What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-03-08 compared with 2023-09-08 · 57 added, 113 removed, 137 unchanged (55% of the section changed)

6 unchanged sentences

We design, manufacture, and sell computerized (i.e., CNC) machine tools, consisting primarily of vertical machining centers (mills) and turning centers (lathes), to companies in the metal cutting industry through a worldwide sales, service and distribution network.

Although the majority of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Although most of our computer control systems and software products are proprietary, they predominantly use industry standard personal computer components.

Our computer control systems and software products are primarily sold as integral components of our computerized machine tool products.

We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories and replacement parts for our products, as well as customer service, training and applications support.

We also provide machine tool components, automation integration equipment and solutions for job shops, software options, control upgrades, accessories, and replacement parts for our products, as well as customer service and training and applications support.

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 and notes thereto 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 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 year 2023, approximately 56% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance VMX series machines.

During the first three months of fiscal 2024, 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.

Additionally, approximately 13% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures.

We operate in a cyclical industry where sales and order trends often change periodically and can vary from region to region.

Sales and service fees in the first quarter of fiscal 2024 decreased by 18% compared to the first quarter of fiscal 2023.

This reduction in sales occurred primarily in the Americas and the Europe regions and was partially offset by an increase in sales in the Asia Pacific region.

Sales and service fees in the first quarter sales in fiscal 2023 benefitted from a particularly strong fiscal 2022 year-end backlog.

Orders in the first quarter of fiscal 2024 decreased by 6% from the same period in fiscal 2023, reflecting a decrease in orders in Europe, partially offset by increases in orders in the Americas and the Asia Pacific regions.

We have three brands of CNC machine tools in our product portfolio:

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We seek to mitigate those risks through the use of derivative instruments – principally foreign currency forward exchange contracts.

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 through 2022 and the nine months of fiscal year 2023 were affected by the international business disruption due to the outbreak of COVID-19, 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.

We have also implemented adjustments in discretionary spending, delayed capital expenditures, and monitored production activities closely in an effort to weather the adverse business climate.

We have also received stimulus in various countries to support operations and implemented tax deferrals and provisions that were available to us.

We have seen inflationary pressures and input cost increases imposed in our supply chains on components for our products.

We have also seen capacity for transportation and freight services limited significantly by container or vessel availability and delays at departing and receiving ports, all of which have contributed to significantly increased costs and prices associated with the global shipment of our products.

RESULTS OF OPERATIONS

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

Three Months Ended January 31, 2024 Compared to Three Months Ended January 31, 2023

Sales and Service Fees.

Sales and service fees for the third quarter of fiscal year 2023 were $53.2 million, a decrease of $4.4 million, or 8%, compared to the corresponding prior year period, and included a favorable currency impact of $0.6 million, or 1%, when translating foreign sales to U.S.

Sales and service fees for the first quarter of fiscal year 2024 were $45.1 million, a decrease of $9.6 million, or 18%, compared to the corresponding prior year period, and included a favorable currency impact of $0.8 million, or 1%, 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, 2023 and 2022 (dollars in thousands):

The following table sets forth sales and service fees by geographic region for the first fiscal quarter ended January 31, 2024 and 2023 (dollars in thousands):

Three Months Ended

Sales in the Americas for the third quarter of fiscal year 2023 decreased by 23%, compared to the corresponding period in fiscal year 2022, primarily due to decreased shipments of Hurco and Milltronics machines, particularly the higher-performance VMX machines.

European sales for the third quarter of fiscal year 2023 increased by 8%, compared to the corresponding period in fiscal year 2022, and included a favorable currency impact of 2%, when translating foreign sales to U.S.

Sales in the Americas for the first quarter of fiscal year 2024 decreased by 24%, compared to the corresponding period in fiscal year 2023, primarily due to a decreased volume of shipments of Hurco, Milltronics, and Takumi machines.

The decrease in sales was mostly attributable to decreased shipments of VM and toolroom machines, as well as lathes.

European sales for the first quarter of fiscal year 2024 decreased by 20%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of 3%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The increase in European sales was primarily attributable to an increased volume of shipments and improved mix of higher-performance Hurco VMX and five-axis machines in Italy and France, increased European sales of Milltronics machines, and increased sales of electro-mechanical components and accessories manufactured by our wholly owned subsidiary, LCM.

Additionally, while the volume of machine sales in the third quarter did not increase year-over-year in the United Kingdom, overall sales in dollars in the U.K.

increased due to an improved mix of higher-performance VMX machines.

Asian Pacific sales for the third quarter of fiscal year 2023 decreased by 24%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S.

The decrease in European sales for the first quarter of fiscal year 2024 was primarily attributable to a decreased volume of shipments of higher performance Hurco VMX machines and lathes in Germany, Italy, and the United Kingdom, a decreased volume of shipments of Milltronics machines in the European region, as well as a lower volume of sales of accessories manufactured by our wholly owned subsidiary LCM.

Asian Pacific sales for the first quarter of fiscal year 2024 increased by 39%, compared to the corresponding period in fiscal year 2023, and included an unfavorable currency impact of 2%, 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, Southeast Asia, and India.

The increase in Asian Pacific sales primarily resulted from a higher volume of shipments of Hurco and Takumi machines in China, India, and Taiwan.

Sales and Service Fees by Product Category

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

The following table sets forth sales and service fees by product group and services for the first fiscal quarter ended January 31, 2024 and 2023 (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 year 2023 decreased by 11%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco and Milltronics machines in the Americas, Hurco and Takumi machines in Asia Pacific and Hurco machines in Germany.

Sales of computer control systems and software for the third quarter of fiscal year 2023 increased by 19%, compared to the corresponding prior year period, due mainly to increased aftermarket software sales in the Americas and France.

Sales of service parts and services fees for the third quarter of fiscal year 2023 increased by 9% and 4%, respectively, compared to the corresponding prior year period, primarily due to increased aftermarket sales and service of Hurco and ProCobots products in Europe.

Sales for all product categories included an aggregate favorable currency impact of 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the third quarter of fiscal year 2023 were $42.1 million, a decrease of $10.8 million, or 20%, compared to the corresponding period in fiscal year 2022, and included a favorable currency impact of $1.1 million, or 2%, when translating foreign orders to U.S.

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

Three Months Ended

Orders in the Americas for the third quarter of fiscal year 2023 decreased by 33%, compared to the corresponding period in fiscal year 2022.

The decrease in orders was primarily due to decreased customer demand for Hurco and Milltronics machines, particularly higher-performance VMX and five-axis machines.

European orders for the third quarter of fiscal year 2023 decreased by 6%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign orders to U.S.

The decrease in orders was driven primarily by decreased customer demand for Hurco machines in Germany and Italy, partially offset by increased customer demand for Hurco machines in France, Milltronics machines in Europe and electro-mechanical components and accessories manufactured by LCM.

Additionally, while the volume of machine orders in the third quarter of fiscal 2023 did not increase year-over-year in the United Kingdom, overall orders in dollars in the U.K.

increased due to an improved mix of higher-performance VMX and five-axis machines.

Asian Pacific orders for the third quarter of fiscal year 2023 decreased by 43%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than 1%, when translating foreign orders to U.S.

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

Gross Profit .

Gross profit for the third quarter of fiscal year 2023 was $13.4 million, or 25% of sales, compared to $14.4 million, or 25% of sales, for the corresponding prior year period.

The year-over-year decrease in gross profit was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Gross profit as a percentage of sales for the third quarter of fiscal 2023 was relatively unchanged year-over year despite the reduced volume as sales reflected an increased mix of higher-performance VMX and five-axis machines sold in Europe.

Operating Expenses .

Selling, general, and administrative expenses for the third quarter of fiscal year 2023 were $12.4 million, or 23% of sales, compared to $12.6 million, or 22% of sales, in the corresponding fiscal year 2022 period, and included an unfavorable currency impact of $0.1 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year decrease in selling, general and administrative expenses in absolute dollar terms was primarily attributable to lower costs related to marketing and tradeshow expenses, and employee support costs for the global operations.

Operating Income .

Operating income for the third quarter of fiscal year 2023 was $1.0 million, compared to $3.2 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes

Other Income (Expense), Net .

Other income (expense), net for the third quarter of fiscal year 2023 decreased by $0.4 million compared to the corresponding period in fiscal year 2022, due mainly to an increase in foreign currency exchange loss in the third fiscal quarter of fiscal year 2023 compared to the same period in fiscal year 2022.

Income Taxes .

The effective tax rate for the third quarter of fiscal year 2023 was 60%, compared to 28% in the corresponding prior year period.

The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates and the impact of valuation allowances for our China operations combined with lower levels of consolidated income before taxes.

Nine Months Ended July 31, 2023 Compared to Nine Months Ended July 31, 2022

Sales and Service Fees.

Sales and service fees for the nine months of fiscal year 2023 were $161.7 million, a decrease of $25.7 million, or 14%, compared to the corresponding prior year period, and included an unfavorable currency impact of $4.1 million, or 2%, when translating foreign sales to U.S.

Sales of computerized machine tools for the first quarter of fiscal year 2024 decreased by 21%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Hurco, Milltronics and Takumi machines in the Americas, Germany, Italy and the United Kingdom, and included a favorable currency impact of 1% 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, 2023 and 2022 (dollars in thousands):

Nine Months Ended

Sales in the Americas for the nine months of fiscal year 2023 decreased by 16%, compared to the corresponding period in fiscal year 2022, primarily due to decreased shipments of Hurco and Milltronics machines, particularly the higher-performance VMX machines.

European sales for the nine months of fiscal year 2023 decreased by 4%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S.

Sales of computer control systems and software for the first quarter of fiscal year 2024 increased by 11%, compared to the corresponding prior year period, due mainly to increased aftermarket software sales in the Americas and France, and included a favorable currency impact of 1% when translating foreign sales to U.S.

dollars for financial reporting purposes.

The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco machines in Germany, France, and Italy, partially offset by increased sales of higher-performance Hurco VMX machines in the United Kingdom, increased European sales of Milltronics machines, and increased sales of electro-mechanical components and accessories manufactured by LCM.

Asian Pacific sales for the nine months of fiscal year 2023 decreased by 43%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of 4%, when translating foreign sales to U.S.

Sales of service parts for the first quarter of fiscal year 2024 decreased by 1%, compared to the corresponding prior year period, primarily due to decreases in service parts sales in the Americas and the United Kingdom, partially offset by an increase in service parts sales in Germany, and included a favorable currency impact of 1% 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, 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 nine months ended July 31, 2023 and 2022 (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 year 2023 decreased by 17%, compared to the corresponding prior year period, primarily due to decreased volume of shipments of Hurco and Milltronics machines in the Americas, Hurco and Takumi machines in Asia Pacific and Hurco machines in Germany, France and Italy.

Sales of computer control systems and software for the nine months of fiscal year 2023 decreased by 5%, compared to the corresponding prior year period, due mainly to decreased aftermarket software sales in Europe and Southeast Asia.

Sales of service parts for the nine months of fiscal year 2023 increased by 3%, compared to the corresponding prior year period, primarily due to increased aftermarket sales of Hurco and ProCobots products in the United Kingdom and Milltronics and ProCobots products in the Americas.

Sales for all product categories included an aggregate unfavorable currency impact of 2%, when translating foreign sales to U.S.

Services fees for the first quarter of fiscal year 2024 increased by 1%, compared to the corresponding prior year period, primarily due to the favorable currency impact when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the nine months of fiscal year 2023 were $155.5 million, a decrease of $27.1 million, or 15%, compared to the corresponding period in fiscal year 2022, and included an unfavorable currency impact of $4.0 million, or 2%, 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, 2023 and 2022 (dollars in thousands):

Nine Months Ended

Orders in the Americas for the nine months of fiscal year 2023 decreased by 17%, compared to the corresponding period in fiscal year 2022.

The decrease in orders was primarily due to decreased customer demand for Hurco and Milltronics machines, particularly higher-performance VMX and five-axis machines.

European orders for the nine months of fiscal year 2023 decreased by 8%, 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 orders was driven primarily by decreased customer demand for Hurco machines in Germany and France, partially offset by increased customer demand for higher-performance Hurco VMX machines in the United Kingdom and Italy, and for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for the nine months of fiscal year 2023 decreased by 42%, compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, when translating foreign orders to U.S.

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

Orders for the first quarter of fiscal year 2024 were $50.2 million, a decrease of $3.0 million, or 6%, compared to the corresponding period in fiscal year 2023, and included a favorable currency impact of $0.8 million, or 1%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the first fiscal quarter quarter ended January 31, 2024 and 2023 (dollars in thousands):

Three Months Ended

Orders in the Americas for the first quarter of fiscal year 2024 increased by 6%, compared to the corresponding period in fiscal year 2023, primarily due to increased customer demand for Hurco and Milltronics machines, particularly higher-performance VMX machines.

European orders for the first quarter of fiscal year 2024 decreased by 21%, compared to the corresponding prior year period, and included a favorable currency impact of 3%, 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, Italy, and the United Kingdom.

The decreased Hurco demand was primarily attributable to reduced orders of VM machines, higher-performance VMX machines, and lathes.

Asian Pacific orders for the first quarter of fiscal year 2024 increased by 61%, compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, when translating foreign orders to U.S.

The increase in Asian Pacific orders was driven primarily by an increase in customer demand for Hurco and Takumi machines in China, India, and Taiwan.

Gross Profit .

Gross profit for the nine months of fiscal year 2023 was $38.7 million, or 24% of sales, compared to $46.9 million, or 25% of sales, for the corresponding prior year period.

The year-over-year decrease in gross profit was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Gross profit as a percentage of sales for the nine months of fiscal 2023 was relatively unchanged year-over year despite the reduced volume as sales reflected an increased mix of higher-performance VMX and five-axis machines sold in Europe.

Gross profit for the first quarter of fiscal year 2024 was $9.7 million, or 22% of sales, compared to $12.7 million, or 23% 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 in the Americas and Europe where we typically sell more of our higher-performance VMX series machines and lathes.

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

Operating Expenses .

Selling, general, and administrative expenses for the nine months of fiscal year 2023 were $35.5 million, or 22% of sales, compared to $36.9 million, or 20% of sales, in the corresponding fiscal year 2022 period, and included a favorable currency impact of $0.7 million, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the first quarter of fiscal year 2024 were $11.5 million, or 26% of sales, compared to $11.5 million, or 21% of sales, in the corresponding fiscal year 2023 period, and included an unfavorable currency impact of $0.2 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year decrease in selling, general and administrative expenses in absolute dollar terms was primarily attributable to lower costs related to sales commissions, marketing and tradeshow expenses, and employee support costs for the global operations.

Operating Income .

Operating income for the nine months of fiscal year 2023 was $3.2 million, compared to $10.0 million for the corresponding period in fiscal year 2022.

The decrease in operating income was primarily due to the lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Other Income (Expense), Net .

Other income (expense), net for the nine months of fiscal year 2023 increased by $0.3 million compared to the corresponding period in fiscal year 2022, due mainly to a reduction in foreign currency exchange loss in the nine months of fiscal year 2023 compared to the same period in fiscal year 2022.

Selling, general, and administrative expenses as a percentage of sales increased in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023 due to the lower volume of sales year-over-year.

Operating Income/Loss .

Operating loss for the first quarter of fiscal year 2024 was $1.8 million, compared to operating income of $1.2 million for the corresponding period in fiscal year 2023.

The change was primarily due to lower volume of sales of vertical milling machines and the negative impact of fixed costs on lower sales and production volumes.

Other (Expense) Income, Net .

Other expense, net for the first quarter of fiscal year 2024 was $0.5 million compared to other income, net of $0.6 million for the corresponding period in fiscal year 2023, due mainly to an increase in foreign currency exchange loss in the first quarter of fiscal year 2024 compared to the same period in fiscal year 2023.

Income Taxes .

The effective tax rate for the nine months of fiscal year 2023 was 40%, compared to 31% in the corresponding prior year period.

The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, discrete items related to stock compensation and the impact of valuation allowances for our China operations combined with lower levels of consolidated income before taxes.

The effective tax rate for the first quarter of fiscal year 2024 was 27%, compared to 31% 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 includes jurisdictions with differing tax rates and a discrete item related to stock compensation.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2023, we had cash and cash equivalents of $41.0 million, compared to $63.9 million at October 31, 2022.

At January 31, 2024, we had cash and cash equivalents of $37.9 million, compared to $41.8 million at October 31, 2023.

Approximately 22% of the $37.9 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 $198.1 million at July 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 and other assets and decreases in accounts payable and accrued payroll and employee benefits, partially offset by decreases in cash and cash equivalents and accounts receivable, net.

Capital expenditures of $1.8 million during the nine months of fiscal year 2023 were primarily for capital improvements in existing facilities and software development costs.

Working capital was $196.3 million at January 31, 2024, compared to $193.3 million at October 31, 2023.

The increase in working capital was primarily driven by increases in inventories, net and prepaid and other 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 $0.8 million during the first three months of fiscal year 2024 were primarily for capital improvements in existing facilities and software development costs.

We funded these expenditures with cash on hand.

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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 year 2023, approximately 67,513 shares were repurchased at an aggregate value of approximately $1.8 million under that program, resulting in $23.2 million remaining available under the program as of July 31, 2023.

Our prior $7.0 million share repurchase program also remained in effect until its scheduled expiration on March 10, 2023 During the nine months of fiscal year 2023, approximately 98,776 shares were repurchased at an aggregate value of approximately $2.8 million under that program.

Aggregate repurchases under all programs during the nine months of fiscal year 2023 were approximately $4.6 million.

In addition, during the nine months ended July 31, 2023, we paid cash dividends to our shareholders of $3.1 million.

During the first three months of fiscal year 2024, no shares were repurchased under that program, and $23.2 million was remaining available under the program as of January 31, 2024.

During the three months ended January 31, 2024, 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, December 17, 2021, and January 4, 2023.

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, January 4, 2023 and December 19, 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.

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

As of July 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 July 31, 2023.

At July 31, 2023, we had an aggregate of approximately $51.0 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

In February and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits.

As of January 31, 2024, 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, 2024.

At January 31, 2024, we had an aggregate of approximately $51.0 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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Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, 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 year 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.

During the first three months of fiscal year 2024, 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, 2023.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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

As of July 31, 2023, we had nine outstanding third party payment guarantees totaling approximately $0.9 million.

As of January 31, 2024, we had nine outstanding third party payment guarantees totaling approximately $1.0 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