Market Overview

Hardinge Reports Fourth Quarter and Full Year 2017 Results


  • Sales increased 4% to $90.2 million in the quarter, driven by
    growth in Asia & Europe; Sales for the year were $317.9 million, up 9%
    over 2016
  • Quarterly net income was $3.2 million with earnings per diluted
    share of $0.24; Full year net income was $5.8 million with earnings
    per diluted share of $0.45
  • Generated cash from operations of $25.1 million in 2017 compared
    with $5.3 million in 2016

Hardinge Inc. (NASDAQ:HDNG), a leading international provider of
advanced metal-cutting solutions and accessories, reported financial
results for its fourth quarter and year ended December 31, 2017.

Sales, Orders and Backlog for the Quarter and Full Year

(Please refer to the Sales and Orders tables included in this release)

North America: Sales of $28.7 million in the quarter were down 4%
from the prior-year quarter. Orders for the region were $23.6 million, a
decrease of 7% from the prior-year quarter, primarily due to the
reorganization of our North America go-to-market approach.

For the full year, stronger economic conditions led sales in North
America to increase 8% to $99.9 million. Orders decreased 4% to $97.4

Europe: Sales in Europe increased 7%, or $1.9 million, over the
prior-year quarter to $29.0 million. Orders of $26.7 million were down
5% from the prior-year quarter. Excluding favorable foreign currency
exchange of $1.5 million and $1.2 million on sales and orders,
respectively, sales were up 2% and orders declined 10% compared with the
prior-year quarter.

For the full year, sales to Europe were unchanged. Excluding favorable
foreign currency exchange of $0.8 million, sales to Europe decreased 1%.
Orders increased 10% over the prior-year. Excluding favorable foreign
currency translation of $0.1 million, orders increased 9%.

Asia: Asia sales increased $2.5 million, or 8%, to $32.5 million,
over the prior-year's fourth quarter. Excluding favorable foreign
currency translation of $1.0 million, sales increased 5% over the
prior-year period. Orders of $33.5 million decreased $3.3 million, or
9%, compared with the same period in the prior-year, mostly due to a
large order in the prior-year quarter which was not repeated in the
current year. Excluding favorable foreign currency translation of $0.9
million, orders were down 11% year over year.

Improving economic conditions helped sales in Asia for the full year to
grow $18.7 million, or 17%, from the prior- year to $126.6 million.
Excluding unfavorable foreign currency translation of $0.7 million,
sales increased 18%. Orders grew $7.9 million, or 7%, over the
prior-year to $124.5 million as we have continued to focus on high
precision products and custom solutions. Excluding unfavorable foreign
currency translation of $0.9 million orders increased 8%.

Consolidated Backlog: Order backlog at December 31, 2017 was
$130.6 million a 12% increase over backlog at December 31, 2016.

Fourth Quarter Operating Results

  • Gross profit for the quarter was $30.9 million, or 34.3% of sales, up
    1.9 points from the prior-year period on improved volume and lower
    levels of obsolescence inventory reserves.
  • Selling, general and administrative ("SG&A") expense increased $1.7
    million mostly as a result of $1.6 million in higher compensation and
    $0.2 million of costs related to the Company's strategic review.
  • We recorded a non-cash gain on the dissolution of our Canadian
    subsidiary related to the realization of a currency translation
    adjustment of $0.8 million.
  • Income from operations was $5.6 million, an increase of $0.6 million,
    or 12% from the prior-year period. On a non-GAAP(1)
    adjusted basis, income from operations increased 27% to $6.8 million
    compared with $5.3 million last year. As a percent of sales, adjusted
    income from operations was 7.5%, a 1.4 point improvement over the
    prior-year period.
  • Income tax expense in the quarter was impacted by the U.S. Tax Cuts
    and Jobs Act (the Act). Tax expense includes $1.2 million for the
    estimated transition tax resulting from the Act.
  • Net income was $3.2 million, or $0.24 per diluted share, down from
    $3.7 million, or $0.29 per diluted share in the prior-year period.
    Adjusted non-GAAP(1) net income was $4.3 million, or $0.33
    per diluted share, an increase over the prior period adjusted net
    income of $4.1 million, or $0.31 per diluted share.

(1) Management believes that the use of non-GAAP financial
measures help in the understanding of the Company's operating
performance. See pages 9 and 10 of this release for the reconciliation
tables between reported amounts and non-GAAP measures discussed in this

2017 Full Year Review

  • Gross profit of $107.6 million was up $10.0 million over the
    prior-year due to higher volume. Gross margin of 33.8% was up 0.4
    points from the prior year on improved volume and lower levels of
    obsolescence inventory reserves partially offset by unfavorable mix.
  • Excluding unusual costs in both periods, SG&A increased $1.1 million
    due to higher incentive compensation costs, which was partially offset
    by lower sales and marketing costs.
  • Income from operations was $8.9 million, up $5.5 million or 163% from
    prior-year. Non-GAAP(1) adjusted income from operations
    more than doubled to $14.3 million, or 5% of sales, compared with $6.6
    million, or 2% of sales in 2016.
  • Net income was $5.8 million, or $0.45 per diluted share, improved from
    $1.2 million, or $0.09 per diluted share in the prior-year. Adjusted
    non-GAAP(1) net income was $11.0 million, or $0.86 per
    diluted share, up significantly from $4.3 million, or $0.33 per
    diluted share in the prior-year.

Recent Acquisition 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.

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:

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, 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, 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


Consolidated Statements of Operations

(in thousands, except per share data)


Three Months Ended December 31, Year Ended December 31,
2017   2016 2017   2016
Sales $ 90,175 $ 86,795 $ 317,920 $ 292,013
Cost of sales 59,238   58,716   210,352   194,486  
Gross profit 30,937 28,079 107,568 97,527
Gross profit margin 34.3 % 32.4 % 33.8 % 33.4 %
Selling, general and administrative expenses 21,146 19,426 79,950 79,647
Research & development 3,321 3,561 14,543 13,514
Restructuring charges 1,739 53 4,506 661
Other (income) expense, net (833
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