Hollysys Automation Technologies Reports Unaudited Financial Results for the Fourth Quarter and the Fiscal Year Ended June 30, 2023

Fiscal Year 2023 Financial Highlights

Total revenues were $777.4 million,an increase of 9.9% compared to the comparable prior year period. Unfavorable impact from depreciation of Renminbi against the U.S. dollar has adversely affected our revenues for fiscal year 2023.

Gross margin was 32.9%,compared to 33.8% for the comparable prior year period. Non-GAAP gross margin was 33.0%,compared to 34.0% for the comparable prior year period.

Net income attributable to Hollysys was $106.9 million,an increase of 28.6% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $111.6 million,an increase of 18.4% compared to the comparable prior year period.

Diluted earnings per share was $1.72,an increase of 27.4% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $1.80,an increase of 17.6% compared to the comparable prior year period.

Net cash provided by operating activities was $23.2 million.

Days sales outstanding ("DSO") of 151 days,compared to 171 days for the comparable prior year period.

Inventory turnover days of 75 days,compared to 58 days for the comparable prior year period.

Fourth Quarter of Fiscal Year 2023 Financial Highlights

Total revenues were $195.0 million,an increase of 7.1% compared to the comparable prior year period.

Gross margin was 31.2%,compared to 33.7% for the comparable prior year period. Non-GAAP gross margin was 31.4%,compared to 33.9% for the comparable prior year period.

Net income attributable to Hollysys was $25.7 million,an increase of 11.7% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $26.5 million,an increase of 7.2% compared to the comparable prior year period.

Diluted earnings per share was $0.41,an increase of 10.8% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.43,a decrease of 7.5% compared to the comparable prior year period.

Net cash provided by operating activities was $20.0 million.

DSO of 149 days,compared to 174 days for the comparable prior year period.

Inventory turnover days of 81 days,compared to 73 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.

BEIJING,Aug. 16,2023 -- Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys",the "Company" or "we"),a leading provider of automation and control technologies and applications in China,today announced its unaudited financial results for the fiscal year 2023 and the fourth quarter ended June 30,2023.

The Industrial Automation segment continued its growth momentum. The variety of applications and use cases for our product continue to expand,and we have received awards for numerous projects and products.

In the chemical and petrochemical field,Hollysys continued to achieve breakthroughs on national key projects and maintained our cooperation with key customers. We won several mid- and high-profile contracts with competitive positioning in this fiscal year. For example,we signed a 100-billion-square-meter large gas field project and a whole-plant integrated simulation project of a synthetic ammonia and urea plant. We reinforced the Hia Advanced Process Control platform for one of our petrochemical customers,optimizing its isooctane unit and helping it become a benchmark in its industry while maintaining competitive vitality. Moreover,the Sinopec Group Million Ton Ethylene Project saw the first batch delivery in this fiscal year,representing a milestone breakthrough in Hollysys' petrochemical business. We also assisted a chemical enterprise in establishing a digital talent training base with our Operator Training Simulator in the fourth fiscal quarter. Additionally,Hollysys' strategic layout and developments in overseas business witnessed steady progress. We successfully signed the OBI nickel-iron project in Indonesia with a resource company in this fiscal year,with Hollysys providing relevant customized products with integrated and comprehensive intelligent solutions,marking a new milestone for our overseas market expansion.

The food and pharmaceutical sectors also demonstrated steady business growth. We signed a significant project with a leading enterprise of generic contrast media products on producing iodiproamine and regadesone in this fiscal year,with Hollysys acting as the overall instrument control contractor that provides Distributed Control System ("DCS"),instrument valves and installation. In the fourth fiscal quarter,we also provided an integrated solution for a pharmaceutical company and received high user recognition.

In the smart factory field,we kept developing customized smart factory solutions that meet customers' requirements. We made several vital cooperations with various customers in this fiscal year. We signed the project of automatic control system and factory intelligent management system of a northwest listed coal company and the Sinopec power center simulation project which covers the whole range of high-precision excitation virtual imitation machine systems. Meanwhile,we completed the delivery of a 230,000 tons phenolic resin project,providing fully autonomous and controllable HiaBatch control system. In the fourth fiscal quarter,we won the bids for two smart factory projects that are expected to aid in their intelligent transformation and help reduce their production and operation costs.

In Rail Transportation Automation segment,we continued to maintain our market position. In the high-speed rail sector,we made new progress in this fiscal year. For instance,we participated in the Guizhou section of Guiyang-Nanning Railway project and Yiyang-Changsha section of Changde-Yiyang-Changsha High-Speed Railway project. In the subway sector,our Traffic Operation System Platform was successfully applied in the Phase I Project of Beijing Metro Line 19. In terms of the urban rail transit sector,the first phase of Lanzhou Rail Transit Line 2 started trial operation successfully with the support of our comprehensive monitoring system and other services in the fourth fiscal quarter. We also provided an integrated station control room for Lanzhou Rail Transit. Moreover,our ZPW-2000S communication coding track circuit product,which was certified by the Safety Integrity Level 4 and the China Railway Product Certification Center,won two bids on domestic lines in the fourth fiscal quarter. In addition to the domestic market,we have smoothly explored the overseas market. We signed the sales project of the main control system software and Programmable Logic Controller for Kuching urban transportation system in Sarawak,Malaysia in this fiscal year,of which the main control system adopted our independently developed MACS-SCADA software system platform. We believe that this project lays a solid foundation for future access to overseas markets and is expected to further enhance our international influence in the field of rail transit.

The Mechanical and Electrical Solution segment also manifested a stable performance with smooth executions on various projects.

With our continuous dedication to the industry and the support of experienced and passionate experts,we believe that we will continue to create more value for our clients and shareholders.

Fiscal Year and the Fourth QuarterEnded June 30,2023 Unaudited Financial Results Summary

(In USD thousands,except for %,number of shares and per share data)

Three months ended

June 30,

Fiscal year ended

June 30,

2023

2022

%

Change

2023

2022

%

Change

Revenues

$

194,963

182,115

7.1%

$

777,373

707,462

9.9%

Integrated solutions contracts

revenue

$

160,896

149,292

7.8%

$

632,100

573,567

10.2%

Product sales

$

13,251

11,823

12.1%

$

47,424

38,486

23.2%

Revenue from services

$

20,816

21,000

(0.9)%

$

97,849

95,409

2.6%

Cost of revenues

$

134,161

120,780

11.1%

$

521,888

468,105

11.5%

Gross profit

$

60,802

61,335

(0.9)%

$

255,485

239,357

6.7%

Total operating expenses

$

43,204

42,215

2.3%

$

162,472

164,813

(1.4)%

Selling

$

13,628

10,863

25.5%

$

57,243

45,301

26.4%

General and administrative

$

19,186

23,323

(17.7)%

$

63,580

80,241

(20.8)%

Research and development

$

16,749

16,629

0.7%

$

70,200

69,580

0.9%

VAT refunds and government

subsidies

$

(6,359)

(8,600)

(26.1)%

$

(28,551)

(30,309)

(5.8)%

Income from operations

$

17,598

19,120

(8.0)%

$

93,013

74,544

24.8%

Other income,net

$

625

256

144.1%

$

3,372

2,185

54.3%

Foreign exchange gain

$

4,083

4,000

2.1%

$

6,363

1,789

255.7%

Gains on disposal of investments in an

equity investee

$

-

-

-

$

-

7,995

-

Impairment loss of investments in cost

investees

$

-

(773)

-

$

-

(773)

-

Share of net income of equity investees

$

762

1,280

(40.5)%

$

3,116

1,838

69.5%

Gains on disposal of an investment in

securities

-

-

-

845

-

100.0%

Losses on disposal of subsidiaries

$

-

-

-

$

-

(3)

(100.0)%

Dividend income from investments in

securities

$

237

-

100.0%

$

237

85

178.8%

Interest income

$

3,374

3,363

0.3%

$

12,394

12,698

(2.4)%

Interest expenses

$

(257)

(141)

82.3%

$

(878)

(731)

20.1%

Income tax expenses

$

696

3,928

(82.3)%

$

11,390

16,634

(31.5)%

Net income (loss) attributable to non-

controlling interests

$

6

155

(96.1)%

$

141

(189)

(174.6)%

Net income attributable to Hollysys

Automation Technologies Ltd.

$

25,720

23,022

11.7%

$

106,931

83,182

28.6%

Basic earnings per share

$

0.42

0.38

10.5%

$

1.74

1.36

27.9%

Diluted earnings per share

$

0.41

0.37

10.8%

$

1.72

1.35

27.4%

Share-based compensation expenses

$

437

1,327

(67.1)%

$

3,286

9,709

(66.2)%

Amortization of acquired intangible

assets

$

325

353

(7.9)%

$

1,342

1,356

(1.0)%

Non-GAAP net income attributable to

Hollysys Automation Technologies

Ltd.(1)

$

26,482

24,702

7.2%

$

111,559

94,247

18.4%

Non-GAAP basic earnings per share(1)

$

0.43

0.40

7.5%

$

1.81

1.54

17.5%

Non-GAAP diluted earnings per share(1)

$

0.43

0.40

7.5%

$

1.80

1.53

17.6%

Basic weighted average number of

ordinary shares outstanding

61,731,177

61,195,317

0.9%

61,521,412

61,007,806

0.8%

Diluted weighted average number of

ordinary shares outstanding

62,134,923

61,788,905

0.6%

62,034,400

61,568,476

0.8%

(1) See the section entitled "Non-GAAP Measures" for more information about these non-GAAP measures.

Operational Results Analysis for the Fiscal Year Ended June 30,2023

Total revenues for fiscal year 2023 were $777.4 million,as compared to $707.5 million for the prior fiscal year,representing an increase of 9.9%. In terms of revenues by type,integrated solutions contracts revenue increased by 10.2% to $632.1 million,products sales revenue increased by 23.2% to $47.4 million,and services revenue increased by 2.6% to $97.8 million.

The following table sets forth the Company's total revenues by segment for the periods indicated.

(In USD thousands,except for %)

Fiscal year ended June 30,

2023

2022

$

% to Total

Revenues

$

% to Total

Revenues

Industrial Automation

506,300

65.2

439,918

62.2

Rail Transportation Automation

189,167

24.3

183,785

26.0

Mechanical and Electrical Solution

81,906

10.5

83,759

11.8

Total

777,373

100.0

707,462

100.0

Gross marginwas 32.9%for fiscal year 2023,as compared to 33.8% for the prior fiscal year.Gross marginsfor integrated solutions contracts,product sales,and services rendered were 25.0%,72.0% and 64.7% for fiscal year 2023,as compared to 26.4%,73.4% and 62.7% for the priorfiscal year,respectively. Non-GAAP gross margin was 33.0%for fiscal year 2023,as compared to 34.0% for the prior fiscal year.Non-GAAP gross margin of integrated solutions contracts was 25.2% for fiscal year 2023,as compared to 26.6% for 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 expenses were $57.2 millionfor fiscal year2023,representing an increase of $11.9 million,or 26.4%,compared to $45.3 million for the prior fiscal year. The increase in selling expenses was mainly due to the increase in sales headcount to support the business growth,and the implementation of industry key customer strategy in industrial automation segment. Selling expenses as a percentage of total revenues were 7.4%and6.4% for fiscal year 2023 and 2022,respectively.

General and administrativeexpenses were$63.6million for fiscal year2023,representing a decrease of $16.7 million,or 20.8%,compared to $80.2 million for the prior fiscal year,which was primarily due to an $8.6 million decrease in credit losses provision and a $6.4 million decrease in share-based compensation expenses. Share-based compensation expenses were $3.3 million and $9.7 million for fiscal year 2023 and 2022,respectively. General and administrative expensesas a percentage oftotal revenues were8.2% and 11.3%for fiscal year 2023and 2022,respectively.

Research and development expenses were $70.2 million for fiscal year 2023,representing an increase of $0.6 million,or 0.9%,compared to $69.6 million for the prior fiscal year. Research and development expenses as a percentage of total revenues were 9.0% and 9.8% for fiscal year 2023 and 2022,respectively.

The VAT refunds and government subsidies were $28.6 million for fiscal year 2023,as compared to $30.3 million for the prior fiscal year,representing a $1.8 million,or 5.8%,decrease.

The income tax expenses and the effective tax rate were $11.4 million and 9.6% for fiscal year 2023,respectively,as compared to $16.6 million and 16.7% for 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 $106.9millionfor fiscal year 2023,representinganincrease of 28.6% from $83.2 millionreported in the prior fiscal year. Non-GAAP net income attributable to Hollysyswas $111.6 million or $1.80 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 $1.72for fiscal year 2023,representing an increase of 27.4% from $1.35 in the prior fiscal year.Non-GAAP diluted earnings per share was $1.80 for fiscal year 2023,representing an increase of 17.6% from $1.53 in the prior fiscal year. These were calculated based on 62.0 million and 61.6 million diluted weighted average ordinary shares outstanding for the fiscal year ended June 30,2023 and 2022,respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Operational Results Analysis for the Fourth Quarter Ended June 30,2023

Total revenues for the three months ended June 30,2023 were $195.0 million,as compared to $182.1 million for the same period of the prior fiscal year,representing an increase of 7.1%. In terms of revenue by type,integrated solutions contracts revenue increased by 7.8% to $160.9 million,products sales revenue increased by 12.1% to $13.3 million,and services revenue decreased by 0.9% to $20.8 million.

The following table sets forth the Company's total revenues by segment for the periods indicated.

(In USD thousands,except for %)

Three months ended June 30,

2023

2022

$

% to Total

Revenues

$

% to Total

Revenues

Industrial Automation

141,117

72.4

121,771

66.9

Rail Transportation Automation

35,901

18.4

34,215

18.8

Mechanical and Electrical Solution

17,945

9.2

26,129

14.3

Total

194,963

100.0

182,115

100.0

Gross marginwas 31.2% for the three months endedJune 30,2023,as compared to 33.7% for the same period of the prior fiscal year.Gross margin of integrated solutions contracts,and service renderedwas24.1%,63.4% and 65.7% for the three months endedJune 30,as compared to 27.1%,75.4% and 57.1% for the same period of the prior fiscal year,respectively. Non-GAAP gross marginwas 31.4%for the three months endedJune 30,as compared to 33.9% for the same period of the prior fiscal year.Non-GAAP gross margin of integrated solutions contracts was 24.3% for the three months ended June 30,as compared to 27.3% for the same period of the prior fiscal 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 expenses were $13.6 millionfor the three months ended June 30,representing an increase of $2.8 million,or 25.5%,compared to $10.9 million for the same period of the prior fiscal year. The increase in selling expenses was mainly due to the increase in sales headcount to support the business growth and the implementation of industry key customer strategy in industrial automation segment. Selling expenses as a percentage of total revenueswere 7.0%and6.0% for the three months ended June 30,respectively.

General and administrativeexpenses were$19.2million forthe three months ended June 30,representing a decrease of $4.1 million,or 17.7%,compared to $23.3 million for the same period of the prior fiscal year,which was primarily due to a $2.7 million decrease in credit losses provision and $2.0 million decrease in third-party consulting fees. Share-based compensation expenses were $0.4 million and $1.3 million for the three months ended June 30,respectively. General and administrative expensesas a percentage oftotal revenues were9.8% and 12.8%for the three months endedJune 30,2023and 2022,respectively.

Research and development expenses were $16.7 million for the three months ended June 30,representing an increase of $0.1 million,or 0.7%,compared to $16.6 million for the same period of the prior fiscal year. Research and development expenses as a percentage of total revenues were 8.6% and 9.1% for the three months ended June 30,respectively.

The VAT refunds and government subsidies were $6.4 million for three months ended June 30,as compared to $8.6 million for the same period in the prior fiscal year,representing a $2.2 million,or 26.1%,decrease. The decrease in VAT refunds and government subsidies was mainly due to a 2.1 million decrease in government subsidies.

The income tax expenses and the effective tax rate were $0.7 million and 2.6% for the three months ended June 30,as compared to $3.9 million and 14.5% for the comparable period in the prior fiscal year,as the Company's subsidiaries contributed different pre-tax income at different tax rates.

Net income attributable to Hollysys was $25.7millionfor three months ended June 30,representinganincrease of 11.7% from $23.0 millionreported in thecomparableperiod in the prior fiscal year. Non-GAAP net income attributable to Hollysyswas $26.5 million or $0.43 per diluted share. See the section entitled "Non-GAAP Measures" for more information about non-GAAP net income attributable to Hollysys.

Diluted earnings per sharewas $0.41for the three months ended June 30,representing an increase of 10.8% from $0.37 for the comparable period in the prior fiscal year. Non-GAAP diluted earnings per share was $0.43for the three months ended June 30,representing an increase of 7.5% from $0.40 for the comparable period in the prior fiscal year.These were calculated based on 62.1 million and 61.8 million diluted weighted average ordinary shares outstanding for the three months ended June 30,respectively. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $881.6 million and $281.2 million in terms of the value of new contracts for the fiscal year and the three months ended June 30,respectively. The order backlog of contracts was $909.5 million as of June 30,2023. The order backlog of contracts represents the amount of unrealized revenue to be earned from the contracts that Hollysys won. 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 the fiscal

year

ended June 30,2023

Value of new contracts

achieved for the three

months

ended June 30,2023

Backlog as of June 30,

2023

$

% of Total

Contract

Value

$

% of Total

Contract

Value

$

% of Total

Backlog

Industrial Automation

629,559

71.4

199,142

70.8

412,003

45.3

Rail Transportation

187,376

21.3

69,883

24.9

314,114

34.5

Mechanical and Electrical Solutions

64,706

7.3

12,187

4.3

183,375

20.2

Total

881,641

100.0

281,212

100.0

909,492

100.0

Cash Flow Highlights

For the fiscal year ended June 30,thetotal net cash outflow was $70.9 million. The net cash provided by operating activitieswas$23.2 million. The net cash used in investing activities was $59.7 million,primarily due to $40.9 million purchases of property,plant and equipment,$126.1 million purchases of short-term investments,and $1.6 million investment of an equity investee,which was partially offset by $103.7 million maturity of short-term investments and $4.2 million proceeds from disposal of a subsidiary. The net cash provided byfinancing activitieswas $17.9 million,primarily due to $18.8 million proceeds from long-term bank loans.

For the three months ended June 30,thetotal net cash outflow was $32.8 million. The net cash provided by operating activitieswas$20.0 million. The net cash used in investing activities was $16.9 million,primarily due to $4.1 million purchases of property,$25.4 million purchases of short-term investments and $1.6 million investment of an equity investee,which was partially offset by $14.2 million maturity of short-term investments. The net cash provided by financing activities was $0.1 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents was $611.6 million,$640.2 million,and $679.8 million as of June 30,March 31,and June 30,2022,respectively.

For the fiscal yearended June 30,DSOwas151days,as compared to 171days for the prior fiscal year; inventory turnover days were 75 days,as compared to 58 days for the prior fiscal year. The significant increase in inventories was mainly due to the Company's increase in safety stock level in response to supply chain fluctuations.

For the three months ended June 30,DSOwas 149 days,as compared to174 days for the prior fiscal yearand 176 days for the last fiscal quarter; inventory turnover days were 81 days,as compared to 73 days for the prior fiscal year and 87 days for the last fiscal quarter.

Financial Performance Guidance

Based on information available as of the date of this press release,Hollysys provides the following financial performance guidance for the full fiscal year 2024:

The revenue is expected to be between $852 million and $930 million,with a year-on-year increase of 10% to 20%.

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 June 30,Hollysys had cumulatively carried out more than 35,000projects for approximately 20,000 customers in various sectors including power,petrochemical,high-speed rail,and urban rail,in which Hollysys has established leading market positions.

SAFE HARBOR STATEMENTS

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 "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "target," "confident," 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

investors@hollysys.com

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In USD thousands except for number of shares and per share data)

Three months ended

June 30,

Fiscal year ended

June 30,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Integrated solutions contracts revenue

$

160,896

$

149,292

$

632,100

$

573,567

Product sales

13,251

11,823

47,424

38,486

Revenue from services

20,816

21,000

97,849

95,409

Total net revenues

194,963

182,115

777,373

707,462

Costs of integrated solutions contracts

122,167

108,866

474,046

422,236

Cost of products sold

4,847

2,913

13,257

10,247

Costs of services rendered

7,147

9,001

34,585

35,622

Gross profit

60,802

61,335

255,485

239,357

Operating expenses

Selling

13,628

10,863

57,243

45,301

General and administrative

19,186

23,323

63,580

80,241

Research and development

16,749

16,629

70,200

69,580

VAT refunds and government subsidies

(6,359)

(8,600)

(28,551)

(30,309)

Total operating expenses

43,204

42,215

162,472

164,813

Income from operations

17,598

19,120

93,013

74,544

Other income,net

625

256

3,372

2,185

Foreign exchange gain

4,083

4,000

6,363

1,789

Gains on disposal of an investment in an equity investee

-

-

-

7,995

Losses on disposal of subsidiaries

-

-

-

(3)

Gains on disposal of an investment in securities

-

-

845

-

Impairment loss of investments cost investees

-

(773)

-

(773)

Share of net income of equity investees

762

1,280

3,116

1,838

Dividend income from investments in securities

237

-

237

85

Interest income

3,374

3,363

12,394

12,698

Interest expenses

(257)

(141)

(878)

(731)

Income before income taxes

26,422

27,105

118,462

99,627

Income taxes expenses

696

3,928

11,390

16,634

Net income

$

25,726

$

23,177

$

107,072

$

82,993

Less: Net income (loss) attributable to non-controlling interests

6

155

141

(189)

Net income attributable to Hollysys Automation

Technologies Ltd.

$

25,720

$

23,022

$

106,931

$

83,182

Other comprehensive (loss) income,net of tax of nil

Translation adjustments

(70,143)

(67,103)

(99,719)

(46,590)

Comprehensive (loss) income

(44,417)

(43,926)

7,353

36,403

Less: comprehensive income (loss) attributable to non-

controlling interests

(351)

64

185

(1,310)

Comprehensive (loss) income attributable to Hollysys

Automation Technologies Ltd.

$

(44,066)

$

(43,990)

$

7,168

$

37,713

Net income per ordinary share:

Basic

0.42

0.38

1.74

1.36

Diluted

0.41

0.37

1.72

1.35

Shares used in net income per share computation:

Basic

61,177

61,317

61,412

61,806

Diluted

62,923

61,905

62,400

61,476

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

(In USD thousands except for number of shares and per share data)

June 30,

March 31,

2023

2023

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

611,632

$

640,249

Short-term investments

33,202

23,519

Restricted cash

23,009

26,381

Accounts receivable,net of allowance for credit losses of $73,009 and $73,283 as

of June 30,2023 and March 31,respectively

309,822

308,212

Costs and estimated earnings in excess of billings,net of allowance for credit losses

of $14,438 and $14,505 as of June 30,respectively

253,262

259,778

Accounts receivable retention

7,465

7,729

Other receivables,net of allowance for credit losses of $12,044 and $12,379 as of

June 30,respectively

19,265

21,719

Advances to suppliers

28,493

29,321

Amounts due from related parties

25,906

23,968

Inventories

111,634

117,452

Prepaid expenses

596

888

Income tax recoverable

649

282

Total current assets

1,424,935

1,459,498

Non-current assets

Restricted cash

13,489

14,259

Costs and estimated earnings in excess of billings

1,746

1,988

Accounts receivable retention

6,587

7,069

Prepaid expenses

3

3

Property,net

134,626

137,434

Prepaid land leases

11,503

12,135

Intangible assets,net

8,483

9,343

Investments in equity investees

47,603

47,774

Investments securities

1,561

1,651

Goodwill

18,939

20,020

Deferred tax assets

11,937

9,589

Operating lease right-of-use assets

3,436

3,154

Total non-current assets

259,913

264,419

Total assets

1,684,848

1,723,917

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of long-term loans

15,231

262

Accounts payable

170,632

167,070

Construction costs payable

11,085

11,384

Deferred revenue

181,387

185,564

Accrued payroll and related expenses

26,742

18,537

Income tax payable

6,414

4,422

Warranty liabilities

3,238

4,573

Other tax payables

10,504

7,430

Accrued liabilities

36,870

38,326

Amounts due to related parties

6,155

6,181

Operating lease liabilities

1,887

1,510

Total current liabilities

470,145

445,259

Non-current liabilities

Accrued liabilities

2,367

5,513

Long-term loans

16,775

32,740

Accounts payable

2,588

2,717

Deferred tax liabilities

13,069

13,335

Warranty liabilities

2,568

2,557

Operating lease liabilities

1,103

1,343

Other liability

-

68

Total non-current liabilities

38,470

58,273

Total liabilities

508,615

503,532

Commitments and contingencies

-

-

Stockholders' equity:

Ordinary shares,par value $0.001 per share,100,000,000 shares authorized;

62,021,930 shares and 62,020,441 shares issued and outstanding as of June 30,

2023 and March 31,respectively

62

62

Additional paid-in capital

246,908

261,378

Statutory reserves

78,875

68,874

Retained earnings

961,782

931,625

Accumulated other comprehensive income

(112,418)

(42,631)

Total Hollysys Automation Technologies Ltd. stockholder's equity

1,175,209

1,219,308

Non-controlling interests

1,024

1,077

Total equity

1,176,233

1,220,385

Total liabilities and equity

$

1,848

$

1,917

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

Three monthsended

Fiscal year ended

June 30,2023

June 30,2023

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

25,726

$

107,072

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property,plant and equipment

1,920

8,612

Amortization of prepaid land leases

77

331

Amortization of intangible assets

325

1,342

Allowance for credit losses

4,691

7,540

(Gain) loss on disposal of property,plant and equipment

(24)

19

Share of net income of equity investees

(762)

(3,116)

Share-based compensation expenses

437

3,286

Deferred income tax expenses

(2,733)

(8,002)

Gains on disposal of an investment in securities

-

(845)

Changes in operating assets and liabilities:

Accounts receivable and retention

(27,279)

(32,011)

Costs and estimated earnings in excess of billings

(6,710)

(40,902)

Inventories

(243)

(28,581)

Advances to suppliers

(791)

2,929

Other receivables

1,385

1,036

Prepaid expenses

288

77

Due from related parties

(3,387)

(704)

Accounts payable

11,772

7,574

Deferred revenue

5,965

(10,017)

Accruals and other payables

3,750

5,947

Due to related parties

(26)

(144)

Income tax payable

1,952

1,957

Other tax payables

3,635

(223)

Net cash provided by operating activities

19,968

23,177

Cash flows from investing activities:

Purchases of short-term investments

(25,440)

(126,069)

Purchases of property,plant and equipment

(4,107)

(40,918)

Proceeds from disposal of a subsidiary

-

4,175

Proceeds from disposal of property,plant and equipment

146

309

Maturity of short-term investments

14,219

103,718

Proceeds received from disposal of investment in securities

-

845

Investment of an equity investee

(1,653)

(1,653)

Acquisition of a subsidiary,net of cash acquired

(17)

(90)

Net cash used in investing activities

(16,852)

(59,683)

Cash flows from financing activities:

Proceeds from short-term bank loans

-

293

Repayments of short-term bank loans

-

(357)

Proceeds from long-term bank loans

298

18,818

Repayments of long-term bank loans

(190)

(869)

Net cash provided by financing activities

108

17,885

Effect of foreign exchange rate changes

(35,983)

(52,276)

Net decrease in cash,cash equivalents and restricted cash

$

(32,759)

$

(70,897)

Cash,cash equivalents and restricted cash,beginning of period

$

680,889

$

719,027

Cash,end of period

648,130

648,130

Non-GAAP Measures

To supplement our consolidated financial statements,which are prepared and presented in accordance with GAAP,in evaluating our results,we use the following non-GAAP financial measures: non-GAAP gross profit and non-GAAP gross margin,non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts,non-GAAP net income attributable to Hollysys Automation Technologies Ltd.,as well as non-GAAP basic and diluted earnings per share.

These non-GAAP financial measures serve as additional indicators of our operating performance and not as any replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures help identify underlying trends in the Company's business that could otherwise be distorted by the effect of the share-based compensation expenses,which are calculated based on the number of shares or options granted and the fair value as of the grant date,and amortization of acquired intangible assets. 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.

Non-GAAP gross profit and non-GAAP gross margin,as well as non-GAAP basic and diluted earnings per share should not be considered in isolation or construed as an alternative to gross profit and gross margin,gross profit and gross margin of integrated solutions contracts,net income attributable to Hollysys Automation Technologies Ltd.,basic and diluted earnings per share,or any other measure of performance,or as an indicator of the Company's operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Non-GAAP gross profit and gross margin,as well as non-GAAP basic and diluted earnings per share presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently,limiting their usefulness as comparative measures to the Company's data. The Company encourages investors and others to review the Company's financial information in its entirety and not rely on a single financial measure.

We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin,adjusted to exclude non-cash amortization of acquired intangibles. The following table provides a reconciliation of our gross profit and gross margin to non-GAAP gross profit and non-GAAP gross margin for the periods indicated.

(In USD thousands,except for %)

Three months ended

Fiscal year ended

June 30,

June 30,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit

$

60,802

$

61,335

$

255,485

$

239,357

Gross margin(1)

31.2%

33.7%

32.9%

33.8%

Add:

Amortization of acquired intangible

assets

325

353

1,342

1,356

Non-GAAP gross profit

$

61,127

$

61,688

$

256,827

$

240,713

Non-GAAP gross margin(2)

31.4%

33.9%

33.0%

34.0%

(1) Gross margin represents gross profit for the period as a percentage of revenues for such period.

(2) Non-GAAP gross margin represents non-GAAP gross profit for the period as a percentage of revenues for such period.

We define non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts as gross profit and gross margin of integrated solutions contracts,adjusted to exclude non-cash amortization of acquired intangibles associated with integrated solutions contracts. The following table provides a reconciliation of the gross profit of integrated solutions contracts to non-GAAP gross profit and non-GAAP gross margin of integrated solutions contracts for the periods indicated.

(In USD thousands,

Fiscal year ended June 30,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit of integrated

solutions contracts

$

38,729

$

40,426

$

158,054

$

151,331

Gross margin of integrated

solutions contracts(1)

24.1%

27.1%

25.0%

26.4%

Add:

Amortization of acquired intangible

assets

325

353

1,356

Non-GAAP gross profit of

integrated solutions contracts

$

39,054

$

40,779

$

159,396

$

152,687

Non-GAAP gross margin of

integrated solutions contracts(2)

24.3%

27.3%

25.2%

26.6%

(1) Gross margin of integrated solutions contracts represents gross profit of integrated solutions contracts for the period as a

percentage of integrated solutions contracts revenue for such period.

(2) Non-GAAP gross margin of integrated solutions contracts represents non-GAAP gross profit of integrated solutions contracts

for the period as a percentage of integrated solutions contracts revenue for such period.

We define non-GAAP net income attributable to Hollysys as net income attributable to Hollysys adjusted to exclude the share-based compensation expenses and non-cash amortization of acquired intangible assets. The following table provides a reconciliation of net income attributable to Hollysys to non-GAAP net income attributable to Hollysys for the periods indicated.

(In USD thousands)

Three months ended

Fiscal year ended

June 30,

2023

2022

2023

2022

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income attributable to Hollysys

Automation Technologies Ltd.

$

25,720

$

23,022

$

106,931

$

83,182

Add:

Share-based compensation expenses

437

1,327

3,286

9,709

Amortization of acquired intangible

assets

325

353

1,356

Non-GAAP net income attributable

toHollysys Automation

Technologies Ltd.

$

26,482

$

24,702

$

111,559

$

94,247

Non-GAAP basic (or diluted) earnings per share represents non-GAAP net income attributable to Hollysys divided by the weighted average number of ordinary shares outstanding during the periods (or on a diluted basis). The following table provides a reconciliation of our basic (or diluted) earnings per share to non-GAAP basic (or diluted) earnings per share for the periods indicated.

(In USD thousands,except for number of shares and per share data)

Three months ended

Fiscal year ended

June 30,709

Amortization of acquired intangible assets

325

353

1,356

Non-GAAP net income attributable to

Hollysys Automation Technologies

Ltd.

$

26,247

Weighted average number of basic ordinary

shares

61,806

Weighted average number of diluted ordinary

shares

62,476

Basic earnings per share(1)

$

0.42

$

0.38

$

1.74

$

1.36

Add:

Non-GAAP adjustments to net income per

share(2)

0.01

0.02

0.07

0.18

Non-GAAP basic earnings per share(3)

$

0.43

$

0.40

$

1.81

$

1.54

Diluted earnings per share(1)

$

0.41

$

0.37

$

1.72

$

1.35

Add:

Non-GAAP adjustments to net income per

share(2)

0.02

0.03

0.08

0.18

Non-GAAP diluted earnings per share(3)

$

0.43

$

0.40

$

1.80

$

1.53

(1) Basic (or diluted) earnings per share is derived from net income attributable to ordinary shareholders for computing basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).

(2) Non-GAAP adjustments to net income per share are derived from non-GAAP adjustments to net income divided by weighted average number of shares (or on a diluted basis).

(3) Non-GAAP basic (or diluted) earnings per share is derived from non-GAAP net income attributable to ordinary shareholders for computing non-GAAP basic (or diluted) earnings per share divided by weighted average number of shares (or on a diluted basis).