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, 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 and 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 nine months of fiscal 2024, approximately 52% 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 11% 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 three months of fiscal 2025, approximately 47% 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 14% 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 and Service Fees by Geographic Region

Current wording

Sales and service fees in the first quarter of fiscal 2025 increased by 3% compared to the first quarter of fiscal 2024. This increase in sales occurred primarily in the Americas and Asia Pacific regions and was partially offset by a decrease in sales in the European region. Orders in the first quarter of fiscal 2025 decreased by 20% from the same period in fiscal 2024, reflecting a decrease in orders in the Americas and European regions.

Previous wording

We principally sell our products through approximately 180 independent agents and distributors throughout the Americas, Europe, and Asia. Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally. We also have our own direct sales and service organizations in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world’s principal machine tool consuming markets. The vast majority of our machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiary in Taiwan, HML. Machine castings to support HML’s production are manufactured at our wholly-owned subsidiary in Ningbo, China, NHML. Components to support our SRT line of five-axis machining centers, such as the direct drive spindle, swivel head, and rotary table, are manufactured by our wholly-owned subsidiary in Italy, LCM.

Current wording

We principally sell our products through approximately 180 independent agents and distributors throughout the Americas, Europe, and Asia. Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally. We also have our own direct sales and service organizations in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world’s principal machine tool consuming markets. The vast majority of our machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiary in Taiwan, HML. Components to support our SRT line of five-axis machining centers, such as the direct drive spindle, swivel head, and rotary table, are manufactured by our wholly-owned subsidiary in Italy, LCM.

Previous wording

*Sales and Service Fees.*Sales and service fees for the third quarter of fiscal year 2024 were $42.7 million, a decrease of $10.6 million, or 20%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than $0.1 million, or less than 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 quarter of fiscal year 2025 were $46.4 million, an increase of $1.4 million, or 3%, compared to the corresponding prior year period, and included an unfavorable currency impact of $0.4 million, or 1%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Previous wording

European sales for the third quarter of fiscal year 2024 decreased by 23%, 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, Italy, and the United Kingdom, as well as decreased shipments of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM.

Current wording

European sales for the first quarter of fiscal year 2025 decreased by 5%, compared to the corresponding period in fiscal year 2024, and included an unfavorable currency impact of 1%, when translating foreign sales to U.S. dollars for financial reporting purposes. The decrease in European sales for the first quarter of fiscal year 2025 was primarily attributable to a decreased volume of shipments of higher performance Hurco VMX machines and lathes in France and Italy, partially offset by increased shipments of higher-performance 5-axis Hurco machines in the United Kingdom and Milltronics vertical milling machines throughout the European region. In addition to the decreased machine sales for the quarter, European sales also reflected a decline in shipment of accessories manufactured by our wholly owned subsidiary, LCM.

Previous wording

Asian Pacific sales for the third quarter of fiscal year 2024 decreased by 15%, 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 third quarter of fiscal year 2024 decrease in Asian Pacific sales was mainly due to decreased shipments of Takumi machines in China and Hurco machines in Southeast Asia, partially offset by increased shipments of Hurco machines in India and one customer with multiple machine orders in China.

Current wording

Asian Pacific sales for the first quarter of fiscal year 2025 increased by 18%, compared to the corresponding period in fiscal year 2024, 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 and India.

Previous wording

The following table sets forth sales and service fees by product group and services for the third fiscal quarter ended July 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 first fiscal quarter ended January 31, 2025 and 2024 (dollars in thousands):

Previous wording

Sales of computerized machine tools for the third quarter of fiscal year 2024 decreased by 23%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco and Takumi machines in Germany, the Americas, Italy, and China, and included an unfavorable 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 third quarter of fiscal year 2024 decreased by 10%, compared to the corresponding prior year period, due mainly to decreased aftermarket sales of Hurco software upgrades in France and the Americas, partially offset by increased aftermarket sales of systems and software upgrades in the United Kingdom. Sales of service parts for the third quarter of fiscal year 2024 decreased by 9%, compared to the corresponding prior year period, primarily due to decreased aftermarket sales of Hurco service parts in Germany and the Americas. Service fees for the third quarter of fiscal year 2024 increased by 8%, compared to the corresponding prior year period, primarily due to increased aftermarket services performed in the United Kingdom and Germany.

Current wording

Sales of computerized machine tools for the first quarter of fiscal year 2025 increased by 6%, compared to the corresponding prior year period, primarily due to an increased volume of shipments of Hurco and Milltronics machines in the Americas and Hurco machines in the United Kingdom and China. Sales of computer control systems and software for the first quarter of fiscal year 2025 increased by 13%, compared to the corresponding prior year period, due mainly to increased software sales in the United Kingdom. Sales of service parts for the first quarter of fiscal year 2025 decreased by 12%, compared to the corresponding prior year period, primarily due to decreases in aftermarket service parts sales in the Americas, Germany and the United Kingdom. Services fees for the first quarter of fiscal year 2025 increased by 2%, compared to the corresponding prior year period, primarily due increased aftermarket service fees in the Americas. Sales for all product lines included an unfavorable currency impact of 1% when translating foreign sales to U.S. dollars for financial reporting purposes.

Previous wording

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

Current wording

The following table sets forth new orders booked by geographic region for the fiscal quarter ended January 31, 2025, and 2024 (dollars in thousands):

Previous wording

European sales for the nine months of fiscal year 2024 decreased by 23%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of 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, Italy, and the United Kingdom, as well as decreased shipments of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM.

Current wording

European orders for the first quarter of fiscal year 2025 decreased by 18%, compared to the corresponding prior year period, and included an unfavorable currency impact of 1%, when translating foreign orders to U.S. dollars. The decrease in orders was driven primarily by decreased customer demand for electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM, as well as decreased customer demand for Hurco and Takumi machines in France and Italy. The decrease in Hurco machines was primarily due to decreased demand for higher-performance VMX and 5-axis machines.

Previous wording

Asian Pacific orders for the third quarter of fiscal year 2024 increased by 151%, compared to the corresponding prior year period, and included an unfavorable currency impact of 5%, when translating foreign orders to U.S. dollars. The increase in Asian Pacific orders was driven primarily by increased customer demand for Hurco and Takumi machines in China, India, and Southeast Asia. The increased customer demand for Hurco machines in China and India related primarily to two customers with multiple machine orders.

Current wording

Asian Pacific orders for the first quarter of fiscal year 2025 increased by 3%, compared to the corresponding prior year period, and included an unfavorable currency impact of 2%, 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 machines in China, partially offset by decreased customer demand for Hurco and Takumi machines in India.

Previous wording

Gross Profit. Gross profit for the third quarter of fiscal year 2024 was $7.8 million, or 18% of sales, compared to $13.4 million, or 25% of sales, for the corresponding prior year period. The year-over-year decrease in gross profit was primarily due to the lower volume of vertical milling machine sales in the Americas and Europe. Additionally, the third quarter of fiscal 2024 included decreases in average net selling prices for certain machines, designed to penetrate key markets and reduce inventories. The decreases in both 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 corresponding prior year period. Further, certain cost reductions were implemented in the third quarter of fiscal 2024 in an effort to help offset the impact of lower sales volumes and pricing.

Current wording

Gross Profit. Gross profit for the first quarter of fiscal year 2025 was $8.3 million, or 18% of sales, compared to $9.7 million, or 22% 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 on lower margin sales and lower production volumes.

Previous wording

Operating Expenses. Selling, general, and administrative expenses for the third quarter of fiscal year 2024 were $10.4 million, or 24% of sales, compared to $12.4 million, or 23% of sales, in the corresponding fiscal year 2023 period, and included an unfavorable currency impact of less than $0.1 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year reduction in selling, general and administrative expenses in absolute dollar terms was primarily due to cost reductions implemented in the third quarter of fiscal year 2024 in an effort to help offset the impact of lower sales volume. Despite the reduction in absolute dollar terms, selling, general, and administrative expenses as a percentage of sales increased in the third quarter of fiscal year 2024 compared to the corresponding prior year period due to the lower volume of sales year-over-year.

Current wording

Operating Expenses. Selling, general, and administrative expenses for the first quarter of fiscal year 2025 were $10.4 million, or 22% of sales, compared to $11.5 million, or 26% of sales, in the corresponding fiscal year 2024 period, and included a favorable currency impact of $0.1 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year reduction in selling, general and administrative expenses for the quarter reflected lower levels of discretionary spending, reduced sales commissions, and reduced employee health insurance costs.

Previous wording

Operating Income/Loss*.* Operating loss for the third quarter of fiscal year 2024 was $2.5 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.

Current wording

Operating Income/Loss*.* Operating loss for the first quarter of fiscal year 2025 was $2.1 million, compared to $1.8 million for the corresponding period in fiscal year 2024. The change 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, as well as the negative impact of allocation of fixed costs on lower margin sales and lower production volumes.

Previous wording

Other (Expense) Income, Net. Other expense, net for the third quarter of fiscal year 2024 was $0.1 million compared to $0.4 million for the corresponding period in fiscal year 2023. The decrease in other expense was due mainly to a reduction in foreign currency exchange loss in the third 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 quarter of fiscal year 2025 was $0.4 million compared to $0.5 million for the corresponding period in fiscal year 2024, due mainly to a decrease in foreign currency exchange loss in the first quarter of fiscal year 2025 compared to the same period in fiscal year 2024.

Previous wording

Income Taxes. Income tax expense during the third quarter of fiscal 2024 was $7.0 million, compared to $0.4 million for the corresponding period in 2023. The year-over-year increase in income tax expense for the third quarter of fiscal 2024 was primarily due to an $8.2 million non-cash valuation allowance on U.S. deferred tax assets, changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, and discrete items related to unvested stock compensation. Because we have a valuation allowance recorded against our U.S. deferred tax assets, we did not record a tax benefit for our U.S. net losses for the three months ended July 31, 2024. The valuation allowance recorded during the third quarter of fiscal 2024 reflects a full valuation allowance of the U.S. deferred tax assets and was recorded based on our conclusion that the deferred tax assets were not more likely than not going to be realized.

Current wording

Income Taxes. Income tax expense for the first quarter of fiscal year 2025 was $2.0 million, compared to an income tax benefit of $0.6 million, for the corresponding prior year period. The year-over-year change was primarily due to a $2.4 million non-cash valuation allowance recorded on our Italian, U.S. and China deferred tax assets, as well as changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, and discrete items related to unvested stock compensation. Because we have a valuation allowance recorded against our Italian, U.S. and China deferred tax assets, we did not record a tax benefit of $1.2 million for our U.S., Italy and China pre-tax losses for the three months ended January 31, 2025. The valuation allowance recorded during the first quarter of fiscal 2025 reflected a full valuation allowance of the U.S. and Italian deferred tax assets and was recorded after evaluating changes to tax laws, statutory tax rates, and our cumulative three-year income (loss) levels for the U.S. and Italy for the first quarter of fiscal year 2025.

Previous wording

At July 31, 2024, we had cash and cash equivalents of $36.1 million, compared to $41.8 million at October 31, 2023. Approximately 26% of the $36.1 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 January 31, 2025, we had cash and cash equivalents of $41.8 million, compared to $33.3 million at October 31, 2024. Approximately 28% of the $41.8 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 $182.0 million at July 31, 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 decreases in accounts payable and accrued payroll and employee benefits.

Current wording

Working capital was $172.6 million at January 31, 2025, compared to $180.8 million at October 31, 2024. The decrease in working capital was primarily driven by decreases in inventories and accounts receivable, net, partially offset by an increase in cash and cash equivalents.

Previous wording

Capital expenditures of $2.1 million during the nine 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 $0.6 million during the first three months of fiscal year 2025 were primarily for software development costs and capital improvements in existing facilities. 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 three months and nine months ended July 31, 2024, we repurchased $0.5 million, or 29,413 shares, under that program, and $22.7 million remained available under the program as of that date. In August 2024, we repurchased an additional $0.8 million, or 44,352 shares, under that program, leaving $21.9 million repurchase authority remaining as of August 30, 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, subject to applicable laws, regulations, and contractual provisions. On September 25, 2024, we announced an extension of the term of this $25.0 million repurchase program from November 10, 2024 to November 10, 2026. The program may be amended, suspended, or discontinued at any time and does not commit us to repurchase any shares of our common stock. We did not repurchase any shares during the first three months of fiscal 2025. As of January 31, 2025, $21.7 million remained available under the program.

Previous wording

During the nine months ended July 31, 2024, we paid cash dividends to our shareholders of $2.1 million. On June 14, 2024, we announced a temporary suspension of our regular quarterly cash dividend as we seek to enhance our financial flexibility and improve our ability to manage market volatility while focusing on strengthening our balance sheet, reinvesting in our core business and research and development related to emerging technologies, and returning value to shareholders via the appropriate channels in both the near and long-term. 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. Subsequent to the June 14, 2024, dividend suspension announcement, we repurchased a total of $1.3 million, or 73,765 shares, through August 30, 2024, in an effort to continue returning value to shareholders.

Current wording

On June 14, 2024, we announced a temporary suspension of our regular quarterly cash dividend as we seek to enhance our financial flexibility and improve our ability to manage market volatility while focusing on strengthening our balance sheet, reinvesting in our core business and research and development related to emerging technologies, and returning value to shareholders via the appropriate channels in both the near- and long-term. 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 July 31, 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.

Current wording

At January 31, 2025, we had an aggregate of approximately $50.6 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

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 nine 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.

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, 2024, 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 2025, 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, 2024.

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 July 31, 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.

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 January 31, 2025, we had eight outstanding third party payment guarantees totaling approximately $0.8 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.