Hurco Companies, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 31, 2022; comparisons are with the three months ended January 31, 2021 unless noted. Hurco designs, manufactures and sells CNC machine tools and related software, components and services through a global sales and manufacturing network.
Financial results and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Sales and service fees | $66.9 million | $54.1 million |
| Gross profit; gross margin | $16.9 million; 25% | $11.5 million; 21% |
| Operating income; operating margin | $5.2 million; 7.8% | $1.0 million; 1.8% |
| Net income | $3.5 million | $0.7 million |
| Diluted earnings per share | $0.53 | $0.10 |
| Operating cash flow | $9.4 million | $9.0 million |
- Revenue rose 24%. Europe was the largest region at $34.1 million, up 41%; Americas revenue was $24.0 million, up 3%; Asia Pacific revenue was $8.8 million, up 32%. Machine tool sales increased 26%.
- Orders totaled $70.9 million, up 24%: Europe rose 58%, Asia Pacific 5%, while the Americas declined 7%.
- Gross margin improvement reflected higher sales volume, particularly higher-performance Hurco and Takumi machines in Europe, and better fixed-cost absorption. SG&A increased to $11.7 million from $10.6 million, mainly on higher commissions, marketing and trade show costs, incentive compensation and employee support.
- Cash and equivalents were $90.0 million at January 31, 2022, versus $84.1 million at October 31, 2021. Working capital was $210.5 million, versus $208.7 million. Cash flow from investing activities was negative $0.8 million; financing activities used $2.2 million, including $0.9 million of dividends and $1.2 million of share repurchases.
- There were no borrowings under credit facilities. The company reported approximately $52.2 million of available borrowing capacity and compliance with its covenants. The principal revolving facility is $40 million and matures December 31, 2023.
- Current assets were $292.9 million and current liabilities were $82.4 million. Inventory was $152.9 million, up from $148.2 million at October 31, 2021.
Material changes versus prior period
- Operating income increased to $5.2 million from $1.0 million, primarily on stronger sales. Net income rose to $3.5 million from $0.7 million.
- The effective tax rate fell to 32% from 45%, primarily reflecting geographic income mix, discrete tax items and tax-law changes.
- Other expense, net, was $0.3 million, compared with other income of $0.1 million, mainly due to increased foreign currency exchange losses.
- Other comprehensive income was negative $1.0 million, versus positive $3.3 million, primarily reflecting a $1.5 million foreign currency translation loss in 2022 compared with a $4.2 million gain in 2021.
Outlook, commentary and risks
- The filing provides no specific numerical earnings or revenue guidance. Management said cash pooling and borrowing capacity should provide adequate liquidity for global operations over the next twelve months and beyond, supporting product innovation, market development, potential acquisitions, dividends and repurchases.
- Management cited COVID-19 disruption, vendor delays, freight and transportation constraints, inflationary input costs, competitive labor markets, Brexit uncertainty and political friction. Supply-chain delays and higher shipping costs had affected operations; management said the duration and financial impact of these factors could not be reasonably estimated.
- Key exposures include the cyclical machine-tool market, uncertain global demand, foreign currency movements, dependence on a limited number of suppliers and manufacturing sources, raw-material cost increases, competition, and execution and technology risks. Hurco uses foreign currency forwards to mitigate—but not eliminate—some currency exposure.
- Eight customer-financing guarantees totaled approximately $0.8 million; related accrued liabilities were described as insignificant. The company did not expect claims and lawsuits in the normal course of business to have a material adverse effect. Taiwan subsidiary tax audit covers fiscal 2018.
- The company repurchased $1.2 million of shares in the quarter; $5.8 million remained under its $7.0 million repurchase program at January 31, 2022. Quarterly dividends were $0.14 per share.
Important facts for investors to verify
- Whether strong order growth, especially in Europe, converts to shipments and revenue, given the Americas order decline and supply constraints.
- How freight, input-cost inflation, labor availability and vendor delays affect future gross margins and delivery schedules.
- Currency movements and hedge outcomes, including the effects on reported earnings and accumulated other comprehensive income.
- Cash deployment, including repurchases, dividends and potential acquisitions, alongside covenant requirements and the December 2023 facility maturity.
- Whether the stated liquidity outlook remains supported by cash availability across jurisdictions and continued access to credit facilities.