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2 years ago
“5:00p ET 11/15/2022 - PR Newswire
Hollysys Automation Technologies Reports Unaudited Financial Results for the First Quarter Ended September 30, 2022
First Quarter of Fiscal Year 2023 Financial Highlights
-- Total revenueswere $170.0 million, an increase of 10.9% compared to the comparable prior year period.
-- Gross marginwas 31.1%, compared to 34.2% for the comparable prior year period. Non-GAAP gross margin was 31.3%, compared to 34.3% for the comparable prior year period.
-- Net income attributable to Hollysyswas $21.4 million, an increase of 50.1% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $23.0 million, an increase of 26.7% compared to the comparable prior year period.
-- Diluted earnings per sharewas $0.35, an increase of 52.2% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.37, an increase of 27.6% compared to the comparable prior year period.
-- Net cash provided by operating activitieswas $1.0 million.
-- DSOof 171 days, compared to 198 days for the comparable prior year period.
-- Inventory turnover daysof 79 days, compared to 55 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.
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 first quarter of fiscal year 2023 ended September 30, 2022.
The Industrial Automation ("IA") business maintained its strong momentum. In the petrochemical and chemical field, the Company continued to achieve breakthroughs on national key projects and cultivating major customers. The Company successfully signed the 100-billion-square-meter large gas field project, namely the Phase I Project of China National Offshore Oil Corporation ("CNOOC")'s largest condensate gas field in Bohai Bay, and will provide integrated solutions of Distributed Control System ("DCS"), Safety Instrumented System ("SIS") and Asset Management System ("AMS"), among others. The gas field will alleviate the gas shortage in North China and provide strong support for China's green and low-carbon transformation. Besides, the Sinopec Group Million Ton Ethylene Project signed in the last fiscal quarter will see the first batch delivery before the end of 2022. This project represents a milestone breakthrough in Hollysys' petrochemical business, as the Company accomplished the pilot application of optical bus control system ("OCS") related new technologies in ethylene units. This project will lay a solid technical foundation for the intellectualization of large production equipment and contribute to the sustainable development of the national energy.
In the smart factory field, Hollysys saw encouraging business growth with upgraded capabilities of integrated solutions. The Company signed the Sinopec power center simulation project which covers the whole range of high-precision excitation virtual imitation machine systems. The successful implementation of Hollysys simulation system in Sinopec will provide strong support and valuable field implementation experience for the Company's further cooperation with the "Chinese Three Barrels of Oil" and other oil and gas enterprises. Meanwhile, Hollysys completed the delivery of a 230,000 tons phenolic resin project signed with a company based in Shandong Province, providing fully autonomous and controllable HiaBatch Batch control system with DCS and Batch Processing System ("BATCH") control systems, which is expected to facilitate the industrial upgrading with digital customized solutions, and promote the standardization of the complex process for batch production enterprises.
The food and pharmaceutical sectors also demonstrated a steady business growth. The Company signed a significant project with a leading enterprise of generic contrast media products on producing iodiproamine and regadesone. Hollysys will act as the overall instrument control contractor that provides DCS system, instrument valves and installation in this project. The project will locate in Taizhou, Zhejiang Province, which is the national center for the production of active pharmaceutical ingredients ("APIs"), and such project will offer a significant strategic opportunity for the Company's further development in the pharmaceutical sector.
The strategic layout and developments in the Company's overseas business also witnessed steady progress. The Company successfully signed the OBI nickel-iron project in Indonesia with a resource company, with Hollysys providing DCS, Digital Electro-Hydraulic("DEH") control system with over 60,000 optical points, Manufacturing Execution System ("MES"), AMS, information security and other customized products with integrated and comprehensive intelligent solutions. This project is a large-scale smelting project built under the national "Belt and Road" initiative that will promote the comprehensive utilization of nickel ore resources and contribute to the security and sustainable development of nickel resource supply chain.
In the high-speed rail sector, the Company continued to sign new contracts and deliver on existing projects, maintaining its position in existing product lines and exploring opportunities in merging intelligent product lines. Leveraging the customer recognition of its technical strength and services, the Company signed a contract to provide Radio Block Center ("RBC"), Train Control Center ("TCC"), Lineside Electronic Unit ("LEU") and other equipment for the Guizhou section of Guiyang-Nanning Railway. The Company also delivered several projects, including the Yiyang-Changsha section of Changde-Yiyang-Changsha High-Speed Railway project, which went into operation in this fiscal quarter despite various challenges, with Hollysys being the main supplier of Chinese Train Control System Level 3 ("CTCS-3"), providing systems such as RBC, TCC and Temporary Speed Restriction Server ("TSRS"). In the subway sector, Traffic Operation System ("TOS") Platform, a smart urban rail solution based on cloud platform, pioneers the use of industrial Internet in the urban rail transit sector, and was applied in the Phase I Project of Beijing Metro Line 19. Hollysys has confidence in contributing to the rail transit system to become faster and smarter in the future based on its professional ability and experience accumulated over the past three decades.
The mechanical and electrical solutions ("M&E") segment of the Company also manifested a stable performance with our smooth executions on various projects. The risk monitor and control are still expected to be our future focus in this field.
With its 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.
FiscalQuarterEnded September 30, 2022 UnauditedFinancial ResultsSummary(In USD thousands, except for %, number of shares and per share data) Three months ended Sep 30, 2022 2021 % ChangeRevenues $ 170,041 153,385 10.9%Integrated solutions contracts revenue $ 143,125 124,563 14.9%Products sales $ 11,773 9,646 22.1%Service rendered $ 15,143 19,176 (21.0)%Cost of revenues $ 117,194 100,990 16.0%Gross profit $ 52,847 52,395 0.9%Total operating expenses $ 36,304 37,681 (3.7)%Selling $ 13,013 9,409 38.3%General and administrative $ 12,733 17,076 (25.4)%Research and development $ 17,359 16,049 8.2%VAT refunds and government subsidies $ (6,801) (4,853) 40.1%Income from operations $ 16,543 14,714 12.4%Other income, net $ 1,066 969 10.0%Foreign exchange gain (loss) $ 4,097 (425) (1064.0)%Share of net income of equity investees $ 597 212 181.6%Interest income $ 3,161 2,861 10.5%Interest expenses $ (143) (344) (58.4)%Income tax expenses $ 3,880 3,902 (0.6)%Net income (loss) attributable to non-controlling interests $ 44 (174) (125.3)%Net income attributable to Hollysys Automation Technologies Ltd. $ 21,397 14,259 50.1%Basic earnings per share $ 0.35 0.23 52.2%Diluted earnings per share $ 0.35 0.23 52.2%Share-based compensation expenses $ 1,237 3,594 (65.6)%Amortization of acquired intangible assets $ 340 280 21.4%Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.(1) $ 22,974 18,133 26.7%Non-GAAP basic earnings per share(1) $ 0.37 0.30 23.3%Non-GAAP diluted earnings per share(1) $ 0.37 0.29 27.6%Basic weighted average common shares outstanding 61,317,302 60,822,091 0.8%Diluted weighted average common shares outstanding 61,940,240 61,589,476 0.6%__________(1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures.
Operational Results Analysis for the First Quarter Ended September 30, 2022
Compared to the first quarter of the prior fiscal year, the total revenues for the three months ended September 30, 2022 increased from $153.4 million to $170.0 million, representing an increase of 10.9%. Broken down by the revenue types, integrated solutions contracts revenue increased by 14.9% to $143.1 million, products sales revenue increased by 22.1% to $11.8 million, and services revenue decreased by 21.0% to $15.1 million.
Since the majority of the Company's revenues are denominated in RMB, and the Company's financial results are reported in U.S. dollars, the recent depreciation of the RMB against the U.S. dollar has exerted a relatively significant negative impact on the value of contracts and revenue reported in U.S. dollar terms.
The Company's total revenues can also be presented by segment as shown in the table below:
(In USD thousands, except for %) Three months ended Sep 30, 2022 2021 $ % to Total Revenues $ % to Total RevenuesIndustrial Automation 121,048 71.2 102,461 66.8Rail Transportation Automation 28,242 16.6 35,935 23.4Mechanical and Electrical Solution 20,751 12.2 14,989 9.8Total 170,041 100.0 153,385 100.0
Gross marginwas 31.1% for the three months ended September 30, 2022, as compared to 34.2% for the same period of the prior fiscal year.Gross margin of integrated solutions contracts, product sales, and service renderedwas25.0%, 70.6% and 58.2% for the three months ended September 30, 2022,as compared to 25.1%, 74.8% and 72.6% for the same period of the prior fiscal year, respectively. Non-GAAP gross marginwas 31.3%for the three months endedSeptember, 2022, as compared to 34.3% for the same period of the prior fiscal year.Non-GAAP gross margin of integrated solutions contractswas 25.2% for the three months endedSeptember 30, 2022,as compared to 25.3% for the same period of the priorfiscal 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 expenseswere $13.0 millionfor the three months ended September 30, 2022, representing an increase of $3.6 million, or 38.3%, compared to $9.4 million for the same period of the prior fiscal year. The increase was in line with our sales growth. Selling expenses as a percentage of total revenueswere 7.7%and6.1% for the three months ended September 30, 2022 and 2021, respectively.
General and administrativeexpenseswere$12.7million forthe three months ended September 30, 2022, representing a decrease of $4.3 million, or 25.4%, compared to $17.1 million for the same period of the prior fiscal year, which was primarily due to a $2.4 million decrease in share-based compensation expenses, a $1.3 million decrease in third-party consulting fees and a $1.3 million decrease in net of allowance for credit losses. Share-based compensation expenses were $1.2 million and $3.6 million for the three months ended September 30, 2022 and 2021, respectively. General and administrative expensesas a percentage oftotal revenues were7.5% and 11.1%for the three months ended September 30, 2022and 2021, respectively.
Research and development expenses were$17.4 millionfor the three months ended September 30, 2022, representing an increase of $1.3 million, or 8.2%, compared to $16.0 million for the same period of the prior fiscal year. Research and development expenses as a percentage of total revenues were10.2%and 10.5%for the three months ended September 30, 2022 and 2021, respectively.
The increase in research and development expenses was mainly due to the Company's efforts to enhance its core competitiveness as a technology-driven company and its increased investments in the development of products and research and development capability, which was in line with its long-term strategy.
The VAT refunds and government subsidies were $6.8 million for three months ended September 30, 2022, as compared to $4.9 million for the same period in the prior fiscal year, representing a $1.9 million, or 40.1%, increase.
The income tax expenses and the effective tax ratewere $3.9 million and 15.3% for the three months ended September 30, 2022, respectively, as compared to $3.9 million and 21.7% for the comparable period in the prior fiscal year, respectively. The effective tax rate fluctuates, as the Company's subsidiaries contributed different pre-tax income at different tax rates.
Net income attributable to Hollysys was $21.4millionfor three months ended September 30, 2022,representinganincrease of 50.1% from $14.3 millionreported in thecomparableperiod in the prior fiscal year. Non-GAAP net income attributable to Hollysyswas $23.0 million or $0.37 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 $0.35 for the three months ended September 30, 2022, representing an increase of 52.2% from $0.23 for the comparable period in the prior fiscal year.Non-GAAP diluted earnings per share was $0.37 for the three months ended September 30, 2022, representing an increase of 27.6% from $0.29 for the comparable period in the prior fiscal year.These were calculated based on 61.9 million and 61.6 million diluted weighted average ordinary shares outstanding for the three months ended September 30, 2022 and 2021, respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.
Contracts and Backlog Highlights
Hollysys achieved $195.3 millionin terms of the value of new contracts for the three months ended September 30, 2022. The order backlogof contracts as of September 30, 2022 was $906.3million. The detailed breakdown of new contracts and backlog by segment is shown in the table below:
(In USD thousands, except for %) Value of new contracts achieved for Backlog as of Sep 30, 2022 the three months ended Sep 30, 2022 $ % to Total Contract Value $ % to Total BacklogIndustrial Automation 159,629 81.7 387,984 42.8Rail Transportation 16,422 8.4 325,936 36.0Mechanical and Electrical Solutions 19,256 9.9 192,394 21.2Total 195,307 100.0 906,314 100.0
Cash Flow Highlights
For the three months ended September 30, 2022, thetotal net cash outflow was $104.2 million. The net cash provided by operating activitieswas$1.0 million. The net cash used in investing activities was $69.5 million and mainly consisted of $71.1 million of purchases of short-term investments and $10.1 million of purchases of property, plant and equipment, which was partially offset by $11.6 million of maturity of short-term investments. The net cash provided by financing activities was $0.9 million.
Balance Sheet Highlights
The total amount of cash and cash equivalents was$575.1 million, $679.8 million, and $704.9 million as of September 30, 2022, June 30, 2022 and September 30, 2021, respectively.
For the three months ended September 30, 2022, DSO was 171 days, as compared to198 days for the comparable prior fiscal year and 174 days for the last fiscal quarter; inventory turnover days were79 days, as compared to 55days for the comparable prior fiscal year and 73days for the last fiscal quarter. The significant increase in inventories was mainly due to the Company's increase in safety stock in response to supply chain fluctuations.
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 industryknow-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 June30, 2022, Hollysys had cumulatively carried out more than 40,000 projects for approximately 22,000 customers in various sectors including power, petrochemical, high-speed rail, and urban rail, in which Hollysys has established leading market positions.”
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