Q3 Financial Highlights
-----------------------
* Revenues of $22.9 million, an increase of 24.1% year-over-year
* Gross margin of 36.5%, as compared to 22.7% and 34.6% in the same
period of last year and the quarter ended December 31, 2008,
respectively
* Non-GAAP net income of $2.1 million, as compared to $2.0 million
year-over-year
* $11.3 million net cash generated from operations for the quarter
ended on March 31, 2009; cash and cash equivalents of $106.2
million as of March 31, 2009
* $177.7 million backlog, as compared to $164.2 million quarter-over-
quarter, and $153.7 million year-over-year
BEIJING, May 26, 2009 -- HLS Systems International, Ltd. (NasdaqGS:HOLI - News) (``HLS'' or the ``Company''), a leading automation and control systems and products provider in China, today announced unaudited financial results for its fiscal third quarter ended March 31, 2009 (see attached tables).
Dr. Changli Wang, HLS' Chief Executive Officer, stated, ``We are pleased to deliver a solid quarterly financial performance with strong momentum from the industrial automation and rail segments. We improved our revenues, gross margins, and generated an operating cash flow of $11.3 million. HLS continued to further establish itself as one of the major players in the high-speed rail automation and control segment this quarter through winning a new contract to provide its Train Control Center products to the Zhengzhou-Xian High-Speed Railway project. This follow-on contract is valued at approximately $15 million, which is in addition to HLS' previous contract win of over $22 million last year for the same project.''
Dr. Wang continued, ``HLS is currently benefiting from China's favorable political and economic environment during the economic slowdown. Following the RMB4 trillion stimulus package, on May 12, 2009, the Chinese government also announced the Equipment Manufacturing Industry Revitalization Action Plan, which is aimed at increasing the usage of domestic manufactured equipment in ten key industries including: the high-speed rail, urban rail transportation, and clean energy industries. The plan includes government provided value-added tax (VAT) refunds to domestic equipment manufacturers, more stringent monitoring of major equipment procurement to favor domestic equipment, and insurance programs for the first-time adoption of domestic made equipment in commercial projects. We feel that this action plan will better position HLS to compete with international competitors for projects in the industrial, rail, nuclear, and clean energy sectors.''
Fiscal 2009 Third Quarter Unaudited Financial Results Summary
To facilitate a clear understanding of HLS, a summary of unaudited non-GAAP financial results is included below.
In USD thousands, except share numbers and EPS
----------------------------------------------
Q3 FY2009 Q3 FY2008
-------------------- -----------------------------
Amount % to Amount % to Y-O-Y %
Revenue Revenue CHANGE
----------- ------- ----------- ------- -------
Revenues $ 22,899 100.0% $ 18,458 100.0% 24.1%
Integrated
Contract
Revenue $ 21,329 93.1% $ 16,667 90.3% 28.0%
Products Sales $ 1,570 6.9% $ 1,791 9.7% -12.3%
Cost of Revenues $ 14,544 63.5% $ 14,268 77.3% 1.9%
Gross Profit $ 8,355 36.5% $ 4,190 22.7% 99.4%
Total Operating
Expenses $ 5,690 24.8% $ 3,334 18.1% 70.7%
Selling $ 2,279 10.0% $ 1,647 8.9% 38.4%
General and
Administrative $ 2,586 11.3% $ 2,270 12.3% 13.9%
Research and
Development $ 2,128 9.3% $ 1,180 6.4% 80.3%
VAT Refunds $ (1,303) -5.7% $ (1,763) -9.6% -26.1%
Income from
Operations $ 2,665 11.6% $ 856 4.6% 211.2%
Non-GAAP Net
Income $ 2,075 9.1% $ 2,016 10.9% 3.0%
Basic Non-GAAP
EPS $ 0.05 $ 0.05 -6.0%
Diluted Non-GAAP
EPS $ 0.05 $ 0.05 -6.0%
Stock-based
Compensation
Cost for Options $ 99 0.4% $ 47 0.3% 109.1%
Net Income (GAAP) $ 1,976 8.6% $ 1,968 10.7% 0.4%
Basic GAAP EPS $ 0.04 $ 0.05 -8.3%
Diluted GAAP EPS $ 0.04 $ 0.05 -8.4%
Basic Weighted
Average Common
Shares
Outstanding 45,942,614 41,964,592 9.5%
Diluted Weighted
Average Common
Shares
Outstanding 45,987,015 41,974,193 9.6%
For the three months ended March 31, 2009, total revenues increased 24.1% to $22.9 million, from $18.5 million in the comparable prior fiscal year period. Of the total revenues, revenue from integrated contracts increased 28.0% to $21.3 million, from $16.7 million for the same period of the prior year. The Company's integrated contract revenue by segment was as follows:
* $14.4 million, or 67.7%, related to Industrial Automation &
Control;
* Rail and subway was $5.8 million, or 27.0%, of which $4.1 million,
or 19.0%, was from Rail Signaling and Control projects, and $1.7
million, or 8.0%, was from Subway System Integration projects;
* $0.6 million, or 2.8%, related to Nuclear Plant Control projects;
and
* $0.5 million, or 2.5%, related to miscellaneous contracts.
For the three months ended March 31, 2009, HLS' total cost of revenues was $14.5 million, compared to $14.3 million for the same period of the prior year. The cost of integrated contracts increased to $14.2 million, or 66.5% of integrated contract revenue, for the three months ended March 31, 2009, compared to $14.0 million, or 83.9%, for the same period of the prior year.
As a percentage of total revenues, overall gross margin improved to 36.5% for the three months ended March 31, 2009, up from 22.7% for the prior fiscal year period. The gross margin for integrated contracts was 33.5% for the three months ended March 31, 2009, compared to 16.1% for the same period of the prior year, largely due to higher gross margin in industrial automation and rail revenue recognized for the quarter ended March 31, 2009.
For the three months ended March 31, 2009, selling expenses were $2.3 million, an increase of $0.7 million, compared to $1.6 million for the same period of the prior year. As a percentage to total revenues, selling expenses were 10.0% and 8.9% for the three months ended March 31, 2009 and 2008, respectively.
General and administrative expenses were $2.6 million for the three months ended March 31, 2009, or 11.3% as a percentage of total revenues, compared to $2.3 million, or 12.3%, for the same period of the prior year.
Research and development (``R&D'') expenses were $2.1 million for the three months ended March 31, 2009, compared to $1.2 million for the same period of the prior year. As a percentage to total revenue, R&D expenses were 9.3% and 6.4% for three months ended March 31, 2009 and 2008, respectively. The increase was mainly due to increased R&D activities.
For the three months ended March 31, 2009, non-GAAP net income, excluding non-cash stock compensation cost, was $2.1 million, or $0.05 per diluted share based on 46 million shares outstanding. This represents an increase of $0.1 million, or 3.0%, over the $2.0 million, or $0.05 per share, based on 42 million shares outstanding, reported in the prior year period. On a GAAP basis, net income was $2.0 million, or $0.04 per diluted share, based on 46 million shares outstanding, compared to net income of $2.0 million, or $0.05 per diluted share, based on 42 million shares outstanding, for the same period of the prior year.
Backlog Highlights
HLS' backlog as of March 31, 2009 was $177.7 million, compared to $164.2 million at December 31, 2008, and $153.7 million at March 31, 2008. The detailed breakdown for the backlog by segment is as followings:
* $56.6 million related to Industrial Automation & Control, or 31.9%
of the total backlog;
* $50.2 million related to System Integration projects for Subway, or
28.2% of the total backlog;
* $68.1 million related to Rail Signaling and Control projects, or
38.3% of the total backlog;
* $2.8 million related to Nuclear and other miscellaneous contracts,
or 1.6% of the total backlog.
Cash Flow Highlights
HLS generated an operating cash flow of $11.3 million for the three months ended March 31, 2009. Including investing and financing activities, the total net cash inflow for the three months ended March 31, 2009 was $19.8 million.
Balance Sheet Highlights
As of March 31, 2009, HLS' cash and cash equivalents were $106.2 million, compared to $86.4 million at December 31, 2008. Days Sales Outstanding (``DSO'') for the quarter ended March 31, 2009 is 250 days, reduced from 289 days for the prior year period, but significantly increased from 114 days for the quarter ended December 31, 2008 mainly due to seasonally lower revenues.
Outlook for FY 2009
Dr. Wang concluded, ``HLS' management team is committed to delivering strong and sustainable growth to our shareholders. We are well on track to achieve our previously provided annual guidance for FY 2009 of revenues between $150 million and $165 million and gross margin between 30% and 35%. We continue to see more opportunities in each of HLS' business segments, especially in high-speed rail, driven by the government's economic stimulus package. HLS is currently in a strong financial position with over $106 million in cash, which we expect will enable us to carry out HLS' corporate strategic plan to accelerate HLS growth.''
Conference Call
Management will discuss the current status of the Company's operations during a conference call at 9:00 AM ET on Wednesday, May 27, 2009. Interested parties may participate in the call by dialing (888) 787-0460 (U.S.) or (706) 679-3200 (International) approximately 10 minutes before the call is scheduled to begin and ask to be connected to the HLS Systems conference call. In addition, the conference call will be broadcast live over the internet at
The HLS Systems International, Ltd. logo is available at 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.
HLS SYSTEMS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In U.S. Dollars)
Three months ended Nine months ended
March 31, March 31,
------------------------- -------------------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
Revenues
Integrated
contract revenue $ 21,328,566 $ 16,667,323 $107,511,907 $ 83,474,562
Products sales 1,570,426 1,790,719 5,217,848 6,095,325
------------ ------------ ------------ ------------
Total revenues 22,898,992 18,458,042 112,729,755 89,569,887
Cost of integrated
contracts 14,173,795 13,992,001 71,357,962 62,052,363
Cost of products
sold 370,402 275,809 1,786,610 2,295,925
------------ ------------ ------------ ------------
Gross profit 8,354,795 4,190,232 39,585,183 25,221,599
Operating expenses
Selling 2,278,944 1,647,200 7,695,185 7,028,745
General and
administrative 2,586,052 2,269,647 23,858,389 24,365,980
Research and
development 2,127,975 1,180,254 5,236,663 2,861,561
VAT refunds (1,302,685) (1,763,024) (4,176,354) (4,663,981)
------------ ------------ ------------ ------------
Total operating
expenses 5,690,286 3,334,077 32,613,883 29,592,305
------------ ------------ ------------ ------------
Income (loss) from
operations 2,664,509 856,155 6,971,300 (4,370,706)
Other income
(expense), net (89,014) 82,305 783,560 (36,998)
Share of net gains
(losses) of
equity investees (252,907) 108,387 132,548 471,662
Government subsidy 14,819 1,150,799 1,249,067 2,428,955
Interest expense,
net (130,832) (198,224) (726,491) (3,930,190)
------------ ------------ ------------ ------------
Income (loss)
before income
taxes 2,206,575 1,999,422 8,409,984 (5,437,277)
Income taxes
expenses (credit) 2,878 (209,464) 2,219,865 685,012
------------ ------------ ------------ ------------
Income (loss)
before minority
interest 2,203,697 2,208,886 6,190,119 (6,122,289)
Minority interest 227,514 240,400 4,012,393 1,373,134
------------ ------------ ------------ ------------
Net income (loss) $ 1,976,183 $ 1,968,486 $ 2,177,726 $ (7,495,423)
============ ============ ============ ============
Weighted average
number of common
shares 45,942,614 41,964,592 44,606,848 33,373,132
Weighted average
number of diluted
common shares 45,987,015 41,974,193 44,621,648 33,373,132
Basic earnings
(loss) per share 0.04 0.05 0.05 (0.22)
------------ ------------ ------------ ------------
Diluted earnings
(loss) per share 0.04 0.05 0.05 (0.22)
------------ ------------ ------------ ------------
Other
comprehensive
income (loss)
Net income (loss) 1,976,183 1,968,486 2,177,726 (7,495,423)
Translation
adjustments (324,925) 3,225,628 431,070 6,422,572
------------ ------------ ------------ ------------
Comprehensive
income (loss) $ 1,651,258 $ 5,194,114 $ 2,608,796 $ (1,072,851)
============ ============ ============ ============
HLS SYSTEMS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
(In U.S. Dollars)
March 31, December 31,
2009 2008
---- ----
(Unaudited) (Unaudited)
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $106,237,008 $ 86,433,081
Contract commitment deposit in banks 6,125,887 6,108,769
Accounts receivable, net of allowance
for doubtful accounts of $5,781,307 and
$5,129,999 55,000,421 61,535,561
Cost and estimated earnings in excess of
billings, net of allowance for doubtful
accounts of $787,460 and $722,693 45,123,125 46,727,333
Other receivables, net of allowance for
doubtful accounts of $191,648 and
$243,855 3,794,761 3,121,150
Advances to suppliers 7,393,679 9,244,172
Amount due from related parties 7,021,251 6,343,320
Inventories, net of provision of $427,789
and $460,865 21,756,105 21,155,570
Prepaid expenses 1,551,788 373,971
Deferred tax assets 958,096 722,456
------------ ------------
Total current assets 254,962,121 241,765,383
Property, plant and equipment, net 45,560,157 31,343,861
Long term investments 10,523,337 10,715,614
Long term deferred expenses 107,013 122,541
Deferred tax assets 647,953 673,138
Total assets 311,800,581 284,620,537
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term bank loans 5,851,461 5,862,953
Current portion of long-term loans 7,314,326 7,328,692
Accounts payable 39,399,255 29,542,186
Deferred revenue 27,722,572 19,020,953
Accrued payroll and related expense 4,209,740 5,943,049
Income tax payable 1,871,771 1,901,730
Warranty liabilities 2,136,529 2,049,842
Other tax payables 6,965,456 8,933,977
Accrued liabilities 2,707,546 3,299,301
Amounts due to related parties 1,455,552 2,022,007
Deferred tax liabilities 377,363 544,811
------------ ------------
Total current liabilities 100,011,571 86,449,501
Long-term bank loans 11,702,921 --
Long-term bonds payable 11,702,921 11,725,907
Total liabilities 123,417,413 98,175,408
------------ ------------
Minority interest 21,292,467 21,104,906
Commitments and contingencies
-- --
Stockholder's equity
Common stock, par value $0.001 per share,
100,000,000 shares authorized,
43,942,614 and 45,942,614 shares issued
and outstanding 45,943 43,943
Additional paid-in capital 108,853,190 108,755,971
Appropriated earnings 11,676,276 11,676,276
Retained earnings 32,720,210 30,744,027
Cumulative translation adjustments 13,795,082 14,120,007
------------ ------------
Total stockholder's equity 167,090,701 165,340,224
Total liabilities, minority interests and
stockholders' equity $311,800,581 $284,620,538
------------ ------------
HLS SYSTEMS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. Dollars)
Three months Three months
ended ended
March 31, December 31,
2009 2008
(Unaudited) (Unaudited)
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 1,976,183 $ (5,898,717)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Minority interest 227,514 2,608,463
Depreciation and amortization 575,630 564,230
Allowance for doubtful accounts 985,126 6,072
Provision (reversal) for inventories (33,076) (135,581)
Loss on disposal of property, plant and
equipment 41,905 2,540
Loss on deemed acquisition of a subsidiary -- 18,984
Share of net losses (gains) from equity
investees 252,907 (611,218)
Amortization of expenses accrued for bond
payable 15,294 16,791
Stock-based compensation 99,219 17,044,394
Deferred tax assets (liabilities) (377,903) 302,046
Changes in operating assets and
liabilities:
Accounts receivable 7,102,015 (2,355,863)
Inventories (567,460) 2,245,292
Advance to suppliers 1,850,493 8,166
Other receivables (652,111) 558,080
Deposits and other assets (755,497) (4,434)
Due from related parties (676,800) (2,942,084)
Accounts payable (2,625,026) 3,769,242
Advance from customers 8,701,619 (6,564,551)
Accruals and other payable (2,320,481) 244,917
Due to related parties (566,455) 539,653
Tax payable (1,998,480) 2,797,591
------------ ------------
Net cash provided by operating activities 11,254,616 12,214,013
Cash flows from investing activities:
Purchase of property, plant and equipment (2,913,264) (82,478)
Proceeds from disposing property, plant
and equipment 758 5,066
Repayment from (Advance to) related
parties (81,788) 1,417,973
Dividends from long-term investments -- 69,609
Acquisition of a subsidiary, net of cash
acquired -- (439,638)
------------ ------------
Net cash provided by (used in) investing
activities (2,994,294) 970,532
Cash flows from financing activities:
Repayments of short-term loans -- (2,930,467)
Proceeds from long-term bank loans 11,718,349 --
------------ ------------
Net cash provided by (used in) financing
activities 11,718,349 (2,930,467)
Effect of foreign exchange rate changes (174,744) (879,244)
------------ ------------
Net increase (decrease) in cash and cash
equivalents $ 19,803,927 $ 9,374,834
============ ============
Cash and cash equivalents, beginning of
period 86,433,081 77,058,247
Cash and cash equivalents, end of period $106,237,008 $ 86,433,081
Reconcile GAAP Net Income (Loss) 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.
Three months ended Nine months ended
March 31, March 31,
------------------------ ------------------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Net income (loss) $ 1,976,183 $ 1,968,486 $ 2,177,726 $(7,495,423)
----------- ----------- ----------- -----------
Adjustments:
Amortization of
discount and
interest on
notes payable
related to
bridge loan -- -- -- 3,244,434
Stock-based
compensation
cost for
incentive shares -- -- 17,000,000 17,000,000
Stock-based
compensation
cost for options 99,219 47,445 188,007 47,445
----------- ----------- ----------- -----------
Non-GAAP net
income $ 2,075,402 $ 2,015,931 $19,365,733 $12,796,456
=========== =========== =========== ===========
Contact:
HLS Systems International Ltd.
Investor Relations
Jennifer Zhang
(8610) 5898-1386
investors@hollysys.com
The Equity Group Inc.
Adam Prior
(212) 836-9606
aprior@equityny.com
