BEIJING, May 15, 2016 /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 the fiscal year 2016 third quarter ended on March 31, 2016 (see attached tables). The management of Hollysys, stated:

"For industrial automation business, we have insisted in executing our strategy to review the potential needs of the market in upgrading and reforming projects to mitigate the revenue which is continuously declining from new constructions in current situation. Industries like petro-chemical, metallurgy and building materials still perform weak. However, as supplement, power industry is maintaining stable, we have signed several new DCS contracts in coal fire power, especially in high levels, the supercritical coal fire generating units, such as Jiujiang Shenhua 2X1052MW, Guohua Ningdong 2X660MW and Xinjiang TBEA 2X660MW power units. Nuclear side, we are providing DCS for Hongyanhe #5 and #6 units. In factory automation, we will continue to expand our sales force and allocate more resources to this area, and to make an effort raise our uniquely customized turnkey solutions. As mentioned above, even though industrial automation revenue is declining, we will always try our best to minimize the impact, including adjusting internally to better cope with external environment and to keep sustainable long-term healthy development.

In high-speed railway, as China is continuously investing a certain scale on supporting high-speed railway sector for the next five years, we are still benefit from the policy of 13th five-year-plan. As new products and technologies contribute in the next, we have confident that the high-speed railway's performance will be remaining stable.

For subway business, we won the new biddings for Chengdu Line 10 and Wuhan Subway Line 8 SCADA contracts. Meanwhile, the SCADA for Beijing Subway Line 14 Middle Section and Beijing Changping Subway Phrase II are both in operating stage, we gained consistent favorable reputation by the customers. This is encouraging us for seeking opportunities to work with more local transportation bureaus from the first tiers cities down. We will continue to deliver quality works and work closely with subway authorities in the future to build up our SCADA and subway signaling businesses.

In the mechanical and electrical solution segment, Concord and Bond have mainly focused in further development of Southeast Asia and Middle East markets. Even they are facing difficulties such as worsen market competitive environment, the lack of new-built projects and projects delay, rising cost and seasonal lumpiness, they are persevering in hard working. For this quarter revenue and backlog are both increased compared to same quarter last year. For long-term, we think the market still have much potential demand, and we will strengthen internal control and adjustment to keep M&E development in the future.

Lastly, for extending international business, we are in the process of setting up local service centers in abroad. In India, we won the bidding to provide DCS and SIS to Lanco Solar Power Polycrystalline Silicon Project. In Southeast Asia region, we won the bidding to provide DCS and DEH for Indonesia Qingshan 2X350MW Coal-fire Power Units. Through accumulating track record in the targeting area, we are enhancing our brand name recognition overseas. With our proprietary technologies and products, well industry expertise and customized solution, we will continue to create value for our shareholders."

The Third Quarter and First Nine Months of Fiscal Year 2016 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 quarter ended March 31, 2016

Comparing to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2016 increased from $118.2 million to $118.8 million, representing an increase of 0.5%. Broken down by the revenue types, integrated contracts revenue decreased by 6.2% to $99.8 million, products sales revenue increased by 64.7% to $16.2 million, and services revenue increased by 39.6% to $2.9 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 31.7% for the three months ended March 31, 2016, as compared to 46.0% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 27.1%, 55.5% and 59.1% for the three months ended March 31, 2016, as compared to 43.4%, 71.7% and 56.0% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 31.7% for the three months ended March 31, 2016, as compared to 46.0% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 26.9%, 55.5% and 59.1% for the three months ended March 31, 2016, as compared to 42.8%, 71.7% and 56.0% for the same period of the prior year respectively.

Selling expenses were $5.2 million for the three months ended March 31, 2016, representing a decrease of $0.5 million or 8.3% compared to $5.7 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.4% and 4.8% for the three months ended March 31, 2016, and 2015, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $8.7 million for the quarter ended March 31, 2016, representing a decrease of 0.3 million, or 3.2%, as compared to $9.0 million for the same period of the prior year. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.3% and 7.6% for quarters ended March 31, 2016 and 2015 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $9.8 million and $9.7 million for the three months ended March 31, 2016 and 2015, respectively.

Research and development expenses were $8.4 million for the three months ended March 31, 2016, a decrease of $1.0 million or 10.7% compared to $9.4 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 7.0% and 7.9% for the quarter ended March 31, 2016 and 2015, respectively.

The VAT refunds and government subsidies were $4.3 million for three months ended March 31, 2016, as compared to $6.6 million for the same period in the prior year, representing a $2.3 million or 35.1% decrease. For the nine months ended March 31, 2016, the VAT refunds and government subsidies were $20.1 million, an increase of $2.1 million compared to $18.0 million for the same period of the prior year respectively.

The income tax expenses and the effective tax rate were $3.4 million and 12.4% for the three months ended March 31, 2016, as compared to a $6.6 million and 16.9% for comparable prior year period. When excluding the impact of non-GAAP adjustments on the income before income taxes, the effective tax rate would have been 11.9% for the current quarter and 18.1% for the 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 apply to different tax rates.

The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $23.1 million or $0.38 per diluted share based on 60.6 million shares outstanding for the three months ended March 31, 2016. This represents a 20.2% decrease over the $29.0 million or $0.49 per share based on 59.2 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $21.9 million or $0.36 per diluted share representing a decrease of 31.0% over the $31.6 million or $0.53 per diluted share reported in the comparable prior year period.

Integrated Contracts Backlog Highlights

Hollysys' backlog for integrated contracts as of March 31, 2016 was $498.5 million, representing a decrease of 5.4% compared to $527.0 million as of December 31, 2015 and almost equal to $498.7 million as of March 31, 2015. The detailed breakdown of the backlog for integrated contracts by segments is shown below:

Cash Flow Highlights

For the three months ended March 31, 2016, the total net cash inflow was $10.8 million. The net cash used in operating activities was $16.7 million. The net cash provided by investing activities was $29.8 million, mainly consisted of $52.2 million as maturity of time deposits with original maturities over three months, which was partially offset by $20.4 million in time deposits over three months placed with banks. The net cash used in financing activities was $3.8 million, mainly due to repayments of long-term bank loans of $5.4 million, which was partially offset by proceeds from short-term bank loans and long-term bank loans of $1.2 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $256.4 million, $275.6 million, and $179.7 million as of March 31, 2016, December 31, 2015 and March 31, 2015, respectively. As of March 31, 2016, the company held $199.5 million in cash and cash equivalents and $56.9 million in time deposits with original maturities over three months.

For the three months ended March 31, 2016, Days Sales Outstanding ("DSO") was 181 days, as compared to 228 days for the comparable prior year period and 138 days for the last quarter; and inventory turnover was 40 days, as compared to 66 days for the comparable prior year period and 34 days for the last quarter.

Outlook for FY 2016

The management concluded, "Given our strong backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance for fiscal year 2016 with revenue in the range of $565 million to $600 million and non-GAAP net income in the range of $110 million to $120 million."

Conference Call

The Company will host a conference call at 9:00 p.m. U.S. Eastern Time on May 15, 2016 / 9:00 a.m. Beijing Time on May 16, 2016, to discuss the financial results for the fiscal year 2016 third quarter ended on March 31, 2016 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 7392119.

In addition, a recording of the conference call will be accessible within 48 hours via Hollysys' website at: http://ir.hollysys.com/ or http://hollysys.investorroom.com

About Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI)

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,600 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 6,000 customers more than 20,000 projects in the industrial, railway, subway & nuclear industries in China, South-East Asia, and the Middle East. Its proprietary technologies are applied in its industrial automation solution suite including DCS (Distributed Control System), PLC (Programmable Logic Controller), RMIS (Real-time Management Information System), HAMS (HolliAS Asset Management System), OTS (Operator Training System), HolliAS BATCH (Batch Application Package), HolliAS APC Suite (Advanced Process Control Package), SIS (Safety Instrumentation System), high-speed railway signaling system of TCC (Train Control Center), ATP (Automatic Train Protection), Subway Supervisory and Control platform, SCADA (Surveillance Control and Data Acquisition), nuclear power plant automation and control system and other products.

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+86-10-5898-1386[email protected]

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of "Non-GAAP general and administrative expenses", "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, fair value adjustments of acquisition-related consideration, 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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