Hurco Companies, Inc.

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains information intended to help provide an understanding of our financial condition and other related matters, including our liquidity, capital resources, and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited financial statements and the notes accompanying our unaudited financial statements appearing elsewhere in this report, as well as our audited financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2025.

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EXECUTIVE OVERVIEW

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Hurco Companies, Inc. is an international, industrial technology company operating in a single segment. 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 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 and training and applications support.

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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 condensed consolidated financial statements and notes thereto, that appear elsewhere in this report.

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The market for machine tools is international in scope. We have both significant foreign sales and significant foreign manufacturing operations. During the first six months of fiscal 2026, approximately 45% 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 14% 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.  

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During a time of global uncertainty and lower sales volumes experienced recently, we have turned our attention to adjusting overhead expenses and operating expenses to help minimize the impact of the lower volumes of sales on operating income. We implemented cost reductions in fiscal years 2024 and 2025, adjusted and managed inventories (excluding the impact of foreign currency), and suspended our regular quarterly cash dividend. In recent periods, we have used our operating cashflow to manage our capital allocation strategies to continue investing in new technologies, product development, and necessary capital expenditures without incurring any significant indebtedness as we continue to seek new acquisitions and other growth opportunities. The cyclicality of our business requires that we exercise discipline in managing through unexpected changes in the markets and industries in which we operate. We believe that our long history of profitability and the strength of our balance sheet can provide us with stability to manage through these business cycles, and we rely on our past experience in making measured decisions for the long-term success of our business.

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Sales and service fees in the first six months of fiscal 2026 increased by 4%, compared to the same period in fiscal 2025. The increase in sales was due primarily to increased shipments of Hurco and Takumi 5-axis and vertical milling machines in the Americas and Asia Pacific and Takumi 5-axis and vertical milling machines in Europe, partially offset by a decreased volume of shipments of Hurco machines in Europe and electro-mechanical components and accessories manufactured by our wholly-owned subsidiary in Italy, LCM Precision Technology S.r.l. (“LCM”).  Orders in the first six months of fiscal 2026 increased by 24%, compared to the same period in fiscal 2025, reflecting an increase in customer demand for Hurco and Takumi 5-axis and vertical milling machines in all three regions, as well as increased customer demand for electro-mechanical components and accessories manufactured by LCM.

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We have three CNC machine tool brands in our product portfolio. Hurco is the technology innovation brand for customers who want to increase productivity and profitability by selecting a brand with the latest software and motion technology. Milltronics is the value-based brand for shops that want easy-to-use machines at competitive prices. The Takumi brand is for customers that need very high speed, high efficiency performance, such as that required in the production, die and mold, aerospace, and medical industries.  Takumi machines are equipped with industry standard controls instead of the proprietary controls found on Hurco and Milltronics machines. These three brands of CNC machine tools are responsible for the vast majority of our revenue. However, we have added other non-Hurco branded products to our product portfolio that have contributed product diversity and market penetration opportunity. 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, CNC grinders, compact horizontal machines, metal cutting saws and CNC lathes. ProCobots LLC is our wholly-owned subsidiary that provides automation solutions. In addition, through LCM, we produce high value machine tool components and accessories.

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We principally sell our products through approximately 160 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, 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. Components to support our SRT line of five-axis machining centers, such as the direct drive spindle, swivel head, and rotary table, are manufactured by LCM.

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Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies in the countries in which those customers are located (primarily the Euro, Pound Sterling, and Chinese Yuan). Our product costs are incurred and paid primarily in the New Taiwan Dollar and the U.S. dollar. Changes in currency exchange rates may have a material effect on our operating results and condensed consolidated financial statements as reported under U.S. Generally Accepted Accounting Principles. For example, when the U.S. dollar weakens in value relative to a foreign currency, sales made, and expenses incurred, in that currency when translated to U.S. dollars for reporting in our condensed consolidated financial statements, are higher than would be the case when the U.S. dollar is stronger. In the comparison of our period-to-period results, we discuss the effect of currency translation on those results, which reflect translation to U.S. dollars at exchange rates prevailing during the period covered by those financial statements.

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Our high levels of foreign manufacturing and sales also expose us to cash flow risks due to fluctuating currency exchange rates.  We seek to mitigate those risks through the use of derivative instruments – principally foreign currency forward exchange contracts.

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RESULTS OF OPERATIONS

Three Months Ended April 30, 2026 Compared to Three Months Ended April 30, 2025

Sales and Service Fees. Sales and service fees for the second quarter of fiscal year 2026 were $47.6 million, an increase of $6.8 million, or 17%, compared to the corresponding prior year period, and included a favorable currency impact of $1.4 million, or 3%, when translating foreign sales to U.S. dollars for financial reporting purposes.

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Sales and Service Fees by Geographic Region

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The following table sets forth net sales and service fees by geographic region for the second fiscal quarter ended April 30, 2026 and 2025 (dollars in thousands):

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Sales in the Americas for the second quarter of fiscal year 2026 increased by 35%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco, Takumi and Milltronics machines.  The increase in machine shipments was mostly attributable to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines, Milltronics toolroom machines, and Takumi vertical milling machines.  

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European sales for the second quarter of fiscal year 2026 decreased by 8%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 6%, 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 and electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Takumi 5-axis and vertical milling machines.  

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Asian Pacific sales for the second quarter of fiscal year 2026 increased by 81%, compared to the corresponding prior year period, and included a favorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year increase in Asian Pacific sales was primarily due to increased shipments in China and India of Hurco 5-axis and larger, higher-performance vertical milling machines, as well as Takumi 5-axis and vertical milling machines.

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Sales and Service Fees by Product Category

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The following table sets forth sales and service fees by product group and services for the second fiscal quarter ended April 30, 2026 and 2025 (dollars in thousands):

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

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Sales of computerized machine tools for the second quarter of fiscal year 2026 increased by 22%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines and Takumi vertical milling machines in the Americas and Asia Pacific, partially offset by decreased shipments of Hurco machines in Europe and electro-mechanical components and accessories manufactured by LCM. Sales of computer control systems and software for the second quarter of fiscal year 2026 decreased by 21%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas. Service parts and service fees for the second quarter of fiscal year 2026 changed by immaterial amounts compared to the corresponding prior year period. Sales for all product lines included a favorable currency impact of 3%, when translating foreign sales to U.S. dollars for financial reporting purposes.

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Orders. Orders for the second quarter of fiscal year 2026 were $61.6 million, an increase of $17.9 million, or 41%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $1.8 million, or 4%, when translating foreign orders to U.S. dollars.

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The following table sets forth new orders booked by geographic region for the second fiscal quarter ended April 30, 2026 and 2025 (dollars in thousands):

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Orders in the Americas for the second quarter of fiscal year 2026 increased by 63%, compared to the corresponding period in fiscal year 2025, primarily due to increased demand for Hurco 5-axis and larger, higher-performance vertical milling machines and for Takumi vertical milling machines.

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European orders for the second quarter of fiscal year 2026 increased by 17%, compared to the corresponding prior year period, and included a favorable currency impact of 7%, when translating foreign orders to U.S. dollars. The increase in orders was driven primarily by increased customer demand for Hurco higher-performance milling machines in the United Kingdom and Germany and for Takumi 5-axis machines in France.

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Asian Pacific orders for the second quarter of fiscal year 2026 increased by 66%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign orders to U.S. dollars. The increase in orders was driven primarily by increased customer demand for Takumi machines across the Asian Pacific region where our customers are located, as well as for Hurco vertical milling machines in China.

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Gross Profit. Gross profit for the second quarter of fiscal year 2026 was $10.3 million, or 22% of sales, compared to $7.8 million, or 19% of sales, for the corresponding prior year period. The year-over-year increase in gross profit was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales.  Although not significant factors, gross profit for the second quarter of fiscal year 2026 also benefited from price increases implemented in 2026 and tariff refund claims filed with the United States Customs and Border Protection, both of which were partially offset by incremental tariffs compared to prior year.

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Operating Expenses. Selling, general, and administrative expenses for the second quarter of fiscal year 2026 were $11.1 million, or 23% of sales, compared to $10.9 million, or 27% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.3 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year increase in selling, general, and administrative expenses was primarily due to the unfavorable currency impact.

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Operating Income (Loss). Operating loss for the second quarter of fiscal year 2026 was $0.8 million, compared to $3.1 million for the corresponding period in fiscal year 2025. The year-over-year decrease in operating loss was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales.

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Other Expense, Net. Other expense, net for the second quarter of fiscal year 2026 was $0.8 million compared to $0.6 million for the corresponding period in fiscal year 2025.  The year-over-year increase in other expense, net was due mainly to an increase in foreign currency exchange loss.

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Income Taxes. Income tax expense for the second quarter of fiscal year 2026 was $0.8 million, compared to $0.5 million for the corresponding prior year period. The year-over-year change was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates.

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Six Months Ended April 30, 2026, Compared to Six Months Ended April 30, 2025

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Sales and Service Fees. Sales and service fees for the first six months of fiscal year 2026 were $90.5 million, an increase of $3.2 million, or 4%, compared to the corresponding prior year period, and included a favorable currency impact of $3.2 million, or 4%, when translating foreign sales to U.S. dollars for financial reporting purposes.

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Sales and Service Fees by Geographic Region

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The following table sets forth sales and service fees by geographic region for the six months ended April 30, 2026 and 2025 (dollars in thousands):

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Sales in the Americas for the first six months of fiscal year 2026 increased by 12%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco 5-axis as well as larger, higher-performance vertical milling machines and Takumi vertical milling machines.

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European sales for the first six months of fiscal year 2026 decreased by 7%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 7%, 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 and electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Takumi 5-axis and vertical milling machines.  

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Asian Pacific sales for the first six months of fiscal year 2026 increased by 20%, compared to the corresponding prior year period, and included a favorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year increase in Asian Pacific sales was primarily due to increased shipments in China and India of Hurco 5-axis and larger, higher-performance vertical milling machines, as well as Takumi 5-axis and vertical milling machines.

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Sales and Service Fees by Product Category

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The following table sets forth sales and service fees by product group and services for the six months ended April 30, 2026 and 2025 (dollars in thousands):

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

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Sales of computerized machine tools for the first six months of fiscal year 2026 increased by 4%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines and Takumi vertical milling machines in the Americas and Asia Pacific, partially offset by decreased shipments of Hurco machines in Europe and electro-mechanical components and accessories manufactured by LCM. Sales of computer control systems and software for the first six months of fiscal year 2026 decreased by 26%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas and Europe. Sales of service parts for the first six months of fiscal year 2026 increased by 8%, compared to the corresponding prior year period, primarily due to increases in aftermarket service parts sales in the United Kingdom and Germany. Service fees for the first six months of fiscal year 2026 decreased by 2%, compared to the corresponding prior year period, primarily due to decreased aftermarket service fees in the Americas. Sales for all product lines included a favorable currency impact of 4%, when translating foreign sales to U.S. dollars for financial reporting purposes.

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Orders. Orders for the first six months of fiscal year 2026 were $103.6 million, an increase of $19.8 million, or 24%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $3.4 million, or 4%, when translating foreign orders to U.S. dollars.

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The following table sets forth new orders booked by geographic region for the six months ended April 30, 2026, and 2025 (dollars in thousands):

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