Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal year and the Fourth Quarter Ended June 30, 2018

Fiscal Year 2018 Financial Highlights

Non-GAAP net income attributable to Hollysys was $108.9 million,an increase of 55.4% compared to the comparable prior year period.

Total revenues were $540.8 million,an increase of 25.2% compared to the comparable prior year period.

Non-GAAP gross margin was at 38.2%,compared to 32.7% for the comparable prior year period.

Non-GAAP diluted EPS were at $1.78,an increase of 53.4% compared to the comparable prior year period.

Net cash provided by operating activities was $122.2 million for the current year.

DSO of 174 days,compared to 201 days for the comparable prior year period.

Inventory turnover days of 58 days,compared to 51 days for the comparable prior year period.

Fourth Quarter of Fiscal Year 2018 Financial Highlights

Non-GAAP net income attributable to Hollysys was $28.6 million,an increase of 26.5% compared to the comparable prior year period.

Total revenues were $147.2 million,an increase of 6.7% compared to the comparable prior year period.

Non-GAAP gross margin was at 39.6%,compared to 39.1% for the comparable prior year period.

Non-GAAP diluted EPS were at $0.46,an increase of 24.3% compared to the comparable prior year period.

Net cash provided by operating activities was $45.1 million for the current quarter.

DSO of 166 days,compared to 153 days for the comparable prior year period.

Inventory turnover days of 59 days,compared to 50 days for the comparable prior year period.

BEIJING,Aug. 15,2018 -- 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 fiscal year 2018 and the fourth quarter ended June 30,2018 (see attached tables). The management of Hollysys,stated:

Industrial automation recorded a 46.2% YOY growth in quarterly revenue,at $64.0 million. Annual revenue and new contract recorded a 30.2% and 16.0% YOY growth respectively. Management continued to execute the low-to-high end market expansion strategy for Process Automation business. Contract growth in chemical and petrochemical remained healthy. Major contracts include a DCS+SIS+ITCC+AMS solution for Shandong Haiyou Chemical's 1 million tons delayed coking equipment project,and a DCS solution for Suzhou Sinye Materials Technology Co.,Ltd covering its furan,cold-core,and sulfonic curing agent project. We signed several additional contracts for the milestone Zhong'an United Coal Chemical Project,where we applied our comprehensive solution to many new equipment for the first time. On power,despite the slowdown of the coal fire industry,growth in thermal power and new energy remained healthy. We continued to maintain our market share in high end coal fire market,while actively expanding market for multiple product lines. Major contracts signed include a DCS solution for Shenhua Wucaiwan 2X660MW power station and a DEH solution for Datang Pingluo 2X660MW turbine unit. We continued to address service and upgrading demand from the entire customer base. Our data-based value-added solution,including energy saving,control optimization and information security,etc. have received growing acceptance from customers of several 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.

Rail business recorded a 37.6% YOY decline in quarterly revenue at $40.4 million,while quarterly new contract decline YOY by 16.8%,at $58.1 million. Annually,new contracts increase YOY by 24.2%,while revenue increase YOY by 22.4%. Breakthrough was made as we signed a C2 track circuit contract for Guiyang Southwest line. New contracts were also signed on subway SCADA for Beijing Subway Line 17 and Line 19. As for the ATP product line,CRC started the bidding of C3 ATP in early June,but contract has not been signed yet. We continued to strengthen our marketing capacity through reviewing and updating strategic partnership and improving local service network coverage,and signed several maintenance contracts covering both on-board and on-ground equipment. 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 in Process Automation business through EPC projects and direct sales. Contracts were signed on DCS,DEH,BATCH,etc. solution with customers from India and Southeast Asia. The M&E business,performed by Concord and Bond,recorded a 45.1% YOY growth in quarterly revenue,at $42.9 million,and a 150.9% quarterly new contract growth,at $40.0 million. Annual M&E revenue and new contracts recorded 21.0% and 134.5% YOY growth respectively. Effort on improving management and risk control in this fiscal year has taken effect and will be ongoing. The economic and political circumstancesin South East Asia and Middle East will continue to be closely followed.

Fiscal year and The Fourth Quarter Ended June 30,2018 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:

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

Three months ended

Fiscal year ended

Jun 30,

2018

Jun 30,

2017

%

Change

Jun 30,

2017

%

Change

Revenues

$

147,239

137,961

6.7%

$

540,768

431,943

25.2%

Integrated contract revenue

$

131,616

124,733

5.5%

$

466,461

385,500

21.0%

Products sales

$

11,149

8,549

30.4%

$

40,233

32,665

23.2%

Service rendered

$

4,474

4,679

(4.4)%

$

34,074

13,778

147.3%

Cost of revenues

$

88,890

84,065

5.7%

$

334,288

290,891

14.9%

Gross profit

$

58,349

53,896

8.3%

$

206,480

141,052

46.4%

Total operating expenses

$

25,459

33,894

(24.9)%

$

84,429

79,737

5.9%

Selling

$

6,515

6,593

(1.2)%

$

27,158

24,412

11.2%

General and administrative

$

14,365

14,586

(1.5)%

$

45,116

43,833

2.9%

Goodwill impairment charge

$

-

11,211

(100.0)%

$

-

11,211

(100.0)%

Research and development

$

8,630

8,026

7.5%

$

36,605

30,109

21.6%

VAT refunds and government subsidies

$

(4,051)

(6,522)

(37.9)%

$

(24,450)

(29,828)

(18.0)%

Income from operations

$

32,890

20,002

64.4%

$

122,051

61,315

99.1%

Other income (expenses),net

$

1,212

(20)

6160.0%

$

4,274

1,811

136.0%

Foreign exchange gain (loss)

$

882

(267)

430.3%

$

(1,099)

(135)

714.1%

Share of net (loss) income of equity

investees

$

(4,038)

(1,063)

(279.9)%

$

(1,571)

3,607

(143.6)%

Gains on disposal of a subsidiary

$

-

628

(100.0)%

-

628

(100.0)%

Gains on deconsolidation of the Company's

interests in Beijing Hollycon Electronic

Technology Co.,Ltd

$

-

8,085

(100.0)%

$

-

14,514

(100.0)%

Dividend income from a cost investee

$

-

(450)

(100.0)%

$

1,093

-

100%

Interest income

$

2,275

1,256

81.1%

$

7,318

3,687

98.5%

Interest expenses

$

116

(144)

(180.6)%

$

(692)

(938)

26.2%

Income tax expenses

$

4,621

5,383

(14.2)%

$

22,205

14,386

54.4%

Net income attributable to non-controlling

interests

$

115

42

173.8%

$

276

25

1004.0%

Non-GAAP net income attributable to

Hollysys Automation Technologies Ltd.

$

28,601

22,602

26.5%

$

108,893

70,078

55.4%

Non-GAAP basic EPS

$

0.47

0.37

27.0%

$

1.80

1.16

55.2%

Non-GAAP diluted EPS

$

0.46

0.37

24.3%

$

1.78

1.16

53.4%

Share-based compensation expenses

$

625

534

17.0%

$

1,207

464

160.1%

Amortization of acquired intangible assets

$

321

318

0.9%

$

600

581

3.3%

(Gain) loss on convertible bond related fair

value adjustments

$

(75)

89

(184.3)%

$

(75)

89

(184.3)%

GAAP Net income attributable to Hollysys

Automation Technologies Ltd.

$

27,730

21,661

28.0%

$

107,161

68,944

55.4%

GAAP basic EPS

$

0.46

0.36

27.8%

$

1.77

1.15

53.9%

GAAP diluted EPS

$

0.45

0.36

25.0%

$

1.75

1.14

53.5%

Basic weighted average common shares

outstanding

60,442,504

60,420,004

0.0%

60,434,019

60,189,004

0.4%

Diluted weighted average common shares

outstanding

61,277,059

61,268,999

0.0%

61,248,565

61,011,510

0.4%

Operational Results Analysis for the Fiscal year Ended June 30,2018

Comparing to the prior fiscal year,the total revenues for fiscal year 2018 increased from $431.9 million to $540.8 million,representing an increase of 25.2%. Broken down by the revenue types,integrated contracts revenue increased by 21.0% to $466.5 million,products sales revenue increased by 23.2% to $40.2 million,and services revenue increased by 147.3% to $34.1 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

(In USD thousands)

Fiscal year ended Jun 30,

2018

2017

$

% to Total Revenue

$

% to Total Revenue

Industrial Automation

224,793

41.5%

172,667

39.9%

Rail Transportation Automation

190,645

35.3%

155,732

36.1%

Mechanical and Electrical Solution

125,330

23.2%

103,544

24.0%

Total

540,768

100.0%

431,943

100.0%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 38.2% for fiscal year 2018,as compared to 32.7% for the prior year. The non-GAAP gross margin for integrated contracts,product sales,and services rendered were 32.8%,73.2% and 71.0% for fiscal year 2018,as compared to 28.2%,69.5% and 70.8% for 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 38.1% for fiscal year 2018,as compared to 32.5% for the prior year. The GAAP gross margin for integrated contracts,and service rendered were 32.6%,as compared to 28.0%,69.5% and 70.8% for the prior year respectively.

Selling expenses were $27.2 million for fiscal year 2018,representing an increase of $2.8 million or 11.2% compared to $24.4 million for the prior year. Presented as a percentage of total revenues,selling expenses were 5.0% and 5.7% for fiscal year 2018 and 2017,respectively.

General and administrativeexpenses,excluding non-cash share-based compensation expenses (non-GAAP G&A expenses),were $45.1 million for fiscal year 2018,representing an increase of $1.3 million or 2.9% compared to $43.8 million for the prior year. Presented as a percentage of total revenues,non-GAAP G&A expenses were 8.3% and 10.1% for fiscal year 2018 and 2017 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $46.3 million and $44.3 million for fiscal year 2018 and 2017,respectively.

Research and development expenses were $36.6 million for fiscal year 2018,representing an increase of $6.5 million or 21.6% compared to $30.1 million for the prior year,mainly due to increased research and development activities. Presented as a percentage of total revenues,R&D expenses were 6.8% and 7.0% for fiscal year 2018 and 2017,respectively.

The VAT refunds and government subsidies were $24.5 million for fiscal year 2018,as compared to $29.8 million for the prior year,representing a $5.3 million or 18.0% decrease,which was primarily due to decrease of the government subsidies.

The income tax expenses and the effective tax rate were $22.2 million and 17.1% for fiscal year 2018,as compared to $14.4 million and 17.3% for comparable prior year period.

The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on the grant-date fair value of shares or options granted,amortization of acquired intangible assets,and fair value adjustments of a bifurcated derivative,was $108.9 million or $1.78 per diluted share based on 61.2 million diluted weighted average common shares outstanding for fiscal year 2018. This represents a 55.4% increase over the $70.1 million or $1.16 per share based on 61.0 million diluted weighted average common shares outstanding reported in the comparable prior year. On a GAAP basis,net income attributable to Hollysys was $107.2 million or $1.75 per diluted share representing an increase of 55.4% over the $68.9 million or $1.14 per diluted share reported in the comparable prior year.

Operational Results Analysis for the Fourth Quarter Ended June 30,2018

Comparing to the fourth quarter of the prior fiscal year,the total revenues for the three months ended June 30,2018 increased from $138.0 million to $147.2 million,representing an increase of 6.7%. Broken down by the revenue types,integrated contracts revenue increased by 5.5% to $131.6 million,products sales revenue increased by 30.4% to $11.1 million,and services revenue decreased by 4.4% to $4.5 million.

The Company's total revenues can also be presented in segments as shown in the following chart:

(In USD thousands)

Three months ended Jun 30,

2018

2017

$

% to Total Revenue

$

% to Total Revenue

Industrial Automation

64,013

43.5%

43,783

31.7%

Rail Transportation Automation

40,368

27.4%

64,647

46.9%

Mechanical and Electrical Solution

42,858

29.1%

29,531

21.4%

Total

147,239

100.0%

137,961

100.0%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 39.6% for the three months ended June 30,2018,as compared to 39.1% for the same period of the prior year. The non-GAAP gross margin for integrated contracts,and services rendered were 35.7%,72.4% and 73.2% for the three months ended June 30,as compared to 35.7%,71.5% and 69.9% 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 39.4% for the three months ended June 30,as compared to 38.8% for the same period of the prior year. The GAAP gross margin for integrated contracts,and service rendered were 35.5%,as compared to 35.4%,71.5% and 69.9% for the same period of the prior year respectively.

Selling expenses were $6.5 million for the three months ended June 30,representing a decrease of $0.1 million or 1.2% compared to $6.6 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 June 30,and 2017,were $14.4 million for the quarter ended June 30,representing a decrease of $0.2 million or 1.5% compared to $14.6 million for the same quarter of the prior year. Presented as a percentage of total revenues,non-GAAP G&A expenses were 9.8% and 10.6% for quarters ended June 30,2018 and 2017 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $15.0 million and $15.1 million for the three months ended June 30,2018 and 2017,respectively.

Research and development expenses were $8.6 million for the three months ended June 30,representing an increase of $0.6 million or 7.5% compared to $8.0 million for the same quarter of the prior year. Presented as a percentage of total revenues,R&D expenses were 5.9% and 5.8% for the quarter ended June 30,respectively.

The VAT refunds and government subsidies were $4.1 million for three months ended June 30,as compared to $6.5 million for the same period in the prior year,representing a $2.4 million or 37.9% decrease,which was primarily due to decrease of the government subsidies.

The income tax expenses and the effective tax rate were $4.6 million and 14.2% for the three months ended June 30,as compared to $5.4 million and 19.9% for comparable prior year period.

The non-GAAP net income attributable to Hollysys, which excludes the non-cash share-based compensation expenses calculated based on grant-date fair value of shares or options granted,was $28.6 million or $0.46 per diluted share based on 61.3 million diluted weighted average common shares outstanding for the three months ended June 30,2018. This represents a 26.5% increase over the $22.6 million or $0.37 per share based on 61.3 diluted weighted average common million shares outstanding reported in the comparable prior year period. On a GAAP basis,net income attributable to Hollysys was $27.7 million or $0.45 per diluted share representing an increase of 28.0% over the $21.7 million or $0.36 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $181.2 million new contracts for the three months ended June 30,2018. And the backlog as of June 30,2018 was $569.0 million. The detailed breakdown of the new contracts and backlog by segments is shown below:

(In USD thousands)

New contracts achieved

Backlog

for the three months

ended Jun 30,2018

as of Jun 30,2018

$

% to Total

Contract

$

% to Total

Backlog

Industrial Automation

83,081

45.8%

184,576

32.4%

Rail Transportation

58,113

32.1%

272,035

47.8%

Mechanical and Electrical Solutions

39,963

22.1%

112,405

19.8%

Total

181,157

100.0%

569,016

100.0%

Cash Flow Highlights

For the fiscal year ended June 30,thetotal net cash inflow was $64.4 million. The net cash provided by operating activities was $122.2 million. The net cash used in investing activities was $50.4 million,mainly consisted of $179.8 million time deposit with original maturities over three months placed with banks,which was partially offset by the $137.8 million generated from matured time deposits with original maturities over three months. The net cash used in financing activities was $12.2 million,mainly consisted of $7.2 million used for payment of dividends,$11.3 million used for repayments of short-term loans,which was partially offset by $5.9 million proceeds from short-term bank loans.

For the three months ended June 30,thetotal net cash inflow was $24.1 million. The net cash provided by operating activities was $45.1 million. The net cash used in investing activities was $6.4 million,mainly consisted of $30.2 million time deposits placed with banks,which was partially offset by $25.1 million maturity of time deposits. The net cash used in financing activities was $4.7 million,mainly consisted of $9.3 million repayments of short-term bank loans,which was partially offset by $4.5 million proceeds from short-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $262.1 million,$238.0 million,and $197.6 million as of June 30,March 31,2018 and June 30,2017,respectively.

For fiscal year ended June 30,Days Sales Outstanding ("DSO") was 174 days,as compared to 201 days from the prior year; and inventory turnover was 58 days,as compared to 51 days from the prior year.

For the three months ended June 30,DSO was 166 days,as compared to 153 days for the comparable prior year period and 196 days for the last quarter; and inventory turnover was 59 days,as compared to 50 days for the comparable prior year period and 63 days for the last quarter.

Conference Call

The Company will host a conference call at 9:00 pm August 14,2018 U.S. Eastern Time / 9:00 am August 15,2018 Beijing Time,to discuss the financial results for fiscal year 2018 and the fourth quarter ended June 30,2018 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 6893555.

Standard International Dial-In Number:

+65 67135090

Participant Local Dial-In Numbers:

Australia,Sydney *NEW*

+61 290833212

China,Domestic

4006208038

China,Domestic

8008190121

Hong Kong

+852 30186771

Japan,Tokyo

+81 345036012

Korea (South),Seoul

+82 27395177

Taiwan,Taipei

+886 255723895

United Kingdom,London *NEW*

+44 2036214779

United States,New York

+1 8456750437

Participant ITFS Dial-In Numbers:

Australia,*NEW*

1300717205

Australia,*NEW*

1800411623

Belgium

080071900

Canada

18663861016

France

0800912761

Germany

08001820671

Hong Kong

800906601

India

180030105440

Indonesia,PT Indosat access

0018030179156

Indonesia,PT Telkom access

0078030179156

Italy

800874737

Japan

0120925376

Korea (South),Domestic

0808500474

Malaysia

1800820152

Netherlands

08000221931

New Zealand

0800880084

Norway

80010719

Philippines

180016120306

Switzerland

0800561006

Taiwan

0809091568

Thailand

001800656772

United Kingdom

08082346646

United States

18665194004

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 inChinathat 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 inChina,with subsidiaries and offices inSingapore,Malaysia,Dubai,India,and serves over 10,000 customers more than 25,000 projects in the industrial,railway,subway & nuclear industries inChina,South-East Asia,and theMiddle 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

investors@hollysys.com

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

Three months ended

Jun 30,

Fiscal year ended

Jun 30,

2018

2017

2018

2017

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

Net revenues

Integrated contract revenue

$

131,616

$

124,733

$

466,461

$

385,500

Products sales

11,149

8,549

40,233

32,665

Revenue from services

4,474

4,679

34,074

13,778

Total net revenues

147,239

137,961

540,768

431,943

Cost of integrated contracts

84,938

80,540

314,233

277,476

Cost of products sold

3,074

2,434

10,770

9,971

Costs of services rendered

1,199

1,409

9,885

4,025

Gross profit

58,028

53,578

205,880

140,471

Operating expenses

Selling

6,515

6,593

27,158

24,412

General and administrative

14,990

15,120

46,323

44,297

Goodwill impairment charge

-

11,211

-

11,211

Research and development

8,630

8,026

36,605

30,109

VAT refunds and government subsidies

(4,051)

(6,522)

(24,450)

(29,828)

Total operating expenses

26,084

34,428

85,636

80,201

Income from operations

31,944

19,150

120,244

60,270

Other income (expenses),net

1,287

(109)

4,349

1,722

Foreign exchange gain (loss)

882

(267)

(1,099)

(135)

Share of net (loss) income of equity investees

(4,038)

(1,063)

(1,571)

3,607

Gains on disposal of a subsidiary

-

628

-

628

Gains on deconsolidation of the Company's interests in

Beijing Hollycon Electronic Technology Co.,Ltd

-

8,085

-

14,514

Dividend income from a cost investee

-

(450)

1,093

-

Interest income

2,275

1,256

7,318

3,687

Interest expenses

116

(144)

(692)

(938)

Income before income taxes

32,466

27,086

129,642

83,355

Income taxes expenses

4,621

5,383

22,205

14,386

Net income

27,845

21,703

107,437

68,969

Net income attributable to non-controlling interests

115

42

276

25

Net income attributable to Hollysys Automation

Technologies Ltd.

$

27,730

$

21,661

$

107,161

$

68,944

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

Translation adjustments

(45,644)

11,659

17,410

(14,428)

Comprehensive income (loss)

(17,799)

33,362

124,847

54,541

Less: comprehensive income (loss) attributable to non-

controlling interests

116

44

280

(11)

Comprehensive income (loss) attributable to Hollysys

Automation Technologies Ltd.

$

(17,915)

$

33,318

$

124,567

$

54,552

Net income per ordinary share:

Basic

0.46

0.36

1.77

1.15

Diluted

0.45

0.36

1.75

1.14

Shares used in income per share computation:

Weighted average number of ordinary shares

60,504

60,004

60,019

60,004

Weighted average number of diluted ordinary shares

61,059

61,999

61,565

61,510

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

Jun 30,

Mar 31,

2018

2018

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

262,052

$

237,971

Time deposits with maturities over three months

140,037

146,984

Restricted cash

23,252

28,888

Accounts receivable,net of allowance for doubtful accounts of $49,093 and

$51,049 as of June 30,2018 and March 31,respectively

275,216

267,799

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

accounts of $9,929 and $12,192 as of June 30,

respectively

161,012

212,603

Other receivables,net of allowance for doubtful accounts of $4,946 and $1,472 as

of June 30,respectively

30,467

24,498

Advances to suppliers

9,685

11,577

Amounts due from related parties

33,678

33,187

Inventories

58,074

56,893

Prepaid expenses

713

707

Income tax recoverable

6,712

457

Total current assets

1,000,898

1,021,564

Non-current assets

Restricted cash

1,401

1,479

Prepaid expenses

-

1

Property,plant and equipment,net

80,210

86,082

Prepaid land leases

10,172

10,742

Intangible assets,net

3,186

1,631

Investments in equity investees

53,389

60,580

Investments in cost investees

4,195

4,349

Goodwill

48,359

52,192

Deferred tax assets

8,318

8,376

Total non-current assets

209,230

225,432

Total assets

1,210,128

1,246,996

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Derivative financial liability

412

535

Short-term bank loans

2,865

7,930

Current portion of long-term loans

350

387

Accounts payable

129,477

138,061

Construction costs payable

304

173

Deferred revenue

137,692

144,216

Accrued payroll and related expenses

14,299

11,417

Income tax payable

3,746

3,354

Warranty liabilities

5,622

5,907

Other tax payables

7,801

6,599

Accrued liabilities

25,133

22,927

Amounts due to related parties

5,353

3,788

Total current liabilities

333,054

345,294

Non-current liabilities

Accrued liabilities

2,410

6,078

Long-term loans

20,709

21,212

Deferred tax liabilities

9,366

12,168

Warranty liabilities

2,236

2,715

Total non-current liabilities

34,721

42,173

Total liabilities

367,775

387,467

Commitments and contingencies

-

-

Stockholders' equity:

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

60,342,099 shares issued and outstanding as of June 30,

2018

60

60

Additional paid-in capital

223,396

222,771

Statutory reserves

41,131

43,611

Retained earnings

582,917

552,711

Accumulated other comprehensive income

(5,452)

40,192

Total Hollysys Automation Technologies Ltd. stockholder's equity

842,052

859,345

Non-controlling interests

301

184

Total equity

842,353

859,529

Total liabilities and equity

$

1,128

$

1,996

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

Three

months

ended

Fiscal year

ended

Jun 30,2018

Jun 30,2018

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

27,845

$

107,437

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

Depreciation of property,plant and equipment

3,305

8,217

Amortization of prepaid land leases

72

270

Amortization of intangible assets

374

801

Allowance for doubtful accounts

4,462

8,033

Loss on disposal of property,plant and equipment

324

292

Share of net loss from equity investees

4,038

1,571

Share-based compensation expenses

625

1,207

Deferred income tax expenses

(3,067)

(1,439)

Accretion of convertible bond

58

230

Fair value adjustments of a bifurcated derivative

(123)

(75)

Gain from the derecognition of nonfinancial assets

-

(2,345)

Changes in operating assets and liabilities:

Accounts receivable

(24,699)

(28,369)

Costs and estimated earnings in excess of billings

41,372

1,817

Inventories

(4,185)

(11,429)

Advances to suppliers

1,302

232

Other receivables

(7,135)

(9,973)

Deposits and other assets

4,132

16,370

Due from related parties

(2,268)

1,286

Accounts payable

(1,811)

4,113

Deferred revenue

697

28,150

Accruals and other payables

2,236

(3,163)

Due to related parties

1,777

3,023

Income tax payable

(5,770)

(1,124)

Other tax payables

1,574

(2,959)

Net cash provided by operating activities

45,135

122,173

Cash flows from investing activities:

Time deposits placed with banks

(30,206)

(179,798)

Purchases of property,plant and equipment

(1,446)

(2,304)

Maturity of time deposits

25,061

137,839

Proceeds from disposal of property,plant and equipment

225

376

Investment of an equity/cost investee

(76)

(5,882)

Acquisition of a subsidiary,net of cash acquired

-

(583)

Net cash used in investing activities

(6,442)

(50,352)

Cash flows from financing activities:

Proceeds from short-term bank loans

4,471

5,942

Repayments of short-term bank loans

(9,281)

(11,334)

Proceeds from long-term bank loans

447

984

Repayments of long-term bank loans

(328)

(548)

Payment of dividends

-

(7,241)

Net cash used in financing activities

(4,691)

(12,197)

Effect of foreign exchange rate changes

(9,921)

4,788

Net increase in cash and cash equivalents

$

24,081

$

64,412

Cash and cash equivalents,beginning of period

$

237,971

$

197,640

Cash and cash equivalents,end of period

262,052

262,052

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,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:

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

Three months ended

Fiscal ended

Jun 30,

Jun 30,

2018

2017

2018

2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Cost of integrated contracts

$

84,938

$

80,540

$

314,233

$

277,476

Less: Amortization of acquired intangible assets

321

318

600

581

Non-GAAP cost of integrated contracts

$

84,617

$

80,222

$

313,633

$

276,895

General and administrative expenses

$

14,990

$

15,120

$

46,323

$

44,297

Less: Share-based compensation expenses

625

534

1,207

464

Non-GAAP general and administrative expenses

$

14,365

$

14,586

$

45,116

$

43,833

Other income (expenses),net

$

1,287

$

(109)

$

4,349

$

1,722

Add: Convertible bond related fair value adjustments

(75)

89

(75)

89

Non-GAAP other income (expenses),212

$

(20)

$

4,274

$

1,811

Net income attributable to Hollysys Automation

Technologies Ltd.

$

27,730

$

21,661

$

107,161

$

68,944

Add:

Share-based compensation expenses

625

534

1,207

464

Amortization of acquired intangible assets

321

318

600

581

Convertible bond related fair value adjustments

(75)

89

(75)

89

Non-GAAP net income attributable to Hollysys

Automation Technologies Ltd.

$

28,601

$

22,602

$

108,893

$

70,078

Weighted average number of basic ordinary shares

60,510

Non-GAAP basic earnings per share

$

0.47

$

0.37

$

1.80

$

1.16

Non-GAAP diluted earnings per share

$

0.46

$

0.37

$

1.78

$

1.16

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