EX-99.1 2 v466735_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Hollysys Automation Technologies Reports Unaudited

Financial Results for the First Nine Months and the Third Quarter Ended March 31, 2017

First Nine Months of Fiscal Year 2017 Financial Highlights

Non-GAAP net income attributable to Hollysys was $47.5 million, a decrease of 45.6% compared to the comparable prior year period.

Total revenues were $294.0 million, a decrease of 25.9% compared to the comparable prior year period.

Non-GAAP gross margin was at 29.6%, compared to 37.2% for the comparable prior year period.

Non-GAAP diluted EPS were at $0.79, a decrease of 45.5% compared to the comparable prior year period.

Net cash provided by operating activities was $41.1 million for the current period.

DSO of 212 days, compared to 169 days for the comparable prior year period.

Inventory turnover days of 54 days, compared to 38 days for the comparable prior year period.

Third Quarter of Fiscal Year 2017 Financial Highlights

Non-GAAP net income attributable to Hollysys was $13.7 million, a decrease of 40.7% compared to the comparable prior year period.

Total revenues were $91.3 million, a decrease of 23.1% compared to the comparable prior year period.

Non-GAAP gross margin was at 30.7%, compared to 31.7% for the comparable prior year period.

Non-GAAP diluted EPS were at $0.22, a decrease of 42.1% compared to the comparable prior year period.

Net cash used in operating activities was $12.5 million for the current quarter.

DSO of 219 days, compared to 181 days for the comparable prior year period.

Inventory turnover days of 61 days, compared to 40 days for the comparable prior year period.

Beijing, China – May 11, 2017 – 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 2017 third quarter ended on March 31, 2017 (see attached tables).

With market stabilization in parts of process industries, the performance of Industrial Automation has been getting better, especially recent order trend reflecting a positive momentum. Through actively traced our customers’ new demands under adjusting circumstance, we got several significant contracts. For example, in power, we signed the contract to provide products for Sichuan Jiangyou 2X1000MW power units, Shanxi Yangmei 2X660MW power units. In chemical, we provided DCS and SIS for producing polycarbonate of Luxi Chemical Company. In petrochemical, we won the contract to provide DCS to Shengli oilfield Gudong production plant. In nuclear power, we are continuing providing DCS for Hongyanhe #5 & #6 units and Tianwan #5 & #6 units.

Hollysys Automation Technologies, Ltd
May 11, 2017

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For Factory Automation, after changing strategies from selling products to providing solutions to customers, we did have some progress such as Hair project to help the customer improve the level of automation and Intelligence of their Tianjin-based factory which focuses on wash machine; integrated internal resources to improve the production and Hai Di Lao Hot Pot project to help the customer improve their efficiency of hot pot based making in the restaurant. Hollysys aims to make each project into a demonstration project to create values to the customers and explore more opportunities in sub-industries.

In high-speed railway, we won 106 C2-ATPs & 10 C3-ATPs but since the customer is changing the procurement timeline, it increases uncertainty and volatility of the performance of high-speed railway. In addition, since it is the beginning of the 13th five-year-plan, the finished infrastructure of new planned railway is limited. Therefore, in short term, the performance of high speed rail segment was unfavorable. However, from long run, according to the mid and long term plan of high-speed railway and with the increase of the after sell and replacement, as well as new products launching, we expect the sector will gradually recover in future. For subway, we won the contract to provide power SCADA for Dalian intercity line (from Jinzhou to Pulandianwan).

In the mechanical and electrical installation services, although Concord and Bond are facing some difficulties because of the local political and economic uncertainties in South East Asia and Middle East area, they are still working hard to develop businesses. As one of the strategies to expand overseas market, we will ensure a healthy development of Concord and Bond and take use of their advantages such as good customer relations and sales channels to find more international opportunities.

Hollysys Automation Technologies, Ltd
May 11, 2017

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First Nine Months and the Third Quarter Ended March 31, 2017 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)

	Three months ended									Nine months ended
	Mar 31, 2017			Mar 31, 2016			% Change			Mar 31, 2017			Mar 31, 2016			% Change

Revenues	$	91,303			118,793			(23.1	)%	$	293,981			396,657			(25.9	)%
Integrated contract revenue	$	78,167			99,757			(21.6	)%	$	260,766			344,929			(24.4	)%
Products sales	$	9,746			16,157			(39.7	)%	$	24,116			42,992			(43.9	)%
Service rendered	$	3,390			2,879			17.7	%	$	9,099			8,736			4.2	%
Cost of revenues	$	63,238			81,126			(22.0	)%	$	206,826			249,000			(16.9	)%
Gross profit	$	28,065			37,667			(25.5	)%	$	87,155			147,657			(41.0	)%
Total operating expenses	$	15,300			17,986			(14.9	)%	$	45,843			55,292			(17.1	)%
Selling	$	5,961			5,237			13.8	%	$	17,819			18,957			(6.0	)%
General and administrative	$	8,754			8,685			0.8	%	$	29,247			28,438			2.8	%
Research and development	$	6,093			8,369			(27.2	)%	$	22,083			27,969			(21.0	)%
VAT refunds and government subsidies	$	(5,508	)		(4,305	)		27.9	%	$	(23,306	)		(20,072	)		16.1	%
Income from operations	$	12,765			19,681			(35.1	)%	$	41,312			92,365			(55.3	)%
Other income (expenses), net	$	571			(394	)		244.9	%	$	1,831			1,383			32.4	%
Foreign exchange gains	$	1,191			1,543			(22.8	)%	$	132			729			(81.9	)%
Share of net income of equity investees	$	2,390			6,409			(62.7	)%	$	4,670			6,486			(28.0	)%
Gains on dilution and divestment of the Company’s interests in HollyCon	$	-			-			-		$	6,429			-			-
Dividend income from cost investees	$	449			-			-		$	449			-			-
Interest income	$	1,173			1,212			(3.2	)%	$	2,431			4,051			(40.0	)%
Interest expenses	$	(395	)		(161	)		145.3	%	$	(795	)		(914	)		(13.0	)%
Income tax expenses	$	4,433			3,358			32.0	%	$	9,003			13,140			(31.5	)%
Net income attributable to noncontrolling interests	$	(5	)		1,787			(100.3	)%	$	(17	)		3,727			(100.5	)%
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.	$	13,716			23,145			(40.7	)%	$	47,473			87,233			(45.6	)%
Non-GAAP basic EPS	$	0.23			0.39			(41.0	)%	$	0.79			1.48			(46.6	)%
Non-GAAP diluted EPS	$	0.22			0.38			(42.1	)%	$	0.79			1.45			(45.5	)%

Share-based compensation expenses	$	(1,907	)		1,128			(269.1	)%	$	(70	)		3,265			(102.1	)%
Amortization of acquired intangible assets	$	-			166			(100.0	)%	$	263			654			(59.8	)%
Acquisition-related incentive share contingent consideration	$	-			-			-		$	-			(1,745	)		(100.0	)%
GAAP Net income attributable to Hollysys Automation Technologies Ltd.	$	15,623			21,851			(28.5	)%	$	47,280			85,059			(44.4	)%
GAAP basic EPS	$	0.26			0.37			(29.7	)%	$	0.79			1.44			(45.1	)%
GAAP diluted EPS	$	0.26			0.36			(27.8	)%	$	0.78			1.41			(44.7	)%

Basic weighted average common shares outstanding		60,408,369			59,082,795			2.2	%		60,112,281			59,061,277			1.8	%
Diluted weighted average common shares outstanding		61,225,248			60,555,132			1.1	%		60,909,201			60,594,356			0.5	%

Operational Results Analysis for the Third Quarter Ended March 31, 2017

Comparing to the third quarter of the prior fiscal year, the total revenues for the three months ended March 31, 2017 decreased from $118.8 million to $91.3 million, representing a decrease of 23.1%. Broken down by the revenue types, services revenue increased by 17.7% to $3.4 million, integrated contracts revenue decreased by 21.6% to $78.2 million, and products sales revenue decreased by 39.7% to $9.7 million. In July 2016, the company’s interests in Hollycon were diluted from 51.0% to 30.0% and the Company lost the control of Hollycon. As a result, Hollycon’s financials would not be included in the Company’s consolidated financials from July 2016 on. If Hollycon’s revenue was excluded from the comparable figure for the third quarter of the prior fiscal year, the products sales revenue for the three months ended March 31, 2017 should be increased by 17.8%.

Hollysys Automation Technologies, Ltd
May 11, 2017

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

(In USD thousands)

	Three months ended Mar 31,										Nine months ended Mar 31,
	2017					2016					2017					2016
	$		% to Total Revenue			$		% to Total Revenue			$		% to Total Revenue			$		% to Total Revenue
Industrial Automation		38,054		41.7	%		38,026		32.0	%		128,884		43.8	%		141,769		35.7	%
Rail Transportation Automation		34,788		38.1	%		56,157		47.3	%		91,085		31.0	%		174,366		44.0	%
Mechanical and Electrical Solution		18,461		20.2	%		17,089		14.4	%		74,012		25.2	%		62,357		15.7	%
Miscellaneous		-		-			7,521		6.3	%		-		-			18,165		4.6	%
Total		91,303		100.0	%		118,793		100.0	%		293,981		100.0	%		396,657		100.0	%

Overall gross margin excluding non-cash amortization of acquired intangibles (non-GAAP gross margin) was 30.7% for the three months ended March 31, 2017, as compared to 31.7% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales, and services rendered were 24.4%, 65.2% and 78.8% for the three months ended March 31, 2017, as compared to 27.1%, 55.5% and 59.1% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 30.7% for the three months ended March 31, 2017, as compared to 31.6% for the same period of the prior year. The GAAP gross margin for integrated contracts, product sales, and service rendered were 24.4%, 65.2% and 78.8% for the three months ended March 31, 2017, as compared to 26.9%, 55.5% and 59.1% for the same period of the prior year respectively.

Selling expenses were $6.0 million for the three months ended March 31, 2017, representing an increase of $0.8 million or 13.8% compared to $5.2 million for the same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 6.5% and 4.4% for the three months ended March 31, 2017, and 2016, respectively.

General and administrative expenses, excluding non-cash share-based compensation expenses (non-GAAP G&A expenses), were $8.8 million and $8.7 million for the quarter ended March 31, 2017, and 2016, respectively. Presented as a percentage of total revenues, non-GAAP G&A expenses were 9.6% and 7.3% for quarters ended March 31, 2017 and 2016 respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $6.8 million and $9.8 million for the three months ended March 31, 2017 and 2016, respectively.

Research and development expenses were $6.1 million for the three months ended March 31, 2017, representing a decrease of $2.3 million or 27.2% compared to $8.4 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 6.7% and 7.0% for the quarter ended March 31, 2017 and 2016, respectively.

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May 11, 2017

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The VAT refunds and government subsidies were $5.5 million for three months ended March 31, 2017, as compared to $4.3 million for the same period in the prior year, representing a $1.2 million or 27.9% increase.

The income tax expenses and the effective tax rate were $4.4 million and 22.1% for the three months ended March 31, 2017, as compared to $3.4 million and 12.4% for comparable prior year period. The fluctuation of the effective tax rate was mainly due to the different pre-tax income mix with different tax rates, as the Company’s subsidiaries apply to different tax rates. For the nine months ended March 31, 2017, the effective tax rate was 16.0%.

The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles, acquisition-related consideration fair value adjustments and convertible bond related fair value adjustments was $13.7 million or $0.22 per diluted share based on 61.2 million shares outstanding for the three months ended March 31, 2017. This represents a 40.7% decrease over the $23.1 million or $0.38 per share based on 60.6 million shares outstanding reported in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $15.6 million or $0.26 per diluted share representing a decrease of 28.5% over the $21.9 million or $0.36 per diluted share reported in the comparable prior year period.

Contracts and Backlog Highlights

Hollysys achieved $108.4 million new contracts for the three months ended March 31, 2017. And the backlog as of March 31, 2017 was $509.8 million. The detailed breakdown of the new contracts and backlog by segments is shown below:

(In USD thousands)	New contracts achieved					Backlog
	for the three months ended Mar 31, 2017					as of Mar 31, 2017
	$		% to Total Contract			$		% to Total Backlog
Industrial Automation		52,838		48.8	%		127,614		25.0	%
Rail Transportation		50,264		46.4	%		238,508		46.8	%
Mechanical and Electrical Solutions		5,254		4.8	%		143,656		28.2	%
Total		108,356		100.0	%		509,778		100.0	%

Cash Flow Highlights

For the three months ended March 31, 2017, the total net cash outflow was $27.6 million. The net cash used in operating activities was $12.5 million. The net cash used in investing activities was $10.0 million, mainly consisted of $22.8 million time deposits placed with banks, which was partially offset by $12.5 million maturity of time deposits. The net cash used in financing activities was $3.5 million, mainly consisted of $4.9 million repayments of long-term bank loans, which was partially offset by $1.1 million proceeds from short-term bank loans.

Hollysys Automation Technologies, Ltd
May 11, 2017

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Balance Sheet Highlights

The total amount of cash and cash equivalents and time deposits with original maturities over three months were $268.8 million, $285.4 million, and $256.4 million as of March 31, 2017, December 31, 2016 and March 31, 2016, respectively. As of March 31, 2017, the company held $182.5 million in cash and cash equivalents and $86.4 million in time deposits with original maturities over three months.

For the three months ended March 31, 2017, DSO was 219 days, as compared to 181 days for the comparable prior year period and 208 days for the last quarter; and inventory turnover was 61 days, as compared to 40 days for the comparable prior year period and 52 days for the last quarter.

Outlook for FY 2017

The management concluded, “Consideration on the volatility of high-speed railway performance, we would like to keep the guidance even though meeting potential challenges, for fiscal year 2017 with revenue in the range of $480 million to $520 million and non-GAAP net income in the range of $90 million to $100 million.”

Conference Call

The Company will host a conference call at 9:00 p.m. U.S. Eastern Time on May 11, 2017 / 9:00 a.m. Beijing Time on May 12, 2017, to discuss the financial results for the fiscal year 2017 third quarter ended on March 31, 2017 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 2982392.

4001-200-539		(China)
0080 161 5189		(Taiwan)
+1-855-298-3404		(United States)
+1 631 5142 526		(US – New York)
0800 916 599		(France)
0800 1899 399		(Germany)
0800 837 001		(Switzerland)
1800 801 825		(Australia)
800-905-927		(Hong Kong)
+852-5808-3202		(Hong Kong)
0800-015-9725		(United Kingdom)
+44(0)20 3078 7622		(United Kingdom - London)
800-616-3222		(Singapore)
+65 6823 2299		(Singapore/International)

Hollysys Automation Technologies, Ltd
May 11, 2017

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In addition, a recording of the conference call will be accessible within 48 hours via Hollysys' website at: http://ir.hollysys.com/ or http://hollysys.investorroom.com

About Hollysys Automation Technologies Ltd. (NASDAQ: HOLI)

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 3,600 employees with nationwide presence in over 60 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves over 6,000 customers more than 20,000 projects 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 DCS (Distributed Control System), PLC (Programmable Logic Controller), RMIS (Real-time Management Information System), HAMS (HolliAS Asset Management System), OTS (Operator Training System), HolliAS BATCH (Batch Application Package), HolliAS APC Suite (Advanced Process Control Package), SIS (Safety Instrumentation System), high-speed railway signaling system of TCC (Train Control Center), ATP (Automatic Train Protection), Subway Supervisory and Control platform, SCADA (Supervisory Control and Data Acquisition), nuclear power plant automation and control system and other products.

SAFE HARBOUR:

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

Hollysys Automation Technologies, Ltd
May 11, 2017

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For further information, please contact:

Hollysys Automation Technologies Ltd.
www.hollysys.com

+8610-58981386

investors@hollysys.com

Hollysys Automation Technologies, Ltd
May 11, 2017

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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 Mar 31,						Nine months ended Mar 31,
	2017			2016			2017			2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net revenues
Integrated contract revenue	$	78,167		$	99,757		$	260,766		$	344,929
Products sales		9,746			16,157			24,116			42,992
Revenue from services		3,390			2,879			9,099			8,736
Total net revenues		91,303			118,793			293,981			396,657

Cost of integrated contracts		59,126			72,921			196,936			227,270
Cost of products sold		3,394			7,194			7,537			19,176
Costs of services rendered		718			1,177			2,616			3,208
Gross profit		28,065			37,501			86,892			147,003

Operating expenses
Selling		5,961			5,237			17,819			18,957
General and administrative		6,847			9,813			29,177			31,703
Research and development		6,093			8,369			22,083			27,969
VAT refunds and government subsidies		(5,508	)		(4,305	)		(23,306	)		(20,072	)
Total operating expenses		13,393			19,114			45,773			58,557

Income from operations		14,672			18,387			41,119			88,446

Other income (expenses), net		571			(394	)		1,831			3,128
Foreign exchange gains		1,191			1,543			132			729
Share of net income of equity investees		2,390			6,409			4,670			6,486
Gains on dilution and divestment of the Company’s interests in HollyCon		-			-			6,429			-
Dividend income from cost investees		449			-			449			-
Interest income		1,173			1,212			2,431			4,051
Interest expenses		(395	)		(161	)		(795	)		(914	)
Income before income taxes		20,051			26,996			56,266			101,926

Income taxes expenses		4,433			3,358			9,003			13,140
Net income		15,618			23,638			47,263			88,786

Net (loss) income attributable to noncontrolling interests		(5	)		1,787			(17	)		3,727
Net income attributable to Hollysys Automation Technologies Ltd.	$	15,623		$	21,851		$	47,280		$	85,059

Other comprehensive income (loss), net of tax of nil
Translation adjustments		7,525			7,838			(34,583	)		(30,867	)
Comprehensive income		23,143			31,476			12,680			57,919

Less: comprehensive (loss) income attributable to noncontrolling interests		(34	)		1,798			(8,551	)		3,505
Comprehensive income attributable to Hollysys Automation Technologies Ltd.	$	23,177		$	29,678		$	21,231		$	54,414

Net income per ordinary share:
Basic		0.26			0.37			0.79			1.44
Diluted		0.26			0.36			0.78			1.41
Shares used in income per share computation:
Weighted average number of ordinary shares		60,408,369			59,082,795			60,112,281			59,061,277
Weighted average number of diluted ordinary shares		61,225,248			60,555,132			60,909,201			60,594,356

Hollysys Automation Technologies, Ltd
May 11, 2017

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HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED BALANCE SHEETS

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

	Mar 31,			Dec 31,
	2017			2016
	(Unaudited)			(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	182,478		$	210,115
Time deposits with original maturities over three months		86,352			75,282
Restricted cash		44,940			42,802
Accounts receivable, net of allowance for doubtful accounts of $45,509 and $43,017 as of March 31,2017 and December 31, 2016, respectively		223,494			219,173
Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $5,515 and $6,355 as of March 31, 2017 and December 31, 2016, respectively		147,737			147,097
Other receivables, net of allowance for doubtful accounts of $1,534 and $1,218 as of March 31, 2017 and December 31, 2016, respectively		15,026			11,999
Advances to suppliers		9,463			10,027
Amounts due from related parties		44,868			27,299
Inventories		45,802			40,001
Prepaid expenses		562			754
Income tax recoverable		6,531			4,497
Deferred tax assets		7,586			10,103
Total current assets		814,839			799,149

Non-current assets
Restricted cash		2,318			481
Prepaid expenses		13			8
Property, plant and equipment, net		79,871			78,933
Prepaid land leases		10,145			10,026
Acquired intangible assets, net		407			524
Investments in equity investees		23,924			33,951
Investments in cost investees		3,961			3,927
Goodwill		57,758			55,821
Deferred tax assets		1,758			1,526
Total non-current assets		180,155			185,197

Total assets		994,994			984,346

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term bank loans		2,979			2,036
Current portion of long-term loans		5,260			9,860
Accounts payable		101,598			95,544
Deferred revenue		105,145			103,062
Accrued payroll and related expenses		9,455			15,243
Income tax payable		6,362			6,852
Warranty liabilities		6,137			6,174
Other tax payables		4,833			6,837
Accrued liabilities		30,768			35,632
Amounts due to related parties		2,244			2,357
Deferred tax liabilities		5,842			7,929
Total current liabilities		280,623			291,526

Non-current liabilities
Long-term loans		20,682			20,639
Deferred tax liabilities		816			822
Warranty liabilities		3,227			3,473
Total non-current liabilities		24,725			24,934

Total liabilities		305,348			316,460

Commitments and contingencies		-			-

Stockholders’ equity:
Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 60,319,599 and 60,259,599 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively		60			60
Additional paid-in capital		221,656			223,041
Statutory reserves		41,500			41,299
Retained earnings		460,969			445,546
Accumulated other comprehensive income		(34,517	)		(42,071	)
Total Hollysys Automation Technologies Ltd. stockholder’s equity		689,668			667,875

Noncontrolling interests		(22	)		11
Total equity		689,646			667,886

Total liabilities and equity	$	994,994		$	984,346

Hollysys Automation Technologies, Ltd
May 11, 2017

Page 11

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In USD thousands)

	Three months ended			Nine months ended
	Mar 31, 2017			Mar 31, 2017
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	15,618		$	47,263
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		1,552			4,418
Amortization of prepaid land leases		47			141
Amortization of intangible assets		136			421
Allowance for doubtful accounts		1,704			4,964
Loss on disposal of property, plant and equipment		-			26
Share of net income from equity investees		(2,390	)		(4,670	)
Dividends received from equity investees		88			88
Gains on dilution and divestment of the Company’s interests in HollyCon		-			(6,429	)
Share based compensation expenses		(1,906	)		(70	)
Deferred income tax expenses (benefit)		260			(2,935	)
Accretion of convertible bond discount		57			391
Changes in operating assets and liabilities:
Accounts receivable		(4,358	)		(3,126	)
Costs and estimated earnings in excess of billings		2,389			36,656
Inventories		(5,507	)		(11,577	)
Advances to suppliers		656			1,610
Other receivables		(3,173	)		(2,601	)
Deposits and other assets		(3,307	)		(20,613	)
Due from related parties		(4,926	)		(5,460	)
Accounts payable		4,931			2,376
Deferred revenue		758			27,552
Accruals and other payable		(10,412	)		(15,308	)
Due to related parties		(139	)		780
Income tax payable		(2,586	)		(199	)
Other tax payables		(2,036	)		(12,589	)
Net cash (used in) provided by operating activities		(12,544	)		41,109

Cash flows from investing activities:
Time deposits placed with banks		(22,757	)		(97,557	)
Purchases of property, plant and equipment		-			(434	)
Proceeds from disposal of property, plant and equipment		-			34
Maturity of time deposits		12,542			40,475
Proceeds from sale of shares of a subsidiary		3,200			3,200
Cash reduced upon deconsolidation of subsidiary		(3,051	)		(19,732	)
Net cash used in investing activities		(10,066	)		(74,014	)

Cash flows from financing activities:
Proceeds from short-term bank loans		1,059			4,167
Repayments of short-term bank loans		(171	)		(4,088	)
Proceeds from long-term bank loans		-			5,665
Repayments of long-term bank loans		(4,888	)		(7,037	)
Proceeds from exercise of options		521			6,323
Payment of Dividends		-			(11,973	)
Net cash used in financing activities		(3,479	)		(6,943	)

Effect of foreign exchange rate changes		(1,548	)		(6,769	)
Net decrease in cash and cash equivalents	$	(27,637	)	$	(46,617	)

Cash and cash equivalents, beginning of period	$	210,115		$	229,095
Cash and cash equivalents, end of period		182,478			182,478

Hollysys Automation Technologies, Ltd
May 11, 2017

Page 12

Non-GAAP Measures

In evaluating our results, the non-GAAP measures of “Non-GAAP general and administrative expenses”, “Non-GAAP net income attributable to Hollysys Automation Technologies Ltd. stockholders”, “Non-GAAP basic earnings per share”, and “Non-GAAP diluted earnings per share” serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with U.S. GAAP. We believe these non-GAAP measures are useful to investors, as they exclude the non-cash share-based compensation expenses, which is calculated based on the number of shares or options granted and the fair value as of the grant date, amortization of acquired intangible assets, fair value adjustments of acquisition-related consideration, 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						Nine months ended
	Mar 31,						Mar 31,
	2017			2016			2017			2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Cost of integrated contracts	$	59,126		$	72,921		$	196,936		$	227,270
Less: Amortization of acquired intangible assets		-			166			263			654
Non-GAAP cost of integrated contracts	$	59,126		$	72,755		$	196,673		$	226,616

General and administrative expenses	$	6,847		$	9,813		$	29,177		$	31,703
Less: Share-based compensation expenses		(1,907	)		1,128			(70	)		3,265
Non-GAAP general and administrative expenses	$	8,754		$	8,685		$	29,247		$	28,438

Other income, net	$	571		$	(394	)	$	1,831		$	3,128
Add: acquisition-related incentive share contingent consideration fair value adjustment		-			-			-			(1,745	)
Non-GAAP other income, net	$	571		$	(394	)	$	1,831		$	1,383

Net income attributable to Hollysys Automation Technologies Ltd.	$	15,623		$	21,851		$	47,280		$	85,059
Add:
Share-based compensation expenses		(1,907	)		1,128			(70	)		3,265
Amortization of acquired intangible assets		-			166			263			654
Acquisition-related consideration adjustment		-			-			-			(1,745	)
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.	$	13,716		$	23,145		$	47,473		$	87,233

Weighted average number of basic ordinary shares		60,408,369			59,082,795			60,112,281			59,061,277
Weighted average number of diluted ordinary shares		61,225,248			60,555,132			60,909,201			60,594,356
Non-GAAP basic earnings per share	$	0.23		$	0.39		$	0.79		$	1.48
Non-GAAP diluted earnings per share	$	0.22		$	0.38		$	0.79		$	1.45