Hurco Board: New Talent, New Tactics

Hurco Companies, Inc. (HURC) named a new director last week. Philip James brings strong machine tools industry knowledge and large company experience to the board. James’ term begins immediately. His appointment brings the board to a total of eight seats. Since the average age of the board is 65 years, we hope he brings some youth and vigor to the table as well.

We also note James has extensive experience in China, including mergers and acquisitions. Entrance into Asian markets is challenging in terms of the establishing the proper legal foundation and sales relationships. James should be a strong asset to the Company as it attempts to penetrate China and India.

We recently spoke with Hurco CFO, John Oblazney, on the Company’s progress in foreign markets. Oblazney recently returned from a lengthy tour of Hurco facilities and meetings with direct sales personnel and distributors. Hurco is acting on lessons learned during its first years in China, modifying the “solution” approach that has worked so well in the U.S and Europe to fit better for less experienced customers in China and India. Hurco continues to make progress in China and may ultimately expand sales and training offices beyond the Shenzen area.

India is proving to be more challenging. Establishing the corporate structure for doing business in India proved to be a lengthier process than anticipated, although Oblazney does not believe Hurco’s experience is typical of many foreign businesses attempting to establish a foothold in India. He appeared confident that ultimately Hurco will get past the hurdles.

We were impressed during that phone call with the progress Oblazney has made since joining the Company in August 2006. Oblazney is now more knowledgeable about Hurco operations and appears more at ease in describing how the business model works. He also appears to have gained some confidence bringing new direction to the Company rather than simply acting as a caretaker financial officer. Hurco’s CEO, Michael Doar, devotes himself almost exclusively to cultivating and grooming distributor and customer relationships. We believe a CFO who is able to bring new ideas to increase returns on assets could be an important complement to Doar’s work on the operational side.

The Company generated $2.9 million in cash from operations in the first fiscal quarter ending January. With no debt to pay down and working capital of $62 million, the Company will come under increasing pressure to find uses for its cash beyond supporting operations.

As described in the Company’s last quarterly report, the board of directors is actively looking at alternative investments for $32.3 million in cash and equivalents. A common stock dividend is under consideration. We were also pleased to hear Oblazney describe how acquisition of a known name could facilitate entrance into a new market. In our view, such a tactic could serve the Company well in foreign markets. That Hurco’s CFO has a view of any kind on acquisitions, suggests that management has broadened its view on strategic opportunities.

Disclosure: Neither the author, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research publishes research and has a hold rating on HURC.