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Item 2. Management’s Discussion and Analysis

2023-03-10 compared with 2022-09-02 · 56 added, 108 removed, 136 unchanged (55% of the section changed)

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The following overview is intended to provide a brief explanation of the principal factors that have contributed to our recent financial performance.

This overview is intended to be read in conjunction with the more detailed information included in our financial statements that appear elsewhere in this report.

This overview is intended to be read in conjunction with the more detailed information included in our financial statements and notes thereto that appear elsewhere in this report.

The market for machine tools is international in scope.

We have both significant foreign sales and significant foreign manufacturing operations.

During the nine months of fiscal 2022, approximately 50% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines.

During the first three months of fiscal 2023, approximately 52% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines.

Additionally, approximately 8% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures.

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These non-Hurco branded products are sold by our wholly-owned distributors and are comprised primarily of other general-purpose vertical milling centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machines, metal cutting saws and CNC swill lathes.

ProCobots LLC (“ProCobots”) is our wholly-owned subsidiary that provides automation solutions that can be integrated with any machine tool.

In addition, through our wholly-owned subsidiary in Italy, LCM, we produce high value machine tool components and accessories.

We principally sell our products through more than 180 independent agents and distributors throughout the Americas, Europe, and Asia.

ProCobots LLC (“ProCobots”) is our wholly-owned subsidiary that provides automation solutions.

In addition, through our wholly-owned subsidiary in Italy, LCM Precision Technology S.r.l (“LCM”), we produce high value machine tool components and accessories.

We principally sell our products through approximately 200 independent agents and distributors throughout the Americas, Europe, and Asia.

Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally.

We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world’s principal machine tool consuming markets.

We also have our own direct sales and service organizations in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world’s principal machine tool consuming markets.

The vast majority of our machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiary in Taiwan, HML.

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We operate in the industrial equipment industry and have a global footprint that subjects us to various business risks in many different countries.

Our operating results during fiscal years 2020, 2021 and the nine months of fiscal 2022 were affected by the international business disruption due to the outbreak of COVID-19 and lockdowns in certain markets, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, uncertainty surrounding the U.K.

Brexit activities, and political friction in the U.S and many regions of the world.

We cannot predict the duration or scope of impact of the COVID-19 pandemic, as well as other aforementioned factors, and the potential impact to our operations and financial results cannot be reasonably estimated.

Our operating results during fiscal years 2020 through 2022 and the first three months of fiscal year 2023 were affected by the international business disruption due to the outbreak of COVID-19 and lockdowns in certain markets, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, and political friction in the U.S and many regions of the world.

We cannot predict the duration or scope of impact of the COVID-19 pandemic, as well as other factors listed above, and the potential impact to our operations and financial results cannot be reasonably estimated.

To date, we have experienced some delays in our supply chain and have not completely ceased operations at any of our global facilities, but have implemented remote working capabilities, as appropriate or otherwise required under local law.

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RESULTS OF OPERATIONS

Three Months Ended July 31, 2022 Compared to Three Months Ended July 31, 2021

Three Months Ended January 31, 2023 Compared to Three Months Ended January 31, 2022

Sales and Service Fees.

Sales and service fees for the third quarter of fiscal 2022 were $57.6 million, an increase of $3.5 million, or 6%, compared to the corresponding prior year period, and included an unfavorable currency impact of $4.3 million, or 8%, when translating foreign sales to U.S.

Sales and service fees for the first quarter of fiscal year 2023 were $54.7 million, a decrease of $12.2 million, or 18%, compared to the corresponding prior year period, and included an unfavorable currency impact of $3.2 million, or 5%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region for the third quarter ended July 31, 2022 and 2021 (dollars in thousands):

The following table sets forth net sales and service fees by geographic region for the first quarter ended January 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

Sales in the Americas for the third quarter of fiscal 2022 increased by 24%, compared to the corresponding period in fiscal 2021, primarily due to inflationary price increases and an increased volume of shipments of higher-performance Hurco and Takumi machines.

European sales for the third quarter of fiscal 2022 increased by 2%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 14%, when translating foreign sales to U.S.

Sales in the Americas for the first quarter of fiscal year 2023 decreased by 8%, compared to the corresponding period in fiscal year 2022, primarily due to a decreased volume of shipments of Hurco and Takumi machines.

European sales for the first quarter of fiscal year 2023 decreased by 16%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 8%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

This increase was primarily attributable to inflationary price increases, an increased volume of shipments of higher-performance Hurco, Takumi and Milltronics machines in Germany and France, and increased sales of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary, LCM, partially offset by a reduced volume of shipments of Hurco machines in Italy and the United Kingdom.

Asian Pacific sales for the third quarter of fiscal 2022 decreased by 25%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 5%, when translating foreign sales to U.S.

The decrease in European sales for the first quarter of fiscal year 2023 was primarily attributable to a decreased volume of shipments of

Hurco and Takumi machines across the European region, partially offset by increased European sales of Milltronics machines and electro-mechanical components and accessories manufactured by our wholly owned subsidiary, LCM.

Asian Pacific sales for the first quarter of fiscal year 2023 decreased by 53%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 5%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco and Takumi machines in China and Southeast Asia, partially offset by an increased volume of shipments of Hurco machines in India.

The reduced volume of shipments of Hurco and Takumi machines in China was primarily due to recent COVID-19 lockdowns and similar restrictions in major Chinese markets pursuant to China’s zero-tolerance COVID-19 policy.

The decrease in Asian Pacific sales primarily resulted from a reduced volume of shipments of Hurco and Takumi machines in China, Southeast Asia, and India.

Sales and Service Fees by Product Category

The following table sets forth net sales and service fees by product category for the third quarter ended July 31, 2022 and 2021 (dollars in thousands):

The following table sets forth net sales and service fees by product category for the first quarter ended January 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

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† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.

Sales of computerized machine tools for the third quarter of fiscal 2022 increased by 7%, compared to the corresponding prior year period, primarily due to inflationary price increases and increased shipments of higher-performance Hurco machines in North America and Germany.

Sales of computer control systems and software for the third quarter of fiscal 2022 increased by 7%, compared to the corresponding prior year period, primarily due to an increase in sales of Hurco software in Germany, North America and France.

Sales of service parts for the third quarter of fiscal 2022 increased by 5%, compared to the corresponding prior year period, due mainly to increased aftermarket sales and service of Hurco products in North America and the United Kingdom.

All product categories included an unfavorable currency impact of 8%, when translating foreign sales to U.S.

Sales of computerized machine tools for the first quarter of fiscal year 2023 decreased by 21%, compared to the corresponding prior year period, primarily due to decreased volume of shipments of Hurco and Takumi machines across all the regions where our customer are located.

Sales of computer control systems and software for the first quarter of fiscal year 2023 decreased by 29%, compared to the corresponding prior year period, primarily due to decreased sales of Hurco software in Europe and Asia.

Sales of service parts for the first quarter of fiscal year 2023 decreased by 4%, compared to the corresponding prior year period, due mainly to decreased aftermarket sales and service of Hurco products in Germany and France.

Service fees increased by 4% due mainly to increase in aftermarket services provided for Hurco and Takumi products in North America.

Sales for all product categories included an aggregate unfavorable currency impact of 5%, when translating foreign sales to U.S.

Dollars for financial reporting purposes.

Orders for the third quarter of fiscal 2022 were $52.9 million, a decrease of $13.8 million, or 21%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of $4.1 million, or 6%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the third quarter ended July 31, 2022 and 2021 (dollars in thousands):

Orders for the first quarter of fiscal year 2023 were $53.2 million, a decrease of $17.6 million, or 25%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of $3.3 million, or 5%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the first fiscal quarter ended January 31, 2023 and 2022 (dollars in thousands):

Three Months Ended

Orders in the Americas for the third quarter of fiscal 2022 decreased by 9%, compared to the corresponding period in fiscal 2021, primarily due to decreased customer demand for Hurco, Takumi and Milltronics machines, partially offset by inflationary price increases implemented during fiscal 2022.

European orders for the third quarter of fiscal 2022 decreased by 22%, compared to the corresponding prior year period, and included an unfavorable currency impact of 11%, when translating foreign orders to U.S.

This decrease was driven primarily by decreased customer demand for Hurco machines across the European region, as well as decreased customer demand for electro-mechanical components and accessories manufactured by LCM, partially offset by inflationary price increases implemented during fiscal 2022 and increased demand for higher-performance Hurco and Takumi machines in Germany.

Asian Pacific orders for the third quarter of fiscal 2022 decreased by 46%, compared to the corresponding prior year period, and included an unfavorable currency impact of 5%, when translating foreign orders to U.S.

The decrease in Asian Pacific orders year-over-year was driven primarily by decreased customer demand for Hurco and Takumi machines in China and Southeast Asia due to recent COVID-19 lockdowns and similar restrictions, slightly offset by increased demand for Hurco machines in India.

Gross Profit .

Gross profit for the third quarter of fiscal 2022 was $14.4 million, or 25% of sales, compared to $13.0 million, or 24% of sales, for the corresponding prior year period.

During the third quarter of fiscal 2021, we recorded approximately $0.4 million, or 1% of sales, for the employee retention credit extended to companies under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and the American Rescue Plan Act of 2021 (the “employee retention credit”).

While the employee retention credit did not recur in the third quarter of fiscal 2022, gross profit as a percentage of sales in the 2022 period benefited from increased sales of higher-performance machines, improved leverage of fixed overhead costs and inflationary price increases implemented during fiscal 2022.

Operating Expenses .

Selling, general, and administrative expenses for the third quarter of fiscal 2022 were $12.6 million, or 22% of sales, compared to $10.3 million, or 19% of sales, in the corresponding fiscal 2021 period, and included a favorable currency impact of $0.7 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year increase in selling, general and administrative expenses in the third quarter of fiscal 2022 was driven primarily by increases in marketing and tradeshow expenses, sales commissions, and employee benefit costs, as well as increased one-time costs for administrative services.

The increase in selling, general, and administrative expenses year-over-year also reflected the employee retention credit recorded in those expenses in the third quarter of fiscal 2021 of $0.6 million, or 1% of sales during that period.

Operating Income .

Operating income for the third quarter of fiscal 2022 was $1.8 million compared to $2.6 million for the corresponding period in fiscal 2021.

The decrease in operating income was primarily due to the $1.0 million, or 2% of sales, of employee retention credit recorded during the third quarter of fiscal 2021.

Other Income (Expense), Net .

Other income (expense), net for the third quarter of fiscal 2022 and fiscal 2021 were each less than $0.1 million.

Income Taxes .

The effective tax rate for the third quarter of fiscal 2022 was 28%, compared to 41%, for the corresponding prior year period.

The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, various discrete tax items, and changes in income tax laws to address the unfavorable impact of the COVID-19 pandemic.

Nine Months Ended July 31, 2022 Compared to Nine Months Ended July 31, 2021

Sales and Service Fees.

Sales and service fees for the nine months of fiscal 2022 were $187.4 million, an increase of $21.1 million, or 13%, compared to the corresponding prior year period, and included an unfavorable currency impact of $7.9 million, or 5%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region for the nine months ended July 31, 2022 and 2021 (dollars in thousands):

Nine Months Ended

Sales in the Americas for the nine months of fiscal 2022 increased by 13%, compared to the corresponding period in fiscal 2021, primarily due to inflationary price increases and an increased volume of shipments of higher-performance Hurco and Takumi machines.

European sales for the nine months of fiscal 2022 increased by 15%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 9%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

This increase was primarily driven by inflationary price increases, an increased volume of shipments of higher-performance Hurco, Takumi, and Milltronics machines across the European region, as well as increased sales of electro-mechanical components and accessories manufactured by LCM.

Asian Pacific sales for the nine months of fiscal 2022 increased by 3%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The increase primarily resulted from inflationary price increases and an increased volume of shipments of Hurco and Takumi machines in Southeast Asia and India, partially offset by a reduced volume of shipments of Hurco and Takumi machines in China due to recent COVID-19 lockdowns and similar restrictions.

Sales and Service Fees by Product Category

The following table sets forth net sales and service fees by product category for the nine months ended July 31, 2022 and 2021 (dollars in thousands):

Nine Months Ended

Computerized Machine Tools

Computer Control Systems and Software †

Service Parts

† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.

Sales of computerized machine tools for the nine months of fiscal 2022 increased by 14%, compared to the corresponding prior year period, primarily due to inflationary price increases and increased shipments of Hurco and Takumi machines across most regions and countries where our customers are located, other than China and the United Kingdom.

Sales of computer control systems and software for the nine months of fiscal 2022 increased by 8%, compared to the corresponding prior year period, primarily due to an increase in software sales in Germany, North America and France.

Sales of service parts for the nine months of fiscal 2022 increased by 6%, compared to the corresponding prior year period, due mainly to aftermarket sales of Hurco products in North America and the United Kingdom.

Service fees for the nine months of fiscal 2022 increased by 5%, compared to the corresponding prior year period, due mainly to aftermarket service of Hurco and Takumi products in Germany, the United Kingdom and France.

All product categories included an unfavorable currency impact of 5%, when translating foreign sales to U.S.

Dollars for financial reporting purposes.

Orders for the nine months of fiscal 2022 were $182.6 million, a decrease of $7.2 million, or 4%, compared to the corresponding period in fiscal 2021, and included an unfavorable currency impact of $7.2 million, or 4%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the nine months ended July 31, 2022 and 2021 (dollars in thousands):

Nine Months Ended

Orders in the Americas for the nine months of fiscal 2022 increased by 2%, compared to the corresponding period in fiscal 2021, primarily due to inflationary price increases, partially offset by decreased customer demand for Hurco and Milltronics machines.

European orders for the nine months of fiscal 2022 increased by 1%, compared to the corresponding prior year period, and included an unfavorable currency impact of 7%, when translating foreign orders to U.S.

This increase was primarily attributable to inflationary price increases and increased customer demand for Hurco, Takumi and Milltronics machines in Germany, partially offset by decreased customer demand for Hurco machines in France, the United Kingdom, and Italy, and for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for the nine months of fiscal 2022 decreased by 32%, compared to the corresponding prior year period, and included an unfavorable currency impact of 2%, when translating foreign orders to U.S.

Orders in the Americas for the first quarter of fiscal year 2023 decreased by 11%, compared to the corresponding period in fiscal year 2022, primarily due to decreased customer demand for Hurco and Milltronics machines.

European orders for the first quarter of fiscal year 2023 decreased by 27%, compared to the corresponding prior year period, and included an unfavorable currency impact of 7%, when translating foreign orders to U.S.

The decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in Germany and France, partially offset by increased customer demand for Hurco machines in Italy and the United Kingdom.

Asian Pacific orders for the first quarter of fiscal year 2023 decreased by 55%, compared to the corresponding prior year period, and included an unfavorable currency impact of 4%, when translating foreign orders to U.S.

The decrease in Asian Pacific orders was driven primarily by a decrease in customer demand for Hurco and Takumi machines in China, Southeast Asia, and India.

Gross Profit .

Gross profit for the nine months of fiscal 2022 was $46.9 million, or 25% of sales, compared to $39.3 million, or 24% of sales, for the corresponding prior year period.

During the nine months of fiscal 2021, we recorded approximately $1.2 million, or 1% of sales, for the employee retention credit.

While the employee retention credit did not recur in the nine months of fiscal 2022, gross profit as a percentage of sales in the 2022 period benefited from increased sales of higher-performance machines, improved leverage of fixed overhead costs and inflationary price increases implemented during fiscal 2022.

Gross profit for the first quarter of fiscal year 2023 was $12.7 million, or 23% of sales, compared to $16.9 million, or 25% of sales, for the corresponding prior year period.

The year-over-year decrease in gross profit as a percentage of sales was primarily due to the lower volume of sales of vertical milling machines across all sales regions, particularly the European sales region where we typically sell more of our higher-performance, higher-priced VMX series machines.

Additionally, gross profit was negatively impacted by the allocation of fixed costs on lower sales and production volumes.

Operating Expenses .

Selling, general, and administrative expenses for the nine months of fiscal 2022 were $36.9 million, or 20% of sales, compared to $32.2 million, or 19% of sales, in the corresponding fiscal 2021 period, and included a favorable currency impact of $1.3 million, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the first quarter of fiscal year 2023 were $11.5 million, or 21% of sales, compared to $11.7 million, or 17% of sales, in the corresponding fiscal year 2022 period, and included a favorable currency impact of $0.6 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year increase in selling, general and administrative expenses in the nine months of 2022 was driven primarily by increases in marketing and tradeshow expenses, sales commissions, and employee benefit costs, as well as increased one-time costs for administrative services.

The increase in selling, general, and administrative expenses year-over-year also reflected the employee retention credit recorded in those expenses in the nine months of fiscal 2021 of $1.7 million, or 1% of sales during that period.

Operating Income .

Operating income for the nine months of fiscal 2022 was $10.0 million compared to $7.1 million for the corresponding period in fiscal 2021.

The increase in operating income was primarily driven by the increased sales volume.

Operating income for the first quarter of fiscal year 2023 was $1.2 million compared to $5.2 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to lower volume of sales and negative impact of allocation of fixed costs on lower sales and production volume.

Other Income (Expense), Net .

Other income (expense), net for the nine months of fiscal 2022 decreased by $0.4 million from the corresponding period in fiscal 2021, due mainly to an increase in foreign currency exchange losses in the nine months of fiscal 2022 compared to the same period in fiscal 2021.

Other income (expense), net for the first quarter of fiscal year 2023 increased by $0.9 million compared to the corresponding period in fiscal year 2022, due mainly to an increase in foreign currency exchange gains in the first three months of fiscal year 2023 compared to the same period in fiscal year 2022.

Income Taxes .

The effective tax rate for the nine months of fiscal 2022 was 31%, compared to 36% for the corresponding prior year period.

The effective tax rate for the first quarter of fiscal year 2023 was 31%, compared to 32% in the corresponding prior year period.

The year-over-year decrease in the effective tax rate was primarily due to changes in geographic mix of income and loss that include jurisdictions with differing tax rates and a discrete item related to stock compensation.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2022, we had cash and cash equivalents of $73.5 million, compared to $84.1 million at October 31, 2021.

At January 31, 2023, we had cash and cash equivalents of $56.9 million, compared to $63.9 million at October 31, 2022.

Approximately 30% of the $56.9 million of cash and cash equivalents was denominated in U.S.

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We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital was $202.3 million at July 31, 2022, compared to $208.7 million at October 31, 2021.

The decrease in working capital was primarily driven by decreases in cash and cash equivalents, accounts receivable and prepaid assets, partially offset by an increase in inventories, net.

Capital expenditures of $1.6 million during the nine months of fiscal 2022 were primarily for capital improvements in existing facilities and software development costs.

Working capital was $204.3 million at January 31, 2023, compared to $194.7 million at October 31, 2022.

The increase in working capital was primarily driven by increases in inventories, net and prepaid assets and decreases in accrued payroll and employee benefits and accounts payable, partially offset by decreases in cash and cash equivalents and accounts receivable, net.

Capital expenditures of $0.6 million during the first three months of fiscal year 2023 were primarily for capital improvements in existing facilities and software development costs.

We funded these expenditures with cash on hand.

On March 10, 2021, we announced that our Board of Directors approved a share repurchase program in an aggregate amount of up to $7.0 million.

Repurchases under the program may be made in the open market or through privately-negotiated transactions from time to time through March 10, 2023, subject to applicable laws, regulations and contractual provisions.

On January 6, 2023, we announced a share repurchase program in an aggregate amount of up to $25.0 million.

Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time through November 10, 2024, subject to applicable laws, regulations, and contractual provisions.

The program may be amended, suspended, or discontinued at any time and does not commit us to repurchase any shares of our common stock.

During the nine months of fiscal 2022, we repurchased $2.9 million in shares of our common stock, and $4.1 million remained available under the program as of July 31, 2022.

In addition, during the nine months ended July 31, 2022, we paid cash dividends to our shareholders of $2.9 million.

No amounts had been purchased under this program as of January 31, 2023.

Our prior $7.0 million share repurchase program also remains in effect until its scheduled expiration on March 10, 2023 During the first quarter of fiscal 2023, approximately 26,819 shares were repurchased at an aggregate value of approximately $0.7 million under that program, resulting in $3.4 million remaining available under that program as of January 31, 2023.

In addition, during the three months ended January 31, 2023, we paid cash dividends to our shareholders of $1.0 million.

Future dividends are subject to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors deemed relevant by our Board of Directors from time to time.

On December 31, 2018, we and our subsidiary Hurco B.V.

entered into the 2018 Credit Agreement with Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020 and December 17, 2021.

entered into the 2018 Credit Agreement with Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020, December 17, 2021, and January 4, 2023.

The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility in a maximum aggregate amount of $40.0 million.

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As uncommitted facilities, both the Taiwan and China credit facilities are subject to review and termination by the respective underlying lending institution from time to time.

As of July 31, 2022, our existing credit facilities consisted of a €1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.

We had no debt or borrowings under any of our credit facilities at July 31, 2022.

At July 31, 2022, we had an aggregate of approximately $51.4 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

In February 2023, NHML renewed the above-referenced credit facility on substantially similar terms and an identical maximum aggregate limit.

As of January 31, 2023, our existing credit facilities consisted of a €1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.

We had no debt or borrowings under any of our credit facilities at January 31, 2023.

At January 31, 2023, we had an aggregate of approximately $51.4 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities when needed in the U.S., Europe or Asia Pacific.

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Actual results could differ from those estimates.

Our accounting policies, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

During the nine months of fiscal 2022, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2021.

Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

During the first three months of fiscal 2023, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2022.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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We follow FASB guidance for accounting for guarantees (codified in ASC 460).

As of July 31, 2022, we had eight outstanding third party payment guarantees totaling approximately $0.7 million.

As of January 31, 2023, we had nine outstanding third party payment guarantees totaling approximately $0.7 million.

The terms of these guarantees are consistent with the underlying customer financing terms.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis