Quarterly Report for Quarter Ending July 31, 2025 (Form 10-Q)

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF 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, 2024.

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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 financial statements 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 nine months of fiscal 2025, approximately 51% 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 11% 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. Changes in trade policies, tariffs, and other import/export regulations of the U.S. and other nations did not have a material impact on our financial results for the three and nine months ended July 31, 2025. However, we do have sales in, and purchases from, foreign countries that could be negatively impacted by recent or future tariff actions.

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Sales and service fees in the nine months of fiscal 2025 increased slightly compared to the same period in fiscal 2024. The increase in sales was due primarily to increased sales of Hurco and Milltronics machines in the Americas, Takumi machines in Asia Pacific, and Hurco machines in the United Kingdom and Italy, partially offset by a decrease in Hurco and Takumi machine sales in France and Germany, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary in Italy, LCM Precision Technology S.r.l. ("LCM"). Orders in the nine months of fiscal 2025 decreased by 15% from the same period in fiscal 2024, reflecting a decrease in orders in the Americas and European regions, partially offset by an increase in orders in the Asian Pacific region.

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We have three brands of CNC machine tools 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, waterjet cutting machines, CNC grinders, compact horizontal machines, metal cutting saws and CNC swill 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 180 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. 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 our wholly-owned subsidiary in Italy, 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 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 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 July 31, 2025 Compared to Three Months Ended July 31, 2024

Sales and Service Fees. Sales and service fees for the third quarter of fiscal year 2025 were $45.8 million, an increase of $3.2 million, or 7%, 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 sales and service fees by geographic region for the third fiscal quarter ended July 31, 2025 and 2024 (dollars in thousands):

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Sales in the Americas for the third quarter of fiscal year 2025 increased by 10%, compared to the corresponding period in fiscal year 2024, primarily due to increased shipments of Hurco and Milltronics machines. The increase in Hurco and Milltronics machine sales was primarily attributable to increased shipments of lathes, tool room machines and vertical machining centers.

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European sales for the third quarter of fiscal year 2025 increased by less than 1%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of 5%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year increase in European sales was primarily attributable to increased sales of Hurco machines in the United Kingdom and Italy, as well as the favorable impact of currency translation of foreign sales to U.S. dollars for financial reporting purposes, offset by decreased volume of shipments of Hurco and Takumi machines in France and Germany, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by LCM

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Asian Pacific sales for the third quarter of fiscal year 2025 increased by 48%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, 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 sales of Takumi vertical, bridge mill, horizontal, and 5-axis machines in the Asian Pacific region.

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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 third fiscal quarter ended July 31, 2025 and 2024 (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 third quarter of fiscal year 2025 increased by 11%, compared to the corresponding prior year period, primarily due to increased sales of Hurco machines in the Americas, Takumi machines in Asia Pacific, and Hurco machines in the United Kingdom and Italy, partially offset by a decrease in Hurco and Takumi machine sales in Germany and France. Sales of computer control systems and software for the third quarter of fiscal year 2025 decreased by 24%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas and European regions. Sales of service parts for the third quarter of fiscal year 2025 decreased by 3%, compared to the corresponding prior year period, primarily due to decreases in aftermarket service parts sales of Hurco products in the Americas and France, partially offset by increases in aftermarket service parts sales of Milltronics products in the Americas and Hurco and Takumi products in Asia Pacific. Service fees for the third quarter of fiscal year 2025 decreased by 7%, compared to the corresponding prior year period, primarily due to decreased aftermarket service fees in the Americas and European regions. 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 third quarter of fiscal year 2025 were $41.0 million, a decrease of $11.8 million, or 22%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of $1.2 million, or 2%, 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 third fiscal quarter ended July 31, 2025 and 2024 (dollars in thousands):

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Orders in the Americas for the third quarter of fiscal year 2025 decreased by 12%, compared to the corresponding period in fiscal year 2024, primarily due to reduced demand for Hurco and Milltronics machines.

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European orders for the third quarter of fiscal year 2025 decreased by 28%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign orders to U.S. dollars. The year-over-year decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in Germany, the United Kingdom and France, as well as for accessories manufactured by LCM.

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Asian Pacific orders for the third quarter of fiscal year 2025 decreased by 24%, compared to the corresponding prior year period, and included a favorable currency impact of 1%, when translating foreign orders to U.S. dollars. The decrease in orders was primarily due to a reduced volume of Hurco machine orders in China.

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Gross Profit. Gross profit for the third quarter of fiscal year 2025 was $9.1 million, or 20% of sales, compared to $7.8 million, or 18% of sales, for the corresponding prior year period. The quarter-over-quarter increase in gross profit as a percentage of sales was primarily due to a higher concentration of machine sales in Europe and lower fixed costs allocated to overhead related to cost savings implemented in the last twelve months.

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Operating Expenses. Selling, general, and administrative expenses for the third quarter of fiscal year 2025 were $10.8 million, or 23% of sales, compared to $10.4 million, or 24% of sales, in the corresponding fiscal year 2024 period, and included an unfavorable currency impact of $0.3 million, or 3%, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year increase in selling, general, and administrative expenses was due mainly to the unfavorable impact of currency when translating foreign expenses to U.S. dollars for financial reporting purposes.

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Operating Income/Loss. Operating loss for the third quarter of fiscal year 2025 was $1.7 million, compared to $2.5 million for the corresponding period in fiscal year 2024. The year-over-year reduction in operating loss was primarily due to a higher concentration of machine sales in Europe and lower fixed costs allocated to overhead related to cost savings implemented in the last twelve months.

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Other (Expense) Income, Net. Other expense, net for the third quarter of fiscal year 2025 was $1.5 million compared to $0.1 million for the corresponding period in fiscal year 2024. The year-over-year increase in other expense, net was due mainly to an increase in foreign currency exchange loss and a decrease in income from our equity investment.

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Income Taxes. Income tax expense for the third quarter of fiscal year 2025 was $0.6 million, compared to $7.0 million for the corresponding prior year period. The year-over-year reduction in income tax expense was due mainly to a lower valuation allowance recorded against our U.S. deferred tax assets, as well as changes in geographic mix of income and loss that include jurisdictions with differing tax rates. We recorded a valuation allowance of $1.6 million for the third quarter of fiscal year 2025, compared to $8.2 million for the corresponding prior year period. Because we have a valuation allowance recorded against our U.S. and Chinese deferred tax assets, we did not record a tax benefit for our U.S. and Chinese net losses for the third quarter of fiscal 2025. The valuation allowance recorded in the third quarter of fiscal year 2025 reflected a full valuation allowance of our U.S. and Chinese deferred tax assets and was recorded after evaluating changes to tax laws, statutory tax rates, and our cumulative three-year income (loss) levels for the U.S. and China for the nine months of fiscal year 2025.

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Nine Months Ended July 31, 2025, Compared to Nine Months Ended July 31, 2024

Sales and Service Fees. Sales and service fees for the nine months of fiscal year 2025 were $133.1 million, an increase of $0.2 million, or less than 1%, compared to the corresponding prior year period, and included a favorable currency impact of $1.2 million, or less than 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 sales and service fees by geographic region for the nine months ended July 31, 2025 and 2024 (dollars in thousands):

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Sales in the Americas for the nine months of fiscal year 2025 increased by 3%, compared to the corresponding period in fiscal year 2024, primarily due to increased shipments of Hurco and Milltronics machines. The increase in Hurco and Milltronics machine sales was primarily attributable to increased shipments of lathes, tool room machines and vertical machining centers.

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European sales for the nine months of fiscal year 2025 decreased by 3%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of 2%, when translating foreign sales to U.S. dollars for financial reporting purposes. The year-over-year decrease in European sales in the nine month period was primarily attributable to a decreased volume of shipments of Hurco and Takumi machines in France and Germany, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by LCM, partially offset by increased sales of Hurco machines in the United Kingdom and Italy as well as the favorable impact of currency translation of foreign sales to U.S. dollars for financial reporting purposes.

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Asian Pacific sales for the nine months of fiscal year 2025 increased by 7%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than 1%, 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 sales of Takumi vertical, bridge mill, horizontal, and 5-axis machines in the Asian Pacific region.

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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 nine months ended July 31, 2025 and 2024 (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.

Sales of computerized machine tools for the nine months of fiscal year 2025 increased by 2%, compared to the corresponding prior year period, primarily due to increased sales of Hurco and Milltronics machines in the Americas, Takumi machines in Asia Pacific, and Hurco machines in the United Kingdom and Italy, partially offset by a decrease in Hurco and Takumi machine sales in Germany and France. Sales of computer control systems and software for the nine months of fiscal year 2025 decreased by 1%, compared to the corresponding prior year period, due mainly to decreased software sales in Germany and the United Kingdom, partially offset by increased software sales in the Americas. Sales of service parts for the nine months of fiscal year 2025 decreased by 10%, compared to the corresponding prior year period, primarily due to decreases in aftermarket service parts sales in the Americas and Europe. Service fees for the nine months of fiscal year 2025 increased by 1%, compared to the corresponding prior year period, primarily due to increased aftermarket service fees in the Americas and Asia Pacific, partially offset by decreased aftermarket service fees in Europe. Sales for all product lines included a favorable currency impact of less than 1% when translating foreign sales to U.S. dollars for financial reporting purposes.

Orders. Orders for the nine months of fiscal year 2025 were $124.8 million, a decrease of $22.4 million, or 15%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of $0.9 million, or less than 1%, when translating foreign orders to U.S. dollars.

The following table sets forth new orders booked by geographic region for the nine months ended July 31, 2025, and 2024 (dollars in thousands):

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Orders in the Americas for the nine months of fiscal year 2025 decreased by 15%, compared to the corresponding period in fiscal year 2024, primarily due to decreased customer demand for Hurco and Takumi machines, as well as reduced demand for OEM machines sold by our wholly-owned domestic distributors.

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European orders for the nine months of fiscal year 2025 decreased by 20%, compared to the corresponding prior year period, and included a favorable currency impact of 1%, when translating foreign orders to U.S. dollars. The year-over-year decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in Germany, the United Kingdom and France, as well as for accessories manufactured by LCM.

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Asian Pacific orders for the nine months of fiscal year 2025 increased by 6%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than 1%, when translating foreign orders to U.S. dollars. The increase in orders was due mainly to an increased volume of Takumi machine orders throughout the Asian Pacific region where our customers are located, partially offset by decreased Hurco machine orders in China.

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Gross Profit. Gross profit for the nine months of fiscal year 2025 was $25.2 million, or 19% of sales, compared to $25.6 million, or 19% of sales, for the corresponding prior year period.

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Operating Expenses. Selling, general, and administrative expenses for the nine months of fiscal year 2025 were $32.0 million, or 24% of sales, compared to $33.4 million, or 25% of sales, in the corresponding fiscal year 2024 period, and included an unfavorable currency impact of $0.2 million, or less than 1%, when translating foreign expenses to U.S. dollars for financial reporting purposes. The year-over-year reduction in selling, general, and administrative expenses, reflected lower levels of discretionary spending and reduced employee health insurance costs.

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Operating Income/Loss. Operating loss for the nine months of fiscal year 2025 was $6.8 million, compared to $7.8 million for the corresponding period in fiscal year 2024. The year-over-year reduction in operating loss was primarily due to lower fixed costs allocated to overhead related to cost savings implemented in the last twelve months, lower levels of discretionary spending, and reduced employee health insurance costs.

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Other (Expense) Income, Net. Other expense, net for the nine months of fiscal year 2025 was $2.5 million compared to $1.1 million for the corresponding period in fiscal year 2024. The year-over-year increase in other expense, net was due mainly to an increase in foreign currency exchange loss and a decrease in income from our equity investment.

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Income Taxes. Income tax expense for the nine months of fiscal year 2025 was $3.1 million, compared to $6.4 million for the corresponding prior year period. The year-over-year reduction in income tax expense was due mainly to a lower valuation allowance recorded against our U.S. deferred tax assets, as well as changes in geographic mix of income and loss that include jurisdictions with differing tax rates, partially offset by an increase in valuation allowance recorded against our Italian deferred tax assets. We recorded a valuation allowance of $5.3 million for the nine months of fiscal year 2025, compared to $8.2 million recorded for the corresponding prior year period. Because we have a valuation allowance recorded against our U.S., Chinese and Italian deferred tax assets, we did not record a tax benefit for our U.S., Chinese and Italian net losses for the nine months of fiscal 2025. The valuation allowance recorded in the nine months of fiscal year 2025 reflected a full valuation allowance of our U.S., Chinese and Italian deferred tax assets and was recorded after evaluating changes to tax laws, statutory tax rates, and our cumulative three-year income (loss) levels for the U.S., China and Italy for the nine months of fiscal year 2025.

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LIQUIDITY AND CAPITAL RESOURCES

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At July 31, 2025, we had cash and cash equivalents of $44.5 million, compared to $33.3 million at October 31, 2024. Approximately 21% of the $44.5 million of cash and cash equivalents was denominated in U.S. dollars. The balance was attributable to our foreign operations and is held in the local currencies of our various foreign entities, subject to fluctuations in currency exchange rates. We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

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Working capital was $176.8 million at July 31, 2025, compared to $180.8 million at October 31, 2024. The decrease in working capital was primarily driven by decreases in accounts receivable, net and inventories and increases in accounts payable and derivative liabilities, partially offset by increases in cash and cash equivalents and derivative assets.

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Capital expenditures of $2.3 million during the nine months of fiscal year 2025 were primarily for software development costs and capital improvements in existing facilities. We funded these expenditures with cash on hand.

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On January 6, 2023, we announced approval of a share repurchase program in an aggregate amount of up to $25.0 million and later extended this program through November 10, 2026. Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time, subject to applicable laws, regulations and contractual provisions. During the third quarter of fiscal 2025, we repurchased $2.0 million, or 104,472 common shares, under this program. As of July 31, 2025, we had repurchased $5.3 million, or 259,620 common shares, under this program since inception, leaving $19.7 million available for future repurchases thereunder.

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On June 14, 2024, we announced a temporary suspension of our regular quarterly cash dividend as we seek to enhance our financial flexibility and improve our ability to manage market volatility while focusing on strengthening our balance sheet, reinvesting in our core business and research and development related to emerging technologies, and returning value to shareholders via the appropriate channels in both the near and long-term. 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.

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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, 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. The 2018 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V. at any one time may not exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million. Under the 2018 Credit Agreement, we and Hurco B.V. are borrowers, and certain of our other subsidiaries are guarantors. The scheduled maturity date of the 2018 Credit Agreement is December 31, 2025.

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Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a rate based upon the SOFR, the Sterling Overnight Index Average Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month SOFR-based rate plus 1.00%), plus 0.00% per annum. Outstanding letters of credit will carry an annual rate of 1.00%.

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The 2018 Credit Agreement contains customary affirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $10.0 million); (2) restricting us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $25.0 million; (3) requiring that we maintain a minimum working capital of $125.0 million; and (4) requiring that we maintain a minimum tangible net worth of $176.5 million. We may use the proceeds from advances under the 2018 Credit Agreement for general corporate purposes.

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In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China, NHML, closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New Taiwan Dollars and 32.5 million Chinese Yuan, respectively. 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 and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits.

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As of July 31, 2025, 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, 2025.

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At July 31, 2025, we had an aggregate of approximately $51.2 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

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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. We believe our access to cash pooling and our borrowing capacity under our credit facilities provide adequate liquidity to fund our global operations over the next twelve months and beyond, and allow us to remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets, and a balanced capital allocation program.

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We continue to receive and review information on businesses and assets for potential acquisition, including intellectual property assets that are available for purchase.

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CRITICAL ACCOUNTING ESTIMATES

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Our MD&A is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of financial statements in conformity with those accounting principles requires us to make judgments and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Those judgments and estimates have a significant effect on the financial statements because they result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from those estimates. Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024, 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 2025, 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, 2024.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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There have been no material changes related to our contractual obligations and commitments from the information provided in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024.

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OFF BALANCE SHEET ARRANGEMENTS

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From time to time, our subsidiaries guarantee third party payment obligations in connection with the sale of machines to customers that use financing. We follow FASB guidance for accounting for guarantees (codified in ASC 460). As of July 31, 2025, we had four outstanding third party payment guarantees totaling approximately $0.4 million. The terms of these guarantees are consistent with the underlying customer financing terms. Upon shipment of a machine, the customer assumes the risk of ownership. The customer does not obtain title, however, until the customer has paid for the machine. A retention of title clause allows us to recover the machine if the customer defaults on the financing. We accrue liabilities under these guarantees at fair value, which amounts are insignificant.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements made in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the statements.

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These risks, uncertainties and other factors include, but are not limited to:

•The cyclical nature of the machine tool industry;

•Uncertain economic conditions, which may adversely affect overall demand, in the Americas, Europe and Asia Pacific markets;

•The risks of our international operations;

•The effects of changes in currency exchange rates;

•Competition with larger companies that have greater financial resources;

•Our dependence on new product development;

•The need and/or ability to protect our intellectual property assets;

•The limited number of our manufacturing and supply chain sources;

•Increases in the prices of raw materials, especially steel and iron products;

•The effect of the loss of members of senior management and key personnel;

•Our ability to integrate acquisitions;

•Acquisitions that could disrupt our operations and affect operating results;

•Failure to comply with data privacy and security regulations;

•Breaches of our network and system security measures;

•Possible obsolescence of our technology and the need to make technological advances;

•Impairment of our assets;

•Negative or unforeseen tax consequences;

•Uncertainty concerning our ability to use tax loss carryforwards;

•Changes in the SOFR rate; and

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We discuss these and other important risks and uncertainties that may affect our future operations in Part I, Item 1A - Risk Factors in our most recent Annual Report on Form 10K and may update that discussion in Part II, Item 1A - Risk Factors in this report or in a Quarterly Report on Form 10 Q we file hereafter.

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Readers are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This cautionary statement is applicable to all forward-looking statements contained in this report.