Hurco Companies Inc 10-Q for FY2022 Q3

Hurco Companies Inc (HURC)

10-Q 2022-09-02 For: 2022-07-31

Added on April 09, 2026

About this 10-Q

Hurco Companies Inc filed this 10-Q on September 2, 2022, covering the quarter ended July 31, 2022 (FY2022 Q3).

Headline figures

Quarter ended July 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $57.64M; up 6.4% from $54.18M a year earlier
Net income: $1.24M; down 21.0% from net income of $1.57M a year earlier
Diluted EPS: $0.18; down 21.7% from $0.23 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	The Nasdaq Stock Market LLC

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, 2022 and 2021	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months Ended July 31, 2022 and 2021	4

	Condensed Consolidated Balance Sheets as of July 31, 2022 and October 31, 2021	5

	Condensed Consolidated Statements of Cash Flows Three and Nine Months Ended July 31, 2022 and 2021	6

	Condensed Consolidated Statements of Changes in Shareholders’ Equity Three and Nine Months Ended July 31, 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

Part II - Other Information

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

Signatures		33


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2022		2021		2022		2021

Sales and service fees	$	57,640	$	54,178	$	187,352	$	166,213

Cost of sales and service		43,241		41,204		140,444		126,898

Gross profit		14,399		12,974		46,908		39,315

Selling, general and administrative expenses		12,647		10,331		36,859		32,172

Operating income (loss)		1,752		2,643		10,049		7,143

Interest expense		9		2		22		23

Interest income		16		17		69		33

Investment income (loss)		(11)		8		170		154

Other income (expense), net		(22)		11		(440)		(37)

Income (loss) before income taxes		1,726		2,677		9,826		7,270

Provision (benefit) for income taxes		488		1,109		3,024		2,602

Net income (loss)	$	1,238	$	1,568	$	6,802	$	4,668

Income (loss) per common share

Basic	$	0.19	$	0.23	$	1.02	$	0.70
Diluted	$	0.18	$	0.23	$	1.01	$	0.70

Weighted average common shares outstanding

Basic		6,567		6,601		6,585		6,591
Diluted		6,629		6,618		6,637		6,605

Dividends paid per share	$	0.15	$	0.14	$	0.44	$	0.41


	July 31,		October 31,
	2022		2021
	(unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	73,536	$	84,063
Accounts receivable, net		35,722		42,620
Inventories, net		159,818		148,216
Derivative assets		2,953		905
Prepaid assets		8,438		13,091
Other		204		975
Total current assets		280,671		289,870
Property and equipment:
Land		868		868
Building		7,352		7,352
Machinery and equipment		27,703		29,533
Leasehold improvements		4,643		5,172
		40,566		42,925
Less accumulated depreciation and amortization		(31,483)		(32,318)
Total property and equipment, net		9,083		10,607
Non–current assets:
Software development costs, less accumulated amortization		7,363		7,553
Intangible assets, net		1,322		1,565
Operating lease - right of use assets, net		8,804		10,624
Deferred income taxes		2,617		3,154
Investments and other assets, net		9,246		9,562
Total non–current assets		29,352		32,458
Total assets	$	319,106	$	332,935

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	48,104	$	48,881
Customer deposits		6,187		8,593
Derivative liabilities		2,226		467
Operating lease liabilities		3,839		4,221
Accrued payroll and employee benefits		8,816		10,389
Accrued income taxes		1,873		1,192
Accrued expenses		5,914		5,911
Accrued warranty expenses		1,437		1,516
Total current liabilities		78,396		81,170
Non–current liabilities:
Deferred income taxes		67		68
Accrued tax liability		1,314		1,749
Operating lease liabilities		5,306		6,794
Deferred credits and other		4,255		4,735
Total non–current liabilities		10,942		13,346
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; 6,645,352 and 6,691,052 shares issued and 6,566,994 and 6,617,717 shares outstanding, as of July 31, 2022 and October 31, 2021, respectively		657		662
Additional paid-in capital		63,334		63,924
Retained earnings		179,449		175,574
Accumulated other comprehensive loss		(13,672)		(1,741)
Total shareholders’ equity		229,768		238,419
Total liabilities and shareholders’ equity	$	319,106	$	332,935


	Three Months Ended July 31, 2022 and 2021
								Accumulated
	Common Stock			Additional				Other
	Shares			Paid–in		Retained		Comprehensive
	Outstanding	Amount		Capital		Earnings		Income (Loss)		Total
Balances, April 30, 2021	6,601,406	$	660	$	62,177	$	173,795	$	(32)	$	236,600
Net income (loss)	—		—		—		1,568		—		1,568
Other comprehensive income (loss)	—		—		—		—		(989)		(989)
Stock–based compensation expense, net of taxes withheld for vested restricted shares	—		—		699		—		—		699
Dividends paid	—		—		—		(951)		—		(951)
Balances, July 31, 2021	6,601,406	$	660	$	62,876	$	174,412	$	(1,021)	$	236,927

Balances, April 30, 2022	6,566,994	$	657	$	62,543	$	179,215	$	(10,764)	$	231,651
Net income (loss)	—		—		—		1,238		—		1,238
Other comprehensive income (loss)	—		—		—		—		(2,908)		(2,908)
Stock–based compensation expense, net of taxes withheld for vested restricted shares	—		—		791		—		—		791
Dividends paid	—		—		—		(1,004)		—		(1,004)
Balances, July 31, 2022	6,566,994	$	657	$	63,334	$	179,449	$	(13,672)	$	229,768


	Nine Months Ended July 31, 2022 and 2021
								Accumulated
	Common Stock			Additional				Other
	Shares			Paid–in		Retained		Comprehensive
	Outstanding	Amount		Capital		Earnings		Income (Loss)		Total
Balances, October 31, 2020	6,565,163	$	657	$	60,997	$	172,484	$	(2,990)	$	231,148
Net income (loss)	—		—		—		4,668		—		4,668
Other comprehensive income (loss)	—		—		—		—		1,969		1,969
Stock–based compensation expense, net of taxes withheld for vested restricted shares	36,243		3		1,879		—		—		1,882
Dividends paid	—		—		—		(2,740)		—		(2,740)
Balances, July 31, 2021	6,601,406	$	660	$	62,876	$	174,412	$	(1,021)	$	236,927

Balances, October 31, 2021	6,617,717	$	662	$	63,924	$	175,574	$	(1,741)	$	238,419
Net income (loss)	—		—		—		6,802		—		6,802
Other comprehensive income (loss)	—		—		—		—		(11,931)		(11,931)
Stock–based compensation expense, net of taxes withheld for vested restricted shares	33,761		3		2,175		—		—		2,178
Exercise of common stock options	5,437		1		116		—		—		117
Stock repurchases	(89,921)		(9)		(2,881)		—		—		(2,890)
Dividends paid	—		—		—		(2,927)		—		(2,927)
Balances, July 31, 2022	6,566,994	$	657	$	63,334	$	179,449	$	(13,672)	$	229,768


	July 31, 2022			October 31, 2021
	Balance Sheet	Fair		Balance Sheet	Fair
Derivatives	Location	Value		Location	Value
Designated as Hedging Instruments:
Foreign exchange forward contracts	Derivative assets	$	2,278	Derivative assets	$	646
Foreign exchange forward contracts	Derivative liabilities	$	1,915	Derivative liabilities	$	403

Not Designated as Hedging Instruments:
Foreign exchange forward contracts	Derivative assets	$	675	Derivative assets	$	259
Foreign exchange forward contracts	Derivative liabilities	$	311	Derivative liabilities	$	64


					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,
	2022		2021			2022		2021
Designated as Hedging Instruments:
(Effective portion)
Foreign exchange forward contracts – Intercompany sales/purchases	$	95	$	(277)	Cost of sales and service	$	(76)	$	(20)
Foreign exchange forward contract – Net investment	$	89	$	44


	Location of Gain
	(Loss) Recognized	Amount of Gain (Loss)
Derivatives	in Operations	Recognized in Operations
		Three Months Ended
		July 31,
		2022		2021
Not Designated as Hedging Instruments:
Foreign exchange forward contracts	Other income (expense), net	$	1,059	$	602


	Foreign Currency		Cash Flow
	Translation		Hedges		Total
Balance, April 30, 2022	$	(11,211)	$	447	$	(10,764)
Other comprehensive income (loss) before reclassifications		(3,079)		95		(2,984)
Reclassifications		—		76		76
Balance, July 31, 2022	$	(14,290)	$	618	$	(13,672)


	Foreign		Cash
	Currency		Flow
	Translation		Hedges		Total
Balance, October 31, 2021	$	(1,668)	$	(73)	$	(1,741)
Other comprehensive income (loss) before reclassifications		(12,622)		389		(12,233)
Reclassifications		—		302		302
Balance, July 31, 2022	$	(14,290)	$	618	$	(13,672)


			Weighted Average
	Stock Options		Exercise Price
Outstanding at October 31, 2021		16,996	$	22.71
Options granted		—		—
Options exercised		(5,437)		21.45
Options cancelled		—		—
Outstanding at July 31, 2022		11,559	$	23.30


	Options Already Vested and
	Currently Exercisable
Number of outstanding options		11,559
Weighted average remaining contractual life (years)		0.37
Weighted average exercise price per share	$	23.3
Intrinsic value of outstanding options	$	23,500


	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2022		2021		2022		2021

Cash flows from operating activities:
Net income (loss)	$	1,238	$	1,568	$	6,802	$	4,668
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Provision for doubtful accounts		14		(1)		(179)		226
Deferred income taxes		(70)		192		(5)		703
Equity in loss (income) of affiliates		(72)		(33)		(462)		(69)
Foreign currency (gain) loss		836		229		2,018		(431)
Unrealized (gain) loss on derivatives		152		(163)		(176)		(306)
Depreciation and amortization		1,049		1,034		2,956		3,150
Stock–based compensation		791		699		2,386		2,079
Change in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable		(2,154)		5,022		4,408		(3,851)
(Increase) decrease in inventories		(9,518)		(4,871)		(22,194)		2,483
(Increase) decrease in prepaid expenses		256		481		5,638		(680)
Increase (decrease) in accounts payable		(814)		4,200		2,937		13,542
Increase (decrease) in customer deposits		220		(107)		(1,924)		2,690
Increase (decrease) in accrued expenses		1,195		660		1,057		694
Increase (decrease) in accrued payroll and employee benefits		667		(548)		(1,573)		287
Increase (decrease) in accrued income tax		(67)		216		813		432
Net change in derivative assets and liabilities		104		7		75		170
Other		302		(71)		(136)		661
Net cash provided by (used for) operating activities		(5,871)		8,514		2,441		26,448

Cash flows from investing activities:
Proceeds from sale of property and equipment		2		—		103		3
Purchase of property and equipment		(320)		(325)		(828)		(1,001)
Software development costs		(202)		(227)		(800)		(833)
Other investments		—		(28)		—		(210)
Net cash provided by (used for) investing activities		(520)		(580)		(1,525)		(2,041)

Cash flows from financing activities:
Proceeds from exercise of common stock options		—		—		117		—
Dividends paid		(1,004)		(951)		(2,927)		(2,740)
Taxes paid related to net settlement of restricted shares		—		—		(208)		(197)
Stock repurchases		—		—		(2,890)		—


			Weighted Average Grant
	Number of Shares		Date Fair Value
Unvested at October 31, 2021		262,556	$	34.84
Shares or units granted		112,614		32.05
Shares or units vested		(33,761)		34.90
Shares or units cancelled		(61,500)		38.41
Shares withheld		(6,806)		34.03
Unvested at July 31, 2022		273,103	$	32.90


	July 31,		October 31,
	2022		2021
Purchased parts and sub–assemblies	$	47,214	$	37,527
Work–in–process		19,906		17,559
Finished goods		92,698		93,130
	$	159,818	$	148,216


Remainder of 2022	$	1,143
2023		3,768
2024		1,998
2025		974
2026		574
2026 and thereafter		988
Total		9,445
Less: Imputed interest		(300)
Present value of operating lease liabilities	$	9,145



	Assets				Liabilities
	July 31, 2022		October 31, 2021		July 31, 2022		October 31, 2021
Level 1
Deferred compensation	$	2,124	$	2,481	$	—	$	—

Level 2
Derivatives	$	2,953	$	905	$	2,226	$	467


				Contract Amount at
	Notional	Weighted		Forward Rates in
	Amount	Avg.		U.S. Dollars
Forward	in Foreign	Forward		Contract	July 31,
Contracts	Currency	Rate		Date	2022	Maturity Dates
Sale Contracts:
Euro	26,750	1.0838		28,992	27,595	Aug 2022 - July 2023
Sterling	5,750	1.2857		7,393	7,024	Aug 2022 - July 2023

Purchase Contracts:
New Taiwan Dollar	980,000	28.1293	*	34,839	33,054	Aug 2022 - July 2023


			Contract Amount at Forward Rates in
	Notional	Weighted	U.S. Dollars
Forward	Amount	Avg.	Contract	July 31,
Contracts	in Foreign Currency	Forward Rate	Date	2022	Maturity Date
Sale Contracts:
Euro	3,000	1.1557	3,467	3,084	Nov 2022

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 March 12, 2021, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 12, 2021.

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, 2022, 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, Treasurer & Chief Financial Officer
		September 2, 2022

Arch
/s/ Gregory Volovic
Gregory Volovic
Chief Executive Officer
September 2, 2022