Hollysys Automation Technologies Reports Unaudited Financial Results for the Fiscal year and the Fourth Quarter Ended June 30, 2019

Fiscal Year 2019 Financial Highlights

Non-GAAP net income attributable to Hollysys was $126.2 million,an increase of 15.9% compared to the prior year.

Total revenues were $570.3 million,an increase of 5.5% compared to the prior year.

Non-GAAP gross margin was at 37.1%,compared to 38.2% for the prior year.

Non-GAAP diluted EPS was $2.07,an increase of 16.3% compared to the prior year.

Net cash provided by operating activities was $100.5 million for the fiscal year 2019.

DSO of 180 days,compared to 174 days for the prior year.

Inventory turnover days of 55 days,compared to 58 days for the prior year.

Fourth Quarter of Fiscal Year 2019 Financial Highlights

Non-GAAP net income attributable to Hollysys was $25.7 million,a decrease of 10.1% compared to the comparable prior year period.

Total revenues were $157.0 million,an increase of 6.6% compared to the comparable prior year period.

Non-GAAP gross margin was at 34.0%,compared to 39.6% for the comparable prior year period.

Non-GAAP diluted EPS was $0.42,a decrease of 8.7% compared to the comparable prior year period.

Net cash provided by operating activities was $13.8 million for the current quarter.

DSO of 160 days,compared to 166 days for the comparable prior year period.

Inventory turnover days of 42 days,compared to 59 days for the comparable prior year period.

BEIJING,Aug. 15,2019 -- 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 and the fourth quarter ended June 30,2019 (see attached tables). The management of Hollysys,stated:

IA business finished the fiscal year with revenue and contract at $233.8 million and $291.3 million,achieving 4.0% and 2.5% YOY growth respectively. For the quarter,revenue and new contract were $66.6 million and $83.9 million,representing 4.0% and 0.9% YOY growth respectively. We continued our effort in market penetration and addressing the demand from current customer base. Within high-end coal fire market,we signed contracts to provide DEH (Digital Electric Hydraulic Control System) to Guohua Jinjie 2*660MW and Huaneng Shengli 2*660MW power stations. Despite slowdown in coal fire,we continued to explore opportunities in new energy,and managed to maintain our leading position,especially in garbage power. In the chemical and petrochemical industries,we have optimized our team to facilitate market penetration and comprehensive solution offering in different sub-verticals. Meanwhile,our milestone Zhong'an coal-chemical project is approaching its completion. We provided in total over 70,000 DCS control points and the execution of the project last for more than two years. Our capability has been highly praised by our client and we believe this project will help build up our reputation as a competitive solution provider for large-size projects and high-end clients in the industry. The momentum of after-sales services continued,driven by the demand from rebuilding and upgrade. We are also improving internal coordination when connecting with our customer base. Through visiting our clients in a team of members from different product divisions,we hope to create better engagement and explore the opportunities of cross-selling. Furthermore,we are actively promoting our smart plant initiatives through direct communication with key potential clients as well as open marketing activities involving clients,governments and other industry players.

Rail business finished the fiscal year with revenue and contract at $208.9 million and $340.3 million,recording 9.6% and 37.7% YOY growth respectively. For the last quarter,revenue and contract were $48.3 million and $60.8 million,representing 19.6% and 4.6% YOY growth respectively. We signed several contracts to provide ATP advanced maintenance to local railway bureaus. Going forward and given a visible long-term railway construction plan,we will continue to adhere to the diversity strategy for stable and healthy growth and to improve our local service network for more value-adding and differentiated services. With urbanization as an ongoing process,we will keep leveraging our strong R&D capacity and prepare for the application of various types of railway transportation systems in the future.

In our overseas business,M&E finished the fiscal year with revenue and contract at $127.6 million and $93.4 million,recording 1.8% YOY growth and 9.1% YOY decrease respectively. For the quarter,revenue and contract were $42.1 million and $25.2 million,representing 1.7% and 37.0% YOY decrease. Given the macro economy in Southeast Asia and the Middle East,risk control remains to be the key focus of our M&E business. Going forward,we will continue our effort in developing partnership with key EPC players,and strengthening localization in manufacture,marketing and services.

Fiscal year and the Fourth QuarterEnded June 30,2019 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)

Fiscal year ended

Three months ended

Jun 30,

2019

Jun 30,

2018

%

Change

Jun 30,

2018

%

Change

Revenues

$

570,341

540,768

5.5%

$

156,991

147,239

6.6%

Integrated contract revenue

$

467,371

466,461

0.2%

$

132,753

131,616

0.6%

Products sales

$

33,102

40,233

(17.7)%

$

5,958

11,149

(46.6)%

Service rendered

$

69,868

34,074

105.0%

$

18,280

4,474

308.6%

Cost of revenues

$

358,864

334,290

7.4%

$

103,645

88,890

16.6%

Gross profit

$

211,477

206,478

2.4%

$

53,346

58,349

(8.6)%

Total operating expenses

$

87,302

84,429

3.4%

$

31,408

25,459

23.4%

Selling

$

28,926

27,158

6.5%

$

6,883

6,515

5.6%

General and administrative

$

40,463

45,116

(10.3)%

$

11,524

14,365

(19.8)%

Goodwill impairment charge

$

11,623

-

100%

$

11,623

-

100%

Research and development

$

37,025

36,605

1.1%

$

9,200

8,630

6.6%

VAT refunds and government subsidies

$

(30,735)

(24,450)

25.7%

$

(7,822)

(4,051)

93.1%

Income from operations

$

124,175

122,049

1.7%

$

21,938

32,890

(33.3)%

Other income,net

$

8,824

4,274

106.5%

$

1,139

1,212

(6.0)%

Foreign exchange (loss) gain

$

(1,161)

(1,099)

5.6%

$

2

882

(99.8)%

Share of net income (loss) of equity investees

$

404

(1,571)

(125.7)%

$

1,576

(4,038)

(139.0)%

Dividend income from investment securities

1,112

1,093

1.7%

$

-

-

-

Interest income

$

11,839

7,318

61.8%

$

2,863

2,275

25.8%

Interest expenses

$

(575)

(692)

(16.9)%

$

(204)

116

(275.9)%

Income tax expenses

$

18,184

22,205

(18.1)%

$

1,471

4,621

(68.2)%

Net income attributable to non-controlling interests

$

278

276

0.7%

$

145

115

26.1%

Non-GAAP net income attributable to Hollysys

Automation Technologies Ltd.

$

126,156

108,891

15.9%

$

25,698

28,601

(10.1)%

Non-GAAP basic EPS

$

2.09

1.80

16.1%

$

0.43

0.47

(8.5)%

Non-GAAP diluted EPS

$

2.07

1.78

16.3%

$

0.42

0.46

(8.7)%

Share-based compensation expenses

$

238

1,207

(80.3)%

$

37

625

(94.1)%

Amortization of acquired intangible assets

$

311

598

(48.0)%

$

77

321

(76.0)%

Fair value adjustments of a bifurcated

derivative

$

346

(75)

(561.3)%

$

326

(75)

(534.7)%

GAAP Net income attributable to Hollysys

Automation Technologies Ltd.

$

125,261

107,161

16.9%

$

25,258

27,730

(8.9)%

GAAP basic EPS

$

2.07

1.77

16.9%

$

0.42

0.46

(8.7)%

GAAP diluted EPS

$

2.05

1.75

17.1%

$

0.42

0.45

(6.7)%

Basic weighted average common shares

outstanding

60,456,524

60,434,019

0.0%

60,465,005

60,442,504

0.0%

Diluted weighted average common shares

outstanding

61,273,884

61,248,565

0.0%

61,278,773

61,277,059

0.0%

Operational Results Analysis for the Fiscal year Ended June 30,2019

Comparing to the prior fiscal year,the total revenues for fiscal year 2019 increased from $540.8 million to $570.3 million,representing an increase of 5.5%. Broken down by the revenue types,integrated contracts revenue increased by 0.2% to $467.4 million,products sales revenue decreased by 17.7% to $33.1 million,and services revenue increased by 105.0% to $69.9 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,

2019

2018

$

% to Total Revenue

$

% to Total Revenue

Industrial Automation

233,798

41.0%

224,793

41.5%

Rail Transportation Automation

208,917

36.6%

190,645

35.3%

Mechanical and Electrical Solution

127,626

22.4%

125,330

23.2%

Total

570,341

100.0%

540,768

100.0%

Overallgross marginexcluding non-cash amortization of acquired intangibles (non-GAAP gross margin)was 37.1%for fiscal year 2019,as compared to 38.2% for the prior year.The non-GAAP gross margin for integrated contracts,product sales,and services renderedwere 30.4%,77.1% and 62.7% for fiscal year 2019,as compared to 32.8%,73.2% and 71.0% for the prioryear,respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margins. The GAAPoverall gross marginwhich includesnon-cash amortization of acquired intangibles was 37.0% for fiscal year 2019,as compared to 38.1% for the prior year.The GAAP gross margin for integrated contracts,and service renderedwere30.4%,as compared to 32.6%,respectively.

Selling expenseswere $28.9 millionfor fiscal year2019,representing an increase of $1.8 million or 6.5% compared to $27.2 million for the prior year. Presented as a percentage of total revenues,selling expenses were5.1%and5.0% for fiscal year 2019,and 2018,respectively.

General and administrativeexpenses,excluding non-cash share-based compensation expenses (non-GAAP G&A expenses),were$40.5million forfiscal year 2019,representing a decrease of $4.7 million or 10.3% compared to $45.1 million for the prior year,which was primarily due to decrease of bad debt allowance. Presented as a percentage oftotal revenues,non-GAAP G&A expenses were7.1% and 8.3%for fiscal year2019and 2018,respectively.The GAAP G&A expenses which include the non-cash share-based compensation expenses were $40.7 million and $46.3 million for fiscal year 2019 and 2018,respectively.

Goodwill impairment charge was $11.6 million for fiscal year 2019. Taking into consideration the macro environment and other relevant factors,Concord expects future lower profit resulting from increased competition and decrease in market demand.

Research and development expenseswere$37.0 millionfor fiscal2019,representing an increase of $0.4 million or 1.1% compared to $36.6 million for the prior year. Presentedas a percentage of total revenues,R&Dexpenses were6.5%and 6.8%for fiscal year 2019 and 2018,respectively.

The VAT refunds and government subsidieswere $30.7 million for fiscal year 2019,as compared to $24.5 million for the prior year,representing a $6.3 million or 25.7% increase,which was primarily due to an increase of the VAT refunds.

The income tax expenses and the effective tax ratewere $18.2 million and 12.7% for fiscal year 2019,as compared to $22.2 million and 17.1% for the prior year. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates,as the Company's subsidiaries are subject to different tax rates in various jurisdictions.

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 $126.2 million or $2.07 per diluted share based on 61.3 million diluted weighted average common shares outstanding for fiscal year 2019. This represents a 15.9% increase over $108.9 million or $1.78 per share based on 61.2 diluted weighted average common million shares outstanding reported in the comparable prior year period. On a GAAP basis,net income attributable to Hollysys was $125.3millionor $2.05 per diluted sharerepresentingan increase of 16.9% over $107.2 millionor $1.75per diluted share reported in thecomparableprior year period.

Operational Results Analysis for the Fourth Quarter Ended June 30,2019

Comparing to the fourth quarter of the prior fiscal year,the total revenues for the three months ended June 30,2019 increased from $147.2 million to $157.0 million,representing an increase of 6.6%. Broken down by the revenue types,integrated contracts revenue increased by 0.9% to $132.8 million,products sales revenue decreased by 46.6% to $6.0 million,and services revenue increased by 308.6% to $18.3 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,

2019

2018

$

% to Total Revenue

$

% to Total Revenue

Industrial Automation

66,557

42.4%

64,013

43.5%

Rail Transportation Automation

48,288

30.8%

40,368

27.4%

Mechanical and Electrical Solution

42,146

26.8%

42,858

29.1%

Total

156,991

100.0%

147,239

100.0%

Overallgross marginexcluding non-cash amortization of acquired intangibles (non-GAAP gross margin)was 34.0%for the three months endedJune 30,2019,as compared to 39.6% for the same period of the prior year.The non-GAAP gross margin for integrated contracts,and services renderedwere 29.9%,66.3% and 52.9% for the three months endedJune 30,as compared to 35.7%,72.4% and 73.2% for the same period of the prioryear,respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margins. The GAAPoverall gross marginwhich includesnon-cash amortization of acquired intangibles was 33.9% for the three months endedJune 30,as compared to 39.4% for the same period of the prior year.The GAAP gross margin for integrated contracts,and service renderedwere29.9%,as compared to 35.5%,respectively.

Selling expenseswere $6.9 millionfor the three months ended June 30,representing an increase of $0.4 million or 5.6% compared to $6.5 million for the same quarter of the prior year. Presented as a percentage of total revenues,selling expenses were4.4%and4.4% for the three months ended June 30,were$11.5million forthe quarter ended June 30,representing a decrease of $2.8 million or 19.8% compared to $14.4 million for the same quarter of the prior year,non-GAAP G&A expenses were7.3% and 9.8%for quartersended June 30,2019and 2018,respectively.The GAAP G&A expenses which include the non-cash share-based compensation expenses were $11.6 million and $15.0 million for the three months ended June 30,2019 and 2018,respectively.

Research and development expenseswere$9.2 millionfor the three months ended June 30,representing an increase of $0.6 million or 6.6% compared to $8.6 million for the same quarter of the prior year. Presentedas a percentage of total revenues,R&Dexpenses were5.9%and 5.9%for the quarter ended June 30,respectively.

The VAT refunds and government subsidieswere $7.8 million for three months ended June 30,as compared to $4.1 million for the same period in the prior year,representing a $3.8 million or 93.1% increase,which was primarily due to an increase of the VAT refunds.

The income tax expenses and the effective tax ratewere $1.5 million and 5.5% for the three months ended June 30,as compared to $4.6 million and 14.2% for comparable prior year period. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates,was $25.7 million or $0.42 per diluted share based on 61.3 million diluted weighted average common shares outstanding for the three months ended June 30,2019. This represents a 10.1% decrease over $28.6 million or $0.46 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 $25.3millionor $0.42 per diluted sharerepresentingadecrease of 8.9% over $27.7 millionor $0.45per diluted share reported in thecomparableprior year period.

Contracts and Backlog Highlights

Hollysys achieved $169.8 millionof new contracts for the three months ended June 30,2019. The backlogas of June 30,2019was $594.2million. The detailed breakdown of the new contracts and backlog by segmentsis shown below:

(In USD thousands)

New contracts achieved

New contracts achieved

Backlog

for the fiscal year

ended Jun 30,2019

for the three months

ended Jun 30,2019

as of Jun 30,2019

$

% to Total

Contract

$

% to Total

Contract

$

% to Total

Backlog

Industrial Automation

291,259

40.2%

83,853

49.4%

191,026

32.1%

Rail Transportation

340,300

46.9%

60,803

35.8%

326,523

55.0%

Mechanical and Electrical Solutions

93,349

12.9%

25,174

14.8%

76,624

12.9%

Total

724,908

100.0%

169,830

100.0%

594,173

100.0%

Cash Flow Highlights

For the fiscal year ended June 30,thetotal net cash inflow was $71.1 million. The net cash provided by operating activitieswas$100.5 million. The net cash used in investing activities was $9.9 million,mainly consisted of $10.6 million purchases of property,plant and equipment and prepaid land leases,and $256.3 million time deposits placed with banks,which was partially offset by $245.9 million maturity of time deposits,$8.9 million dividends received in excess of cumulative equity in earnings from an equity investee,and $4.5 million advance from a shareholder of an equity method investee. The net cash used in financing activities was $10.2 million,mainly consisted of $10.9 million payment of dividends,and $6.9 million repayments of short-term bank loans,which were partially offset by $5.9 million proceeds from short-term bank loans,and $1.5 million cash injected by noncontrolling interests.

For the three months ended June 30,thetotal net cash inflow was $81.9 million. The net cash provided by operating activitieswas$13.8 million. The net cash provided by investing activities was $73.1 million,mainly consisted of $70.3 million maturity of time deposits,and $4.5 million advance from a shareholder of an equity method investee,which was partially offset by $5.2 million purchases of property,and $5.6 million time deposits placed with banks. The net cash provided by financing activities was $1.2 million,mainly consisted of $1.5 million cash injected by noncontrolling interests,and $1.0 million proceeds from short-term bank loans,which were partially offset by $1.4 million repayments of short-term bank loans.

Balance Sheet Highlights

The total amount of cash and cash equivalents were$332.5 million,$253.4 million,and $265.7 million as of June 30,March 31,2019 and June 30,2018,respectively.

For fiscal yearended June 30,Days Sales Outstanding ("DSO") was180days,as compared to 174 days from the prior year; and inventory turnover was55 days,as compared to 58days from the prior year.

For the three months ended June 30,DSO was160 days,as compared to166 days for the comparable prior year periodand 193 days for the last quarter; and inventory turnover was42 days,as compared to 59days for the comparable prior year periodand 50days for the last quarter.

Conference Call

The Company will host a conference call at9:00 pmAugust 14,2019 U.S. Eastern Time / 9:00 am August 15,2019 Beijing Time,to discuss the financial resultsfor fiscal year 2019 and the fourth quarter ended June 30,2019 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 2099053.

Standard International Dial-In Number:

+65 67135090

Participant Local Dial-In Numbers:

Australia,Sydney

+61 290833212

China,Domestic

4006208038

China,Domestic Landline only

8008190121

China,Hong Kong

+852 30186771

Japan,Tokyo

+81 345036012

Korea (South),Seoul

+82 27395177

China,Taiwan

+886 255723895

United Kingdom,London

+44 2036214779

United States,New York

+1 8456750437

Participant ITFS Dial-In Numbers:

Australia,

1800411623

Australia,

1300717205

Belgium

080071900

Canada

18663861016

France

0800912761

Germany

08001820671

China,Hong Kong

800906601

India

18002666846

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

China,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 is a leading automation control system solutions provider inChina,with overseas operations in eight other countries and regions throughoutAsia. Leveraging its proprietary technology and deep industry know-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. 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,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 ofMarch 2019,Hollysys had cumulatively carried out more than 25,000 projects for approximately 15,000 customers in various sectors including power,petrochemical,high-speed rail,and urban rail,in which Hollysys has established leading market positions.

SAFE HARBOUR:

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements,other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the ability of the Company to achieve its commercial objectives; the business strategy,plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions,involve known and unknown risks and uncertainties. Such forward-looking statements,based upon the current beliefs and expectations of Hollysys' management,are subject to risks and uncertainties,which could cause actual results to differ from the forward looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable,they do involve assumptions,risks and uncertainties,and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements,which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors,including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws,the Company does not assume a duty to update these forward-looking statements.

For further information,please contact:

Hollysys Automation Technologies Ltd.

www.hollysys.com

+86-10-5898-1386

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

Jun 30,

Fiscal year ended

Jun 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Integrated contract revenue

$

132,753

$

131,616

$

467,371

$

466,461

Products sales

5,958

11,149

33,102

40,233

Revenue from services

18,280

4,474

69,868

34,074

Total net revenues

156,991

147,239

570,341

540,768

Cost of integrated contracts

93,112

84,938

325,523

314,233

Cost of products sold

2,005

3,074

7,571

10,770

Costs of services rendered

8,605

1,199

26,081

9,885

Gross profit

53,269

58,028

211,166

205,880

Operating expenses

Selling

6,883

6,515

28,926

27,158

General and administrative

11,561

14,990

40,701

46,323

Goodwill impairment charge

11,623

-

11,623

-

Research and development

9,200

8,630

37,025

36,605

VAT refunds and government subsidies

(7,822)

(4,051)

(30,735)

(24,450)

Total operating expenses

31,445

26,084

87,540

85,636

Income from operations

21,824

31,944

123,626

120,244

Other income,net

813

1,287

8,478

4,349

Foreign exchange gain (loss)

2

882

(1,161)

(1,099)

Share of net income (loss) of equity investees

1,576

(4,038)

404

(1,571)

Dividend income from investment securities

-

-

1,112

1,093

Interest income

2,863

2,275

11,839

7,318

Interest expenses

(204)

116

(575)

(692)

Income before income taxes

26,874

32,466

143,723

129,642

Income taxes expenses

1,471

4,621

18,184

22,205

Net income

25,403

27,845

125,539

107,437

Net income attributable to non-controlling interests

145

115

278

276

Net income attributable to Hollysys Automation

Technologies Ltd.

$

25,258

$

27,730

$

125,261

$

107,161

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

Translation adjustments

(19,998)

(45,644)

(31,602)

17,410

Comprehensive income

5,405

(17,799)

93,937

124,847

Less: comprehensive income attributable to non-controlling

interests

145

116

17

280

Comprehensive income (loss) attributable to Hollysys

Automation Technologies Ltd.

$

5,260

$

(17,915)

$

93,920

$

124,567

Net income per ordinary share:

Basic

0.42

0.46

2.07

1.77

Diluted

0.42

0.45

2.05

1.75

Shares used in income per ordinary share

computation:

Weighted average number of ordinary shares

60,005

60,504

60,524

60,019

Weighted average number of diluted ordinary shares

61,773

61,059

61,884

61,565

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

Jun 30,

Mar 31,

2019

2019

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

332,509

$

253,388

Time deposits with maturities over three months

145,139

212,997

Restricted cash

22,260

18,931

Accounts receivable,net of allowance for doubtful accounts of $47,162

and $46,177 as of June 30,2019 and March 31,respectively

282,594

242,195

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

accounts of $6,981 and $8,024 as of June 30,

respectively

197,955

226,896

Accounts receivable retention

5,468

4,329

Other receivables,net of allowance for doubtful accounts of $4,879 and $4,741 as

of June 30,respectively

27,109

21,119

Advances to suppliers

12,901

11,262

Amounts due from related parties

36,295

38,182

Inventories

42,983

45,278

Prepaid expenses

644

927

Income tax recoverable

3,621

283

Total current assets

1,109,478

1,075,787

Non-current assets

Restricted cash

3,618

4,156

Accounts receivable retention

6,390

17,090

Prepaid expenses

2

4

Property,plant and equipment,net

76,006

80,002

Prepaid land leases

16,599

9,910

Intangible assets,net

1,383

1,492

Investments in equity investees

40,386

47,421

Investment securities

4,776

4,879

Goodwill

37,054

48,671

Deferred tax assets

13,331

12,584

Total non-current assets

199,545

226,209

Total assets

1,309,023

1,301,996

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Derivative financial liability

758

432

Short-term bank loans

1,909

2,033

Current portion of long-term loans

20,310

20,297

Accounts payable

110,384

116,276

Construction cost payable

94

-

Deferred revenue

141,385

137,840

Accrued payroll and related expenses

14,512

11,794

Income tax payable

2,541

4,259

Warranty liabilities

9,085

5,409

Other tax payables

665

13,951

Accrued liabilities

32,229

21,689

Amounts due to related parties

5,395

4,982

Total current liabilities

339,267

338,962

Non-current liabilities

Accrued liabilities

3,530

6,000

Long-term loans

978

914

Deferred tax liabilities

11,779

11,284

Warranty liabilities

6,309

2,536

Total non-current liabilities

22,596

20,734

Total liabilities

361,863

359,696

Commitments and contingencies

-

-

Stockholders' equity:

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

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

2019

60

60

Additional paid-in capital

223,635

223,597

Statutory reserves

48,698

48,706

Retained earnings *

708,515

686,561

Accumulated other comprehensive income

(35,522)

(16,796)

Total Hollysys Automation Technologies Ltd. stockholder's equity

945,386

942,128

Non-controlling interests

1,774

172

Total equity

947,160

942,300

Total liabilities and equity

$

1,023

$

1,996

* The adoption of ASC 606 commenced on July 1,2018 had a one-off effect on the beginning of balance sheet accounts.

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands).

Three months ended

Fiscal year ended

Jun 30,2019

Jun 30,2019

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

25,403

$

125,539

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

Depreciation of property,plant and equipment

1,959

7,879

Amortization of prepaid land leases

66

264

Amortization of intangible assets

77

311

Allowance for doubtful accounts

1,555

2,119

(Gain) loss on disposal of long-lived assets

(30)

13

Goodwill impairment charge

11,623

11,623

Share of net gain from equity investees

(1,576)

(404)

Share-based compensation expenses

37

238

Deferred income tax expenses

(3,697)

(6,197)

Accretion of convertible bond

57

230

Fair value adjustments of a bifurcated derivative

326

346

Gains on deconsolidation of a subsidiary

-

(5,768)

Dividends received from an equity investee

(1,663)

3,865

Changes in operating assets and liabilities:

Accounts receivable

(37,485)

(33,782)

Costs and estimated earnings in excess of billings

25,150

(2,757)

Inventories

1,333

(3,773)

Advances to suppliers

(1,862)

(5,357)

Other receivables

(6,340)

2,647

Deposits and other assets

281

62

Due from related parties

1,103

6,600

Accounts payable

(4,268)

(14,027)

Deferred revenue

6,310

10,836

Accruals and other payables

13,149

11,488

Due to related parties

526

(1,494)

Income tax payable

(5,069)

1,740

Other tax payables

(13,159)

(11,720)

Net cash provided by operating activities

13,806

100,521

Cash flows from investing activities:

Time deposits placed with banks

(5,611)

(256,328)

Purchases of property,plant and equipment

(1,587)

(3,488)

Prepaid land leases

(3,575)

(7,099)

Proceeds from disposal of property,plant and equipment

44

301

Maturity of time deposits

70,331

245,880

Advance from a shareholder of an equity method investee

4,544

4,544

Investment securities

-

(740)

Cash reduced upon deconsolidation of subsidiary

-

(1,878)

Dividends received in excess of cumulative equity in earnings from an equity investee

8,920

8,920

Net cash provided by (used in) investing activities

73,066

(9,888)

Cash flows from financing activities:

Proceeds from short-term bank loans

981

5,908

Repayments of short-term bank loans

(1,403)

(6,875)

Proceeds from long-term bank loans

256

730

Repayments of long-term bank loans

(109)

(512)

Cash injected by noncontrolling interests

1,456

1,456

Payment of dividends

-

(10,862)

Net cash provided by (used in) financing activities

1,181

(10,155)

Effect of foreign exchange rate changes

(6,141)

(9,400)

Net decrease increase in cash,cash equivalents and restricted cash

$

81,912

71,078

Cash,cash equivalents and restricted cash,beginning of period

$

276,475

287,309

Cash,end of period

358,387

358,387

Non-GAAP Measures

In evaluating our results,the non-GAAP measures of "Non-GAAP cost of integrated contracts","Non-GAAP general and administrative expenses","Non-GAAP other income,net","Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.stockholders","Non-GAAP basic earnings per share",and "Non-GAAP dilutedearnings 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 thenon-cash share-based compensation expenses,whichis calculated based on the number of sharesor optionsgranted and the fair valueas 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 year ended

Jun 30,

Jun 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Cost of integrated contracts

$

93,112

$

84,938

$

325,523

$

314,233

Less: Amortization of acquired intangible assets

77

321

311

598

Non-GAAP cost of integrated contracts

$

93,035

$

84,617

$

325,212

$

313,635

General and administrative expenses

$

11,561

$

14,990

$

40,701

$

46,323

Less: Share-based compensation expenses

37

625

238

1,207

Non-GAAP general and administrative expenses

$

11,524

$

14,365

$

40,463

$

45,116

Other income,net

$

813

$

1,287

$

8,478

$

4,349

Add: Fair value adjustments of a bifurcated derivative

326

(75)

346

(75)

Non-GAAP other income,net

$

1,139

$

1,212

$

8,824

$

4,274

Net income attributable to Hollysys Automation

Technologies Ltd.

$

25,258

$

27,730

$

125,261

$

107,161

Add:

Share-based compensation expenses

37

625

238

1,207

Amortization of acquired intangible assets

77

321

311

598

Fair value adjustments of a bifurcated derivative

326

(75)

346

(75)

Non-GAAP net income attributable to Hollysys

Automation Technologies Ltd.

$

25,698

$

28,601

$

126,156

$

108,891

Weighted average number of basic ordinary shares

60,019

Weighted average number of diluted ordinary shares

61,565

Non-GAAP basic earnings per share

$

0.43

$

0.47

$

2.09

$

1.80

Non-GAAP diluted earnings per share

$

0.42

$

0.46

$

2.07

$

1.78

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