HURCO COMPANIES INC

Previous wording

Hurco Companies, Inc. is an international, industrial technology company operating in a single segment. We design, manufacture, and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network. Although most of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components. Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products. We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories, and replacement parts for our products, as well as customer service and training and applications support.

Current wording

Hurco Companies, Inc. is an international, industrial technology company operating in a single segment. We design, manufacture, and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service, and distribution network. Although most of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components. Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products. We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories, and replacement parts for our products, as well as customer service, training, and applications support.

Previous wording

The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations. During the first three months of fiscal 2024, approximately 50% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines. Additionally, approximately 13% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures. We operate in a cyclical industry where sales and order trends often change periodically and can vary from region to region.

Current wording

The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations. During the first six months of fiscal 2024, approximately 51% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines. Additionally, approximately 12% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures. We operate in a cyclical industry where sales and order trends often change periodically and can vary from region to region.

Previous wording

Sales in the Americas for the first quarter of fiscal year 2024 decreased by 24%, compared to the corresponding period in fiscal year 2023, primarily due to a decreased volume of shipments of Hurco, Milltronics, and Takumi machines. The decrease in sales was mostly attributable to decreased shipments of VM and toolroom machines, as well as lathes.

Current wording

Sales in the Americas for the second quarter of fiscal year 2024 decreased by 8%, compared to the corresponding period in fiscal year 2023, primarily due to decreased shipments of Hurco machines. The decrease in sales of Hurco machines was primarily attributable to decreased shipments of VM machines, partially offset by increased sales of higher-performing VMX and 5-axis machines.

Previous wording

European sales for the first quarter of fiscal year 2024 decreased by 20%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of 3%, when translating foreign sales to U.S. dollars for financial reporting purposes. The decrease in European sales for the first quarter of fiscal year 2024 was primarily attributable to a decreased volume of shipments of higher performance Hurco VMX machines and lathes in Germany, Italy, and the United Kingdom, a decreased volume of shipments of Milltronics machines in the European region, as well as a lower volume of sales of accessories manufactured by our wholly owned subsidiary LCM.

Current wording

European sales for the second quarter of fiscal year 2024 decreased by 24%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of less than 1%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco and Takumi machines in Germany, the United Kingdom, and Italy, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM, partially offset by an increased volume of shipments of Hurco machines in France.

Previous wording

The following table sets forth sales and service fees by product group and services for the first fiscal quarter ended January 31, 2024 and 2023 (dollars in thousands):

Current wording

The following table sets forth sales and service fees by product group and services for the second fiscal quarter ended April 30, 2024 and 2023 (dollars in thousands):

Previous wording

Sales of computerized machine tools for the first quarter of fiscal year 2024 decreased by 21%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco, Milltronics and Takumi machines in the Americas, Germany, Italy and the United Kingdom, and included a favorable currency impact of 1% when translating foreign sales to U.S. dollars for financial reporting purposes. Sales of computer control systems and software for the first quarter of fiscal year 2024 increased by 11%, compared to the corresponding prior year period, due mainly to increased aftermarket software sales in the Americas and France, and included a favorable currency impact of 1% when translating foreign sales to U.S. dollars for financial reporting purposes. Sales of service parts for the first quarter of fiscal year 2024 decreased by 1%, compared to the corresponding prior year period, primarily due to decreases in service parts sales in the Americas and the United Kingdom, partially offset by an increase in service parts sales in Germany, and included a favorable currency impact of 1% when translating foreign sales to U.S. dollars for financial reporting purposes. Services fees for the first quarter of fiscal year 2024 increased by 1%, compared to the corresponding prior year period, primarily due to the favorable currency impact when translating foreign sales to U.S. dollars for financial reporting purposes.

Current wording

Sales of computerized machine tools for the second quarter of fiscal year 2024 decreased by 20%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco and Takumi machines in Germany, the United Kingdom, the Americas, China, and Italy, and included a favorable currency impact of less than 1% when translating foreign sales to U.S. dollars for financial reporting purposes. Sales of computer control systems and software for the second quarter of fiscal year 2024 decreased by 5%, compared to the corresponding prior year period, due mainly to decreased aftermarket control systems and software sales in the United Kingdom. Service fees for the second quarter of fiscal year 2024 increased by 6%, compared to the corresponding prior year period, primarily due to increased aftermarket services performed in the United Kingdom and France.

Previous wording

The following table sets forth new orders booked by geographic region for the first fiscal quarter quarter ended January 31, 2024 and 2023 (dollars in thousands):

Current wording

The following table sets forth new orders booked by geographic region for the second fiscal quarter ended April 30, 2024 and 2023 (dollars in thousands):

Previous wording

European orders for the first quarter of fiscal year 2024 decreased by 21%, compared to the corresponding prior year period, and included a favorable currency impact of 3%, when translating foreign orders to U.S. dollars. The decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in Germany, Italy, and the United Kingdom. The decreased Hurco demand was primarily attributable to reduced orders of VM machines, higher-performance VMX machines, and lathes.

Current wording

European orders for the second quarter of fiscal year 2024 decreased by 28%, compared to the corresponding prior year period, and included a favorable currency impact of less than 1%, when translating foreign orders to U.S. dollars. The decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in Germany, the United Kingdom, and Italy, as well as decreased demand for electro-mechanical components and accessories manufactured by LCM, partially offset by increased customer demand for Hurco machines in France.

Previous wording

Asian Pacific orders for the first quarter of fiscal year 2024 increased by 61%, compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, when translating foreign orders to U.S. dollars. The increase in Asian Pacific orders was driven primarily by an increase in customer demand for Hurco and Takumi machines in China, India, and Taiwan.

Current wording

Asian Pacific orders for the second quarter of fiscal year 2024 decreased by 35%, compared to the corresponding prior year period, and included an unfavorable currency impact of 2%, when translating foreign orders to U.S. dollars. The decrease in Asian Pacific orders was driven primarily by decreased customer demand for Hurco and Takumi machines in China, India, and Southeast Asia.

Previous wording

Operating Income/Loss*.* Operating loss for the first quarter of fiscal year 2024 was $1.8 million, compared to operating income of $1.2 million for the corresponding period in fiscal year 2023. The change was primarily due to lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Current wording

Operating Income/Loss*.* Operating loss for the second quarter of fiscal year 2024 was $3.4 million, compared to operating income of $1.0 million for the corresponding period in fiscal year 2023. The change was primarily due to a lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Previous wording

Income Taxes. The effective tax rate for the first quarter of fiscal year 2024 was 27%, compared to 31% in the corresponding prior year period. The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates and a discrete item related to stock compensation.

Current wording

Income Taxes. The effective tax rate for the second quarter of fiscal year 2024 was (1)%, compared to 44% for the corresponding prior year period. The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, a discrete item related to stock compensation and the impact of valuation allowances on an overall lower level of income before taxes.

Previous wording

*Sales and Service Fees.*Sales and service fees for the first quarter of fiscal year 2024 were $45.1 million, a decrease of $9.6 million, or 18%, compared to the corresponding prior year period, and included a favorable currency impact of $0.8 million, or 1%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Current wording

*Sales and Service Fees.*Sales and service fees for the first six months of fiscal year 2024 were $90.2 million, a decrease of $18.3 million, or 17%, compared to the corresponding prior year period, and included a favorable currency impact of $0.8 million, or less than 1%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Previous wording

Sales and service fees in the first quarter of fiscal 2024 decreased by 18% compared to the first quarter of fiscal 2023. This reduction in sales occurred primarily in the Americas and the Europe regions and was partially offset by an increase in sales in the Asia Pacific region. Sales and service fees in the first quarter sales in fiscal 2023 benefitted from a particularly strong fiscal 2022 year-end backlog. Orders in the first quarter of fiscal 2024 decreased by 6% from the same period in fiscal 2023, reflecting a decrease in orders in Europe, partially offset by increases in orders in the Americas and the Asia Pacific regions.

Current wording

Sales and Service Fees by Geographic Region

Previous wording

Asian Pacific sales for the first quarter of fiscal year 2024 increased by 39%, compared to the corresponding period in fiscal year 2023, and included an unfavorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The increase in Asian Pacific sales primarily resulted from a higher volume of shipments of Hurco and Takumi machines in China, India, and Taiwan.

Current wording

Asian Pacific sales for the first six months of fiscal year 2024 increased by 17%, compared to the corresponding prior year period, and included an unfavorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year increase in Asian Pacific sales was primarily attributable to increased sales of higher-performance VMX and 5-axis Hurco and Takumi machines in India, partially offset by reductions in shipments of Hurco and Takumi machines in China and Southeast Asia.

Previous wording

Gross Profit. Gross profit for the first quarter of fiscal year 2024 was $9.7 million, or 22% of sales, compared to $12.7 million, or 23% of sales, for the corresponding prior year period. The year-over-year decrease in gross profit as a percentage of sales was primarily due to the lower volume of sales of vertical milling machines in the Americas and Europe where we typically sell more of our higher-performance VMX series machines and lathes. Additionally, gross profit was negatively impacted by the allocation of fixed costs over lower sales and production volumes.

Current wording

Gross Profit. Gross profit for the first six months of fiscal year 2024 was $17.7 million, or 20% of sales, compared to $25.3 million, or 23% of sales, for the corresponding prior year period. The year-over-year decrease in gross profit as a percentage of sales was primarily due to the lower volume of sales of higher-performance vertical milling machines in the Americas and Europe. Additionally, the second quarter of fiscal 2024 included changes in average net selling prices for certain machines to penetrate key markets and reduce inventories. Both the change in sales volume and pricing unfavorably impacted gross profit in dollars and as a percentage of sales, reducing our leverage of fixed costs, in comparison to the same period in prior year.

Previous wording

Operating Expenses. Selling, general, and administrative expenses for the first quarter of fiscal year 2024 were $11.5 million, or 26% of sales, compared to $11.5 million, or 21% of sales, in the corresponding fiscal year 2023 period, and included an unfavorable currency impact of $0.2 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. Selling, general, and administrative expenses as a percentage of sales increased in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023 due to the lower volume of sales year-over-year.

Current wording

Operating Expenses. Selling, general, and administrative expenses for the first six months of fiscal year 2024 were $23.0 million, or 25% of sales, compared to $23.1 million, or 21% of sales, in the corresponding fiscal year 2023 period, and included an unfavorable currency impact of $0.2 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. Selling, general, and administrative expenses as a percentage of sales increased due to the lower volume of sales year-over-year.

Previous wording

Other (Expense) Income, Net. Other expense, net for the first quarter of fiscal year 2024 was $0.5 million compared to other income, net of $0.6 million for the corresponding period in fiscal year 2023, due mainly to an increase in foreign currency exchange loss in the first quarter of fiscal year 2024 compared to the same period in fiscal year 2023.

Current wording

Other (Expense) Income, Net. Other expense, net for the first six months of fiscal year 2024 was $1.0 million compared to other income, net of $0.3 million for the corresponding period in fiscal year 2023, due mainly to an increase in foreign currency exchange loss in the first six months of fiscal year 2024 compared to the same period in fiscal year 2023.

Previous wording

At January 31, 2024, we had cash and cash equivalents of $37.9 million, compared to $41.8 million at October 31, 2023. Approximately 22% of the $37.9 million of cash and cash equivalents was denominated in U.S. dollars. The balance was attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Current wording

At April 30, 2024, we had cash and cash equivalents of $37.5 million, compared to $41.8 million at October 31, 2023. Approximately 19% of the $37.5 million of cash and cash equivalents was denominated in U.S. dollars. The balance was attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Previous wording

Working capital was $196.3 million at January 31, 2024, compared to $193.3 million at October 31, 2023. The increase in working capital was primarily driven by increases in inventories, net and prepaid and other assets and decreases in accrued payroll and employee benefits and accounts payable, partially offset by decreases in cash and cash equivalents and accounts receivable, net.

Current wording

Working capital was $187.6 million at April 30, 2024, compared to $193.3 million at October 31, 2023. The decrease in working capital was primarily driven by decreases in accounts receivable, net and cash and cash equivalents, partially offset by increases in inventories, net and prepaid and other assets and decreases in accounts payable and accrued payroll and employee benefits.

Previous wording

Capital expenditures of $0.8 million during the first three months of fiscal year 2024 were primarily for capital improvements in existing facilities and software development costs. We funded these expenditures with cash on hand.

Current wording

Capital expenditures of $1.3 million during the first six months of fiscal year 2024 were primarily for capital improvements in existing facilities and software development costs. We funded these expenditures with cash on hand.

Previous wording

On January 6, 2023, we announced a share repurchase program in an aggregate amount of up to $25.0 million. Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time through November 10, 2024, subject to applicable laws, regulations, and contractual provisions. The program may be amended, suspended, or discontinued at any time and does not commit us to repurchase any shares of our common stock. During the first three months of fiscal year 2024, no shares were repurchased under that program, and $23.2 million was remaining available under the program as of January 31, 2024.

Current wording

On January 6, 2023, we announced a share repurchase program in an aggregate amount of up to $25.0 million. Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time through November 10, 2024, subject to applicable laws, regulations, and contractual provisions. The program may be amended, suspended, or discontinued at any time and does not commit us to repurchase any shares of our common stock. During the first six months of fiscal year 2024, no shares were repurchased under that program, and $23.2 million remained available under the program as of April 30, 2024.

Previous wording

During the three months ended January 31, 2024, we paid cash dividends to our shareholders of $1.0 million. Future dividends are subject to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed relevant by our Board of Directors from time to time.

Current wording

During the six months ended April 30, 2024, we paid cash dividends to our shareholders of $2.1 million. Future dividends are subject to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed relevant by our Board of Directors from time to time.

Previous wording

At January 31, 2024, we had an aggregate of approximately $51.0 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

Current wording

At April 30, 2024, we had an aggregate of approximately $50.7 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

Previous wording

We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities when needed in the U.S., Europe or Asia Pacific. We believe our access to cash pooling and our borrowing capacity under our credit facilities provide adequate liquidity to fund our global operations over the next twelve months and beyond, and allow us to remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets, payment of dividends and our stock repurchase program.

Current wording

We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities when needed in the U.S., Europe or Asia Pacific. We believe our access to cash pooling and our borrowing capacity under our credit facilities provide adequate liquidity to fund our global operations over the next twelve months and beyond, and allow us to remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets, and a balanced capital allocation program.

Previous wording

Our MD&A is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of financial statements in conformity with those accounting principles requires us to make judgments and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Those judgments and estimates have a significant effect on the financial statements because they result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from those estimates. Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. During the first three months of fiscal year 2024, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2023.

Current wording

Our MD&A is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of financial statements in conformity with those accounting principles requires us to make judgments and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Those judgments and estimates have a significant effect on the financial statements because they result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from those estimates. Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. During the first six months of fiscal year 2024, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

Previous wording

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in ASC 460). As of January 31, 2024, we had nine outstanding third party payment guarantees totaling approximately $1.0 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer assumes the risk of ownership. The customer does not obtain title, however, until the customer has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value, which amounts are insignificant.

Current wording

From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in ASC 460). As of April 30, 2024, we had nine outstanding third party payment guarantees totaling approximately $0.9 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer assumes the risk of ownership. The customer does not obtain title, however, until the customer has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value, which amounts are insignificant.