Hurco Companies, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended April 30, 2022. Hurco designs, manufactures, and sells CNC machine tools and related automation, parts, software, and services worldwide. Results are unaudited.
Financial results
| Metric | Three months ended April 30, 2022 | Prior-year quarter | Six months ended April 30, 2022 | Prior-year six months |
|---|---|---|---|---|
| Sales and service fees | $62.8M | $57.9M | $129.7M | $112.0M |
| Gross profit; gross margin | $15.6M; 25% | $14.8M; 26% | $32.5M; 25% | $26.3M; 24% |
| Operating income | $3.1M | $3.5M | $8.3M | $4.5M |
| Net income | $2.0M | $2.4M | $5.6M | $3.1M |
| Diluted EPS | $0.30 | $0.36 | $0.83 | $0.46 |
| Operating cash flow | $(1.1)M | $8.9M | $8.3M | $17.9M |
- Quarterly sales rose 8%; six-month sales rose 16%. Foreign-currency translation reduced reported sales growth by approximately 4% and 3%, respectively.
- Quarterly operating income fell year over year, while six-month operating income increased. The prior-year periods included approximately $1.9M of employee retention credits, which did not recur.
- Cash and cash equivalents were $82.0M at April 30, versus $84.1M at October 31, 2021. Working capital was $203.4M, down from $208.7M.
- No borrowings were outstanding; approximately $51.6M of borrowing capacity was available. Total liabilities were $89.8M, including $9.4M of operating lease liabilities; the filing reports no funded debt under credit facilities.
- Six-month investing cash outflow was $1.0M; financing cash outflow was $4.9M, including $1.9M of dividends and $2.9M of share repurchases. Currency translation reduced cash by $4.4M over the six months.
Changes, outlook, and risks
- Orders softened in Q2: New orders were $58.9M, down 10% year over year, despite higher sales. Americas orders increased 26%, while Europe fell 19% and Asia Pacific fell 45%. Six-month orders were $129.7M, up 5%.
- Management attributed sales growth to price increases, higher shipments of higher-performance machines, and stronger aftermarket and automation activity. Gross margin benefited from product mix, production leverage, and pricing, but the quarter’s margin was below the prior-year period.
- China and parts of Southeast Asia faced COVID-related lockdowns that affected demand and shipments. Management also cited vendor delays, freight constraints and costs, inflation, currency volatility, and competitive labor markets.
- No specific numerical revenue or earnings guidance was provided. Management said cash pooling and available credit were expected to provide adequate liquidity for global operations over the next twelve months and beyond; it also continued to review potential acquisitions.
- Foreign exchange is a material exposure. Six-month comprehensive loss was $3.5M despite net income of $5.6M, principally reflecting a $9.5M foreign-currency translation loss. The company uses currency forwards to hedge certain exposures.
- The company reported covenant compliance, effective disclosure controls, and no material changes to previously disclosed risk factors. It disclosed eight customer-financing guarantees totaling about $0.8M and said ordinary-course claims and litigation were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether order trends, particularly in Europe and Asia Pacific, recover and support future sales.
- Whether inventory growth, supply constraints, inflation, and freight costs pressure margins or cash conversion.
- The extent to which currency movements affect reported earnings, cash, and shareholders’ equity despite hedging.
- Whether the $82.0M cash balance and available credit remain accessible across currencies and jurisdictions, and whether covenant thresholds constrain capital returns.
- How results compare after excluding the nonrecurring employee retention credits in the prior-year comparison.