 March 2019, Hollysys had cumulatively carried out more than 25,000 projects for approximately 15,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions.
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.
For further information, please contact:
Hollysys Automation Technologies Ltd.www.hollysys.com+86-10-5898-1386investors@hollysys.com
Non-GAAP Measures
In evaluating our results, the non-GAAP measures of "Non-GAAP cost of integrated contracts", "Non-GAAP general and administrative expenses", "Non-GAAP other income, net", "Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. stockholders", "Non-GAAP basic earnings per share", and "Non-GAAP diluted earnings per share" serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the non-cash share-based compensation expenses, which is calculated based on the number of shares or options granted and the fair value as of the grant date, amortization of acquired intangible assets, and fair value adjustments of a bifurcated derivative. 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 the Company, it has been a common practice for investors 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:
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