Hollysys Automation Technologies Reports Unaudited Financial Results for the First Quarter Ended September 30, 2018

First Quarter of Fiscal Year 2019 Financial Highlights

Non-GAAP net income attributable to Hollysys was $28.1 million,an increase of 27.9% compared to the comparable prior year period.

Total revenues were $138.7 million,an increase of 20.1% compared to the comparable prior year period.

Non-GAAP gross margin was at 37.2%,compared to 36.6% for the comparable prior year period.

Non-GAAP diluted EPS were at $0.46,an increase of 27.8% compared to the comparable prior year period.

Net cash provided by operating activities was $36.6 million for the current quarter.

DSO of 170 days,compared to 196 days for the comparable prior year period.

Inventory turnover days of 51 days,compared to 61 days for the comparable prior year period.

BEIJING,Nov. 14,2018 --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 2019 first quarter ended September 30,2018 (see attached tables). The management of Hollysys,stated:

Industrial automation business recorded a 0.4% YOY growth in revenue,at $57.7 million. New contract recorded a 9.9% YOY growth at $80.2 million. We continued to maintain our share in high-end power industry,to execute the low-to-high end market expansion strategy in chemical and petrochemical industry,and to build and maintain our leadership in other verticals. In power,major contracts we signed include DCS solution for Guohua Jinjie 2*660MW power units and Shenhua Shengli 2*660 MW power units. Contract growth in chemical and petrochemical remained healthy. Major contracts include additional SIS contract for the milestone Zhong'an United Coal Chemical Project and additional DCS contract for SINOPEC's p-xylene project. In addition to the effort in gaining and maintaining market share in various industries,the company is paying adequate attention to the intelligence manufacturing based on sizable customer we have accumulated through decades,as it is a valuable asset for our long term sustainable growth. Leveraging our consistent emphasis on R&D,we continue to provide both regular and value-added services to our customers and to accompany them along the cause of better productivity. Our widespread national service network enables us to stay closer to the customers,to respond faster and to understand better.

Rail business recorded a 43.1% YOY growth in revenue at $50.4 million,while new contract increased sharply YOY by 866.0%,at $71.5 million. In high-speed rail business,new ATP contracts were signed this quarter,while CRC has published the bidding notice in mid-October for another 320 sets of ATP. Intake of heavy maintenance contracts are gradually seen as the ATPs are approaching their first 10 years maintenance cycle. In subway business,we signed SCADA contracts on Shenzhen subway line 2 and line 8. Going forward,we will continue to strengthen our marketing capacity through reviewing and updating strategic partnership and improving local service network coverage for both high-speed rail and subway business. 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 industrial automation business through EPC projects and direct sales. Contracts were signed on DCS,DEH,BATCH,instrument integration etc. solution with customers from India and Southeast Asia in coal fire,thermal power,chemical and construction material,etc. M&E business,performed by Concord and Bond,recorded a 34.2% YOY growth in revenue,at $30.6 million,and a 32.0% YOY growth in new contract,at $14.8 million. M&E will continue to act as the pioneer of internationalization for Hollysys,with growing coordination to be built in between M&E and domestic business. Meanwhile,the economic and political circumstancesin South East Asia and Middle East will continue to be closely followed.

The Quarter Ended September 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:

Three months ended

Sep 30,2018

Sep 30,2017

%

Change

Revenues

$

138,719

115,510

20.1%

Integrated contract revenue

$

116,650

95,690

21.9%

Products sales

$

8,040

9,460

(15.0)%

Service rendered

$

14,029

10,360

35.4%

Cost of revenues

$

87,178

73,238

19.0%

Gross profit

$

51,541

42,272

21.9%

Total operating expenses

$

21,501

19,205

12.0%

Selling

$

7,709

6,698

15.1%

General and administrative

$

8,570

10,957

(21.8)%

Research and development

$

8,769

8,631

1.6%

VAT refunds and government subsidies

$

(3,547)

(7,081)

(49.9)%

Income from operations

$

30,040

23,067

30.2%

Other income,net

$

558

439

27.1%

Foreign exchange loss

$

(123)

(1,228)

90.0%

Share of net income of equity investees

$

98

935

(89.5)%

Dividend income from a cost investee

$

-

1,152

(100.0)%

Interest income

$

3,099

1,476

110.0%

Interest expenses

$

(106)

(137)

(22.6)%

Income tax expenses

$

5,455

3,736

46.0%

Net income attributable to non-controlling interests

$

46

33

39.4%

Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.

$

28,065

21,935

27.9%

Non-GAAP basic EPS

$

0.46

0.36

27.8%

Non-GAAP diluted EPS

$

0.46

0.36

27.8%

Share-based compensation expenses

$

84

392

(78.6)%

Amortization of acquired intangible assets

$

80

179

(55.3)%

GAAP Net income attributable to Hollysys Automation Technologies Ltd.

$

27,901

21,364

30.6%

GAAP basic EPS

$

0.46

0.35

31.4%

GAAP diluted EPS

$

0.46

0.35

31.4%

Basic weighted average common shares outstanding

60,448,111

60,425,631

0.0%

Diluted weighted average common shares outstanding

61,263,566

61,261,417

0.0%

Operational Results Analysis for the Quarter Ended September 30,2018

Comparing to the first quarter of the prior fiscal year,the total revenues for the three months ended September 30,2018 increased from $115.5 million to $138.7 million,representing an increase of 20.1%. Broken down by the revenue types,integrated contracts revenue increased by 21.9% to $116.7 million,products sales revenue decreased by 15.0% to $8.0 million,and services revenue increased by 35.4% to $14.0 million.

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

(In USD thousands)

Three months ended Sep 30,

2018

2017

$

% to Total Revenue

$

% to Total Revenue

Industrial Automation

57,720

41.6%

57,481

49.7%

Rail Transportation Automation

50,368

36.3%

35,197

30.5%

Mechanical and Electrical Solution

30,631

22.1%

22,832

19.8%

Total

138,719

100.0%

115,510

100.0%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 37.2% for the three months ended September 30,2018,as compared to 36.6% for the same period of the prior year. The non-GAAP gross margin for integrated contracts,product sales,and services rendered were 30.8%,75.0% and 67.9% for the three months ended September 30,as compared to 29.3%,71.8% and 71.6% 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 37.1% for the three months ended September 30,as compared to 36.4% for the same period of the prior year. The GAAP gross margin for integrated contracts,and service rendered were 30.8%,as compared to 29.1%,71.8% and 71.6% for the same period of the prior year respectively.

Selling expenses were $7.7 million for the three months ended September 30,representing an increase of $1.0 million or 15.1% compared to $6.7 million for the same quarter of the prior year,mainly due to increased sales activities. Presented as a percentage of total revenues,selling expenses were 5.6% and 5.8% for the three months ended September 30,and 2017,respectively.

General and administrativeexpenses,excluding non-cash share-based compensation expenses (non-GAAP G&A expenses),were $8.6 million for the quarter ended September 30,representing a decrease of $2.4 million or 19.3% compared to $11.0 million for the same quarter of the prior year,mainly due to decreased bad debt allowance. Presented as a percentage of total revenues,non-GAAP G&A expenses were 6.2% and 9.5% for quarters ended September 30,2018 and 2017 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $8.9 million and $11.3 million for the three months ended September 30,2018 and 2017,respectively.

Research and development expenses were $8.8 million for the three months ended September 30,representing an increase of $0.2 million or 1.6% compared to $8.6 million for the same quarter of the prior year. Presented as a percentage of total revenues,R&D expenses were 6.3% and 7.5% for the quarter ended September 30,respectively.

The VAT refunds and government subsidies were $3.5 million for three months ended September 30,as compared to $7.1 million for the same period in the prior year,representing a $3.6 million or 49.9% decrease,which was primarily due to decrease of the VAT refunds.

The income tax expenses and the effective tax rate were $5.5 million and 16.3% for the three months ended September 30,as compared to $3.7million and 14.9% 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,amortization of acquired intangible assets,and fair value adjustments of a bifurcated derivative,was $28.1 million or $0.46 per diluted share based on 61.3 million diluted weighted average common shares outstanding for the three months ended September 30,2018. This represents a 27.9% increase over the $21.9 million or $0.36 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 $27.9 million or $0.46 per diluted share representing an increase of 20.6% over the $21.4 million or $0.35 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $166.5 million new contracts for the three months ended September 30,2018. And the backlog as of September 30,2018 was $516.2 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 Sep 30,2018

as of Sep 30,2018

$

% to Total Contract

$

% to Total Backlog

Industrial Automation

80,247

48.1%

176,492

34.2%

Rail Transportation

71,530

43.0%

244,663

47.4%

Mechanical and Electrical Solutions

14,755

8.9%

95,011

18.4%

Total

166,532

100.00%

516,166

100%

Cash Flow Highlights

For the three months ended September 30,thetotal net cash inflow was $11.2 million. The net cash provided by operating activities was $36.6 million. The net cash used in investing activities was $17.0 million,mainly consisted of $48.4 million time deposits placed with banks,which was partially offset by $34.2 million maturity of time deposits. The net cash used in financing activities was $0.1 million.

Balance Sheet Highlights

The total amount of cash and cash equivalents were $276.9 million,$265.7 million,and $244.8 million as of September 30,June 30,2018 and September 30,2017,respectively.

For the three months ended September 30,DSO was 170 days,as compared to 196 days for the comparable prior year period and 166 days for the last quarter; and inventory turnover was 51 days,as compared to 61 days for the comparable prior year period and 59 days for the last quarter.

Conference Call

The Company will host a conference call at8:00 pmNovember 13,2018 U.S. Eastern Time / 9:00 am November 14,2018 Beijing Time,to discuss the financial results for fiscal year 2019 first quarter ended September 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 is6498818.

Standard International Dial-In Number:

+65 67135090

Participant Local Dial-In Numbers:

Australia,Sydney

+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

+44 2036214779

United States,New York

+1 8456750437

Participant ITFS Dial-In Numbers:

Australia

1300717205

Australia

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 3,300 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 30,000 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),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

Three months ended

Sep 30,

2018

2017

(Unaudited)

(Unaudited)

Net revenues

Integrated contract revenue

$

116,650

$

95,690

Products sales

8,040

9,460

Revenue from services

14,029

10,360

Total net revenues

138,719

115,510

Cost of integrated contracts

80,748

67,812

Cost of products sold

2,008

2,667

Costs of services rendered

4,502

2,938

Gross profit

51,461

42,093

Operating expenses

Selling

7,709

6,698

General and administrative

8,654

11,349

Research and development

8,769

8,631

VAT refunds and government subsidies

(3,547)

(7,081)

Total operating expenses

21,585

19,597

Income from operations

29,876

22,496

Other income,net

558

439

Foreign exchange loss

(123)

(1,228)

Share of net income of equity investees

98

935

Dividend income from a cost investee

-

1,152

Interest income

3,099

1,476

Interest expenses

(106)

(137)

Income before income taxes

33,402

25,133

Income taxes expenses

5,455

3,736

Net income

27,947

21,397

Net income attributable to non-controlling interests

46

33

Net income attributable to Hollysys Automation Technologies Ltd.

$

27,901

$

21,364

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

Translation adjustments

(29,137)

14,758

Comprehensive (loss) income

(1,190)

36,155

Less: comprehensive income attributable to non-controlling interests

46

34

Comprehensive (loss) income attributable to Hollysys Automation Technologies Ltd.

$

(1,236)

$

36,121

Net income per ordinary share:

Basic

0.46

0.35

Diluted

0.46

0.35

Shares used in income per share computation:

Weighted average number of ordinary shares

60,111

60,631

Weighted average number of diluted ordinary shares

61,566

61,417

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

Sep 30,

Jun 30,

2018

2018

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

276,867

$

265,675

Time deposits with maturities over three months

148,659

139,433

Restricted cash

15,795

20,233

Accounts receivable,net of allowance for doubtful accounts of $45,139 and $49,094 as of September 30,2018 and June 30,respectively

248,875

275,216

Costs and estimated earnings in excess of billings,net of allowance for doubtful accounts of $9,205 and $9,929 as of September 30,respectively

210,935

161,012

Other receivables,net of allowance for doubtful accounts of $4,874 and $4,946 as of September 30,respectively

21,025

30,467

Advances to suppliers

13,413

9,685

Amounts due from related parties

38,335

33,678

Inventories

36,583

58,074

Prepaid expenses

645

713

Income tax recoverable

6,155

6,712

Total current assets

1,017,287

1,000,898

Non-current assets

Restricted cash

1,348

1,401

Prepaid expenses

1

-

Property,plant and equipment,net

74,803

80,210

Prepaid land leases

9,867

10,172

Intangible assets,net

1,610

3,186

Investments in equity investees

46,705

53,389

Investments in cost investees

4,765

4,195

Goodwill

48,263

48,359

Deferred tax assets

7,142

8,318

Total non-current assets

194,504

209,230

Total assets

1,211,791

1,210,128

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Derivative financial liability

412

412

Short-term bank loans

2,293

2,865

Current portion of long-term loans

313

350

Dividends payable

10,862

-

Accounts payable

121,807

129,477

Construction costs payable

304

304

Deferred revenue

126,688

137,692

Accrued payroll and related expenses

15,035

14,299

Income tax payable

4,330

3,746

Warranty liabilities

5,284

5,622

Other tax payables

10,252

7,801

Accrued liabilities

19,859

25,133

Amounts due to related parties

3,775

5,353

Total current liabilities

321,214

333,054

Non-current liabilities

Accrued liabilities

5,800

2,410

Long-term loans

20,719

20,709

Deferred tax liabilities

10,828

9,366

Warranty liabilities

2,186

2,236

Total non-current liabilities

39,533

34,721

Total liabilities

360,747

367,775

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 September 30,2018

60

60

Additional paid-in capital

223,481

223,396

Statutory reserves

45,970

45,970

Retained earnings *

615,775

578,079

Accumulated other comprehensive income

(34,589)

(5,453)

Total Hollysys Automation Technologies Ltd. stockholder's equity

850,697

842,052

Non-controlling interests

347

301

Total equity

851,044

842,353

Total liabilities and equity

$

1,791

$

1,128

Three months ended

Sep 30,2018

(Unaudited)

Cash flows from operating activities:

Net income

$

27,947

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

Depreciation of property,plant and equipment

2,138

Amortization of prepaid land leases

66

Amortization of intangible assets

78

Allowance for doubtful accounts

443

Loss on disposal of property,plant and equipment

41

Share of net loss from equity investees

(98)

Share-based compensation expenses

84

Deferred income tax expenses

2,467

Accretion of convertible bond

57

Changes in operating assets and liabilities:

Accounts receivable

13,424

Costs and estimated earnings in excess of billings

(37,176)

Inventories

16,806

Advances to suppliers

(4,422)

Other receivables

8,739

Deposits and other assets

3,677

Due from related parties

4,422

Accounts payable

(1,729)

Deferred revenue

(3,885)

Accruals and other payables

2,714

Due to related parties

(3,132)

Income tax payable

1,001

Other tax payables

2,954

Net cash provided by operating activities

36,616

Cash flows from investing activities:

Time deposits placed with banks

(48,419)

Purchases of property,plant and equipment

(491)

Maturity of time deposits

34,207

Proceeds from disposal of property,plant and equipment

73

Investment of a cost investee

(740)

Cash reduced upon deconsolidation of subsidiary

(1,640)

Net cash used in investing activities

(17,010)

Cash flows from financing activities:

Proceeds from short-term bank loans

273

Repayments of short-term bank loans

(327)

Net cash used in financing activities

(54)

Effect of foreign exchange rate changes

(8,360)

Net increase in cash and cash equivalents

$

11,192

Cash and cash equivalents,beginning of period

$

265,675

Cash and cash equivalents,end of period

276,867

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:

Three months ended

Sep 30,

2018

2017

(Unaudited)

(Unaudited)

Cost of integrated contracts

$

80,748

$

67,812

Less: Amortization of acquired intangible assets

80

179

Non-GAAP cost of integrated contracts

$

80,668

$

67,633

General and administrative expenses

$

8,654

$

11,349

Less: Share-based compensation expenses

84

392

Non-GAAP general and administrative expenses

$

8,570

$

10,957

Net income attributable to Hollysys Automation Technologies Ltd.

$

27,901

$

21,364

Add:

Share-based compensation expenses

84

392

Amortization of acquired intangible assets

80

179

Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.

$

28,065

$

21,935

Weighted average number of basic ordinary shares

60,631

Weighted average number of diluted ordinary shares

61,417

Non-GAAP basic earnings per share

$

0.46

$

0.36

Non-GAAP diluted earnings per share

$

0.46

$

0.36

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