Q2 2020 Earnings Call
I think by and welcome to the Hollysys automation.
Earnings Conference call for the second quarter.
Scott.
At December 31.
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Please be advised if these conferences.
February 20.
Featured side I would like.
Overseer Mr. I didn't show.
Relations director of Hollysys automation technologies. Thank you. Please go ahead your assertion.
Hello, everyone. Thank you.
To date.
If I can show seal a college automation technologies, Mr., Steven Seattle Hollister and.
And myself our director.
This call.
[noise], including some highlights <unk> second quarter fiscal year 2020.
So Steve why would it be scout <unk> financial perspective, and we will ask the questions.
People getting started I would like to remind everyone that this conference call may contain forward looking statements. We didn't have many private security litigation Reform Act 1995 fold. It gets statements statements that are not historical facts, including statements relating to the expected.
About the future product introduction.
Makes a products in future periods and future operating results.
Forward looking statements based upon the current beliefs and expectations. How does this announcement are subject to risks and accident ice which could cause actual results differ from the following it gets statements.
All these factors among others could cause actual results could differ from those set forth in English.
And those conditions in China, India, South Asia continued compliance with government regulations legislation or regulatory bargains requirements or trend is at a personally affecting the business. We call. It. This is engaged they shouldn't what changes in government incentive programs. The casual treated boundary is it going internationally.
Fashion flocked to using customer demand management record after additions to new markets intensity of competition from or introduction of new superior products by other providers, all but automation control system technology tiny approval at a market acceptance of new product introduction.
Yes.
General economic conditions, geopolitical events and regulatory changes as well as other relevant risks detailed in Hollysys fighting with security Exchange Commission.
The information that for security should be regime that up such risks.
How does this does not assume any obligation to update the information discussed in this conference call or is it flies. Please note that en masse noted in this conference call will be U.S. dollars, unless otherwise noted I'd now like to target to the called me sort of bites Michelle. Please go ahead.
Mr Shelf.
So you out there and does it seem to agree to what I would like this.
Some key events Gilead this quarter.
You're not silicon motion business finished the second the quota.
Revenue and the contracts. So it's a six to 9.3 million and that's a good to 90.5 million.
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[noise] second quarter ended September 30 for 2019.
Turning to the second.
Viruses.
Total revenues for the second quarter of a 20 Twond raised 449.5 million.
I wanted to 70.10.
Is there anyone increase [noise].
8%.
Broken down by to remedy of China.
Integrated contract revenues increased by 11.1% to 129.7.
Product sales revenue increased by 10.5% to 6.5 million.
Service revenue increased by 26.2% to 33.9 [noise].
The company total dominant can be presenting segment that's follow.
For the three months ended December 31st 2019, industrial automation revenue achieved 69 point Threemillion real trends Coltish automation revenue 78.8 million mechanical electrical and revenue 22 million.
For those six months is kind of December 31st 2019.
That's through automation revenue achieved 133.9 million.
Rail transportation automation remedies under 23.4 million.
Mechanical electrical solution revenue 36 million.
Overall non-GAAP gross margin was 36.3 million presented for the second quarter.
As compared to 38.2% for the same period over the prior year.
Non-GAAP gross margin for integrated contract product sales and service rendered were 28%, 66.4% and 62.6% second quarter, that's compared to 30.8%, 72% and 62.9%.
Same period over the prior year, respectively.
The gross margin.
The gross margin fluctuation wasn't now they do two different revenue mix with different margins.
Selling expenses were 10.6 million for the three months at the end of December 31st 2019.
Representing an increase of 2.5 million 32.2%.
Compared to 7.9 million for the same quarter of the prior year.
Hey, due to the increase sales activities presented as percentage of total revenues selling expenses were 6.1% and [noise].
For the same onto than December 31st [noise].
Thousand 19 in 2000 leaching respectively.
Non-GAAP G.N. expenses.
Were 10.6 million for the quarter ended December 31st 2019, presenting it frees up 1 million were 8.9% compared to 11.6 million for the same quarter over the prior year.
<unk> expenses were 6.2% and 70.8 presents the quarters ended December 31st 2019, and 2018 respective way.
R&D expenses were 13.8 million for the three monitors and December 31st 2019.
Sending an increase of 3.4 million.
32.7% compared to 10.4 million for the same quarter over the prior year, mainly due to the increased research and the allowance.
[noise] presented as a percentage of total revenues R&D expenses were 8.1% and 7% for the quarter ended December 31st 2019 2018, respectively.
[noise] the BG refunds in government subsidies were 6.3 million for the second quarter as compared to 14.8.
During the prior year, representing 8.5 million or 57.6%.
That's it from Ryan was due to the decrease of Beachy refunds.
The income tax expenses and he said test were 6.8 million in it.
2.7% for the three months as the ended December 31st 2019.
That's compared to 6.8 million.
<unk>, 0.5% for the comparable prior year period.
In fact, Texas <unk> fluctuation with knowledge uses different pre tax income mix, that's different tax rate. If the company subsidiaries are subject to different tax rate in various jurisdictions.
The non-GAAP net income attributable to Hollysys.
Was 34.2 million.
0.5, $6 toward that goal this year for the three months has ended December 31st 2019.
Represents a 22.9% decrease from 44.3 million.
0.7, $3 per share reporting the comparable prior year period.
I'll try them backlog highlights Hollysys achieved 185.7 million of new contract for the second quarter backlog as of December 30 for 2019 was 587 million the detailed breakdown Newtown trying to back a while back center are as follows new contracts.
That's right automation achieved six 9.5 million rail transportation, one over 4.2 million mechanical electrical solutions 12 million.
Clog has.
Oh December 31st 2019 industrial automation.
1009, 2.4 million real transportation real was 7.3 million mechanical electrical solutions 87.3 million.
Cash flow highlights.
For the three months is ended December 34, 2019, the tone that cash inflow was 52.8 million operating cash flow was 70.5 million.
That's in cash flow was.
10.1 million and mainly consist of 2.4 million purchase a property plant.
27.2 million over time deposit.
With banks, which were partially offset by 19.4 million mature to time deposit.
The net cash used in financing activity.
13.7 million Americans to stop 12 point sevenmillion payment of dividends.
Alan She's highlights.
The total modeling what cash cash equivalents were world 3.9 million 340 million and 270.8 million as of December 31st 2019.
Remember 32019 at December 32008, respectively.
The second quarter fiscal year 2020, Dsos was 137 days as compared to one or 57 days for the comparable prior year pure.
Four days for the last quarter inventory turnover was 39 days as compared to 39 days for the comparable theory.
Brian your appear at the 56 days for the last quarter.
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We live.
A question answer session.
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From Morgan Stanley. Please ask your question.
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Okay. The first question.
He is about the end to the virus or the virus epidemic situation.
Could you give us or something about the second part.
Especially the acute right. Obviously are funded 20 performance and and that that guidance for the whole thing.
Yes.
Affected by the.
Virus situation and and what to a plan for it.
Alleviate.
Facts by the virus epidemic situation. The second question is bound to add to this quarter to second quarter, we could see their revenue can hair increase.
It's a very good but and also the structure of the revenue is changing.
The high gross margin that take a larger percentage like that I know you sector to pair decrease.
So it should be.
Net income increased and also the the cross marketing and that marching shooting crazy, but so why.
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Fiscal year.
The margin.
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The virus epidemic situation actually in fact.
Business.
Our company and also the whole China economy, and the as as a what I mentioned at.
At the first time.
He oh.
The first time and that the company has taken necessary actions minimized the rates are proud of the Cds and adverse effects on company business operation.
And then and also right now are equally he has no any affection and just a part of the employee because a transfer from the outside of phasing. So right now and are that the isolated to a full fulfill these days that Terry and.
Right now our employees are going work on site more that 40%.
And then the next week it took on a gun to increase more and we got to admission by the government to each site like see I hung Jo.
And also the other sites are spread across the country.
Excluding koubei huh.
And also are we doing that are holding a home working condition and Ed to do that meetings attitude or to do the plan for a focus on the on the special production or special project to support and.
This is a this is on the like the R&D.
And the production engineering stuff happening possible at work being caught it when the rules action.
And then the virus or academic situation will depend on manufacturers beyond our control and we are closely monitoring its impact and trying to minimize the impact.
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Got to above 13% to 15% and a right now we are steel trying to increase or the market share.
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He is changing batter, but to widen that in comps do compare a decrease.
The answer is about a first.
Net income.
This call her how to influence why is made her family.
This call her just six smelly and it compare last to fiscal year 14.8 million. This is just one time not to because decrease is because the postpone delayed that the money not right about county, yet, but hold to fiscal year two to compare edit gone to a stable like that.
Thanks.
And the other and that second that element to inflect ease the other income.
Got to fiscal year, we have 4.7 million other income for for the.
For that.
Florida pole or.
For that put a dealing waste or the can show a stock company at the end of this this quarter, we have no such how they Uh huh, So eve and excluding these two was.
Actually the not income should compare increased 10%. This is like the like that trend that with the revenue increase.
And the at about the golf marketing also had some fluctuation, but it's a steel and are at a range of our expectation.
We could see that new contract, we signed the cost marty's feel very stable.
And.
And also this because the competition with the I like the market share like the chemical petrochemical. So we are proactively acts of late in two to to do that gross margin competition, but the steel like or whatever that enters the country.
Total range.
And the about other than that marching because expenses is growing like the sell sell ER and the sales marketing and also R&D.
The expense is growing.
Cells growing what elements at ease at end of that kind of the year. We have one time, the Fas and that most important that he's like what I saw that we are landscape afford that competition about hey, or market share. So what we are.
Our that's been to or or expense right now now to reflect it to that sort of revenue yet you future. This kind of it was going to enlarge the supported that the revenue and market share. So that is to say that sales and marketing growing it to our.
So ended the can show and and also good the at the percentage off the revenue growth.
On the R&D expense is growing definitely this is our strategy because we are providing a lot of smart manufacturing product technology. So this part is growing but steel either in the health range.
So for the future the gross margin gonna be stable as what do we sat at a range be fall.
But the than that marching because they expand a little bit growth. So at gonna be influenced however.
We want to emphasize everything right now we we are we are topline for their support as well written lots of for the future and that the virus epidemic situation before the virus epidemic situation, we plan to fit.
We are 20, twond pay shoot to compare in Crazy fellas revenue and adding call. However, right now because the virus and predictable. So it's a really influenced the performance for the coming a second heart of fiscal year right now it's hard to say about did that.
How much about the revenue and anyhow, but the way well try our basket to alleviate to minimize.
The the facts.
[noise] [noise] operator next one please.
Your next question comes from the line.
From JP Morgan.
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The first question about the to the after sale revenue can breaking down for the rail I hate. The answer is right now we've not provided that's working down number for that for the I am rail, but we can tell you about the whole after sale revenue percentage of total revenue right now is about 23%.
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The rail right now the mention as Dr. sale is using crazy. So this is for San Jose is growing.
The second question, Glenn you could plus other watching.
When it comes with it so your friend because I'm talking about the you about the deposit limits on Gotta, who support Dr. isn't done to get back into the census will you.
And then she across a higher implement higher sales, it's all bill.
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You will show to you hold on Monday gifts again bucking Tanya.
About the problem and that pulled our CRC and actual mass to a yard <unk> 2019 at end of the are we got to CRC for BT about 226 SAS ATP. For example, we got a full hey, SAS like a 30%.
Our total and also it shouldn't have to see two ATP approximate.
But right now because of the the virus epidemic situation it got postponed or two or two to the second half of the year and also at the 20 Twond taste. The last year offsetting five year plan a shoe the concentrated for beating a lot of common shocks, but.
Right now because the virus. So it had gone to postpone most probably it got postponed to the second part of the candidate year.
Thank you for everyone for joining us on the call today.
If you haven't garbage has to raise questions. We'll we'll be pleased to announce their debt through fall off contacts we follow looking to speaking with you again in near future step yes. Thank you.
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