Hurco Reports Second Quarter Results for Fiscal Year 2024

Rhea-AI Summary

Hurco posted a net loss of $3.9M ($0.61 per diluted share) for Q2 FY 2024, a significant decline from the $377K net income ($0.06 per diluted share) in the same period last year. For the first six months, the net loss was $5.6M ($0.86 per diluted share), down from a net income of $1.7M ($0.26 per diluted share) in the prior year.

Sales decreased by 16% to $45.2M in Q2 and by 17% to $90.2M in the first six months, compared to the same periods last year. Notably, European sales took a 24% hit in Q2.

Orders dropped 27% to $44.2M in Q2 and 17% to $94.4M in the first six months. Gross profit also fell, reaching $8M (18% of sales) from $12.6M (23% of sales) in Q2. The CEO highlighted ongoing investment in R&D and plans to showcase new technology at the IMTS in Chicago.

Positive

• Cash and cash equivalents: $37.5M as of April 30, 2024.
• Ongoing investment in R&D, product development, and new technologies.
• Expansion plans for the International Manufacturing Trade Show (IMTS) in Chicago.

Negative

• Net loss: $3.9M in Q2 FY 2024 vs. net income of $377K in Q2 FY 2023.
• Sales decline: 16% decrease in Q2 2024 compared to Q2 2023.
• Gross profit decrease: $8M (18% of sales) in Q2 FY 2024 vs. $12.6M (23% of sales) in Q2 FY 2023.
• Orders down: 27% decrease to $44.2M in Q2 FY 2024.
• European sales down: 24% in Q2 FY 2024.
• Increased selling, general, and administrative expenses: 25% of sales in Q2 FY 2024.

Insights

Financial Analyst

The recent quarterly results paint a challenging picture for Hurco, with a net loss of $3,922,000 and a decrease in sales and service fees by 16% year-over-year. The sales decline is notable across all major regions, indicating widespread market softening. Additionally, the gross profit margin has dropped to 18% from 23% the previous year, due to reduced sales volume and lower selling prices. These numbers suggest Hurco is facing considerable operational and market pressures. While the company is focusing on reducing overhead and improving efficiency, the results indicate that these measures have yet to offset the declining sales and profitability.

Cash and cash equivalents decreased to $37,542,000, down from $41,784,000, impacting liquidity. The decreased working capital primarily driven by reductions in accounts receivable and cash signifies tighter financial conditions. Investors should monitor whether Hurco can successfully navigate this tightrope, especially given its plans to invest in new technologies and R&D despite the losses. The high dependency on traditional markets like Europe and the Americas, with significant drops in these regions, highlights potential vulnerabilities.

Market Research Analyst

Hurco's recent results underscore a significant decline in sales performance, particularly in the European and American markets. European sales decreased by 24% and American sales by 8%, highlighting regional economic challenges and possibly increased competition. The focus on enhancing the product line, particularly with new technologies like the Inspire+ control and investments in AI-powered CNC control technologies, indicates a strategic pivot towards higher-value and innovative solutions. However, this might be a double-edged sword; while innovation is crucial, the immediate return on these investments might not be evident in the short term, considering the current financial struggles.

The mixed results in the Asian Pacific market, with a slight increase in sales but a decrease in orders, suggest a different competitive landscape or market dynamics. This region's performance will be important in the coming quarters, especially as Hurco attempts to compensate for losses in other regions. The upcoming participation in the International Manufacturing Trade Show (IMTS) with an expanded presence could provide a platform to attract new customers and orders, but it remains to be seen how effective this will be in reversing the current downward trend.

Tech Expert

Hurco's emphasis on R&D investments and new product introductions, such as the revolutionary WinMax user-interface and AI-powered CNC control technologies, is forward-thinking but comes at a critical juncture. The introduction of these advanced technologies could potentially give Hurco a competitive edge in the CNC machine tool market, yet the timing amidst financial losses is risky. Such innovations tend to have long development and adoption cycles, implying that the financial benefits might not materialize immediately.

The company's strategy to showcase these innovations at IMTS aims at capturing market attention and generating customer interest. If successful, it could catalyze a shift in market perception and enhance demand. However, there is a significant risk if market conditions do not improve or if competitors introduce similar or superior technologies. Given the current financial strains, the efficacy of these technological advancements in achieving a turnaround will be a key area to watch.

INDIANAPOLIS, June 07, 2024 (GLOBE NEWSWIRE) -- Hurco Companies, Inc. (Nasdaq: HURC) today reported results for the second fiscal quarter ended April 30, 2024. Hurco recorded a net loss of $3,922,000, or $(0.61) per diluted share, for the second quarter of fiscal year 2024, compared to net income of $377,000, or $0.06 per diluted share, for the corresponding period in fiscal year 2023. For the first six months of fiscal year 2024, Hurco reported a net loss of $5,570,000, or $(0.86) per diluted share, compared to net income of $1,707,000, or $0.26 per diluted share, for the corresponding period in fiscal year 2023.

Sales and service fees for the second quarter of fiscal year 2024 were $45,172,000, a decrease of $8,647,000, or 16%, compared to the corresponding prior year period, and included a favorable currency impact of $59,000, or less than 1%, when translating foreign sales to U.S. dollars for financial reporting purposes. Sales and service fees for the first six months of fiscal year 2024 were $90,231,000, a decrease of $18,270,000, or 17%, compared to the corresponding prior year period, and included a favorable currency impact of $838,000, or less than 1%, when translating foreign sales to U.S. dollars for financial reporting purposes.

Greg Volovic, Chief Executive Officer, stated, “In a year of global uncertainty and broader market softening, resulting in tighter margins and lower sales volumes, we are focusing on adjusting our overhead and operating expenses to minimize the impact on operating income while maintaining a strong balance sheet. Additionally, we are optimizing inventory management and utilizing the resulting cash flow to refine our capital allocation strategies, enabling us to invest in new technologies, product development, and essential capital expenditures, maximizing cash flows without incurring significant debt. These actions will also enable us to continue - and even expand - our investments in research and development, product enhancements, global distribution, and other strategic opportunities. We remain focused on strengthening our balance sheet and ensuring our capital allocation strategy meets both short-term and long-term business needs, with a strong commitment to returning value to our shareholders. We are preparing to participate in the International Manufacturing Trade Show (IMTS) in Chicago with an expanded presence. At IMTS, we will showcase the future of art and science in machine and control design. Patrons will have a unique opportunity to experience Hurco's vision of the future with a newly styled machine tool outfitted with a novel, ergonomic, graphics-centric, and customizable touch-screen control running our never-before-seen revolutionary WinMax user-interface, driven by our latest innovations in AI-powered autonomous CNC control technologies. We will also be debuting the new Inspire+ control for our Milltronics machines and Takumi's new advanced five-axis product offering. ProCobots automation solutions will also be featured on nearly all our machines, highlighting how accessible automation is transforming machine shops worldwide. Our steadfast investment in R&D, regardless of industry cycles, continues to be the foundational cornerstone of our culture and a key driver of our success."

The following table sets forth net sales and service fees by geographic region for the second fiscal quarter and six months ended April 30, 2024, and 2023 (dollars in thousands):

	Three Months Ended					Six Months Ended
	April 30,					April 30,
	2024	2023	$ Change	% Change		2024	2023	$ Change	% Change
Americas	$16,947	$18,324	($1,377)	(8)%		$33,597	$40,337	($6,740)	(17)%
Europe	22,720	29,991	(7,271)	(24)%		45,470	58,583	(13,113)	(22)%
Asia Pacific	5,505	5,504	1	0%		11,164	9,581	1,583	17%
Total	$45,172	$53,819	($8,647)	(16)%		$90,231	$108,501	($18,270)	(17)%

Sales in the Americas for the second quarter and first six months of fiscal year 2024 decreased by 8% and 17%, respectively, compared to the corresponding periods 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.

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. European sales for the first six months of fiscal year 2024 decreased by 22%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year decreases in European sales were primarily attributable to a decreased volume of shipments of Hurco and Takumi machines in Germany, the United Kingdom, and Italy, as well as decreased volume of shipments of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM Precision Technology S.r.l. (“LCM”), partially offset by an increased volume of shipments of Hurco machines in France.

Asian Pacific sales for the second quarter of fiscal year 2024 were relatively unchanged compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S. dollars for financial reporting purposes. 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 in the six-month period 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.

Orders for the second quarter of fiscal year 2024 were $44,192,000, a decrease of $16,031,000, or 27%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of $107,000, or less than 1%, when translating foreign orders to U.S. dollars. Orders for the first six months of fiscal year 2024 were $94,410,000, a decrease of $19,043,000, or 17%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of $893,000, or less than 1%, when translating foreign orders to U.S. dollars.

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

	Three Months Ended					Six Months Ended
	April 30,					April 30,
	2024	2023	$ Change	% Change		2024	2023	$ Change	% Change
Americas	$17,069	$22,254	($5,185)	(23)%		$37,865	$41,941	($4,076)	(10)%
Europe	23,873	32,994	(9,121)	(28)%		47,408	62,880	(15,472)	(25)%
Asia Pacific	3,250	4,975	(1,725)	(35)%		9,137	8,632	505	6%
Total	$44,192	$60,223	($16,031)	(27)%		$94,410	$113,453	($19,043)	(17)%

Orders in the Americas for the second quarter and first six months of fiscal year 2024 decreased by 23% and 10%, respectively, compared to the corresponding periods in fiscal year 2023. The decreases in orders for both periods were primarily due to decreased customer demand for Hurco VM machines, partially offset by increased orders of higher-performing VMX and 5-axis machines.

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. European orders for the first six months of fiscal year 2024 decreased by 25%, compared to the corresponding prior year period, and included a favorable currency impact of 2%, when translating foreign orders to U.S. dollars. The year-over-year decrease was mainly due to decreased customer demand for Hurco machines across the European region where our customers are located and for electro-mechanical components and accessories manufactured by LCM.

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. Asian Pacific orders for the first six months of fiscal year 2024 increased by 6%, compared to the corresponding prior year period, and included an unfavorable currency impact of 2%, when translating foreign orders to U.S. dollars. The year-over-year increase in Asian Pacific orders was driven primarily by increased customer demand for Hurco machines in China and India, partially offset by decreased demand for Takumi machines in China.

Gross profit for the second quarter of fiscal year 2024 was $8,019,000, or 18% of sales, compared to $12,583,000, or 23% of sales, for the corresponding prior year period. Gross profit for the first six months of fiscal year 2024 was $17,714,000, or 20% of sales, compared to $25,301,000, or 23% of sales, for the corresponding prior year period. The year-over-year decreases in gross profit as a percentage of sales were 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 decreases in average net selling prices, designed for certain machines 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 periods.

Selling, general, and administrative expenses for the second quarter of fiscal year 2024 were $11,461,000, or 25% of sales, compared to $11,592,000, or 22% of sales, in the corresponding fiscal year 2023 period, and included an unfavorable currency impact of $14,000, when translating foreign expenses to U.S. dollars for financial reporting purposes. Selling, general, and administrative expenses for the first six months of fiscal year 2024 were $22,976,000, or 25% of sales, compared to $23,076,000, or 21% of sales, in the corresponding fiscal year 2023 period, and included an unfavorable currency impact of $182,000, 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 second quarter and first six months of fiscal year 2024 compared to each of the corresponding prior year periods due to the lower volume of sales year-over-year.

The effective tax rates for the second quarter and first six months of fiscal year 2024 were (1)% and 9%, respectively, compared to 44% and 35% in each of the corresponding prior year periods. The year-over-year decreases in the effective tax rates were 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.

Cash and cash equivalents totaled $37,542,000 at April 30, 2024, compared to $41,784,000 at October 31, 2023. Working capital was $187,574,000 at April 30, 2024, compared to $193,257,000 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.

Hurco Companies, Inc. is an international, industrial technology company that sells its three brands of computer numeric control (“CNC”) machine tools to the worldwide metal cutting and metal forming industry. Two of the Company’s brands of machine tools, Hurco and Milltronics, are equipped with interactive controls that include software that is proprietary to each respective brand. The Company designs these controls and develops the software. The third brand of CNC machine tools, Takumi, is equipped with industrial controls that are produced by third parties, which allows the customer to decide the type of control added to the Takumi CNC machine tool. The Company also produces high-value machine tool components and accessories and provides automation solutions that can be integrated with any machine tool. The end markets for the Company's products are independent job shops, short-run manufacturing operations within large corporations, and manufacturers with production-oriented operations. The Company’s customers manufacture precision parts, tools, dies, and/or molds for industries such as aerospace, defense, medical equipment, energy, transportation, and computer equipment. The Company is based in Indianapolis, Indiana, with manufacturing operations in Taiwan, Italy, the U.S., and China, and sells its products through direct and indirect sales forces throughout the Americas, Europe, and Asia. The Company has sales, application engineering support and service subsidiaries in China, the Czech Republic, England, France, Germany, India, Italy, the Netherlands, Poland, Singapore, the U.S., and Taiwan. Web Site: www.hurco.com

Certain statements in this news release are forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These factors include, among others, the cyclical nature of the machine tool industry; uncertain economic conditions, which may adversely affect overall demand, in the Americas, Europe and Asia Pacific markets; the risks of our international operations; governmental actions, initiatives and regulations, including import and export restrictions, duties and tariffs and changes to tax laws; the effects of changes in currency exchange rates; competition with larger companies that have greater financial resources; our dependence on new product development; the need and/or ability to protect our intellectual property assets; the limited number of our manufacturing and supply chain sources; increases in the prices of raw materials, especially steel and iron products; the effect of the loss of members of senior management and key personnel; our ability to integrate acquisitions; acquisitions that could disrupt our operations and affect operating results; failure to comply with data privacy and security regulations; breaches of our network and system security measures; possible obsolescence of our technology and the need to make technological advances; impairment of our assets; negative or unforeseen tax consequences; uncertainty concerning our ability to use tax loss carryforwards; changes in the SOFR rate; the impact of the COVID-19 pandemic and other public health epidemics and pandemics on the global economy, our business and operations, our employees and the business, operations and economies of our customers and suppliers; and other risks and uncertainties discussed more fully under the caption “Risk Factors” in our filings with the Securities and Exchange Commission. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:	Sonja K. McClelland Executive Vice President, Treasurer, & Chief Financial Officer 317-293-5309

Hurco Companies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
	Three Months Ended								Six Months Ended
	April 30,								April 30,
		2024				2023				2024				2023
	(unaudited)								(unaudited)
Sales and service fees	$	45,172			$	53,819			$	90,231			$	108,501
Cost of sales and service		37,153				41,236				72,517				83,200
Gross profit		8,019				12,583				17,714				25,301
Selling, general and administrative expenses		11,461				11,592				22,976				23,076
Operating (loss) income		(3,442	)			991				(5,262	)			2,225
Interest expense		136				55				267				71
Interest income		164				85				320				137
Investment income		8				7				67				36
Other (expense) income, net		(476	)			(360	)			(989	)			281
(Loss) income before taxes		(3,882	)			668				(6,131	)			2,608
Provision (benefit) for income taxes		40				291				(561	)			901
Net (loss) income	$	(3,922	)		$	377			$	(5,570	)		$	1,707
(Loss) income per common share
Basic	$	(0.61	)		$	0.06			$	(0.86	)		$	0.26
Diluted	$	(0.61	)		$	0.06			$	(0.86	)		$	0.26
Weighted average common shares outstanding
Basic		6,518				6,486				6,500				6,536
Diluted		6,518				6,516				6,500				6,570
Dividends per share	$	0.16			$	0.16			$	0.32			$	0.31
OTHER CONSOLIDATED FINANCIAL DATA
	Three Months Ended								Six Months Ended
	April 30,								April 30,
Operating Data:		2024				2023				2024				2023
	(unaudited)								(unaudited)
Gross margin		18	%			23	%			20	%			23	%
SG&A expense as a percentage of sales		25	%			22	%			25	%			21	%
Operating (loss) income as a percentage of sales		-8	%			2	%			-6	%			2	%
Pre-tax (loss) income as a percentage of sales		-9	%			1	%			-7	%			2	%
Effective tax rate		-1	%			44	%			9	%			35	%
Depreciation and amortization	$	882			$	1,050			$	1,790			$	2,104
Capital expenditures	$	479			$	807			$	1,311			$	1,406
Balance Sheet Data:	4/30/2024				10/31/2023
Working capital	$	187,575			$	193,257
Days sales outstanding		47				41
Inventory turns		1				1.1
Capitalization
Total debt		--				--
Shareholders' equity		215,577				222,231
Total	$	215,577			$	222,231

Hurco Companies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
	April 30,				October 31,
		2024				2023
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	37,542			$	41,784
Accounts receivable, net		27,052				39,965
Inventories, net		163,806				157,952
Derivative assets		365				740
Prepaid and other assets		10,209				7,789
Total current assets		238,974				248,230
Property and equipment:
Land		1,046				1,046
Building		7,387				7,387
Machinery and equipment		25,843				26,779
Leasehold improvements		4,523				4,473
		38,799				39,685
Less accumulated depreciation and amortization		(31,453	)			(30,826	)
Total property and equipment, net		7,346				8,859
Non-current assets:
Software development costs, less accumulated amortization		6,985				7,030
Intangible assets, net		860				994
Operating lease - right of use assets, net		11,490				10,971
Deferred income taxes		4,880				4,749
Investments and other assets		10,291				9,756
Total non-current assets		34,506				33,500
Total assets	$	280,826			$	290,589
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	27,356			$	29,661
Customer deposits		3,244				2,827
Derivative liabilities		2,578				1,821
Operating lease liabilities		3,658				3,712
Accrued payroll and employee benefits		7,592				9,853
Accrued income taxes		1,190				1,713
Accrued expenses		4,660				4,092
Accrued warranty expenses		1,121				1,294
Total current liabilities		51,399				54,973
Non-current liabilities:
Deferred income taxes		61				83
Accrued tax liability		698				1,293
Operating lease liabilities		8,189				7,606
Deferred credits and other		4,902				4,403
Total non-current liabilities		13,850				13,385
Shareholders' equity:
Preferred stock: no par value per share, 1,000,000 shares authorized; no shares issued		-				-
Common stock: no par value, $.10 stated value per share, 12,500,000 shares authorized; 6,636,473 and 6,553,673 shares issued and 6,523,259 and 6,462,138 shares outstanding, as of April 30, 2024 and October 31, 2023, respectively		652				646
Additional paid-in capital		62,155				61,665
Retained earnings		172,461				180,124
Accumulated other comprehensive loss		(19,691	)			(20,204	)
Total shareholders' equity		215,577				222,231
Total liabilities and shareholders' equity	$	280,826			$	290,589

FAQ

What were Hurco's net income and loss figures for Q2 FY 2024?

Hurco reported a net loss of $3.9M for Q2 FY 2024, compared to a net income of $377K in the same period last year.

How did Hurco's sales perform in Q2 FY 2024?

Hurco's sales decreased by 16% to $45.2M in Q2 FY 2024 compared to the same period last year.

What was Hurco's gross profit for Q2 FY 2024?

Hurco's gross profit for Q2 FY 2024 was $8M, representing 18% of sales.

How much did Hurco's orders decline in Q2 FY 2024?

Hurco's orders declined by 27% to $44.2M in Q2 FY 2024.

What was Hurco's cash position at the end of April 2024?

Hurco's cash and cash equivalents totaled $37.5M as of April 30, 2024.

What was the performance of Hurco's European sales in Q2 FY 2024?

Hurco's European sales decreased by 24% in Q2 FY 2024 compared to the same period last year.

What are Hurco's plans for the International Manufacturing Trade Show (IMTS)?

Hurco plans to participate with an expanded presence at the IMTS in Chicago, showcasing new technologies including the WinMax user-interface and ProCobots automation solutions.