Q1 2020 Earnings Call
Welcome to the Hollysys automation.
First quarter fiscal 2020.
Yes, 2019 at this time.
Oh listen only mode.
The presentation.
A question and answer session.
Hi.
The question given it's a press star one.
Please be advised sepsis.
Being recorded today.
<unk>.
No.
Hi, I would I like to head the conference.
Mr. Ahmadinejad.
<unk> director of Hollysys automation technologies. Thank you.
Go ahead Mr. <unk>.
Hello, everyone. Thank you.
Today's speakers Mr. Mike.
Field Hollysys automation technologies Mr. Steven.
Ladies and myself.
On today's call me just saw will provide an agent.
Our business.
Some highlights for the first quarter fiscal year, two 2020, I mean, just do you want well discuss.
Financial perspective, and we will answer questions.
Before getting started I want to remind everyone that this conference call may contain forward looking statements. We didn't that may need a private Securities Litigation Reform Act 90, United by.
Forward looking statements statements that are not historical facts, including statements relating to the expectation world.
You should probably from Texas and makes up products in future periods that future operating results.
Such forward looking statements based upon the current beliefs and expectations apologies management are subject to risks and accident pace, which could cause actual results to differ from the bubble kids statements.
The full in factors among others could cause actual results may differ from those set forth in these statements.
Yes, its conditions in China, and Southeast Asia continue complies with government regulations legislation or regulatory environments requirements. So changes at adversely affecting the business. If you wish hollysys. It is engaged cessation or changes in government incentive programs.
Potential trade ballerinas affecting international expansion.
Leasing customer demand management held rapid growth and transition to new markets intensity of competition from oriented XL, new and superior products by other providers automation control system technology timing approval and the mcus depends of new product introductions.
General economic conditions, geopolitically mass or luxury regulatory changes as well as other government raises detailed at Hollysys filings with Securities and Exchange Commission.
The information set forth here in should to be ready in light of such racers. How does it does not assume any obligation to update evil Mason discussed in this conference call or its findings.
Please note that almost nobody in this conference call will be less dollars.
Latin otherwise noted.
Now I'd like to turn to the Costco Mr. bite you shall.
Please go ahead Mr. shop.
[noise] happens.
And that's the reason for everyone.
I would like to discuss some key events during this quarter.
I didn't used to finish the it because it's a quota.
The revenue under contract today to.
Six to 64 point discuss a million and it.
Well, one detailed million achieving.
Well part of that they will present and a full 5% to 6% the yet to yacov.
Back acuity.
Under the Ivan.
Our.
Well Felipe crossed the one glass in strategy, we continue that I thought you might pick up and.
Penetration you different industries.
You are about power business, we signed a contract to provide a contrast, the ocean <unk> open he to supply network.
Which is of course the project Oh, just kind of a policy.
Hi, this is.
Chemical business.
We have surely company to does a milestone.
Cool.
Chemical project and I will continue to provide the mean pens and other services up towards.
The project. It is the one over the life and maybe this isn't going to check for heart assist and we provided the total solution coding.
Integration.
I put and I'm, including onto it.
I said management systems HM.
Yes depiction.
Et cetera.
You know petrochemical industry with I Lucky cease and desist being certified by sea is trying to cross connects indications so shouldn't here.
Earlier this year.
Beta qualify that you lighting control. So we shouldn't you Oh sure all your they did that.
Business.
Our strategic current relationships always a C N O C.
China National offshore oil Corporation.
What does he did a good as we signed the say look on targets, where the then.
You could widen contra solution <unk> offshore oil well this quarter.
Besides the mark to.
Penetration throws a newly built in project.
We have kept up everyday gene.
On our national why the net well conclude his phone that pools that after sale.
Demand Oh different then to industry, especially as a contra product.
Approaching the end of our.
I'll lots circle.
We mean pending.
It also relationship with our existing customers.
So that's the type of Aftersales service.
Why or why it also explore to does that opportunity you have a 10 you can.
Hello, led replacement and upgrade to the project, especially in the chemical and petrochemical industry.
We are also build up our capability you providing more competition tends to solution.
Hi, billing for life cycle over the projector.
Essentially compilation always precision.
More pharmaceutical and attendant caught design Institute.
We are able to get you over that you potential projects at the earliest stage Oh, it was a future for bid opportunities.
Yeah, I last month extra solution.
Following our previous pretty bleak glow kone check that use a pilot you've got to we have signed up several contracts this quarter.
Both because this team and then you can your question about what I'm going to chemical industries.
Such well be lump sum cooperation so by the tools.
There are products that my comprehensively dipped by state.
We have also but I didn't know then did that was I wasn't that's yourself to a solution that much.
As a we launched a new solution said habits optimization emission control.
And the sign this of course, the contract with I couldn't how what indexes.
No. It be then it's a finished this quarterly where the revenue under contract to what people plugs. It gets a million and tied to one point that they don't million decoding and 1.5% and.
20.
72.6% to yet to be at degrees, respectively in the high speed or would they didnt.
I think cross obviously, our team has not met the expense expectation of the knocked US we continue to provide the up until service to our high speed rail within at least some that's in the say no to Productize coding software upgrade.
What did step hot fill me intense and only placements.
While we are also too little appealing our sales for new products and the Soviet Union. The after feels the high speed up real impact.
It's a city high speed the business, we signed the country that blow by the ATP.
The ultimate could trend operation function who's the pure river, they're tough rigid.
You said, but with business.
But we run for the new Abating. She airport. The committee showed that they did this operation in September with the hardest beans that provide the of SCADA solution.
Fit to support.
Driver this operation.
Well you for the how are your business what continued adhere to that diversity strategy for stable and a little and that will include the how I look closer this network for more value added 18, and a different then teach you to the services.
But in addition.
And go you process, we were kept keeping leveraging our strong R&D kept capacity and the pill appeal for the application of by this Pops overall with transportation system in the future.
And now you business to finish it is a quote to live with revenue and that contract it to.
What do you participate on medium and.
So typically part to 6 million you're quoting.
The tip apart the please.
Well into two yet sante, yet to be adequate easing and a 100 and tend to be it. The part as you know, yes, we owe you could easily respectively.
Given the macro economic earnings self.
Southeast Asia, and the Middle East to mid continent demand to be is a key books I imagine you business.
I, Oh, but see business a little bit is is it constantly made it in terms of establish them.
It's a bullish about the other than your cooperation with a new key EGPC ideas as well as an ongoing cooperation with existing partners.
Going forward that we will continue at Oh, I thought you developing partnership with a T. P C players and the stress in.
CLI they shouldn't you manufacture tricky.
Mike King and the service you always see business.
With that I'd like to close the call although to Stephen Walker, who are either the financial results I noticed it.
Thank you Mr. Shao I'd like to show some highlights for the first for added in September 2009 [noise].
Comparing to the first quarter of a prior fiscal year the total revenues.
Remodels and its or whatever 32019 decreased from 138.7 million to 123.2 million, representing a decrease of 11.2% integrated contract revenue decreased by 10.4% to one of 4.5 million.
Upsells revenue decreased by 23.8% to 6.1 million and service revenue decreased by 9.9% to 12.6 million.
The company total revenues can also be presenting segments as folks.
First quarter industrial automation revenue achieved 64.6 million.
Transmode, he's automation revenue 44.6 million mechanical and electrical solution remedy was 14 million.
Overall non-GAAP gross margin was 37.7% for the three mountains and at September 32019, as compared to 37.2% for the same period of a prior to year non-GAAP gross margin <unk> integrated contract product sales and services.
32.6%, 79.9% and 69.5%.
First quarter compared to 30.8%, 75% and 67.9% for the same period of the prior year respectively.
The gross margins fluctuation was mainly due to the different revenue mix with different margins.
Selling expenses or 7.3 million for the first quarter, representing a decrease of zero point, fourmillion, four or 5.6% compared to 7.7 million.
For the same quarter of the prior year selling expenses were 5.9% and 5.6% for the three months ended September 32019, and 2018, respectively.
non-GAAP DNA expenses.
<unk> point 6 million for the first quarter, representing a increase of 2 million or 20, 326%. It compares she was 8.6 million for the same quarter of the prior year.
non-GAAP G.N. expenses were 8.6% and 6.2% the corners and in September 32019 in 2018 to respect.
R&D expenses were 8.9 million for its first quarter groups, and an increase of 0.1 million or 2% compared to 8.8 million for the same quarter of the part of you.
Presented and a percentage of total revenues R&D expenses were 7.3% and 6.3% for the quarter ended up 30 September 32019 2018, respectively.
The v. you'd be fun government subsidies were.
Three point.
Fine billing and 3.5 mailings for the quarter ended Septemberthirty 2019, and 2018, respectively.
The income [noise].
This is an effective tax rate was north of 6.2 million and 17.3% for the first quarter as compared to 5.5 million and 16.3% for the comparable prior year period.
<unk> tax rate fluctuations wouldn't know lean due to the different pre tax income mix.
Different tax rate as companies is subsidiaries are subject to different tax refunds in various jurisdictions.
non-GAAP net income a true attributable to holistically.
29.8 million or 0.4 $9 per data. This year. This represented a 6.1% increase over 28.1 million or <unk> 0.4, $6 per share for the comparable prior year period.
GAAP basis net income attributable to Hollysys was 29.7 million or 0.4 $9 per data share representing an increase of 6.4% over 27.9 million. What's your 0.4 $6 per diluted share reported in the comparable prior year period.
Contract backlog highlights policies achieved 138.6 million of new contracts for the first quarter ended September 32019.
The backlog of September 32019 was 507, 870 879 million the detailed breakdown the new contract and backlog segment is as follows the new contract achieved the first quarter ended September 32019, industrial automation, new contracts 84 million.
Real trend transportation 21 million mechanical electrical solutions 33.
Point Sixmillion backlog.
As of September 32019, industrial automation backlog 195 million rail transportation 288.9, mechanical and electrical solutions 94.6 million cashflow highlights for the first quarter ended September 32019, the total net cash.
She inflows.
15.3 million.
The operating cash flow was 39 million the investing cash flow was 8.1 million and the mainly consist of 31.9 million up as much shorter time deposits and 4.4 4.5 million of proceeds received a disposal of and.
Equity investment, which was partially offset by 27.8 million of time deposits waste was back.
Net cash used in the financing activities was 20.3 million analysis, it's still the 20 million.
Payments of bonds payables.
Alan sheets highlights the total amount of cash and cash equivalents.
Good point really.
We have 32.5 million to 276.9 million as of September 32019 June 32009.
Septemberthirty 2018, respectively.
[noise] older three miles just ended September 32019, yeah. So it was to all four days as compared to 170 days for the comparable prior year period and the one <unk>.
For the last quarter inventory turnover was 56 seven day 56, 756 days as compared to 51 days for the comparable prior year period.
40 days for the last four [noise].
Operator please.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session. You should I wish I asked the question, please especially <unk> on your telephone and video name to Vietnam.
I wish to cancer request. Please press the powerful how should keep.
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[noise] at the first question for about this quarter can hair railway transportation inherent decrease.
So oh, what about it this quarter or did you ever delivery all that up to 80 P E com side and also.
End of this year.
Favour around day.
You gave us some hand accounted that need to delivering top line.
We need from our side.
Okay.
On the rolling stock a timeline.
And and also the differences between the rolling stock and delivering and Youre ATP speaking on and control system delivering differences I mean it.
Well in Ontario for one man after delivering often rolling stock or or or what kind of time line and the second question 40. This automation backlog and current position he is.
Pair high we then the history and that could you give us the propulsion breaking down by different verticals like at the terminal with a cold cold.
Coal tower, the chemical petrochemical safra.
And also these gave us a pretty big said before that few church had a weekend I a oh.
Backlog. Thank you.
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Yeah.
The.
The first question about ATP and actually.
It really depends on the CRC tenant real corporation's not be either to require us to de lever, sometimes and Oh Oh this year.
Catch up this spring festival, sometimes not so this is really depends on the situation and the currently this year, we the CRC open beating before.
100, and a 46 SAS healthy and we get full pay sat ATP a 30%.
And ER and I'll sell it well delivering it will be delivery for the coming months.
The industrial automation.
Actually we not provided the breaking down propulsion afford it backlog, but the generally speaking for the new contract.
Two separate it might be for industry like the power, we take around 40% to 45% chemical petrochemical take around 40% to 45% and a future trends that we see you thinking that this automation will well keep up growth.
And also.
We'd be Scott just step out today, the ATP or whether or not we'll finish that delivering four to 40 task of this time, but they still need has and the finally see Apple mentioned about to Eve.
See entering the first quarter.
And the second quarter together, we think that first hockey are all fiscal year 2020, the railway transportation shouldn't be compare a increase because based on current backlog and that and the potential delivery, we thinking that revenue could be that a catch up.
Had a positive role.
Thank you Kevin.
Operator next one please.
Your next question comes from a line of Alex <unk> from Citi. Please ask your question.
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We continue to assets out today or the predictions for for the.
Political form itself relation station for fiscal year 2020, because currently the CRC, beating crossed that Ah enter the market acceptance or expectation. So what about the picture for for this for this fiscal year full myself religious patient.
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They have a that ATP, beating a foot and Neil SAS, Oh, the high speed rail signaling and show system.
And based on current backlog and a prediction, we thinking that whole fiscal year performance for the room attestation credit keep I mean not compare.
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Paul This is the whole fiscal year.
How much percentage, we're going to backlog contribute to come from these new products and also what the subway CBTC system could just started to first the first a contract.
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Or the trucks at AK steel, we didn't attached to a procedure so it could well not contribute.
Too much or we can a backlog of four for that for the fiscal year 2020 .
And as CBTC systems steel.
On the real excited for this more project, but not to not into large contractor. So it is oh, either not to contributed to that a religion station revenue a weaving are we going to 2020 , but we will.
Fine Barbassa too to get the first a large contract that from this CBTC system.
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Your next question.
Comes from your line of Jacqueline Du from Goldman Sachs. Please ask your question.
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The question is nothing that's the automation and we we could you see the company who's a lot of resources awaiting the chemical petrochemical industry and and I also be mentioned about the gen. One.
Project.
And at this time massive that's out there that you.
Project.
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That is is it safe project and then.
And also I want to know about whether capability Youre crazy, we need that attack chemical petrochemical and that for the fiscal year two.
2020 or is there any other new large project it will join.
Oh yeah.
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And thank you or for a little question or actually we are really put a lot of resources, we didn't the chemical petrochemical higher naspers and and also even the very famous once we get the industry and the too.
To to increase set up our brand name and that the customer know us and the right now.
I wanted it again germ line project not the same as at this time, we sat down to see in all see problem that they don't want a project that is the largest won chemicals or project a week in China, and we finished a whole project right now and the Guy.
The admission by the by this Guy Vitesse customers.
And.
This can demonstrate into hollysys capability, and then the C and all see project and he is also very important because we finished the thereby biopsies he has.
So the buybacks is as you can participate the offshore all you a platform project. So does that create a new one for the houses and we'll continue to sign the large project we used a large.
State owned enterprises, a winning the chemical petrochemical industry for the for this year.
And we think ER or the next staff a week, whose contribute more tilted to the in this industry.
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I want to make supplement asked question about he front the positive thinking on what about current market share for Das, Florida, chemical petrochemical and what about the future or the market share.
You want to achieve.
Two days ago, so you're all familiar who at least with somebody or mental hotter young woman him. This will take a tension young woman toes books will that Sweetie Peck means how long this is see whom you Oh, yes, its yaki kinda young.
Look when he's a million did you do lead by tickets Haji Slingshot you hit your name and go be time until the can.
Limit you to discount the sick assembly switching I see no losses on how many years ago Treaty. The switching highly man sitting they are somewhat duplicate yeah. So you TV your food Meraki won't hi.
The chemical petrochemical hair actors are actually for for the following years than we were focused on the power and they're not to put in more Ah you nothing resources, we can kind of Patrick so we behind that.
And right now we are catching up and we think we will very quickly.
To penetrate that market.
But from the market share to say, it's hard to I gave you are the data because there have noticed it takes it up and and also a.
Very mandate Oh, we did this up industry. So.
Uh huh.
Maybe future, but right now.
Thanks.
How about <unk>.
Because the time constraints the last one question. Thank you operator.
Your final question today comes from a line of calling seen from the ICICI. Please ask your question.
Oh go if money's I'm talking on Huh.
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So you could because she has not been go to treat feeling that uses of cash the glenys <unk> I'm going to go siggi boots and being the tier Lou I keep thinking that's just what kinda talk well what's them flat right. You got your particular system. So too does it seem that some co two leaders, whose Mississippi I said shortly in the ATP that social services.
Oh, Okay. The first question I want to ask a a detail about a youre side. The 18, when a 40 sat.
That means a hall, how many Chinese actually.
And the end that at this asset or does that.
She's train rolling stock they have to sat up 80, p. So it should be 20 rolling stocks.
Okay. Thanks.
Oh gosh today, I mean, maybe add to Georgia Dock Island, now, let's say, which we are that <unk>.
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Sure our surely at some could potentially down the but you talked about high school, you'll hopefully that you could probably I mean, how many teaching wants to do tend to get the then they go you back out the only other things like <unk>.
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Ah that's your coffee shop, you Guy in Guy, what your digital and CVN 79 Mavens.
So as soon as Rodrigo combining a food that we really should make a.
This is how has this would be I will definitely that that happy that he will do how about.
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Sorry, Okay.
This question about Ah the Mr home sad to actually the CRC or open beating for the trains.
More than 100 trains so even populated by your side that you have 20 is not a one third of market share a and I want to make a clarifying that to a we see that though the one third market share no problem, but maybe the.
Whether or not at a 20 rolling stock or 40 rolling stock, we have to double check that because the data right now are we not to at the same but to but we based on the on the press released by the CRC. So no matter what kind of numbers.
We got one third or did the market share have no doubt.
Okay, then I live here.
<unk> they are the ones. If we don't seem to know what I'm doing a one of them no I don't know what's your thoughts on the yards how do they see the five kilowatt part of Shahuindo actually and then goes we tend to be some of them down.
Not to her you make cannot be for tinted Hindi that's coming up on the teacher or eat idea that can be don't wait the show who don't hold me to that that not look up your bookings intending done to tell do them.
Yards hygiene, Dochula Dupont couldn't be them food, I guess abortion or would it can be salvador, a nominal yet and when it comes out later.
The second question Albert religion on station new contract.
Then CFO Mr. WAM side to the performance revenue for the relationship Florida or for the Q1 on the Q2, the terms to positive, but I want to access from the new contract a factor.
Could you give us some predictions for the new contract of really gestation.
For the first half of fiscal year compare increase or decrease.
Hey, guys total revision another kind of solar energy, even when was that kinda attaching the cellular backhaul financing what sounded young age.
I don't think city and then what's your knowledge Shari.
Well I'm kinda logic or.
Hi, good yeah, Arnie on Im kind, intending on the T. to Ah.
We'd rather do soldier youre going on three attendees and not take a suitable I'm kind of <unk>. That's true usually because I don't choose isn't that big answers a 99 million as your.
Are you going to change the kinds of go tell them, how much you're going to hold me not even through geological tightened Adobe lets you don't see woman Jacob beat on that you saw that may not like any easy to what you got to hold on let him take a shot.
And revenue we keep the prediction is based on the infusion up the projects and backlog I. So this is good who the achieve but to based on the new contract. It's hard to say, it's really depends on CRC bidding process.
Okay wasn't what did you feel you go and keeps the gloom already do though.
Okay, well, how does that do you need them all D. V 20, twos unloading dealt with but I couldn't get bluegrass and then got frankly cancel the coty him are Douglas CBS I should say no not so much bigger companies you suddenly got years I'm not sure. If it's on the father take a press release, there's not me a ti dollars. He also you go Thompson vehicle Bill how are you not what do you didn't talk to you always got plenty phenomenon.
He type thing.
You know what kinda before what that couldn't compete well integrated or contracts what are sort of sales of course surveys or take the time type in the one that you think integrated contracts at the time, you should keep called <unk> not very integrated contracts, how the secret. So she was somewhat bunch and how the multi do cities on the other new but I've, India. So you take the time hint keep you for now.
We'll go do you go to its only or somebody on the <unk> number no yet seen glenys once you actually show.
[noise] and ER for that sort of rough Marty.
The last question football Smart I I saw that Ah first quarter gross margin increased 25% and that's all I know I noticed that.
That's structure like a three different types of pop back up in.
But you do get contract that product sale access Rhonda.
And you internally the integrity contract compare increased 2.6%. So could you talk more about excuse me a contact internal what kind of changing.
Oh, well she has hunting Mitchell, who are clear one losing suji geographies with you.
Tend to look which I believe so now when message out how many people I need she's going to go do not too young to jump off which is down later when didn't consider taking a small release and them on some kinda ought to come on and it is a day woman sent home that sounds to me.
I mean could you do sit on the somehow you didn't go don't nothing.
Don't should just wanted to hold on the took leashing absolutely I'm Oh no chance. This announcement when she went and yeah I guess the channel. So I don't see any elements have enough I couldn't what did you otherwise team that's what's a good sterling needs to get back is not like that.
That's no money the jobless going into this is going to the may have on food wants to go well don't cut you off what's to come to they go sound switching to function, which they got congestion on the things on just so I'm glad you sort of literature.
So when they went the other one thing and its it you didn't liberal plenty to show the Cigna combed through they're going to shut down for you then the two so ah so that its own pick a seemingly then Mike I see your Saddam guys I just wasn't as well.
Come on with will do something somewhat so well that's what comes out I think see that there's some kind of exotic.
Are you doing homework on edging or something Louisiana languages that slow it's interesting or Google you always yeah. Good luck to go up all you do I just think of anything that you didn't do that.
That's what we're finding a way to do you also know day kind he was either one of my own personal injury champion Hot spot I tell my long she was younger portal. So today you got your top Michigan names you see to one m. accounts analytical data that we're just trying to find yet I'm kind of have you. All you wondered how you did you how many large when we go.
Super luxury or I know, you noni juice, and we've agreed even though to me, which we will see a hydrocarbons.
Yup Yup Yup Yup Yup Goldman He told me, though mysteries or something.
That that Mr shore side from the operation business.
The company always focus on can show that gross margin and that you need to improve the contract can show at first time and delivering quality.
To manage a range and that you could see our range prediction for the most markets always.
Always within that.
The range, what do we sat like a whole business through but in line for 40% and ER and the fluctuation a specific or like a 1%.
For example, it's hard to say a internally we are hard to contribute or so, but but what we can can focus east a whole management efficiency improvement. So this part is what do we want to emphasize and then we will continue to can show they.
And everything to improved gross margin and into two long hop to the net income and the.
Seattle or mentioned it out to the gross margin, we will walk we held a range and Ah you see that really transportation yourself, it's hard to have a hard to use one off or two to show about a hole.
For me is represent a whole gross margin actually we recognized the to see the re wish imitation shoot <unk> based on a whole year, because that quarterly fluctuations within very sharply.
Thank you.
Okay. Thank you she took always money.
[noise], Okay. Thank you everyone for joining us on the call today. If you haven't got accounts are raising taxes will be pleased to asses them. After the call. We're looking for we're speaking with you again in near future. Thank you.
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Ladies and gentlemen that this concludes our conference for today. Thank you for participating you may now disconnect.