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 (GLOBE NEWSWIRE) -- HLS Systems International, Ltd. (Nasdaq:HOLI) ("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 http://investor.shareholder.com/media/eventdetail.cfm?eventid=68212&CompanyID=HLS&e=1&mediaKey=8DD3979970F58831B44C9F0414C1FF38.
The internet audio stream will be available for 30 days after the call. A recorded replay of the call will also be available until 12:00 a.m. Eastern Time on May 29, 2009. Listeners may dial 800-642-1687 (Domestic) or 706-645-9291 (International) and use the code 96834383 for the phone replay.
About HLS Systems International
HLS Systems International is a leading automation and control systems and products provider in China. Founded in 1993, HLS has approximately 2,100 employees with 9 sales centers and 13 service centers in 21 cities in China and serves over 1700 customers in the industrial, railway & nuclear industries. Its product lines include Distributed Control Systems (DCS) and Programmable Logic Controllers (PLC), high-speed railway Train Control Centers (TCC) and Automatic Train Protection (ATP), and safety controls for nuclear power plants. HLS is the only certified domestic automation control systems provider to the nuclear industry in China. HLS is also one of only five automation control systems and products providers approved by China's Ministry of Railways in the 200km to 250km high-speed rail segment, and is one of only two automation control systems and products providers approved in the 300km to 350km high-speed rail segment.
The HLS Systems International, Ltd. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5983
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 impact of China's Equipment Manufacturing Industry Revitalization Action Plan on the Company's ability to win additional projects; 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 HLS' 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.
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 =========== =========== =========== ===========