Ladies and gentlemen, thank you for standing by, and welcome to the Hollysys Automation Technologies Earnings Conference Call for Fiscal Year 2019 and the Fourth Quarter Ended June 30, 2019. [Operator Instructions] Please be advised that this conference is being recorded today, August 15, 2019, Beijing time.I would now like to have the conference over to Mr. Arden Xia, the Investor Relations Director of Hollysys Automation Technologies. Thank you. Please go ahead, Mr. Xia.

Hello, everyone, and thank you for joining us. Today, our speakers will be Mr. Baiqing Shao, CEO of Hollysys Automation Technologies; Mr. Steven Wang, CFO of Hollysys Automation Technologies; and myself, of IR Director of Hollysys. On today's call, Mr. Shao will provide a general overview of our business including some highlights for the fiscal year 2019 and the fourth quarter. Mr. Steven Wang will discuss our performance from a financial perspective, and we will answer questions afterwards.Before getting started, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Forward-looking statements are the statements that are not historical facts, including statements relating to the expected growth of Hollysys' future product introductions, the mix of products in future periods and future operating results. 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.The following factors, among others, could cause actual results to differ from those set forth in the statements: business conditions in China and in Southeast Asia; continued compliance with government regulations; legislation or regulatory environments; requirements or changes adversely affecting the business in which Hollysys is engaged; cessation or changes in government incentive programs; potential trade barriers affecting international expansion; fluctuations in customer demand; management of rapid growth and transitions to new markets; intensity of competition from or introduction of new and superior products by other providers of automation and control systems technology; timing, approval and market acceptance of new product introductions; general economic conditions, geopolitical events and regulatory changes as well as other relevant risks detailed in Hollysys' filings with the Securities and Exchange Commission.The information set forth herein should be read in light of such risks. Hollysys does not assume any obligation to update information discussed in this conference call or in its filings. Please note that all amounts noted in this conference call will be in U.S. dollars, unless otherwise noted.And now I would like to turn the call to Mr. Baiqing Shao. Please go ahead sir, Mr. Shao.

Thank you, Arden. Greetings, everyone. I would like to discuss some events during this quarter.IA business finished the fiscal year with revenue and contract at $233.8 million and $291.3 million, achieving 4.0% and 2.5% year-over-year growth, respectively. For the quarter, revenue and the new contract were $66.6 million and $83.9 million, representing 4.0% and 0.9% year-over-year growth, respectively. We continued our efforts in market penetration and addressing the demand from current customer base.Within high-end coal fire market, we signed contracts to provide DEH to Guohua Jinjie 2 units 660-megawatt and Huaneng Shengli 2 units 660-megawatt power stations. Despite slowdown in coal fire, we continued to explore opportunities in new energy and managed to maintain our leading position, especially in garbage power.In the chemical and petrochemical industry, we have optimized our team to facilitate market penetration and the comprehensive solution offering in different sub-verticals.Meanwhile, our milestone Zhong'an coal-chemical project is approaching its completion. We provided a total over 70,000 DCS control points and the execution of the project last for more than two years.Our capability has been highly praised by our client, and we believe this project will help build up our reputation as a competitive solution provider for a large-sized projects and high-end clients in the industry.The momentum of after-sales service continues, driven by the demand from the rebuilding and upgrade. We are also improving international coordination - internal coordination when connecting with our customer's base.Through visiting our customers - clients in a team of members from different product divisions, we hope to create better engagement and explore the opportunities of cross-selling.Furthermore, we are actively promoting our smart plant initiatives through direct communication with a key potential clients. as well as open marketing activities involving clients, governments and other industry players.Rail business finished the fiscal year with revenue and contract at $208.9 million and $340.3 million, recording 9.6% and 37.7% year-over-year growth, respectively. For the last quarter, revenue and contract were 68.3 - $48.3 million and $60.8 million, representing 19.6% and 4.6% year-over-year growth, respectively. We signed several contracts to providing ATP advanced maintenance to local railway bureaus.Going forward and given a visible long-term railway construction plan, we will continue to adhere to the diversity strategy for stable and healthy growth and to improve our local service network for more value-adding and differentiated services.Our urbanization - with urbanization as an ongoing process, we will keep leveraging our strong R&D capacity and prepare for the application of various types of railway transportation systems in the future.In our overseas business, M&E finished the fiscal year with revenue and contract at $127.6 million and $93.4 million, recording 1.8% year-over-year growth and 9.1% year-over-year decrease, respectively.For the quarter, revenue and contract were $42.1 million and $25.2 million, representing 1.7% and 37.0% year-over-year decrease. Given the macro economy in Southeast Asia and the Middle East, risk control remains to be the key focus of our M&E business. Going forward, we will continue our efforts in developing partnership with the key EPC players and strengthening localization in manufacturing -- manufacture, marketing and services.With that, I would like to turn the call over to Steven Wang, who will read the financial results analysis.

Thank you, Mr. Shao, I would like to share some financial highlights for fiscal year and the quarter ended June 30, 2019. Comparing to the prior fiscal year, the total revenues for fiscal year 2019 increased from $540.8 million to $570.3 million, representing an increase of 5.4 -- 5.5%, integrated contract revenue increased by 0.2% to $467.4 million, products sales revenue decreased by 17.7% to $33.1 million and services revenues increased by 105% to $69.9 million.The company's total revenues by segment are as follows: for fiscal year 2019, industrial automation revenue, $233.8 million; rail transportation automation revenue, $208.9 million; mechanical and solutions revenue, $127.6 million. Total revenue $570.3 million.Overall non-GAAP gross margin was 37.1% for the fiscal year 2019 as compared to 38.2% for the prior year. The non-GAAP gross margin for integrated contracts, product sales and services rendered were 30.4%, 77.1%, 62.7% for fiscal year 2019 as compared to 32.8%, 73.2% and 71% for the prior year, respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margins.Selling expenses were $28.9 million for fiscal year 2019, representing an increase of $1.8 million or 6.5% compared to $27.2 million for the prior year. Presented as a percentage of total revenues, selling expenses were 5.1% and 5% for fiscal year 2019 and 2018, respectively.Non-GAAP G&A expenses were $40.5 million for the fiscal year 2019, representing a decrease of $4.7 million or 10.3% compared to $45.1 million for the prior year, which is primarily due to decrease of bad debt allowances. Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.1% and 8.3% for fiscal year 2019 and 2018, respectively.R&D expenses were $37 million for fiscal year 2019, representing an increase of $0.4 million or 1.1% compared to $36.6 million for the prior year. Presented as a percentage of total revenues, R&D expenses were 6.5% and 6.8% for fiscal year 2019 and 2018, respectively.Goodwill impairment charge was $11.6 million for the fiscal year of 2019. The VAT refunds and government subsidies were $30.7 million for fiscal year 2019 as compared to $24.5 million for the prior year, representing a $6.3 million or 25.7% increase, which was primarily due to an increase of VAT refunds.Income tax expenses and the effective tax rate were $18.2 million and 12.7% for fiscal year 2019 as compared to $22.2 million and 17.1% the prior year. The effective tax rate fluctuation was mainly due to the different pretax income mix with different tax rates, as the company's subsidiaries are subject to different tax rates in various jurisdictions.The non-GAAP net income attributable to Hollysys was $126.2 million or $2.07 per diluted share for fiscal year 2019. This represents a 15.9% increase over that $108.9 million or $1.78 per share based in the comparable prior year period. On a GAAP basis, net income attributable to Hollysys was $125.3 million or $2.05 per diluted share representing an increase of 16.9% over the $107.2 million or $1.75 per diluted share for the comparable prior year period.Contracts and backlog highlights. The backlog as of June 30, 2019, was $594.2 million. The detailed breakdown of the new contracts and backlog is as follows: new contract for fiscal year 2019, industrial automation, $291.3 million; rail transportation, $340.3 million; mechanical and electrical solutions, $93.3 million. Backlog as of June 30, 2019, industrial automation backlog, $191 million; rail transportation, $326.5 million; mechanical and electrical solutions, $76.6 million.Financial highlights for the fourth quarter ended June 30, 2019. Comparing to the fourth quarter of prior fiscal year, the total revenues for the 3 months ended June 30, 2019, increased from $147.2 million to $157 million, representing an increase of 6.6%. Broken down by the revenue types, integrated contracts revenue increased by 0.9% to $132.8 million; product sales revenue decreased by 46.6% to $6 million; and services revenue increased by 308.6% to $18.3 million.The company's total revenues can also be presented in segments as follows: For the fourth quarter of fiscal year of 2019, industrial automation revenue achieved $66.6 million; rail transportation automation revenue, $48.3 million; mechanical and electrical solution revenue, $42.1 million; total revenue, $157 million.Overall non-GAAP gross margin was 34% for the 3 months ended June 30, 2019, as compared to 39.6% for the same period of the prior year. The non-GAAP gross margin for integrated contracts, product sales and services were 29.9%, 63 -- 66.3% and 52.9% for the 3 months ended June 30, 2019, as compared to 35.7%, 72.4% and 73.2% for the same period of the prior year, respectively. The gross margin fluctuation was mainly due to different revenue mix with different margins.Selling expenses were $6.9 million for the 3 months ended June 30, 2019, representing an increase of $0.4 million as compared to $6.5 million for the same period -- same quarter of the prior year. Presented as a percentage of total revenues, selling expenses were 4.4% and 4.4% for the 3 months ended June 30, 2019 and 2018, respectively.Non-GAAP G&A expenses were $11.5 million for the quarter ended June 30, 2019, representing a decrease of $2.8 million or 19.8% compared to $14.4 million for the same quarter of the prior year, which was primarily due to decrease of bad debt allowances.Presented as a percentage of total revenues, non-GAAP G&A expenses were 7.3% and 9.8% for quarters ended June 30, 2019 and 2018, respectively.R&D expenses were $9.2 million for the 3 months ended June 30, 2019, representing an increase of $0.6 million or 6.6% compared to $8.6 million for the same quarter of the prior year. Presented as a percentage of total revenues, R&D expenses were 5.9% and 5.9% for the quarter of 2019 and 2018, respectively.The VAT refunds and government subsidies were $7.8 million for 3 months ended June 30, 2019, as compared to $4.1 million for the same period in prior year, representing a $3.8 million or 93.1% increase, which was primarily due to the increase of VAT refunds.The income tax expenses and effective tax rate were $1.5 million and 5.5% for the 3 months ended June 30, 2019, as compared to $4.6 million and 14.2% for the comparable prior year period. The effective tax rate fluctuation was mainly due to the different pretax income mix with different tax rates, as the company's subsidiaries are subject to different tax rates in various jurisdictions.The non-GAAP net income attributable to Hollysys was $25.7 million or $0.42 per diluted share for the 3 months ended June 30, 2019, representing a 10.1% decrease over the $28.6 million or $0.46 per share for the comparable prior year period.Contracts and backlog highlights. Hollysys achieved $169.8 million of new contracts for the 3 months ended June 30, 2019. New contracts for the quarter of 2019, industrial automation, $83.9 million; rail transportation, $60.8 million; mechanical and electrical solutions, $25.2 million.Cash flow highlights. For the 3 months ended June 30, 2019, the total net cash inflow was $81.9 million. The operating cash flow was $13.8 million. The net cash provided by investing activities was $73.1 million, mainly consisted of $70.3 million maturity of the time deposits, $8.9 million dividends received from equity investee, and $4.5 million advance from one shareholder of one equity investee, which was partially offset by $5.2 million purchases of property, plant and equipment and prepaid land leases, and the $5.6 million time deposits placed with banks.The financing cash flow was $1.2 million, mainly consisted of $1.5 million cash injected by non-controlling shareholders and $1 million proceeds from short-term loan banks -- short-term bank loans which was partially offset by $1.4 million repayments of short-term bank loans.Balance sheet highlights. The total amount of cash and cash equivalents were $332.5 million, $253.4 million and $265.7 million as of June 30, 2019, March 31, 2019 and June 30, 2018, respectively.For the 3 months ended June 30, 2019, DSO was 160 days as compared to 166 days for the comparable prior year period and 193 days for the last quarter and the inventory turnover was 42 days as compared to 59 days for the comparable prior year period and 50 days for the last quarter.

At this time, we'd like to open up for the Q&A session. Please note that for the Chinese-speaking participants, we can do the Q&A in Mandarin and we'll provide translation. [Foreign Language] Operator, please.

Thank you. [Operator Instructions] The first question we have is from the line of Alex Chang. Your line is open.

[Foreign Language] The first question is about the fourth quarter, the gross margin compared -- decrease and but we could see the IA or rail business, the revenues side are increasing. But relative to integrated contract, the compared decrease either.So how we can understand about the gross margin and definitely within contract gross margin. The second question is about goodwill impairment and which company impacted the goodwill impairment. Thank you.

[Foreign Language] The first question about the gross margin. The integrated contract compared decrease, this is also including the influence by the international company spinoff. And -- but the main gross margin for the whole company just come from the railway transportation. A particular project, the gross margin is actually lower. So this leads to the costly fluctuation. But for the whole fiscal year, you see the gross margin still within a stable range.

[Foreign Language] The second question about goodwill impairment, all come from the Concord company.

[Foreign Language] The second question is about the goodwill impairment. Right now, we do see still have US$37 million on hand, and could you help us to distinguish what kind of company inside of the goodwill.

[Foreign Language] The US$37 million goodwill or - I mean that may come from the Bond company.

[Foreign Language]?

[Foreign Language] And in the past years, the goodwill impairment all came from the Concord. And right now, each year, we do the testing for the goodwill impairment. But right now, the Bond is still, they are stable. And no such issue, but we will continue to do the taxing each year. Thank you, operator. The next one please,

The next question we have is from the line of Jacqueline Du from Goldman Sachs. Your line is open.

[Foreign Language] The first question is about the service revenue compare increase very fast. But -- and also, about -- could you give us our a separate proportion for each business, IA, rail and M&E sector. And what about the service proportion for each segment.And the second question about the industrial automation, the coal fire is slowing down but we do see the new energy CapEx, power is increasing. But I still want to know about the IA total revenue breaking down for each industry proportion.And the third one is about the railway transportation, from the calendar year, to see the rolling stock, still no any problems right now. And what about how weak is that for the whole calendar year about the -- procurement of the rolling stock related to ATP contracts?

[Foreign Language] Okay. The first question about the service. We do not disclose the breakout number for each segment. But the whole after sale revenue, including service right now, around the 20% of total revenue. This is compared increasing over time. And one thing I want to make a -- clarify is about this fiscal year, we started to use the ASC 606 and this is well influenced the service contract recognized revenue method, and we changed to use the POC this time. So this also compares a little affecting the service revenue recognition.And that is to say it should be higher than the current number. But because of the ASC 606 we can ask for based on the whole period of the contract. And the second one is called the IA proportion, and currently the petrochemical and chemical takes around 40% to 45% of total IA revenue and the power take 40% to 45% and the others about 10% to 15%, and the 5% from the nuclear power.[Foreign Language] And for the railway transportation new contract, for this calendar year, we get from -- mainly from the online -- equipment and from the track side and also the service contracts. But the ATP-related rolling stock, we have no any information right now. And most probably by the CRC, they will do the procurement at end of the calendar year, so we can see the future. Operator?

The next question we have is from the line of Alex Chang from Citi. Your line is open.

[Foreign Language] The question is about the subway information. We did not hear more about the subway sector update. So is there any changing for the strategic planning or what else?

[Foreign Language] The subway business deal is steady as before. So we have no any strategic changing for this part. Alex, do you have more questions? Okay. Thank you.

[Operator Instructions] Sorry, please go ahead.

Okay. Thank you, everyone, for joining us on the call today. If you haven't got the chance to raise your questions, we will be pleased to answer them from the follow-up comments. We're looking forward - okay, hold on a second, maybe we still have a question, right, operator?

The next question we have is from the line of Kevin Luo from Morgan Stanley. Your line is open.

[Foreign Language] The first question is about the fiscal year 2020 from the management perspective to say what about the new product -- what kind of new product we could provide the market and what about the influence about a new product to contribute to the revenue?And the second question about the railway transportation. Could you please distinguish about the backlog and what kind of proportion for the ATP and the maintenance and TCC?

[Foreign Language] For the new product, we concentrate say the -- for strengthening our intellectual smarts and also our [indiscernible] investment, and this including the management diagnosis and also including the prediction for equipment including the hardware and software. And the simple like the -- industrial automation sector, we are implementing the project for the [indiscernible], the power plant. This is intellectual smart plant. And when it's finished, it could set a good representation for the customers.And also the railway transportation sector, the subway, we also used the intellectual information management. This is all come from what we dedicated the software, hardware platform. And these products, no matter the IA or rail, currently not take very large proportion of the revenue, but it will bring a very strong impact in the future.[Foreign Language] And beyond that, we also built - already constructed a team for the industrial information security, and we will provide new products in future. And also in the future, this part also gather revenue from the service and products.[Foreign Language] The railway transportation backlog, we have no breakdown number to provide, but I can give you some sense about the ATP contract, relatively compare a large percentage than the TCC on the rail track. And also the subway and the maintenance contracts still are normal. Thank you. Due to the time constraint we will now take one last question from the queue. Operator, please.

Your last question comes from the line of Joseph Qi [ph] from JPMorgan. Please ask your question.

[Foreign Language] The first question is about -- for the fiscal year 2020, do you have any guidance for the top line and bottom line. The second question about the IA, what are the expectations for the future proportion changing?

[Foreign Language] The first question about the guidance. Currently, we still have no guidance. But for the coming 2020 fiscal year, we have confidence to keep the growth. And if in future, we think that the situation getting material, we will give the update for the guidance.And the second question about the proportion. The proportion in recent years have no -- very stable, have no fluctuation, changing. But we will focus from another attack to say, we'll focus the energy saving, environmental protection and also the intellectual smart industrial automation work. So this part, we believe in future will bring strong momentum.

Thank you, Joseph. Thank you, everyone, for joining us on the call today. If you haven't got the chance to raise your questions, we'll be pleased to answer them through follow-up contacts. We're looking forward to speaking with you again in the near future. Thank you.

[Foreign Language]

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.