BEIJING, May 14, 2012 /PRNewswire-Asia-FirstCall/--

Q3 Financial Highlights

• Quarterly revenues of $66.1 million, representing an increase of 18.6% compared to $55.8 million  year-over-year.
• Gross margin at 39.3%, as compared to 40.3% year-over-year, and 38.5% quarter-over-quarter
• Non-GAAP net income attributable to Hollysys of $11.6 million, as compared to $9.6 million and a 20.8% increase year-over-year.
• Non-GAAP Diluted EPS at $0.21 reported for the quarter, as compared to $0.17 year-over-year
• Record-breaking backlog of $401.8 million as of March 31, 2012, a 43.1% increase compared to $280.9 million year-over-year, and 21.0% increase compared to $332.1 million quarter-over-quarter.
• Inventory turn-over days of 68 days for this quarter compared to 101 days year-over-year.
• Quarterly DSO of 160 days, as compared to 156 days year-over-year.
• Generate net cash provided by operating activities of $1.5 million for this quarter.

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 fiscal year 2012 third quarter ended March 31, 2012 (see attached tables).

Dr. Changli Wang, Chairman and CEO of Hollysys, stated: "We are pleased to report another quarter with solid operating and financial results.  Here I would like to take this opportunity to discuss some key events that took place in this quarter:

"Industrial automation is continuously growing towards the top position in domestic market and starting to build its brand power globally. We keep seeing strong business demand across all of our products and industry verticals. The significant growth we reported in the quarter clearly validates our dedicated industry expert total solution and sales network expansion strategies. Our established brand recognition, strong track record of customization, quality and service, efficient R&D and implementation together with customer-orientated flexibility give us a significant competitive advantage over domestic and international competitors. We believe Hollysys is in an excellent position as we pursue future growth in industrial automation market. 

"In our high-speed rail segment, we successfully won the international bid and signed a contract of approximately US$63.15 million with MTR Corporation Ltd to provide the complete suite of high-speed rail signaling systems to Guangzhou-Shenzhen-Hong Kong Express Rail Hong Kong Section. As the first-ever international contract for our high-speed rail signaling system amid the stiff competition from other world class signaling system providers, this contract is of paramount importance and remarkable milestone in steering our business to the next level in the global arena. On the domestic side, we believe we will continue to benefit from the continuous construction of high-speed rail called by the huge demand for rail transportation across the country. With the successful Safety certification in accordance with International Standards for our Signaling products and system, we will continue to leverage on our strong commitment to Research & Development, quality and service to further explore business opportunities in both China and abroad.

"In subway business, in addition to the Hong Kong MTR contract and Beijing Subway Line 14 contract of supplying the integrated surveillance control and data acquisition system (SCADA) we signed last quarter, we are expecting our self-developed proprietary subway signaling system to obtain the European Safety Standard Certification Level 4 (SIL 4) by the end of 2012. We are excited about the subway signaling system because it clearly differentiates Hollysys and will bring us to a higher level in competing with other players to propel our subway business in both Chinese and international market.

"What's more, we made substantial progress in our strategy of international market expansion through our successfully acquired company - Concord. In this quarter Concord successfully signed a retrofit project of USD $14.02 million with Shaw Brothers Limited to supply and provide installation and electrification services for Shaw Centre in Singapore. We are seeing building automation is becoming a lucrative market given the increasing high-end commercial buildings and growing demand for retrofit projects of existing commercial buildings in many markets. Meanwhile, Concord has been actively working on a few international biddings and projects in rail and industrial automation sectors. The acquisition of Concord has been proved to be a good synergy and successful by combining our proprietary technology and Concord's international team, we will continue to leverage the core capabilities to further penetrate into the international arena and build Hollysys into a world leading automation and control technology and products provider."

The Third Quarter ended March 2012 Unaudited Financial Results Summary

To facilitate a clear understanding of Hollysys operational result, a summary of unaudited non-GAAP financial results is shown as below:

In USD thousands, except share numbers and EPS

Operational Results Analysis for the Third quarter ended March 31, 2012

For the three months ended March 31, 2012, total revenues increased by 18.6% to $66.1 million, from $55.8 million in the prior fiscal year period.  Among total revenues, revenue from integrated contracts increased by 17.8% to $61.8 million, as compared to $52.4 million for the same period of the prior year. The Company's integrated contract revenue by segment was shown as followings:

(In USD million)

The industrial automation revenue of $35.7 million for the three months ended March 31, 2012 is consisted of industrial automation revenue of $35.6 million and nuclear revenue of $0.1 million in previous break-down categories. And the rail transportation revenue of $21.1 million for the three months ended March 31, 2012 is consisted of high-speed rail revenue of $13.2 million and subway automation revenue of $7.9 million.

As a percentage of total revenues, overall gross margin was 39.3% for the three months ended March 31, 2012, as compared to 40.3% for the same period of last year. The gross margin for integrated contracts and product sales were 37.9% and 59.9% for the three months ended March 31, 2012, as compared to 38.8% and 65.1% for the same period of last year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin.

For the three months ended March 31, 2012, selling expenses were $6.1 million, compared to $5.3 million year over year, and $8.1 million quarter over quarter. Compared to the same period of prior year, the increase was mainly due to the Company's expanded sales network and increased selling staffs. As a percentage of total revenues, selling expenses were 9.2% compared to 9.5% year over year, and 10.0% quarter over quarter.

General and administrative expenses, excluding non-cash stock-based compensation expense, were $4.9 million for the quarter ended March 31, 2012, representing an increase of $0.1 million, or 1.0%, as compared to $4.8 million for the same period of prior year. As a percentage of total revenues, G&A expenses were 7.5% and 8.8% for the three months ended March 31, 2012 and 2011, respectively. Including the non-cash stock compensation cost recorded on a GAAP basis, G&A expenses were $5.0 million and $5.0 million for three months ended March 31, 2012 and 2011, respectively.

Research and development expenses were $5.6 million for the three months ended March 31, 2012, compared to $3.9 million year over year, and $6.9 million quarter over quarter. Compared to the same period of prior year, the increase was mainly due to the Company's increased R&D activities. As a percentage of total revenues, R&D expenses were 8.4% compared to 6.9% year over year, and 8.6% quarter over quarter.

The VAT refunds and government subsidy amounted to $2.5 million for three months ended March 31, 2012, as compared to $1.3 million for the comparative prior year period, representing an increase of $1.2 million, or 85.9%, mainly due to Hangzhou Hollysys, the Company's wholly-owned subsidiary, recognized a subsidy of $0.9 million during this quarter, which was granted to encourage the Company's research and development activities in DCS field.

The gains on disposal of long term investment amounted to $2.0 million for the quarter ended March 31, 2012, which Beijing Hollysys, the Company's wholly-owned subsidiary, disposed 10% equity interest in China Techenergy Co., Ltd. by consideration of RMB 27.8 million (approximately $4.4 million), and recognized a disposal gain of $2.0 million during this quarter. After this transaction, Beijing Hollysys continues to hold 40% equity interest in China Techenergy.

The income tax expenses were $2.5 million for the three months ended March 31, 2012, compared to $0.2 million year over year, and $1.3 million quarter over quarter.  The effective tax rate was 18.0% compared to 1.8% year over year, and 6.2% quarter over quarter. The large increase of tax expenses was mainly due to an income tax expense of $1.0 million related to VAT refunds was recognized by Beijing Hollysys during this quarter, as the Beijing Tax Bureau specified the VAT refunds be taxable.  For the nine months ended March 31, 2012, the effective tax rate was 11.4%, as compared to 9.9% for the prior year period.

For the three months ended March 31, 2012, the non-GAAP net income to Hollysys excluding non-cash stock compensation cost was $11.6 million or $0.21 per diluted share based on 56 million shares outstanding. This represents an increase of $2.0 million, or 20.8%, over the $9.6 million, or $0.17 per share based on 55 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $11.5 million, or $0.21 per diluted share representing an increase of $2.0, or 21.4%, over the $9.5 million, or $0.17 per diluted share reported in the prior year period.

Backlog Highlights

Hollysys' backlog as of March 31, 2012 was $401.8 million, compared to $332.1 million on December 31, 2011, and $280.9 million on March 31, 2011. The large increase was mainly contributed by a backlog of $63.2 million, brought by contracts with Hong Kong MTR Corporation to provide High-Speed Rail Signaling Systems. The detailed breakdown of the backlog by segment is as followings:

 (In USD million)

Cash Flow Highlights

The net cash provided by operating activities was $1.5 million for the three months ended March 31, 2012; Including investing and financing activities, the total net cash outflow for this quarter was $3.7million, mainly due to a cash outflow of $2.0 million for repayment of long-term loans and $3.7 million used for purchase of property, plant and equipment.

Balance Sheet Highlights

As of March 31, 2012, Hollysys' cash and cash equivalents were $126.2 million, compared to $130.0 million on December 31, 2011. For the three months ended March 31, 2012, Days Sales Outstanding ("DSO") is 160 days, as compared to 156 days year over year and 150 days quarter over quarter; and inventory turnover was 68 days, as compared to 101 year over year and 54 days quarter over quarter.

Outlook for FY 2012

Dr. Wang concluded, "Due to severe slow down of China's high-speed development, as well as overseas projects delayed because of the mixed international environment. We are revising the previous announced FY2012 revenue guidance between $354 million and $356 million, down to between $310 million and $ 320 million; but we are confidently reiterating our FY 2012 net income guidance between $ 57 million and $ 58 million unchanged."

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 AM ET/9:00 PM Beijing time on Tuesday, May 15, 2012. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Hollysys Automation Technologies conference call.  The conference call identification number is: 73953456

1-866-519-4004 (USA)
800-930-346 (HK)
+852-2475-0994 (HK)
800-819-0121 (China Landline)
400-620-8038 (China Mobile)
+ 65-6723-9381 (International）

In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at:
http://www.hollysys.com.sg/home/index.php/investor-relations/events-a-webcast

About Hollysys Automation Technologies, Ltd.

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,500 employees with nationwide presence in over 50 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 2000 customers in the industrial, railway, subway & nuclear industries in China, south-east Asia, and the middle east. Its proprietary technologies are applied in its industrial automation solution suite including Distributed Control System (DCS), Programmable Logic Controller (PLC), RMIS, HAMS, OTS, and other products, high-speed railway signaling system of Train Control Center(TCC) and Automatic Train Protection (ATP), and other products, subway supervisory and control platform (SCADA), and nuclear conventional island automation and control system.

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
+8610-58981326
investors@hollysys.com

Reconcile GAAP Net Income to Non-GAAP Net Income

The following table provides more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

SOURCE Hollysys Automation Technologies, Ltd.