Hurco Companies, Inc. — Q1 FY2024 Form 10-Q
Business and period: Hurco designs, manufactures, and sells CNC machine tools and related software, parts, automation solutions, and services. The unaudited quarter ended January 31, 2024; comparisons are with the three months ended January 31, 2023. Hurco reports one operating segment.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Sales and service fees | $45.1 million | $54.7 million |
| Gross profit / margin | $9.7 million / 21.5% | $12.7 million / 23.3% |
| SG&A expenses | $11.5 million | $11.5 million |
| Operating income (loss) | $(1.8) million | $1.2 million |
| Net income (loss) | $(1.6) million | $1.3 million |
| Diluted EPS | $(0.25) | $0.20 |
| Cash from operating activities | $(2.6) million | $(8.0) million |
- Sales declined 18% year over year, including a favorable $0.8 million currency translation impact. Machine-tool revenue fell 21%; parts and service fees were nearly flat.
- Gross margin declined about 1.8 percentage points. Management attributed the reduction to lower shipments of higher-performance machines and lathes in the Americas and Europe, and fixed costs spread over lower sales and production volumes.
- Other expense was $0.5 million versus $0.6 million of other income a year earlier, mainly reflecting increased foreign-currency exchange losses. The quarter’s $0.6 million income tax benefit compared with $0.6 million of tax expense in the prior-year quarter.
- Comprehensive income was $3.1 million, despite the net loss, primarily because of a $4.5 million foreign-currency translation gain.
Financial position and liquidity
- At January 31, 2024, cash and cash equivalents were $37.9 million, down from $41.8 million at October 31, 2023. Approximately 22% of cash was denominated in U.S. dollars; the balance was held by foreign operations in local currencies.
- Working capital was $196.3 million, versus $193.3 million at fiscal year-end. Current assets were $247.1 million and current liabilities $50.8 million.
- Hurco reported no borrowings under its credit facilities and approximately $51.0 million of available borrowing capacity. The main unsecured revolving facility has a $40.0 million maximum and matures December 31, 2025. The company said it was in compliance with covenants.
- Operating cash use was $2.6 million. Investing activities used $0.8 million, including $0.4 million of property and equipment purchases and $0.4 million of software development costs. Financing activities used $1.3 million, including $1.0 million of dividends. Cash declined by $3.8 million overall.
- Operating lease liabilities totaled $12.4 million, including current and non-current portions. This is separate from the company’s reported borrowings.
- The quarterly dividend was $0.16 per share, up from $0.15. No shares were repurchased during the quarter; $23.2 million remained available under the repurchase program at January 31, 2024.
Demand, outlook, and risks
- Orders were $50.2 million, down 6% year over year. Europe orders declined 21%, while Americas orders rose 6% and Asia Pacific orders rose 61%. Orders exceeded quarterly sales, but the filing does not provide a formal earnings or revenue forecast.
- Management described the machine-tool market as cyclical and said fiscal 2023’s first-quarter sales benefited from a particularly strong fiscal 2022 year-end backlog. It believes cash pooling and available borrowing capacity are adequate to fund global operations over the next 12 months and beyond.
- Key exposures include uncertain economic conditions and cyclical demand, foreign-exchange movements, international operations, tariffs and other regulation, competition, limited manufacturing and supply sources, input-cost increases, and reliance on product development and technology. Hurco uses foreign-currency forward contracts to mitigate, but not eliminate, currency exposure.
- Nine customer-financing guarantees totaled approximately $1.0 million; recorded guarantee liabilities were described as insignificant. The company said ordinary-course claims and litigation are not expected to have a material adverse effect. No material changes to the previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether order trends—particularly the European decline and Asia Pacific growth—translate into shipments and revenue in coming quarters.
- Whether lower production volumes and sales mix continue to pressure gross margin and operating results.
- Cash generation and inventory levels: inventory rose to $165.0 million from $158.0 million at October 31, 2023.
- Foreign-currency exposure and the effect of exchange movements on reported results and cash held outside the United States.
- Liquidity and covenant headroom, including the conditions governing dividends and share repurchases under the credit agreement.