Hurco Companies Inc 10-Q for FY2020 Q3

Hurco Companies Inc (HURC)

10-Q 2020-09-04 For: 2020-07-31

Added on April 09, 2026

About this 10-Q

Hurco Companies Inc filed this 10-Q on September 4, 2020, covering the quarter ended July 31, 2020 (FY2020 Q3).

Headline figures

Quarter ended July 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $45.38M; down 22.4% from $58.5M a year earlier
Net income: $2.16M; down 38.1% from net income of $3.49M a year earlier
Diluted EPS: $0.32; down 37.3% from $0.51 a year earlier

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Indiana		35-1150732
(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)

One Technology Way
Indianapolis, Indiana		46268
(Address of principal executive offices)		(Zip code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	HURC	Nasdaq Global Select Market

Large accelerated filer ◻	Accelerated filer ⌧
Non-accelerated filer ◻	Smaller reporting company ◻
Emerging growth company ◻

Part I - Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations Three and nine months ended July 31, 2020 and 2019	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) Three and nine months ended July 31, 2020 and 2019	4

	Condensed Consolidated Balance Sheets As of July 31, 2020 and October 31, 2019	5

	Condensed Consolidated Statements of Cash Flows Three and nine months ended July 31, 2020 and 2019	6

	Condensed Consolidated Statements of Changes in Shareholders’ Equity Three and nine months ended July 31, 2020 and 2019	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

Part II - Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

Signatures		36


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2020		2019		2020		2019

Sales and service fees	$	45,382	$	58,501	$	126,168	$	203,388

Cost of sales and service		34,313		41,312		99,231		142,420

Gross profit		11,069		17,189		26,937		60,968

Selling, general and administrative expenses		9,627		12,592		31,072		40,617

Operating income (loss)		1,442		4,597		(4,135)		20,351

Interest expense		19		18		69		44

Interest income		14		169		104		350

Investment income (loss)		11		(25)		76		346

Other income (expense), net		(223)		(77)		(933)		483

Income (loss) before taxes		1,225		4,646		(4,957)		21,486

Provision (benefit) for income taxes		(937)		1,155		(2,299)		6,089

Net income (loss)	$	2,162	$	3,491	$	(2,658)	$	15,397

Income (loss) per common share

Basic	$	0.32	$	0.51	$	(0.39)	$	2.26
Diluted	$	0.32	$	0.51	$	(0.39)	$	2.24

Weighted average common shares outstanding

Basic		6,595		6,767		6,705		6,756
Diluted		6,604		6,813		6,705		6,815

Dividends paid per share	$	0.13	$	0.12	$	0.38	$	0.35


	July 31,		October 31,
	2020		2019
	(unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	47,089	$	56,943
Accounts receivable, net		32,050		43,279
Inventories, net		154,823		148,851
Derivative assets		367		1,391
Prepaid assets		14,563		9,414
Other		334		1,983
Total current assets		249,226		261,861
Property and equipment:
Land		868		868
Building		7,352		7,352
Machinery and equipment		29,414		28,846
Leasehold improvements		4,651		4,902
		42,285		41,968
Less accumulated depreciation and amortization		(29,888)		(28,055)
Total property and equipment		12,397		13,913
Non–current assets:
Software development costs, less accumulated amortization		7,916		8,318
Goodwill		4,921		5,847
Intangible assets, net		1,767		1,096
Operating lease – right-of-use assets, net		12,431		—
Deferred income taxes		1,961		1,846
Investments and other assets, net		8,695		8,184
Total non–current assets		37,691		25,291
Total assets	$	299,314	$	301,065

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,831	$	33,969
Derivative liabilities		1,825		388
Operating lease liabilities		4,157		—
Accrued payroll and employee benefits		6,731		11,564
Accrued income taxes		—		1,936
Accrued expenses		4,744		5,015
Accrued warranty		1,271		1,760
Total current liabilities		50,559		54,632
Non–current liabilities:
Deferred income taxes		166		160
Accrued tax liability		1,908		2,036
Operating lease liabilities		8,647		—
Deferred credits and other		3,988		3,992
Total non–current liabilities		14,709		6,188
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 6,636,906 and 6,824,451 shares issued and 6,565,163 and 6,767,237 shares outstanding, as of July 31, 2020 and October 31, 2019, respectively		657		677
Additional paid-in capital		60,358		66,350
Retained earnings		176,925		182,151
Accumulated other comprehensive loss		(3,894)		(8,933)
Total shareholders’ equity		234,046		240,245
Total liabilities and shareholders’ equity	$	299,314	$	301,065


	Three Months Ended July 31, 2020 and 2019
								Accumulated
	Common Stock			Additional				Other
	Shares			Paid–in		Retained		Comprehensive
	Outstanding	Amount		Capital		Earnings		Income (Loss)		Total
Balances, April 30, 2019	6,767,237	$	677	$	65,114	$	178,200	$	(9,957)	$	234,034
Net income	—		—		—		3,491		—		3,491
Other comprehensive income (loss)	—		—		—		—		(1,414)		(1,414)
Stock–based compensation expense, net of taxes withheld for vested restricted shares	—		—		664		—		—		664
Dividends paid	—		—		—		(818)		—		(818)
Balances, July 31, 2019	6,767,237	$	677	$	65,778	$	180,873	$	(11,371)	$	235,957

Balances, April 30, 2020	6,666,226	$	667	$	62,731	$	175,638	$	(8,348)	$	230,688
Net loss	—		—		—		2,162		—		2,162
Other comprehensive income (loss)	—		—		—		—		4,454		4,454
Stock–based compensation expense, net of taxes withheld for vested restricted shares	—		—		638		—		—		638
Exercise of common stock options	3,738		—		67		—		—		67
Stock repurchases	(104,801)		(10)		(3,078)		—		—		(3,088)
Dividends paid	—		—		—		(875)		—		(875)
Balances, July 31, 2020	6,565,163	$	657	$	60,358	$	176,925	$	(3,894)	$	234,046


	Nine Months Ended July 31, 2020 and 2019
								Accumulated
	Common Stock			Additional				Other
	Shares			Paid–in		Retained		Comprehensive
	Outstanding	Amount		Capital		Earnings		Income (Loss)		Total
Balances, October 31, 2018	6,723,160	$	672	$	64,185	$	167,859	$	(9,863)	$	222,853
Net income	—		—		—		15,397		—		15,397
Other comprehensive income (loss)	—		—		—		—		(1,508)		(1,508)
Stock–based compensation expense, net of taxes withheld for vested restricted shares	44,077		5		1,593		—		—		1,598
Dividends paid	—		—		—		(2,383)		—		(2,383)
Balances, July 31, 2019	6,767,237	$	677	$	65,778	$	180,873	$	(11,371)	$	235,957

Balances, October 31, 2019	6,767,237	$	677	$	66,350	$	182,151	$	(8,933)	$	240,245
Net loss	—		—		—		(2,658)		—		(2,658)
Other comprehensive income (loss)	—		—		—		—		5,039		5,039
Stock–based compensation expense, net of taxes withheld for vested restricted shares	47,750		5		916		—		—		921
Exercise of common stock options	3,738		—		67		—		—		67
Stock repurchases	(253,562)		(25)		(6,975)		—		—		(7,000)
Dividends paid	—		—		—		(2,568)		—		(2,568)
Balances, July 31, 2020	6,565,163	$	657	$	60,358	$	176,925	$	(3,894)	$	234,046


	July 31, 2020			October 31, 2019
	Balance Sheet	Fair		Balance Sheet	Fair
Derivatives	Location	Value		Location	Value
Designated as Hedging Instruments:
Foreign exchange forward contracts	Derivative assets	$	187	Derivative assets	$	751
Foreign exchange forward contracts	Derivative liabilities	$	496	Derivative liabilities	$	99

Not Designated as Hedging Instruments:
Foreign exchange forward contracts	Derivative assets	$	180	Derivative assets	$	640
Foreign exchange forward contracts	Derivative liabilities	$	1,329	Derivative liabilities	$	289


					Location of Gain	Amount of Gain
	Amount of Gain (Loss)				(Loss) Reclassified	(Loss) Reclassified
	Recognized in Other				from Other	from Other
	Comprehensive				Comprehensive	Comprehensive
Derivatives	Income (Loss)				Income (Loss)	Income (Loss)
	Three Months Ended					Three Months Ended
	July 31,					July 31,
	2020		2019			2020		2019
Designated as Hedging Instruments:
(Effective portion)
Foreign exchange forward contracts – Intercompany sales/purchases	$	(480)	$	446	Cost of sales and service	$	158	$	(39)
Foreign exchange forward contract – Net investment	$	(193)	$	41


	Location of Gain
	(Loss) Recognized	Amount of Gain (Loss)
Derivatives	in Operations	Recognized in Operations
		Three Months Ended
		July 31,
		2020		2019
Not Designated as Hedging Instruments:
Foreign exchange forward contracts	Other income (expense), net	$	(1,784)	$	138


	Foreign Currency		Cash Flow
	Translation		Hedges		Total
Balance, April 30, 2020	$	(9,894)	$	1,546	$	(8,348)
Other comprehensive income (loss) before reclassifications		5,092		(480)		4,612
Reclassifications		—		(158)		(158)
Balance, July 31, 2020	$	(4,802)	$	908	$	(3,894)


		Weighted Average
	Stock Options	Exercise Price
Outstanding at October 31, 2019	37,045	$	21.69
Options granted	—		—
Options exercised	(3,738)		18.13
Options cancelled	—		—
Outstanding at July 31, 2020	33,307	$	22.09


	Options Already Vested and
	Currently Exercisable
Number of outstanding options		33,307
Weighted average remaining contractual life (years)		1.72
Weighted average exercise price per share	$	22.09
Intrinsic value of outstanding options	$	188,000


		Weighted Average Grant
	Number of Shares	Date Fair Value
Unvested at October 31, 2019	200,482	$	39.62
Shares or units granted	102,761		37.54
Shares or units vested	(47,750)		38.35
Shares or units cancelled	(10,164)		40.88
Shares or units withheld	(13,369)		37.38
Unvested at July 31, 2020	231,960	$	39.03


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2020		2019		2020		2019

Cash flows from operating activities:
Net income (loss)	$	2,162	$	3,491	$	(2,658)	$	15,397
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Provision (benefit) for doubtful accounts		290		(52)		417		(191)
Deferred income taxes		142		(3)		201		(29)
Equity in income (loss) of affiliates		(11)		(113)		(77)		(521)
Depreciation and amortization		1,246		916		3,418		2,761
Foreign currency (gain) loss		(1,603)		433		(36)		77
Unrealized (gain) loss on derivatives		1,823		(326)		1,842		(547)
Stock–based compensation		640		664		1,419		2,097
Change in assets and liabilities:		—
(Increase) decrease in accounts receivable		(3,409)		5,768		11,595		16,168
(Increase) decrease in inventories		3,665		(6,937)		(1,093)		(17,507)
(Increase) decrease in prepaid expenses		(487)		362		(5,055)		(1,000)
Increase (decrease) in accounts payable		1,164		(4,376)		(3,127)		(11,992)
Increase (decrease) in accrued expenses		457		(473)		(5,932)		(4,114)
Increase (decrease) in accrued income tax		(526)		(523)		(2,006)		(3,268)
Net change in operating lease assets and liabilities		15		—		366		—
Net change in derivative assets and liabilities		245		(82)		40		294
Other		(793)		(221)		871		(690)
Net cash provided by (used for) operating activities		5,020		(1,472)		185		(3,065)

Cash flows from investing activities:
Proceeds from sale of equipment		1		37		128		68
Purchase of property and equipment		(89)		(1,328)		(478)		(2,609)
Software development costs		(236)		(455)		(692)		(1,424)
Other investments		—		333		—		333
Net cash provided by (used for) investing activities		(324)		(1,413)		(1,042)		(3,632)

Cash flows from financing activities:
Dividends paid		(875)		(818)		(2,568)		(2,383)
Taxes paid related to net settlement of restricted shares		—		—		(498)		(499)
Proceeds from exercise of common stock options		67		—		67		—
Stock repurchases		(3,088)		—		(7,000)		—
Repayment of short-term debt		—		—		—		(1,454)


Current assets	$	349
Property plant and equipment		452
Intangibles		1,190
Goodwill		2,458
Total assets		4,449
Current liabilities		96
Total liabilities		96

Total purchase price and cash expended	$	4,353


	July 31,		October 31,
	2020		2019
Purchased parts and sub–assemblies	$	31,277	$	32,074
Work–in–process		12,938		20,901
Finished goods		110,608		95,876
	$	154,823	$	148,851


2020	$	4,015
2021		3,149
2022		2,224
2023		1,482
2024 and thereafter		2,531
Total	$	13,401


	Nine Months Ended
	July 31, 2020
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities	$	3,655
Noncash information:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	2,250


Remainder of 2020	$	1,192
2021		4,040
2022		2,957
2023		1,846
2024 and thereafter		3,217
Total		13,252
Less: Imputed interest		(448)
Present value of operating lease liabilities	$	12,804


	Assets				Liabilities
	July 31, 2020		October 31, 2019		July 31, 2020		October 31, 2019
Level 1
Deferred Compensation	$	1,836	$	1,991	$	—	$	—

Level 2
Derivatives	$	367	$	1,391	$	1,825	$	388


				Contract Amount at
	Notional	Weighted		Forward Rates in
	Amount	Average		U.S. Dollars
Forward	in Foreign	Forward		Contract	July 31,
Contracts	Currency	Rate		Date	2020	Maturity Dates
Sale Contracts:
Euro	4,700	1.1241		5,283	5,559	Aug 2020 - Jul 2021
Pound Sterling	1,925	1.2914		2,486	2,524	Aug 2020 - Jul 2021

Purchase Contracts:
New Taiwan Dollar*	340,000	29.252	*	11,623	11,804	Aug 2020 - Jul 2021


			Contract Amount at Forward Rates in
	Notional	Weighted	U.S. Dollars
Forward	Amount	Avg.	Contract	July 31,
Contract	in Foreign Currency	Forward Rate	Date	2020	Maturity Date
Sale Contracts:
Euro	3,000	1.1231	3,369	3,546	Nov 2020


						Approximate
				Total Number of		Dollar Value of
				Shares		Shares that
				Purchased as		May Yet Be
				Part of Publicly		Purchased
	Total Number		Average Price	Announced		Under Plans or
	of Shares		Paid per	Plans or		Programs
	Purchased		Share⁽¹⁾	Programs		($ in millions) ⁽¹⁾
May 2020	41,324	$	30.41	41,324	$	1.7
June 2020	49,672	$	28.88	49,672	$	0.3
July 2020	10,692	$	28.23	10,692	$	0.0
Total	101,688			101,688

3.1		Amended and Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.

3.2		Amended and Restated By-Laws of the Registrant as amended through November 16, 2017, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 17, 2017.

31.1		Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.2		Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32.1		Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity; and (vi) Notes to Condensed Consolidated Financial Statements

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	HURCO COMPANIES, INC.


	By:	/s/ Sonja K. McClelland
		Sonja K. McClelland
		Executive Vice President, Secretary, Treasurer
		& Chief Financial Officer

/s/ Michael Doar
Michael Doar
Chairman and Chief Executive Officer
September 4, 2020