Hardinge Inc. (NASDAQ:HDNG), a leading international provider of advanced metal-cutting solutions and accessories, reported financial results for its second quarter ended June 30, 2017.

Chuck Dougherty, President and Chief Executive Officer, commented, “We had a strong quarter driven by improved industrial economies in North America and Asia that resulted in higher machine sales. Importantly, we had a very healthy level of orders that support our expectation of a solid 2017.”

He added, “I joined the Company in May and have found an organization with a strong foundation from which we can build. We have global capabilities in operations, engineering and sales, great brands and outstanding people. Of note, we have an exceptional position in China, both in capabilities and market presence. There are opportunities to better leverage our scale in areas such as our supply chain and go-to-market strategy. And, I believe there is more potential to improve efficiencies through common systems and processes across our businesses. Our current focal areas are in completing the announced restructuring activities and developing a plan for optimizing our global footprint to create greater earnings power, as we develop a strategy to define our longer term priorities.”

For the announced restructuring activities, the program is expected to be completed by mid-2018 and generate pre-tax annualized savings of $2.0 million to $2.5 million. Total restructuring costs are expected to be in the range of $3.8 million to $4.3 million, of which $1.6 million is non-cash.

(1)Management believes that the use of non-GAAP measures helps in the understanding of the Company's operating performance. See page 9 of this release for the reconciliation tables between reported amounts and non-GAAP measures discussed in this document.

Sales, Orders and Backlog for Second Quarter and First Half of 2017

North America: Sales of $24.2 million in the quarter grew by 17% due to improved industrial market conditions from the impact of the recovery in the oil and gas industry on other industrial businesses. Orders for the region were up 6% in the quarter driven by $1.9 million in orders by a key distributor.

For the first six months of 2017, sales to North America were up 15% to $43.8 million and orders increased 3% to $50.7 million.

Europe: Sales in Europe of $22.2 million were unchanged mostly as the result of the timing of machine orders. Orders in the region were up 12% driven by an improving industrial economy in Europe. Excluding unfavorable foreign currency translation of $0.6 million and $0.9 million on sales and orders, respectively, sales increased 3% and orders increased 15%.

For the first six months of 2017, sales to Europe of $39.9 million were down 13% while orders increased 17% to $51.3 million. Excluding unfavorable foreign currency translation, sales decreased 11% and orders increased 20%.

Asia: Sales of $31.7 million and orders of $35.7 million for the quarter were up 16% and 25%, respectively, as the economy in Asia has stabilized driving more investment in automation and machine tools by industrial manufacturers. Excluding unfavorable foreign currency impact of $0.9 million on both sales and orders, sales were up 20% and orders increased 28%.

For the first half of 2017, sales of $59.0 million and orders of $63.7 million were up 10% and 21%, respectively. Excluding unfavorable foreign currency translation of $1.9 million on sales and $1.8 million on orders, sales were up 13% and orders increased 25%.

Consolidated backlog: Backlog at June 30, 2017 was $144.9 million, up 14% over the trailing first quarter and improved 32% compared with June 30, 2016.

Second Quarter Operating Review

  • Gross profit increased $3.1 million, or 13%, on higher volume. As a percent of sales, gross profit was 34.1% in the quarter.
  • Higher selling, general and administrative (SG&A) expenses included $1.1 million in unusual costs associated with the executive search and severance expenses. Excluding those costs, and the $0.4 million of professional fees related to the strategic review in the prior-year period, SG&A declined $0.4 million in the quarter.
  • Operating income increased $1.9 million as a result of strong operating leverage. Operating margin expanded 2.4 points to 2.8% of sales.
  • Adjusted Non-GAAP operating income(1) was $3.9 million in the quarter, up significantly from $0.9 million in the prior-year period. The adjusted operating margin was 5.0%, a 3.7 point expansion.
  • Net income was $2.5 million, or $0.20 per diluted share, up from $0.1 million, or $0.01 per diluted share in the prior-year period. Adjusted Non-GAAP income(1) was $4.2 million, or $0.33 per diluted share, a more than four-fold increase over last year’s second quarter.

First Half 2017 Review

  • For the first half, gross profit was $48.0 million, improved $1.7 million on higher sales. Gross margin was relatively unchanged from the prior period.
  • SG&A was down $2.1 million, or 5%, primarily as a result of reduced commissions and sales and marketing spend.
  • Adjusted Non-GAAP operating income(1) for the first half of 2017 was $3.7 million, up from $0.6 million in the first half of 2016. The adjusted operating margin was 2.6%, a 2.2 point expansion from leverage on higher volume.
  • Net income was $0.5 million, or $0.04 per diluted share, improved from a $1.1 million loss, or $(0.09) per diluted share, in the first half of 2016. Adjusted Non-GAAP income(1) was $3.7 million, or $0.29 per diluted share, up significantly from $0.4 million, or $0.03 per diluted share last year.

Suspension of Dividend

Hardinge’s Board of Directors has elected to suspend the quarterly cash dividend to shareholders in consideration of its development of a long-term strategy for growth, the re-evaluation of its capital allocation priorities and the nominal value of the current dividend of $0.08 per share, or $1.0 million per year.

Webcast and Conference Call

Hardinge will host a conference call and webcast today at 11:00 a.m. ET. During the conference call and webcast, Charles P. Dougherty, President and CEO, and Douglas J. Malone, Senior Vice President and CFO, will review the financial and operating results for the quarter, as well as the Company’s strategy and outlook. A question and answer session will follow the formal discussion. Their review will be accompanied by a slide presentation which will be available on Hardinge’s website at http://ir.hardinge.com/events.cfm.

The conference call can be accessed by calling (201) 689- 8560. The listen-only audio webcast can be monitored at http://ir.hardinge.com/events.cfm.

A telephonic replay will be available from 2:00 p.m. ET the day of the call through Thursday, August 10, 2017. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13665317. Alternatively, the archive can be heard on the Company’s website at http://ir.hardinge.com/events.cfm. A transcript will also be posted to the website, once available.

About Hardinge

Hardinge is a leading global designer and manufacturer of high precision, computer-controlled machine tool solutions developed for critical, hard-to-machine metal parts and of technologically advanced workholding accessories. The Company’s strategy is to leverage its global brand strength to further penetrate global market opportunities where customers will benefit from the technologically advanced, high quality, reliable products Hardinge produces. With approximately two-thirds of its sales outside of North America, Hardinge serves the worldwide metal working market. Hardinge’s machine tool and accessory solutions can also be found in a broad base of industries to include aerospace, agricultural, automotive, construction, consumer products, defense, energy, medical, technology and transportation.

Hardinge applies its engineering design and manufacturing expertise in high performance machining centers, high-end cylindrical and jig grinding machines, SUPER-PRECISION® and precision CNC lathes and technologically advanced workholding accessories. Hardinge has manufacturing operations in China, France, Germany, India, Switzerland, Taiwan, the United Kingdom and the United States.

The Company regularly posts information on its website: http://www.hardinge.com.

Safe Harbor Statement

This news release contains forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). Such statements are based on management's current expectations that involve risks and uncertainties. Any statements that are not statements of historical fact or that are about future events may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. The Company's actual results or outcomes and the timing of certain events may differ significantly from those discussed in any forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

 

HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)

 
     

Three Months Ended
June 30,

  

Six Months Ended
June 30,

2017   2016 2017   2016
(unaudited) (unaudited)
 
Sales $ 78,197 $ 70,186 $ 142,754 $ 138,007
Cost of sales 51,568   46,633   94,738   91,711  
Gross profit 26,629 23,553 48,016 46,296
Gross profit margin 34.1 % 33.6 % 33.6 % 33.5 %
 
Selling, general and administrative expenses 20,081 19,637 38,103 40,230
Research & development 3,777 3,369 7,335 6,656
Restructuring 542 226 1,978 426
Other expense (income), net 37   20   192   (72 )
Income (loss) from operations 2,192 301 408 (944 )
Operating margin 2.8 % 0.4 % 0.3 % (0.7 )%
 
Interest expense 104 132 210 285
Interest income (38 ) (69 ) (79 ) (136 )
Income (loss) before income taxes 2,126 238 277 (1,093 )
Income tax (benefit) expense (396 ) 93   (198 ) 8  
Net Income (loss) $ 2,522   $ 145   $ 475   $ (1,101 )
 
Per share data:
 
Basic earnings (loss) per share: $ 0.20   $ 0.01   $ 0.04   $ (0.09 )
 
Diluted earnings (loss) per share: $ 0.20   $ 0.01   $ 0.04   $ (0.09 )
 
Cash dividends declared per share: $ 0.02   $ 0.02   $ 0.04   $ 0.04  
 
Weighted avg. shares outstanding: Basic 12,894   12,812   12,887   12,804  
Weighted avg. shares outstanding: Diluted 12,932   12,901   12,921   12,804  
 
 

HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)

 
   

June 30,
2017

  

December 31,
2016

(Unaudited)
Assets
Cash and cash equivalents $ 26,369 $ 28,255
Restricted cash 2,509 2,923
Accounts receivable, net 55,071 55,573
Inventories, net 118,478 107,018
Other current assets 11,321   6,926  
Total current assets 213,748 200,695
 
Property, plant and equipment, net 57,192 56,961
Goodwill 6,658 6,579
Other intangible assets, net 26,698 26,730
Other non-current assets 6,047   6,585  
Total non-current assets 96,595   96,855  
Total assets $ 310,343   $ 297,550  
 
Liabilities and shareholders’ equity
Notes payable to bank $ 99 $ 703
Accounts payable 25,982 24,217
Accrued expenses 27,140 25,629
Customer deposits 23,063 18,215
Accrued income taxes 671 1,160
Current portion of long-term debt 4,636   2,923  
Total current liabilities 81,591 72,847
 
Long-term debt — 2,970
Pension and postretirement liabilities 57,635 58,840
Deferred income taxes 4,343 3,800
Other liabilities 1,669   3,152  
Total non-current liabilities 63,647 68,762
Commitments and contingencies
Common stock ($0.01 par value, 20,000,000 authorized; shares issued 12,943,789 and 12,903,037) 129 129
Additional paid-in capital 121,489 121,015
Retained earnings 89,510 89,557
Treasury shares (at cost, 0 and 9,243) — (104 )
Accumulated other comprehensive loss (46,023 ) (54,656 )
Total shareholders’ equity 165,105   155,941  
Total liabilities and shareholders’ equity $ 310,343   $ 297,550  
 
 

HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)

 
   

Six Months Ended
June 30,

2017   2016
(Unaudited)
Operating activities
Net income (loss) $ 475 $ (1,101 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Impairment 1,401 —
Depreciation and amortization 4,411 4,098
Debt issuance costs amortization 65 66
Deferred income taxes 132 (119 )
Gain on sale of assets (16 ) (4 )
Unrealized foreign currency transaction gain (819 ) (116 )
Changes in operating assets and liabilities:
Accounts receivable 2,261 11,826
Restricted cash 499 (331 )
Inventories (8,251 ) (7,720 )
Other assets (2,893 ) (1,330 )
Accounts payable 745 (2,170 )
Customer deposits 4,132 (3,886 )
Accrued expenses (2,381 ) (5,211 )
Accrued pension and postretirement liabilities (19 ) (41 )
Net cash used in operating activities (258 ) (6,039 )
 
Investing activities
Capital expenditures (968 ) (992 )
Proceeds from sales of assets 16   37  
Net cash used in investing activities (952 ) (955 )
 
Financing activities
Proceeds from short-term notes payable to bank 12,418 28,871
Repayments of short-term notes payable to bank (13,062 ) (28,643 )
Repayments of long-term debt (1,456 ) (2,271 )
Dividends paid (516 ) (536 )
Net cash used in financing activities (2,616 ) (2,579 )
 
Effect of exchange rate changes on cash 1,940   167  
Net decrease in cash (1,886 ) (9,406 )
 
Cash and cash equivalents at beginning of period 28,255   32,774  
 
Cash and cash equivalents at end of period $ 26,369   $ 23,368  
 

 

Quarterly Sales by Region
($ in thousands)

    Quarter Ended
    June 30, 2017   June 30, 2016   March 31, 2017
Sales to Customers in   $   % of Total   $  

Year-over-Year
% Change

   $  

Sequential
% Change

North America   24,220   31%   20,694   17%   19,583   24%
Europe 22,240 28% 22,242 —% 17,702 26%
Asia   31,737   41%   27,250   16%   27,272   16%
Total   78,197       70,186   11%   64,557   21%
 
 

Year-to-Date Sales by Region
($ in thousands)

    Six Months Ended
    June 30, 2017   June 30, 2016
Sales to Customers in   $   % of Total   $  

Year-over-
Year
% Change

North America   43,803   31%   38,144   15%
Europe 39,942 28% 46,084 (13)%
Asia   59,009   41%   53,779   10%
Total   142,754       138,007   3%
 
 

Quarterly Orders by Region
($ in thousands)

    Quarter Ended
    June 30, 2017   June 30, 2016   March 31, 2017
Orders from Customers in   $   % of Total   $  

Year-over-Year
% Change

   $  

Sequential
% Change

North America   27,003   29%   25,520   6%   23,669   14%
Europe 30,021 32% 26,859 12% 21,290 41%
Asia   35,692   38%   28,555   25%   27,987   28%
Total   92,716       80,934   15%   72,946   27%
 
 

Year-to-Date Orders by Region
($ in thousands)

    Six Months Ended
    June 30, 2017   June 30, 2016
Orders from Customers in   $   % of Total   $  

Year-over-
Year
% Change

North America   $ 50,672   31%   $ 49,423   3%
Europe 51,311 31% 43,988 17%
Asia   63,679   38%   52,448   21%
Total   165,662       145,859   14%
 

Hardinge believes that providing non-GAAP financial measures such as adjusted loss from operations, adjusted net income, and adjusted earnings per diluted share is important for investors and other readers of Hardinge's financial statements, as they are used as an analytical indicator by Hardinge management to better understand its operating performance.

 

HARDINGE INC. AND SUBSIDIARIES
Reconciliation of GAAP Income (Loss) from Operations to Non-GAAP Adjusted Income from Operations
(in thousands)

 
     

Three Months Ended
June 30, 2017

  

Three Months Ended
June 30, 2016

Amount   % of Sales Amount   % of Sales
 
Income from operations as reported $ 2,192 2.8 % $ 301 0.4 %
Adjustments to reported income from operations:
Restructuring charges 542 0.7 % 226 0.3 %
Professional fees for strategic review process — — % 404 0.6 %
Other adjustments 1,161   1.5 % —   — %
Non-GAAP income from operations as adjusted $ 3,895   5.0 % $ 931   1.3 %
 
 

Six Months Ended
June 30, 2017

Six Months Ended
June 30, 2016

Amount % of Sales Amount % of Sales
 
Income (loss) from operations as reported 408 0.3 % $ (944 ) (0.7 )%
Adjustments to reported income (loss) from operations:
Restructuring charges 1,978 1.4 % 426 0.3 %
Professional fees for strategic review process — — % 1,103 0.8 %
Other adjustments 1,303   0.9 % —   — %
Non-GAAP income from operations as adjusted $ 3,689   2.6 % $ 585   0.4 %
 
 

HARDINGE INC. AND SUBSIDIARIES
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income
(in thousands, except per share data)

 
     

Three Months Ended
June 30, 2017

  

Three Months Ended
June 30, 2016

Amount   EPS Amount   EPS
 
Net income as reported $ 2,522 $ 0.20 $ 145 $ 0.01
Adjustments to reported net income, pre-tax: (1)
Restructuring charges 496 0.04 226 0.02
Professional fees for strategic review process — — 404 0.03
Other adjustments 1,161   0.09   —   —  
Non-GAAP net income as adjusted $ 4,179   $ 0.33   $ 775   $ 0.06  
 
 
Six Months Ended
June 30, 2017		 Six Months Ended
June 30, 2016
Amount EPS Amount EPS
 
Net (loss) income as reported $ 475 $ 0.04 $ (1,101 ) $ (0.09 )
Adjustments to reported net (loss) income, pre-tax: (1)
Restructuring charges 1,926 0.15 426 0.03
Professional fees for strategic review process — — 1,103 0.09
Other adjustments 1,303   0.10   —   —  
Non-GAAP net income as adjusted $ 3,704   $ 0.29   $ 428   $ 0.03  
 

(1) items have no tax effect due to full tax valuation allowances in the related jurisdictions.