A Winmax for Hurco

If you are connecting to this blog entry from my message board post on 3/26/2008, please follow this link:

http://regulationfd.blogspot.com/2008/03/just-another-great-q.html

I insterted the wrong link on the message board. Sorry


In March, I wrote about Hurco Corporation ( "Hurco" or Ticker Symbol: HURC ), a designer and producer of machine tools. My original blog entry on Hurco can be found here.

Last week, I talked with Mr. John Oblazney, Hurco's CFO, and I have provided a summary of our discussion below. While I tried to quote Mr. Oblazney as much as possible, we had a very fluid conversation that didn't lend itself to taking detailed notes. As such, please assume that everything below is either paraphrased or my personal interpretation of his comments.



Is the Winmax control system currently available for shipment?

Yes. The Winmax control system began shipping in the last couple of days.

Were customers delaying orders at all in anticipation of the new control system?

No, not at all. It is a very easy upgrade for our customers to make. It takes about a half hour to load with a flash drive and the upgrade is good for one machine.

It was my sense from Mr. Oblazney that the cost of an upgrade is not or was not significant enough to deter clients from purchasing machines prior to the actual release of the Winmax Control System.

To what extent do you expect existing customers to upgrade their existing machine tools?

From my conversation with Mr. Oblazney, it sounded like Hurco is expecting a high level of upgrade activity. At the same time, Mr. Oblazney indicated that some customers may wait awhile before upgrading their machines with the new software. The decision by some customers to wait on upgrading their software would be typical of any software upgrade.

I did not get the sense that upgrades were going to be a big driver of revenues like I had previously anticipated. Nonetheless, Winmax should make Hurco tools more competitive in terms of new sales.

Is the Winmax something that can be used on non-Hurco machines?

The Winmax system is really for Hurco machines. I don't expect much if any use on non-Hurco machines.

As the Winmax Control System is primarily a software product do you expect to see a boost in margins?

No, not directly. Our margins in any given quarter are primarily driven by product mix. To the extent that the Winmax Control System makes our higher end products more competitive, it will help our margins.

In the past couple of quarters, sales have accelerated a bit. Can you say how much of that was attributable to the IMTS trade show?

Our sales are tied more to the release of new products than to the trade shows themselves. At the same time, the release of new products often times coincides with the various shows.

Aside from the Winmax Control System, did you recently release any new products?

Yes. Around the same time as Winmax, Hurco released a swivel head five-axis machine and a lathe with a live tooling add-on.

Since the IMTS, has Hurco participated in any other trade shows?

Yes. Mr. Oblazney specifically discussed Westec, a smaller U.S. trade show, and the Indian Machine Tool Exhibition that was mentioned in the last earnings release.

According to AMTDA's machine tool consumption survey, consumption activity has dropped off a bit in the U.S. since the spike that followed the IMTS. Is this indicative of the activity Hurco is seeing in the U.S.?

Yes. In the last earnings report, we indicated that there has been some softening in the U.S. So, yes....I think that report is reflective of the activity we see in the U.S.

Recent economic reports and machine tool reports indicate there has been continued strength in Europe. Would you say that is reflective of what Hurco is seeing in Europe?

Yes.

Aside from the AMTDA are there any other reports that I should be following?

The AMTDA report is a good report. I will refer to that report and we have people attend the AMTDA conferences. We also get information from Gartner publications. It sounds like you are looking in the right places.

I understand Hurco has a sales office in China and is now adding a manufacturing facility. Can you comment on Hurco's activity in China and the appointment of Philip James to the Board of Directors?

Mr. Oblazney talked about the sales office and the new manufacturing facility Hurco is developing in China. As mentioned in the 10K, the manufacturing facility will add capacity and lower manufacturing costs. John discussed how the facility will initially serve as support for the Taiwanese manufacturing operations but eventually machines designed for the Chinese market will be manufactured at Ningbo. He also mentioned that a new bridge is being built in Ningo that will provide much better access to the area. I believe the bridge will specifically provide better access to and from Shanghai.

Philip James was added to the Board because of his extensive experience in conducting business in the region. It was a strategic decision.

For the first time I saw India mentioned in your 10K filing, can you discuss Hurco's activities in India?

We are establishing a sales office in India. Setting up business in India is more difficult than in China and we are in the very early stages of establishing our presence in India.

Hurco has a sizeable cash position right now? Is the cash position there as a cushion for when there is a shift in the business cycle, or does Hurco have any specific plans for that cash?

A combination of both. We are looking at ways to employ our cash position to grow our business.

Are you talking about funding internal growth or are you referring to potential acquisitions?

Both. But, recently we made reference to acquisition opportunities in one of our filings. This was the first time we have mentioned anything about an acquisition in our filings.



My call with John went very well. He was very informative and more than willing to provide as much information that he could provide.

Regards,
Tuff

Hurco Companies, Inc. (Public, NASDAQ:HURC)