Hardinge Reports First Quarter 2018 Results

ELMIRA, N.Y.--()--Hardinge Inc. (NASDAQ: HDNG), a leading international provider of advanced metal-cutting solutions and accessories, reported financial results for its first quarter ended March 31, 2018.

Sales, Orders and Backlog for First Quarter

Sales for the first quarter of 2018 increased 24% to $79.9 million driven by higher demand in all regions. Orders of $90.4 million were up 24%. Excluding favorable foreign currency translation of $4.2 million on sales and $5.0 million on orders, sales and orders both increased 17%.

Americas: Sales grew 10% to $21.5 million primarily from increased demand for workholding products. Orders for the region were $24.5 million, up 4% in the quarter, and have fluctuated from quarter to quarter as a result of changes being implemented with sales channel partners.

Europe: Sales in Europe of $21.2 million were up 20% from favorable mix of more complex grinding machines. Orders in the region were up 55% due to strengthening industrial conditions driving higher demand across all product lines. Excluding favorable foreign currency translation of $1.7 million on sales and $2.7 million on orders, sales increased 10% and orders increased 43%.

Asia: Sales of $37.2 million for the quarter were up 36% as strong demand in China was supplemented by high demand in other parts of Asia. Orders of $32.9 million increased 18%. Excluding favorable foreign currency impact of $2.5 million and $2.3 million on sales and orders, respectively, sales were up 27% and orders were up 9%.

Consolidated backlog: Backlog at March 31, 2018 was $144.3 million, up 14% from March 31, 2017.

First Quarter Operating Review

  • Gross profit was $28.1 million, an increase of $7.0 million, or 33% from higher sales volume and improved margins. As a percent of sales, gross profit was 35.2%, a 2.4 point improvement over the prior year quarter due to favorable mix.
  • Excluding professional services fees of $0.9 million in the current year and $0.1 million of other unusual costs in the prior year, selling, general and administrative (SG&A) expenses increased $2.0 million in the quarter due to higher commissions of $1.0 million related to increased volume, and unfavorable foreign currency translation of $1.0 million.
  • Operating income of $2.6 million increased $4.2 million as a result of higher volume partially offset by unusual costs in the current year. Operating margin expanded 5.6 points to 3.3% of sales.
  • Adjusted Non-GAAP operating income(1) was $4.9 million in the quarter, up significantly from $0.1 million in the prior-year period. Adjusted operating margin was 6.2%, a 6.1 point expansion.
  • Net income was $1.8 million, or $0.14 per diluted share, up from a $2.0 million loss, or $(0.16) per diluted share in the prior-year period. Adjusted Non-GAAP net income(1) was $4.1 million, or $0.31 per diluted share, a significant increase over last year’s adjusted net loss in the quarter.

(1)Management believes that the use of non-GAAP measures helps in the understanding of the Company's operating performance. See page 8 of this release for the reconciliation tables between reported amounts and non-GAAP measures discussed in this document.

Recent Merger Announcement

On February 12, 2018, Hardinge announced that it had entered into a definitive agreement with affiliates of Privet Fund Management LLC (“Privet”) under which Privet has agreed to acquire Hardinge for $18.50 per share in an all-cash transaction valued at approximately $245 million, subject to approval of Hardinge shareholders and other customary closing conditions.

In light of the announcement, Hardinge will not hold a conference call to discuss these financial results. There is a Special Meeting of Shareholders of Hardinge Inc., scheduled to be held on Tuesday, May 22, 2018, for shareholders to vote on the adoption of the agreement and plan of merger.

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.

Certain factors could cause actual results to differ from those anticipated in the forward-looking statements in this release, including the possibility that the proposed transaction with Privet is delayed or does not close, including due to the failure to receive required shareholder approval, due to litigation in respect of the Merger ,due to alternative acquisition proposals, the taking of governmental action (including the passage of legislation) to block the transaction, the failure of Privet to obtain the equity and debt financing or other funds required to finance the transaction, or the failure of other closing conditions, disruptions of our business as a result of the announcement and pursuit of the Merger, the possibility that the expected financial impacts will not be realized, or will not be realized within the expected time period, including as a result of fluctuations in the machine tool business, the cyclical nature of our markets, changes in general economic conditions in the U.S. or internationally, the mix of products sold and the profit margins thereon, the relative success of our entry into new product and geographic markets, our ability to manage our operating costs and announced cost reduction initiatives, product liability claims, work stoppages or other labor issues, our ability to execute on our previously announced real estate sale and other restructuring activities, actions taken by customers such as order cancellations or reduced bookings by customers or distributors, competitors’ actions such as price discounting or new product introductions, governmental regulations and environmental matters, loss of key management or other personnel, failure of operating equipment or information technology infrastructure, changes in the availability and cost of materials and supplies, the implementation of new technologies and currency fluctuations, and other risks and factors described in our quarterly reports on Form 10-Q and annual reports on Form 10-K and in our other filings with the Securities and Exchange Commission or in materials incorporated therein by reference.

The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

FINANCIAL TABLES FOLLOW.

     

HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except share and per share data)

 
Three Months Ended
March 31,
2018     2017
(unaudited)
 
Sales $ 79,882 $ 64,557
Cost of sales 51,744   43,388  
Gross profit 28,138 21,169
Gross profit margin 35.2 % 32.8 %
 
Selling, general and administrative expenses 20,361 17,574
Research & development 3,281 3,559
Restructuring 1,352 1,436
Other operating expense, net 509   155  
Income (loss) from operations 2,635 (1,555 )
Operating margin 3.3 % (2.4 )%
 
Other non-operating (income) expense, net (99 ) 230
Interest expense 49 105
Interest income (51 ) (40 )
Income (loss) before income taxes 2,736 (1,850 )
Income tax expense 917   198  
Net Income (loss) $ 1,819   $ (2,048 )
 
Per share data:
 
Basic earnings (loss) per share: $ 0.14   $ (0.16 )
 
Diluted earnings (loss) per share: $ 0.14   $ (0.16 )
 
Cash dividends declared per share: $   $ 0.02  
 
Weighted avg. shares outstanding: Basic 12,941   12,880  
Weighted avg. shares outstanding: Diluted 13,066   12,880  
 
         

HARDINGE INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share data)

 
March 31,
2018
December 31,
2017
(Unaudited)
Assets
Cash and cash equivalents $ 39,478 $ 44,958
Restricted cash 3,712 2,717
Accounts receivable, net 62,136 61,800
Inventories, net 109,445 104,502
Other current assets 9,313 9,076
Assets held for sale 5,770   5,647  
Total current assets 229,854 228,700
 
Property, plant and equipment, net 51,673 50,790
Goodwill 6,646 6,677
Other intangible assets, net 26,340 26,386
Other non-current assets 6,621   6,396  
Total non-current assets 91,280   90,249  
Total assets $ 321,134   $ 318,949  
 
Liabilities and shareholders’ equity
Accounts payable 27,671 26,362
Accrued expenses 27,502 31,695
Customer deposits 24,623 23,852
Accrued income taxes 1,542   1,370  
Total current liabilities 81,338 83,279
 
Pension and postretirement liabilities 46,255 49,122
Deferred income taxes 5,539 5,217
Other liabilities 2,366   2,405  
Total non-current liabilities 54,160 56,744
Commitments and contingencies
Common stock ($0.01 par value, 20,000,000 authorized; shares issued 12,966,148 and 12,963,164) 130 130
Additional paid-in capital 122,546 122,140
Retained earnings 96,702 94,882
Treasury shares (at cost, 2,000 and 0) (22 )
Accumulated other comprehensive loss (33,720 ) (38,226 )
Total shareholders’ equity 185,636   178,926  
Total liabilities and shareholders’ equity $ 321,134   $ 318,949  
 
     

HARDINGE INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

 
Three Months Ended
March 31,
2018     2017
(Unaudited)
Operating activities
Net income (loss) $ 1,819 $ (2,048 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Impairment 1,401
Depreciation and amortization 2,131 2,157
Debt issuance costs amortization 15 32
Deferred income taxes 113 143
(Gain) loss on sale of assets (63 ) (2 )
Unrealized foreign currency transaction loss (gain) 137 (387 )
Changes in operating assets and liabilities:
Accounts receivable 1,021 9,786
Inventories (2,963 ) (8,208 )
Other assets 323 (3,287 )
Accounts payable 734 1,056
Customer deposits 91 2,887
Accrued expenses (7,056 ) (4,823 )
Accrued pension and postretirement liabilities (124 ) (14 )
Net cash used in operating activities (3,822 ) (1,307 )
 
Investing activities
Capital expenditures (1,417 ) (480 )
Proceeds from sales of assets 63   3  
Net cash used in investing activities (1,354 ) (477 )
 
Financing activities
Proceeds from short-term notes payable to bank 2,454 7,535
Repayments of short-term notes payable to bank (2,454 ) (7,463 )
Repayments of long-term debt (762 )
Dividends paid   (258 )
Net cash used in financing activities (948 )
 
Effect of exchange rate changes on cash 691   1,036  
Net decrease in cash, cash equivalents, and restricted cash (4,485 ) (1,696 )
 
Cash, cash equivalents, and restricted cash at beginning of period 47,675   31,178  
 
Cash, cash equivalents, and restricted cash at end of period (1) $ 43,190   $ 29,482  

(1) Restricted cash is held at various banks to collateralize outstanding letters of credit, which are held by customers as performance, bid, or pre-payment guarantees.

 
 
Quarterly Sales by Region

($ in thousands)

        Quarter Ended
        March 31, 2018     March 31, 2017     December 31, 2017
Sales to Customers in       $     % of Total     $    

Year-over-Year
% Change

    $    

Sequential
% Change

North America       21,499     27%     19,583     10%     28,680     (25)%
Europe 21,173 26% 17,702 20% 28,950 (27)%
Asia       37,210       47%     27,272       36%     32,545       14%
Total       79,882             64,557       24%     90,175       (11)%
 
Quarterly Orders by Region

($ in thousands)

        Quarter Ended
        March 31, 2018     March 31, 2017     December 31, 2017
Orders from Customers in       $     % of Total     $    

Year-over-Year
% Change

    $    

Sequential
% Change

North America       24,503     27%     23,669     4%     23,568     4%
Europe 33,021 37% 21,290 55% 26,745 23%
Asia       32,915       36%     27,987       18%     33,525       (2)%
Total       90,439             72,946       24%     83,838       8%
 

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
March 31, 2018
Three Months Ended
March 31, 2017
Amount     % of Sales Amount     % of Sales
 
Income (loss) from operations as reported $ 2,635 3.3 % $ (1,555 ) (2.4 )%
Adjustments to reported income from operations:
Restructuring charges 1,352 1.7 % 1,436 2.2 %
Professional fees for strategic review process 924 1.2 % %
Other adjustments 14   % 142   0.2 %
Non-GAAP income from operations as adjusted $ 4,925   6.2 % $ 23   %
 
         

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
March 31, 2018
Three Months Ended
March 31, 2017
Amount     EPS Amount     EPS
 
Net income (loss) as reported $ 1,819 $ 0.14 $ (2,048 ) $ (0.16 )
Adjustments to reported net income (loss), pre-tax: (1)
Restructuring charges 1,318 0.10 1,436 0.11
Professional fees for strategic review process 924 0.07
Other adjustments 14     142   0.01  
Non-GAAP net income (loss) as adjusted $ 4,075   $ 0.31   $ (470 ) $ (0.04 )
 

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

 

Contacts

Hardinge Inc.
Douglas J. Malone, 607-378-4140
Chief Financial Officer
or
Investor Relations:
Kei Advisors LLC
Deborah K. Pawlowski, 716-843-3908
dpawlowski@keiadvisors.com

Release Summary

Hardinge Inc. (NASDAQ: HDNG) reports its financial results for the first quarter of 2018, ended March 31, 2018.

Contacts

Hardinge Inc.
Douglas J. Malone, 607-378-4140
Chief Financial Officer
or
Investor Relations:
Kei Advisors LLC
Deborah K. Pawlowski, 716-843-3908
dpawlowski@keiadvisors.com