Buyer Consortium Comments on Recent Financial and Operational Information Released by Hollysys Automation Technologies

Hollysys Automation Technologies Ltd. (NASDAQ: HOLI) (the “Company”) disclosed certain financial condition and results of operations for the six-month period ended December 31, 2020, together with its review and analysis of the comparable six-month period in 2019. The Company attempted to “highlight” selected financial metrics and sought to convince the public that the Company is on the right track under the current management. But a close look at these data actually reveals significantly deteriorating financial and operational conditions of the Company since the removal of previous management in July 2020.

Dramatic Increase in Accounts Receivable and Substantial Deterioration in Net Cash Highlight Financial Struggle of Core Business Activities

Revenue for the six-month period ended December 31, 2020 was $324.8 million while accounts receivable increased by $84.2 million during such period; revenue for the correlating period in 2019 was $293.3 million while accounts receivable decreased by $43.1 million during such period. Increase in accounts receivable represented approximately 26% of revenue for the six-month period ended December 31, 2020 while approximately –14.7% for the correlating period in 2019. Although the Company’s total assets grew by $208.1 million between July and December 2020, the increase in accounts receivable contributed to more than 40% of increase in assets. It is apparent that the Company’s modest growth in revenue and assets were largely due to a dramatic increase in accounts receivable, which is neither desirable nor sustainable.

Moreover, net cash provided by operating activities for the six months ended December 31, 2020 was $55.0 million, compared to $109.4 million for the correlating period in the prior year. Such a rapid and substantial deterioration in cash-generating abilities highlights the financial struggle of the Company's core business activities.

Poor Cost Control, Inadequate Investment in Core Technologies and Reduced Net Income

With selling, G&A and R&D expenses increasing across the board, total operating expenses increased by $11.1 million, or 21.4%, significantly outpacing the 10.7% increase in revenue for the same period. Such disproportional increase in expenses manifests the Company’s inability to control costs which is vital to the Company’s success. Further, although R&D expenses increased by 18.2%, the Company failed to invest in core technologies. The R&D section of the Company’s latest disclosure included no new technology or R&D initiatives since the removal of previous management. As a result of the Company’s poor cost control and inability to innovate, its net income dropped by 19%.