First Nine months of Fiscal Year 2018 Financial Highlights

• Non-GAAP net income attributable to Hollysys was $80.3 million, an increase of 69.1% compared to the comparable prior year period.
• Total revenues were $393.5 million, an increase of 33.9% compared to the comparable prior year period.
• Non-GAAP gross margin was at 37.6%, compared to 29.6% for the comparable prior year period.
• Non-GAAP diluted EPS were at $1.32, an increase of 67.1% compared to the comparable prior year period.
• Net cash provided by operating activities was $77.3 million for the current period.
• DSO of 176 days, compared to 212 days for the comparable prior year period.
• Inventory turnover days of 58 days, compared to 54 days for the comparable prior year period.

Third Quarter of Fiscal Year 2018 Financial Highlights

• Non-GAAP net income attributable to Hollysys was $22.1 million, an increase of 61.1% compared to the comparable prior year period.
• Total revenues were $120.6 million, an increase of 32.1% compared to the comparable prior year period.
• Non-GAAP gross margin was at 36.4%, compared to 30.7% for the comparable prior year period.
• Non-GAAP diluted EPS were at $0.36, an increase of 63.6% compared to the comparable prior year period.
• Net cash provided by operating activities was $5.1 million for the current quarter.
• DSO of 196 days, compared to 219 days for the comparable prior year period.
• Inventory turnover days of 63 days, compared to 61 days for the comparable prior year period.

BEIJING, May 14, 2018 /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 third quarter of fiscal year 2018 ended March 31, 2018 (see attached tables). The management of Hollysys, stated:

Industrial automation recorded a 20.0% yoy growth in quarterly revenue, at $45.7 million, and a 55.6% yoy growth in quarterly contract, at $82.2 million. Management's low-to-high end market expansion strategy has led to a healthy contract growth, especially in chemical and petrochemical. Contracts covered a broad range of products, such as DCS, SIS, DEH, MES and AMS, etc. Several major contracts were signed such as providing system for Henan Kelong Group, Shanxi Guangda Coking on their energy management project, and Zhong'an lianhe Coalification Company on their methanol and olefin conversion project. We are also building comprehensive capacity to address the substantial service and upgrading potential from the entire customer base. On coal fire, while maintaining our market share in the high end market, we have been actively responding to demand on environmental protection, energy saving, control optimization and information security, etc. Similar demand has also been spotted in other industries. With our widespread national service network, we are capable of communicating with and delivering to our customers from various industries regular and value-added customized services and products they need.

In Factory automation, we adhered to our demonstration-for-further-application strategy and proceeded deeper in the cooperation with our current customer base. On food beverage, we continued to provide innovative solution to address safety and efficiency issues for Haidilao, with new projects covering automatic dish serving, dipping source making and smart cleaning. Management team will continue to seek strategic cooperation with more renowned customers to address the increasing demand from discrete automation. With product sales and customized solutions already being delivered for the time being, our team is also making effort to get Hollysys' product line more ready for the era of intelligent manufacture. The R&D is currently under way for a future-oriented industrial internet platform aiming to make better use of industrial data for higher level of efficiency, digitalization, and automaton in manufacture.

Rail business recorded a 30.9% yoy growth in quarterly revenue at $45.5 million, while quarterly contract decline yoy by 24.6%, at $37.9 million. Few contract on ATP was signed in this quarter and the visibility of CRC bidding remains to be observed. In overseas business, we signed a maintenance contract with Hong Kong MTR with a service duration of 3 years. In subway, we continued to execute signed contracts, while strengthening our marketing capacity through reviewing and updating strategic partnership and improving local service network coverage. Management team will adhere to the diversity strategy to create revenue stream from more new products and services, and to maintain a stable and healthy growth into the future.

In oversea business, we continued to seek opportunities under the Belt and Road Initiative, signing several EPC contracts with domestic companies, including a contract with Shenhua Guohua Co.Ltd to provide DEH for 2X350MW power station in Indonesia. Our effort on strengthening operation management and risk control in Mechanical and electrical installation services has worked effectively, with quarterly revenue recording a 59.4% yoy growth at $29.4 million and a 303.0% yoy growth of quarterly contract at $21.2 million. We will continue to address operation, management and risk control issue and to closely follow the economic and political circumstances in South East Asia and Middle East.

First Nine months and the Third Quarter Ended March 31, 2018 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 Third Quarter Ended March 31, 2018

Comparing to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2018 increased from $91.3 million to $120.6 million, representing an increase of 32.1%. Broken down by the revenue types, integrated contracts revenue increased by 34.0% to $104.7 million, products sales revenue increased by 1.7% to $9.9 million, and services revenue increased by 76.2% to $6.0 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 36.4% for the three months ended March 31, 2018, as compared to 30.7% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 30.0%, 81.2% and 73.6% for the three months ended March 31, 2018, as compared to 24.4%, 65.2% and 78.8% 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 36.4% for the three months ended March 31, 2018, as compared to 30.7% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 30.0%, 81.2% and 73.6% for the three months ended March 31, 2018, as compared to 24.4%, 65.2% and 78.8% for the same period of the prior year respectively.

Selling expenses were $6.2 million for the three months ended March 31, 2018, representing an increase of $0.2 million or 4.1% compared to $6.0 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 5.1% and 6.5% for the three months ended March 31, 2018, and 2017, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $7.6 million for the quarter ended March 31, 2018, representing a decrease of $1.2 million or 13.0% compared to $8.8 million for the same quarter of the prior year. The decrease was mainly due to a decrease of $2.3 million in bad debt provision. Presented as a percentage of total revenues, non-GAAP G&A expenses were 6.3% and 9.6% for quarters ended March 31, 2018 and 2017 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $7.9 million and $6.8 million for the three months ended March 31, 2018 and 2017, respectively.

Research and development expenses were $8.8 million for the three months ended March 31, 2018, representing an increase of $2.7 million or 43.7% compared to $6.1 million for the same quarter of the prior year, mainly due to increased research and development activities. Presented as a percentage of total revenues, R&D expenses were 7.3% and 6.7% for the quarter ended March 31, 2018 and 2017, respectively.

The VAT refunds and government subsidies were $3.9 million for three months ended March 31, 2018, as compared to $5.5 million for the same period in the prior year, representing a $1.6 million or 29.4% decrease, which was primarily due to decrease of the government subsidies for $2.6 million.

The income tax expenses and the effective tax rate were $4.6 million and 17.2% for the three months ended March 31, 2018, as compared to $4.4 million and 22.1% 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 apply to different tax rates.

The non-GAAP net income attributable to Hollysys, which excludes 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 was $22.1 million or $0.36 per diluted share based on 61.3 million shares outstanding for the three months ended March 31, 2018. This represents a 61.1% increase over the $13.7 million or $0.22 per share based on 61.2 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $21.8 million or $0.36 per diluted share representing an increase of 39.8% over the $15.6 million or $0.26 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $141.3 million new contracts for the three months ended March 31, 2018. And the backlog as of March 31, 2018 was $578.9 million. The detailed breakdown of the new contracts and backlog by segments is shown below:

Cash Flow Highlights

For the three months ended March 31, 2018, the total net cash inflow was $6.9 million. The net cash provided by operating activities was $5.0 million. The net cash used in investing activities was $5.0 million, mainly consisted of $29.9 million time deposits placed with banks, which was partially offset by $26.6 million maturity of time deposits. The net cash used in financing activities was $0.1 million, mainly consisted of $0.5 million repayments of short-term bank loans, which was partially offset by $0.4 million proceeds from short-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $385.0 million, $365.4 million, and $268.8 million as of March 31, 2018, December 31, 2017 and March 31, 2017, respectively. As of March 31, 2018, the company held $238.0 million in cash and cash equivalents and $147.0 million in time deposits with original maturities over three months.

For the three months ended March 31, 2018, DSO was 196 days, as compared to 218 days for the comparable prior year period and 147 days for the last quarter; and inventory turnover was 63 days, as compared to 62 days for the comparable prior year period and 48 days for the last quarter.

Outlook for FY 2018

The management concluded, "Based on our backlog currently on-hand and sales pipeline envisioned so far, we reiterate our guidance for fiscal year 2018 with revenue in the range of $500 million to $530 million and non-GAAP net income in the range of $100 million to $110 million."

Conference Call

The Company will host a conference call at 9:00 pm May 14, 2018 U.S. Eastern Time / 9:00 am May 15, 2018 Beijing Time, to discuss the financial results for the third quarter of fiscal year 2018 ended March 31, 2018 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 7867468.

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 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 3,200 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 10,000 customers more than 25,000 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 (Supervisory 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+8610-58981386[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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SOURCE Hollysys Automation Technologies, Ltd