Hollysys Automation Technologies Reports Unaudited Financial Results for the Second Quarter and the First Half Year Ended December 31, 2021

First Half of Fiscal Year 2022 Financial Highlights

Total revenueswere $369.6 million,an increase of 13.8% compared to the comparable prior year period.

Gross marginwas 35.3%,compared to 36.1% for the comparable prior year period. Non-GAAP gross margin was 35.4%,compared to 36.1% for the comparable prior year period.

Net income attributable to Hollysyswas $44.3 million,a decrease of 14.6% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $51.3 million,a decrease of 3.3% compared to the comparable prior year period.

Diluted earnings per sharewas $0.72,a decrease of 16.3% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.83,a decrease of 4.6% compared to the comparable prior year period.

Net cash provided by operating activitieswas $51.1 million.

Days sales outstanding ("DSO")of 173 days,compared to 163 days for the comparable prior year period.

Inventory turnover daysof 48 days,compared to 41 days for the comparable prior year period.

Second Quarter of Fiscal Year 2022 Financial Highlights

Total revenueswere $216.3 million,an increase of 10.7% compared to the comparable prior year period.

Gross marginwas 36.1%,compared to 37.7% for the comparable prior year period. Non-GAAP gross margin was 36.2%,compared to 37.7% for the comparable prior year period.

Net income attributable to Hollysyswas $30.1 million,a decrease of 4.1% compared to the comparable prior year period. Non-GAAP net income attributable to Hollysys was $33.1 million,an increase of 2.9% compared to the comparable prior year period.

Diluted earnings per sharewas $0.49,a decrease of 3.9% compared to the comparable prior year period. Non-GAAP diluted earnings per share was $0.54,an increase of 1.9% compared to the comparable prior year period.

Net cash provided by operating activitieswas $29.3 million.

DSOof 147 days,compared to 142 days for the comparable prior year period.

Inventory turnover daysof 50 days,compared to 40 days for the comparable prior year period.

See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin,non-GAAP net income attributable to Hollysys and non-GAAP diluted earnings per share.

BEIJING,March 16,2022 --Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"),a leading provider of automation and control technologies and applications in China,today announced its unaudited financial results for the second quarter and first half of fiscal year 2022 ended December 31,2021. Dr. Changli Wang,the CEO and director of Hollysys,stated:

"We are very delighted to report another fiscal quarter with solid financial and operational performance against all external and internal odds. Amid a disturbing and unfavorable environment,Hollysys never forgot our vision of bringing people better lives,showed great solidarity,confidence and strength to all,especially when wrapped in sandpaper,and lived up to our mission and honor. Today,in a seemingly mundane moment,fate requires me to be here shouldering the responsibility of leading Hollysys to a widely shared expectation of a promising future. We will continue to demonstrate the classic Hollysys spirit,building up and adding value to the Company through larger market shares and penetration on pillar business units of industrial automation ("IA") and rail transportation automation ("RTA") and potential drives on possible new business segments like new energy,among others. There was a decrease in net income for the reporting period compared to that for the comparable prior year period,primary due to an increase in operating expenses,especially research and development expenses and general and administration expenses. However,we believe such investment in operating expenses will give more knowledge and insights for the Company to optimize its existing operation and achieve greater economies of scale in a long run.

Here I would like to take the opportunity to discuss the current situation of the Company and address a brief development strategy.

The Company is of high growing potential. After over a month's discussion with colleagues from different levels and business units,a fact found is that Hollysys embraced various expertise from our competitors and our senior technicians have grown into capable specialists or managers with clear minds,distinct directions and glowing motivations over years. In addition,our research and development capability has been enhanced significantly. Furthermore,the current incentive plan and performance appraisal system are effective and encouraging. Externally,China is facing the challenges of an aging population tendency and achieving carbon peaking and carbon neutrality goals,which provides Hollysys with great developing opportunities and directions.

Based on the situations stated above,Hollysys mapped out developing strategy below. On IA business,we are initiating steps to extend aggressively by grasping the chance of market reshuffle with advantages of our exceptional and reliable solutions,sophisticated engineering work,competent personnel and national service network. Additionally,we are extending product lines down stream to hardware and upper stream to comprehensive integrated control platforms. On RTA business,we will sustain and fortify our market share in high speed rail,enrich product lines constantly,foster subway signaling for a further breakthrough,and promote application of new products of urban transportation. In new business segments,we intend to launch new energy related products and services after proper investigation and evaluation.

Then I would like to share some highlights and breakthrough the Company made in the first half of fiscal year 2022:

IA business continued its strong growth momentum with larger market shares. The Company keeps investment in research and development,aiming at users' challenges,carries out technological innovation,and strives to meet the needs of users. In the first half of fiscal year 2022,for example,Hollysys launched a new product—Industrial Optical Bus Control System ("OCS"),and achieved a number of contract breakthroughs. The application of the technology can help customers greatly reduce project cost,cut construction period and improve maintenance efficiency. This not only created huge economic benefits for customers,but also saved lots of non-ferrous copper for the society and fulfilled goals of energy saving and emission reduction. The smooth implementation of the projects also creates conditions for the full promotion of OCS in 2022. At the same time,Hollysys launched a fully self-controllable Distributed Control System ("DCS") to meet the increasing requirements of customers on reliability and security. In the first half of fiscal year 2022,such updated DCS system has been applied successfully in the project of 600MW power unit,the pipage of refined oil product,etc.

In the field of chemical and petrochemical industry,the Company has maintained its fast pace,which proves that its strategy of "vigorously developing chemical and petrochemical industry" is effective. In the first half of the fiscal year 2022,we gained a number of breakthrough projects,including signing a large scale oil refining project in Hainan. In addition,as of December 31,2021,the Company has accumulated 38 offshore platform project orders,ranking first among domestic suppliers.

In our RTA business,we are excited about winning some key contracts. For example,we signed contracts to provide Automatic Train Protection ("ATP") with automatic train operation function to the Pearl River Delta region and the contract to provide Supervisory Control and Data Acquisition ("SCADA") system to Chengdu rail transit Line 30 Phase I. At the same time,the Company continues to offer various after-sales services,including software upgrading,spare parts sales,and maintenance and replacement services for high speed rail. Especially,in Hong Kong,we successfully entered into the second three-year maintenance contract with Mass Transit Railway Corporation Limited. In project delivery,several lines that we participated in went into operation,such as our track circuit which officially went into service,representing the first application of Hollysys track circuit on C2 high speed rail. Also,the first application of Hollysys subway signaling system in Kunming Changshui Airport Express went into full operation smoothly. In addition to boosting and exploring diversified development opportunities,the Company is also continuously promoting the incubation of innovative businesses. In the first half of the fiscal year 2022,both highway business and vocational education business have made remarkableprogress. For example,in the field of vocational education,a comprehensive project of high-speed railway operation control drill field was signed with a railway vocational and technical college. In the field of highway,we signed the intelligent platform project of tunnel inspection and highway operation decision.

For overseas business,Thomson Line II in Singapore that the Company provided SCADA has been successfully put into operation. Under the threat of COVID-19,Hollysys project team worked unitedly to achieve the successful delivery of the project while ensuring personal safety and health,and won a very challenging and valuable award of the "Engineering Safety Excellence Award" 2021 from the Land Transport Authority of Singapore. Overall speaking,COVID-19 remains a challenge to the business unit of mechanical and electrical solutions and other overseas business. We will keep monitoring the impact of COVID-19,and risk control remains our key focus.

With our clear strategies,contentious dedication and experienced loyal expertise,we believe that we will continue to create greater value for our clients and shareholders."

Second Quarterand First Half Year Ended December 31,2021 Unaudited Financial Results Summary

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

Three months ended

December 31,

Six months ended

December 31,

,

2021

2020

%

Change

2021

2020

%

Change

Revenues

$

216,251

195,328

10.7%

$

369,636

324,795

13.8%

Integrated solutions contracts revenue

$

166,505

142,468

16.9%

$

291,068

248,174

17.3%

Products sales

$

9,871

8,458

16.7%

$

19,517

15,026

29.9%

Service rendered

$

39,875

44,402

(10.2)%

$

59,051

61,595

(4.1)%

Cost of revenues

$

138,264

121,709

13.6%

$

239,254

207,675

15.2%

Gross profit

$

77,987

73,619

5.9%

$

130,382

117,120

11.3%

Total operating expenses

$

54,268

40,172

35.1%

$

91,947

62,903

46.2%

Selling

$

13,620

10,260

32.7%

$

23,029

18,435

24.9%

General and administrative

$

25,965

14,404

80.3%

$

43,040

24,757

73.8%

Research and development

$

20,611

18,620

10.7%

$

36,660

28,601

28.2%

VAT refunds and government subsidies

$

(5,928)

(3,112)

90.5%

$

(10,782)

(8,890)

21.3%

Income from operations

$

23,719

33,447

(29.1)%

$

38,435

54,217

(29.1)%

Other (expense) income,net

$

(9)

1,545

(100.6)%

$

959

2,774

(65.4)%

Foreign exchange loss

$

(1,288)

(3,345)

(61.5)%

$

(1,714)

(5,668)

(69.8)%

Gains on disposal of investments in an

equity investee

$

7,995

-

100.0%

$

7,995

-

100.0%

Share of net income of equity investees

$

774

2,768

(72.0)%

$

986

4,659

(78.8)%

Dividend income from equity investments

$

179

3

5866.7%

$

179

3

5866.7%

Interest income

$

3,323

2,922

13.7%

$

6,183

6,720

(8.0)%

Interest expenses

$

(22)

(141)

(84.4)%

$

(366)

(277)

32.1%

Income tax expenses

$

4,767

5,906

(19.3)%

$

8,669

10,666

(18.7)%

Net loss attributable to non-controlling

interests

$

(167)

(71)

135.2%

$

(341)

(151)

125.8%

Net income attributable to Hollysys

Automation Technologies Ltd.

$

30,071

31,364

(4.1)%

$

44,329

51,913

(14.6)%

Basic earnings per share

$

0.49

0.52

(5.8)%

$

0.73

0.86

(15.1)%

Diluted earnings per share

$

0.49

0.51

(3.9)%

$

0.72

0.86

(16.3)%

Share-based compensation expenses

$

2,713

763

255.6%

$

6,306

938

572.3%

Amortization of acquired intangible assets

$

353

79

346.8%

$

632

155

307.7%

Non-GAAP net income attributable to

Hollysys Automation Technologies Ltd.(1)

$

33,137

32,206

2.9%

$

51,267

53,006

(3.3)%

Non-GAAP basic earnings per share(1)

$

0.54

0.53

1.9%

$

0.84

0.88

(4.5)%

Non-GAAP diluted earnings per share(1)

$

0.54

0.53

1.9%

$

0.83

0.87

(4.6)%

Basic weighted average number of ordinary

shares outstanding

60,946,596

60,500,387

0.7%

60,884,346

60,498,431

0.6%

Diluted weighted average number of

ordinary shares outstanding

61,682,393

60,933,785

1.2%

61,556,602

60,693,633

1.4%

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

Operational Results Analysis for the Second Quarter Ended December 31,2021

Compared to the second quarter of the prior fiscal year,the total revenues for the three months ended December 31,2021 increased from $195.3 million to $216.3 million,representing an increase of 10.7%. In terms of revenues by type,integrated contracts revenue increased by 16.9% to $166.5 million,products sales revenue increased by 16.7% to $9.9 million,and services revenue decreased by 10.2% to $39.9 million.

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

(In USD thousands,except for %)

Three months ended December 31,

Six months ended December 31,

2021

2020

2021

2020

$

% of

Total

Revenue

$

% of

Total

Revenue

$

% of

Total

Revenue

$

% of

Total

Revenue

Industrial Automation

113,833

52.7

92,889

47.6

216,294

58.5

174,819

53.8

Rail Transportation Automation

79,411

36.7

81,269

41.6

115,346

31.2

109,965

33.9

Mechanical and Electrical Solution

23,007

10.6

21,170

10.8

37,996

10.3

40,011

12.3

Total

216,251

100.0

195,328

100.0

369,636

100.0

324,795

100.0

Gross marginwas 36.1% for the three months endedDecember 31,as compared to 37.7% for the same period of the prior fiscal year. The gross margin fluctuated mainly due to product and service mix.Gross margin of integrated solutions contracts,product sales,and service renderedwas27.5%,75.0% and 62.0% for the three months endedDecember 31,as compared to 27.9%,85.6% and 59.8% for the same period of the priorfiscal year,respectively. Non-GAAP gross marginwas 36.2%for the three months endedDecember 31,as compared to 37.7% for the same period of the prior fiscal year.Non-GAAP gross margin of integrated solutions contractswas 27.7% for the three months endedDecember 31,as compared to 28.0% for the same period of the priorfiscal year. See the section entitled "Non-GAAP Measures" for more information about non-GAAP gross margin and non-GAAP gross margin of integrated solutions contracts.

Selling expenseswere $13.6 millionfor the three months ended December 31,representing an increase of $3.3 million,or 32.7%,compared to $10.3 million for the same period of the prior fiscal year,which was primarily due to the significant increase of sales scale. Selling expenses as a percentage of total revenueswere6.3%and5.3% for the three months ended December 31,2021 and 2020,respectively.

General and administrativeexpenseswere$26.0million forthe quarter ended December 31,representing an increase of $11.6 million or 80.3% compared to $14.4 million for the same quarter of the prior year,which was primarily due to a $7.3 million increase in credit losses and increased investments in strategic planning,internal management,compliance and corporate governance to improve the Company's core competitiveness. Share-based compensation expenses were $2.7 million and $0.8 million for the three months ended December 31,respectively. General and administrative expensesas a percentage oftotal revenues were12.0% and 7.4%for the three months ended December 31,2021and 2020,respectively.

Research and development expenseswere$20.6 millionfor the three months ended December 31,representing an increase of $2.0 million,or 10.7%,compared to $18.6 million for the same period of the prior fiscal year,which was primarily due to increased investments in R&D,including the upgrading of mainstream products and new products developed to meet the needs of the digital infrastructure market,such as the new generation DCS Macs V7,smart factory and smart city rail. Research and developmentexpenses as a percentage of total revenues were9.5%and 9.5%for the three months ended December 31,respectively.

The VAT refunds and government subsidieswere $5.9 million for three months ended December 31,as compared to $3.1 million for the same period in the prior fiscal year,representing a $2.8 million,or 90.5%,increase.

The income tax expenses and the effective tax ratewere $4.8 million and 13.7% for the three months ended December 31,respectively,as compared to $5.9 million and 15.9% for comparable period in the prior fiscal year,respectively. The effective tax rate fluctuates,as the Company's subsidiaries contributed different pre-tax income at different tax rates.

Net income attributable to Hollysyswas $30.1million,representingadecrease of 4.1% from $31.4 millionreported in thecomparableperiod in the prior fiscal year. Non-GAAP net income attributable to Hollysys,was $33.1 million or $0.54 per diluted share. See the section entitled "Non-GAAP Measures" for more information about non-GAAP net income attributable to Hollysys.

Diluted earnings per sharewas $0.49for the three months ended December 31,a decrease of 3.9% from $0.51 reported in the reported in the comparable period in the prior fiscal year.Non-GAAP diluted earnings per sharewas $0.54for the three months ended December 31,an increase of 1.9% from $0.53 reported in the comparable period in the prior fiscal year.These were calculated based on 61.7 million and 60.9 million diluted weighted average ordinary shares outstanding for the three months ended December 31,2021 and 2020. See the section entitled "Non-GAAP Measures" for more information about non-GAAP diluted earnings per share.

Contracts and Backlog Highlights

Hollysys achieved $278.8 millionof value of new contracts for the three months ended December 31,2021. Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that Hollysys won.The backlogwas $772.1million as of December 31,2021. The following table sets forth a breakdown of the value of new contracts achieved and backlog by segment.

(In USD thousands,except for %)

Value of new contracts achieved

Backlog

for the three months

ended December 31,2021

as of December 31,2021

$

% of Total

Contract

Value

$

% of Total

Backlog

Industrial Automation

92,989

33.3

308,882

40.0

Rail Transportation Automation

169,501

60.9

352,785

45.7

Mechanical and Electrical Solutions

16,294

5.8

110,418

14.3

Total

278,784

100.0

772,085

100.0

Cash Flow Highlights

For the three months ended December 31,thetotal net cash inflow was $11.4 million. The net cash provided by operating activitieswas$29.3 million. The net cash used in investing activities was $27.8 million,mainly consisting of $23.1 million purchases of short-term investments,$7.9 million purchases of property,plant and equipment,and $6.5 million acquisition of a subsidiary,partially offset by $9.5 million of receipts from collection of advances to equity investees.

Balance Sheet Highlights

The total amount of cash and cash equivalents were$715.5 million,$704.9 million,and $356.9 million as of December 31,September 30,2021 and December 31,2020,respectively.

For the three months ended December 31,DSO was147 days,as compared to142 days for the comparable prior fiscal yearand 198 days for the last fiscal quarter; inventory turnover days were50 days,as compared to 40days for the comparable prior fiscal yearand 55days for the last fiscal quarter.

Financial Performance Guidance

Based on information available as of the date of this press release,Hollysys provides the following financial performance guidance for the full fiscal year 2022:

The total value of new contracts signed is expected to be between $770 million and $870 million,with a year-on-year increase of 5% to 18%.

Revenue is expected to be between $625 million and $695 million,with a year-on-year increase of 5% to 17%.

About Hollysys Automation Technologies Ltd.

Hollysys is a leading automation control system solutions provider in China,with overseas operations in eight other countries and regions throughout Asia. Leveraging its proprietary technology and deep industryknow-how,Hollysys empowers its customers with enhanced operational safety,reliability,efficiency,and intelligence which are critical to their businesses. Hollysys derives its revenues mainly from providing integrated solutions for industrial automation and rail transportation automation. In industrial automation,Hollysys delivers the full spectrum of automation hardware,software,and services spanning field devices,control systems,enterprise manufacturing management and cloud-based applications. In rail transportation automation,Hollysys provides advanced signaling control and SCADA (Supervisory Control and Data Acquisition) systems for high-speed rail and urban rail (including subways). Founded in 1993,with technical expertise and innovation,Hollysys has grown from a research team specializing in automation control in the power industry into a group providing integrated automation control system solutions for customers in diverse industry verticals. As of June 30,Hollysys had cumulatively carried out more than 35,000projects for approximately 20,000 customers in various sectors including power,petrochemical,high-speed rail,and urban rail,in which Hollysys has established leading market positions.

SAFE HARBOR STATEMENTS

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

For further information,please contact:

Hollysys Automation Technologies Ltd.

www.hollysys.com

+8610-58981386

investors@hollysys.com

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

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

Three months ended

Six months ended

December 31,

December 31,

2021

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues

Integrated solutions contracts revenue

$

166,505

$

142,468

$

291,068

$

248,174

Products sales

9,871

8,458

19,517

15,026

Revenue from services

39,875

44,402

59,051

61,595

Total net revenues

216,251

195,328

369,636

324,795

Costs of integrated solutions contracts

120,654

102,656

213,963

181,737

Cost of products sold

2,469

1,218

4,898

2,947

Costs of services rendered

15,141

17,835

20,393

22,991

Gross profit

77,987

73,619

130,382

117,120

Operating expenses

Selling

13,620

10,260

23,029

18,435

General and administrative

25,965

14,404

43,040

24,757

Research and development

20,611

18,620

36,660

28,601

VAT refunds and government subsidies

(5,928)

(3,112)

(10,782)

(8,890)

Total operating expenses

54,268

40,172

91,947

62,903

Income from operations

23,719

33,447

38,435

54,217

Other (expense) income,net

(9)

1,545

959

2,774

Foreign exchange loss

(1,288)

(3,345)

(1,714)

(5,668)

Gains on disposal of an investment in an equity investee

7,995

-

7,995

-

Share of net income of equity investees

774

2,768

986

4,659

Dividend income from equity investments

179

3

179

3

Interest income

3,323

2,922

6,183

6,720

Interest expenses

(22)

(141)

(366)

(277)

Income before income taxes

34,671

37,199

52,657

62,428

Income taxes expenses

4,767

5,906

8,669

10,666

Net income

29,904

31,293

43,988

51,762

Net loss attributable to non-controlling interests

(167)

(71)

(341)

(151)

Net income attributable to Hollysys Automation

Technologies Ltd.

$

30,071

$

31,364

$

44,329

$

51,913

Other comprehensive income,net of tax of nil

Translation adjustments

17,456

44,703

16,559

83,653

Comprehensive income

47,360

75,996

60,547

135,415

Less: comprehensive (loss) income attributable to non-

controlling interests

(58)

(28)

(175)

53

Comprehensive income attributable to Hollysys

Automation Technologies Ltd.

$

47,418

$

76,024

$

60,722

$

135,362

Net income per ordinary share:

Basic

0.49

0.52

0.73

0.86

Diluted

0.49

0.51

0.72

0.86

Shares used in net income per share computation:

Basic

60,596

60,387

60,346

60,431

Diluted

61,393

60,785

61,602

60,633

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

Dec- 31,

Sep- 30,

2021

2021

(Unaudited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

715,537

$

704,870

Short-term investments

34,769

11,578

Restricted cash

37,998

37,366

Accounts receivable,net of allowance for credit losses of $74,331 and $67,535 as

of December 31,2021 and September 30,respectively

359,816

326,264

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

of $11,747 and $12,526 as of December 31,

respectively

222,480

211,892

Accounts receivable retention

6,219

5,670

Other receivables,net of allowance for credit losses of $16,335 and $16,287 as of

December 31,respectively

16,318

18,037

Advances to suppliers

29,171

27,356

Amounts due from related parties

28,310

16,612

Inventories

67,656

68,380

Prepaid expenses

779

878

Income tax recoverable

393

1,278

Total current assets

1,519,446

1,430,181

Non-current assets

Restricted cash

6,015

5,928

Costs and estimated earnings in excess of billings

2,482

1,066

Accounts receivable retention

4,558

4,401

Prepaid expenses

2

1

Property,net

109,297

97,515

Prepaid land leases

18,120

16,409

Intangible assets,net

12,152

13,031

Investments in equity investees

46,920

61,824

Investments securities

2,659

2,621

Goodwill

22,527

21,568

Deferred tax assets

13,635

11,865

Operating lease right-of-use assets

5,221

5,983

Total non-current assets

243,588

242,212

Total assets

1,763,034

1,672,393

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Short-term bank loans

12

-

Current portion of long-term loans

15,371

15,223

Accounts payable

180,653

158,040

Construction costs payable

3,540

917

Deferred revenue

208,173

194,164

Accrued payroll and related expenses

33,263

24,694

Income tax payable

6,054

4,819

Warranty liabilities

6,474

6,239

Other tax payables

16,138

9,596

Accrued liabilities

47,653

53,947

Amounts due to related parties

8,544

15,038

Other liability

3

3

Operating lease liabilities

378

598

Total current liabilities

526,256

483,278

Non-current liabilities

Accrued liabilities

4,535

4,831

Long-term loans

568

581

Accounts payable

994

1,035

Deferred tax liabilities

13,617

14,914

Warranty liabilities

3,038

3,293

Operating lease liabilities

4,432

4,945

Other liability

78

78

Total non-current liabilities

27,262

29,677

Total liabilities

553,518

512,955

Commitments and contingencies

-

-

Stockholders' equity:

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

61,961,324 shares and 61,960,524 shares issued and outstanding as of

December 31,2021

62

62

Additional paid-in capital

240,073

237,361

Statutory reserves

76,829

64,449

Retained earnings

838,547

820,860

Accumulated other comprehensive income

49,207

31,860

Total Hollysys Automation Technologies Ltd. stockholder's equity

1,204,718

1,154,592

Non-controlling interests

4,798

4,846

Total equity

1,209,516

1,159,438

Total liabilities and equity

$

1,034

$

1,393

HOLLYSYS AUTOMATION TECHNOLOGIES LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands).

Three months ended

Six months ended

December 31,2021

December 31,2021

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

29,904

$

43,988

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

Depreciation of property,plant and equipment

2,586

5,084

Amortization of prepaid land leases

107

211

Amortization of intangible assets

579

661

Allowance for credit losses

7,874

8,002

Gains on disposal of property,plant and equipment

(6)

(1)

Share of net income of equity investees

(774)

(986)

Share-based compensation expenses

2,713

6,306

Deferred income tax expenses

(2,983)

(4,287)

Other income (expense),net

(263)

-

Gains on disposal of an investment in an equity investee

(7,995)

(7,995)

Changes in operating assets and liabilities:

Accounts receivable and retention

(37,548)

(24,810)

Costs and estimated earnings in excess of billings

(8,978)

(21,797)

Inventories

1,695

(12,612)

Advances to suppliers

(1,434)

(8,006)

Other receivables

1,872

3,161

Prepaid expenses

104

154

Due from related parties

3,950

6,072

Accounts payable

22,863

29,382

Deferred revenue

11,026

11,057

Accruals and other payables

(4,136)

(2,329)

Due to related parties

(228)

6,883

Income tax payable

2,049

2,572

Other tax payables

6,371

10,429

Net cash provided by operating activities

29,348

51,139

Cash flows from investing activities:

Purchases of short-term investments

(23,111)

(26,259)

Purchases of property,plant and equipment

(7,890)

(11,095)

Proceeds from disposal of property,plant and equipment

44

44

Maturity of short-term investments

190

40,430

Receipts from collection of advances to equity investees

9,497

9,497

Acquisition of a subsidiary,net of cash acquired

(6,527)

(8,726)

Net cash (used in) provided by investing activities

(27,797)

3,891

Cash flows from financing activities:

Proceeds from short-term bank loans

49

49

Repayments of short-term bank loans

(38)

(38)

Proceeds from long-term bank loans

156

228

Repayments of long-term bank loans

(179)

(365)

Net cash used in financing activities

(12)

(126)

Effect of foreign exchange rate changes

9,847

9,099

Net increase in cash,cash equivalents and restricted cash

$

11,386

64,003

Cash,cash equivalents and restricted cash,beginning of period

$

748,164

695,547

Cash,end of period

759,550

759,550

Non-GAAP Measures

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

These non-GAAP financial measuresserve as additional indicators of our operating performance and not as any replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures help identify underlying trends in the Company's business that could otherwise be distorted by the effect of the share-based compensation expenses,whichare calculated based on the number of sharesor optionsgranted and the fair valueas of the grant date,and amortization of acquired intangible assets. They will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders to have a better understanding of our operating results and growth prospects.

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

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

(In USD thousands,except for %)

Three months ended

Six months ended

December 31,

2021

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit

$

77,120

Gross margin(1)

36.1%

37.7%

35.3%

36.1%

Add:

Amortization of acquired intangible assets

353

79

632

155

Non-GAAP gross profit

$

78,340

$

73,698

$

131,014

$

117,275

Non-GAAP gross margin(2)

36.2%

37.7%

35.4%

36.1%

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

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

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

(In USD thousands,

2021

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Gross profit of integrated

solutions contracts

$

45,851

$

39,812

$

77,105

$

66,437

Gross margin of integrated

solutions contracts(1)

27.5%

27.9%

26.5%

26.8%

Add:

Amortization of acquired intangible

assets

353

79

632

155

Non-GAAP gross profit of

integrated solutions contracts

$

46,204

$

39,891

$

77,737

$

66,592

Non-GAAP gross margin of

integrated solutions contracts(2)

27.7%

28.0%

26.7%

26.8%

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

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

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

(In USD thousands)

Three months ended

Six months ended

December 31,

2021

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net income attributable to Hollysys Automation

Technologies Ltd.

$

30,071

$

31,364

$

44,329

$

51,913

Add:

Share-based compensation expenses

2,713

763

6,306

938

Amortization of acquired intangible assets

353

79

632

155

Non-GAAP net income attributable to Hollysys

Automation Technologies Ltd.

$

33,137

$

32,206

$

51,267

$

53,006

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

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

Three months ended

Six months ended

December 31,306

938

Amortization of acquired intangible assets

353

79

632

155

Non-GAAP net income attributable to

Hollysys Automation Technologies Ltd.

$

33,006

Weighted average number of basic ordinary shares

60,431

Weighted average number of diluted ordinary shares

61,633

Basic earnings per share(1)

0.49

0.52

0.73

0.86

Add:

non-GAAP adjustments to net income per

share(2)

0.05

0.01

0.11

0.02

Non-GAAP basic earnings per share(3)

$

0.54

$

0.53

$

0.84

$

0.88

Diluted earnings per share(1)

0.49

0.51

0.72

0.86

Add:

non-GAAP adjustments to net income per

share(2)

0.05

0.02

0.11

0.01

Non-GAAP diluted earnings per share(3)

$

0.54

$

0.53

$

0.83

$

0.87

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

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

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

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