| FY2009-Q2-Ended December 31, 2008: Hollysys Automation Technologies Reports Unaudited Fiscal 2009 Second Quarter Financial Results |
FOR IMMEDIATE RELEASE Hollysys Automation Technologies Reports Unaudited Fiscal 2009 Second Quarter Financial ResultsQ2 Financial Highlights
BEIJING--Mar 5, 2009-- Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), the leading domestic provider of automation control systems to China's rail, nuclear, and industrial markets, today announced unaudited financial results for its fiscal second quarter ended December 31, 2008 (see attached tables). Dr. Changli Wang, Hollysys' Chief Executive Officer, stated, "We are very pleased to deliver a strong quarterly performance as we further reinforce our leading position in the industrial automation market and make significant strides in China's rail and nuclear automation industries. The record quarterly revenue is primarily due to the accelerating growth of our rail and nuclear segments. In the nuclear automation market, we achieved a significant milestone by successfully installing our proprietary control system in replacement of an existing foreign system at Dayawan Nuclear Station during a routine annual maintenance period. Under strict time restrictions, Hollysys installed and successfully implemented this system, which we feel is a strong validation of the adaptability and user-friendliness of Hollysys' high quality automation systems.' Dr. Wang continued, 'We continue to see more opportunities in the high-speed rail market in 2009, as China's stimulus plan is expected to support further infrastructure build-out across the country. In addition to rail, we believe that Hollysys is well-positioned to grow its leading share of the industrial and nuclear industries, as there is an unprecedented opportunity in each of these targeted markets. Hollysys is in an incredibly strong financial position with over $86.4 million in cash. We expect that our solid financial foundation will allow us to improve our strength in the rail and industrial automation markets through further investment in R&D while increasing long-term value for our shareholders.' Fiscal 2009 Second Quarter Unaudited Financial Results Review To facilitate a clear understanding of Hollysys, a summary of unaudited non-GAAP financial results is included below.
For the three months ended December 31, 2008, total revenues increased 22.2% to $52.5 million, from $43.0 million in the comparable prior fiscal year period. Of the total revenues, revenue from integrated contracts increased 29.3% to $50.2 million, from $38.8 million for the same period of the prior year. The Company's integrated contract revenue by segment was as follows:
For the three months ended December 31, 2008, Hollysys' total cost of revenues was $34.4 million, compared to $31.8 million for the same period of the prior year. The cost of integrated contracts increased to $33.8 million, or 67.3% of integrated contract revenue, for the three months ended December 31, 2008, compared to $29.1 million, or 74.8%, for the same period of the prior year. As a percentage of total revenues, overall gross margin improved to 34.6% for the three months ended December 31, 2008, up from 25.9% for the prior fiscal year period. The gross margin for integrated contracts was 32.7% for the three months ended December 31, 2008, compared to 25.2% for the same period of the prior year, largely due to revenue mix shifting more towards high margin businesses such as high-speed rail and nuclear automation systems. For the three months ended December 31, 2008, selling expenses were $2.7 million, a decrease of $0.4 million and $0.1 million, compared to $3.1 million and $2.8 million for the same period of the prior year and the quarter ended September 30, 2008, respectively. As a percentage to total revenues, selling expenses were 5.0% and 7.3% for the three months ended December 31, 2008 and 2007, respectively. General and administrative ('G&A') expenses were $1.9 million for the three months ended December 31, 2008, or 3.7% as a percentage of total revenues, compared to $3.7 million, or 8.6%, and $2.3 million, or 7.4%, for the same period of the prior year and the quarter ended September 30, 2008, respectively. The decrease in general and administrative expenses was mainly due to decrease in consulting fees for the quarter, compared on a quarter to quarter basis. G&A expenses presented in financial statements for the period ended December 31, 2008 were approximately $19 million, including $17.0 million in non-cash stock compensation expense on earn-out shares and stock-based option cost. Research and development expenses were $1.9 million for the three months ended December 31, 2008, compared to $1.0 million for the same period of the prior year. As a percentage to total revenue, R&D expenses were 3.7% and 2.4% for three months ended December 31, 2008 and 2007, respectively. The increase was mainly due to increased R&D activities. For the three months ended December 31, 2008, non-GAAP income excluding the non-cash stock compensation cost was $11.1 million, or $0.25 per diluted share based on 44 million shares outstanding. This represents an increase of $5.9 million, or 114.0%, over the $5.2 million, or $0.15 per share based on 33.9 million shares outstanding, reported in the prior year period. On a GAAP basis, net loss was $5.9 million, or $0.13 per diluted share based on 44 million shares outstanding, compared to net income of $1.0 million, or $0.03 per diluted share based on 33.9 million shares outstanding, for the same period of the prior year. For the three months ended December 31, 2008, comprehensive income was $10.4 million, after translation adjustments of $0.69 million from non-GAAP income of $11.1 million. As a result, the Company achieved its 2008 calendar year incentive target of $32 million comprehensive income. Backlog Highlights Hollysys' backlog as of December 31, 2008 was $164.2 million, compared to $200.7 million at September 30, 2008, and $121.4 million at December 31, 2007. The current breakdown for the backlog by segment is:
Cash Flow Highlights Hollysys generated operating cash flow of $12.2 million for the three months ended December 31, 2008. Including investing and financing activities, the total net cash inflow for the three months ended December 31, 2008 was $9.4 million. Balance Sheet Highlights As of December 31, 2008, Hollysys' cash and cash equivalents were $86.4 million, compared to $77.1 million at September 30, 2008, with working capital of $155.3 million versus $144.8 million, and with a current ratio of 2.8:1. Days Sales Outstanding ('DSO') for the quarter ended December 31, 2008 is significantly reduced to 114 days, from 159 days of the prior quarter. Beginning with the period ended December 31, 2008, the Company will present its accounts receivable ('AR') in a more detailed manner on the balance sheet broken down by AR and cost and estimated earnings in excess of billings, which is essentially unbilled AR. The break-down of the Company's billed and unbilled receivable has been historically provided in the Notes to the financial statements. The Company is satisfied with the result of its AR collection efforts and will continue to work on more timely collection of AR. Outlook for FY 2009 Dr. Wang concluded, 'Hollysys' management team is committed to delivering strong and sustainable growth to our shareholders. Our rail and nuclear business segments are expected to begin making increased contributions to both gross margins and bottom line, which was evidenced by our solid performance this quarter. In light of this confidence, we are reiterating our annual estimate for FY 2009 of revenues between $150 million and $165 million and gross margins between 30% and 35%. We look forward to continued growth and remain confident in our abilities to achieve our corporate goals in the coming year. Conference Call Management will discuss the current status of the Company's operations during a conference call at 8:00 AM ET on Thursday, March 5, 2009. Interested parties may participate in the call by dialing (888) 787-0460 (U.S.) or (706) 679-3200 (International) approximately 10 minutes before the call is scheduled to begin and asking to be connected to the Hollysys Systems conference call. In addition, the conference call will be broadcast live over the internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=66168&CompanyID=Hollysys&e=1&mediaKey=8DD3979970F58831B44C9F0414C1FF38. The internet audio stream will be available for 30 days after the call. A recorded replay of the call will also be available until 12:00 a.m. Eastern Time on March 11, 2009. Listeners may dial 800-642-1687 (Domestic) or 706-645-9291 (International) and use the code 87217325 for the phone replay. About Hollysys Automation Technologies Hollysys Automation Technologies is the leading automation systems provider in the industrial, rail and nuclear power sectors in China, with its own proprietary core technologies and completing numerous projects utilizing a wide array of automation products. Founded in 1993, Hollysys current have approximately 1,800 employees with 9 sales centers and 13 service centers in China. Its product lines include digital railway signal & information systems, safety control of nuclear power reactors, e-government, motor drive & transmission. 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 significance of the Company's appointment of Peter Li as CFO; the impact of the Company's planned R&D investment; 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.
Reconcile GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
The following table provides more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.
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