Quarterly Report for Quarter Ending July 31, 2026 (Form 10-Q)

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 nine 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 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 changes in the markets and industries in which we operate. We believe that our historical 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 nine 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 5-axis and higher-performance vertical milling machines in the Americas and Asia Pacific, as well as increased shipments of Milltronics and Takumi machines in the Americas and Takumi vertical milling machines and private labeled machine frames produced for third parties in Asia Pacific.

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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 July 31, 2026 Compared to Three Months Ended July 31, 2025

Sales and Service Fees. Sales and service fees for the third quarter of fiscal year 2026 were $47.3 million, an increase of $1.5 million, or 3%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than $0.1 million, or less than 1%, 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 third fiscal quarter ended July 31, 2026 and 2025 (dollars in thousands):

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Sales in the Americas for the third quarter of fiscal year 2026 increased by 11%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines and increased shipments of Milltronics and Takumi toolroom lathes.

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European sales for the third quarter of fiscal year 2026 decreased by 12%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of less than 1%, when translating foreign sales to U.S. dollars for financial reporting purposes. The 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 vertical milling machines and increased sales of ProCobots automation solutions.

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Asian Pacific sales for the third quarter of fiscal year 2026 increased by 51%, compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, when translating foreign sales to U.S. dollars for financial reporting purposes. The increase in Asian Pacific sales was primarily due to increased shipments of Hurco vertical milling machines in China and Southeast Asia, as well as increased shipments of Takumi vertical milling machines and private labeled machine frames produced for third parties.

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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, 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 third quarter of fiscal year 2026 increased by 3%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco and Takumi machines in the Americas and Asia Pacific, as well as increased shipments of private labeled machine frames produced for third parties in Asia Pacific. Sales of service parts increased by 6% compared to the corresponding prior year period, primarily due to increases in sales of aftermarket service parts in Europe and Asia Pacific. Sales for all product lines included an unfavorable currency impact of less than 1%, 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 2026 were $51.4 million, an increase of $10.4 million, or 25%, compared to the corresponding period in fiscal year 2025, and included an unfavorable currency impact of $0.3 million, or less than 1%, 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, 2026 and 2025 (dollars in thousands):

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Orders in the Americas for the third quarter of fiscal year 2026 increased by 37%, 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, Takumi lathes and vertical milling machines, as well as Milltronics toolroom lathes.

European orders for the third quarter of fiscal year 2026 increased by 6%, compared to the corresponding prior year period, and included a favorable currency impact of less than 1%, when translating foreign orders to U.S. dollars. The increase in orders was driven primarily by increased customer demand for Hurco higher-performance vertical milling machines in the United Kingdom and electro-mechanical components and accessories manufactured by LCM, partially offset by decreased customer demand for Hurco machines in Germany and France.

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Asian Pacific orders for the third quarter of fiscal year 2026 increased by 68%, compared to the corresponding prior year period, and included an unfavorable currency impact of 7%, when translating foreign orders to U.S. dollars. The increase in orders was driven primarily by increased customer demand for Takumi machines and for private labeled machine frames produced for third parties, partially offset by decreased customer demand for Hurco machines in China.

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Gross Profit. Gross profit for the third quarter of fiscal year 2026 was $13.2 million, or 28% of sales, compared to $9.1 million, or 20% of sales, for the corresponding prior year period. The increase in gross profit was attributable to an increased volume of machine sales and a greater mix of higher-performance machines sold, as well as price increases implemented in the first quarter of fiscal 2026 and tariff refund claims filed with the United States Customs and Border Protection.

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Operating Expenses. Selling, general, and administrative expenses for the third quarter of fiscal year 2026 were $10.9 million, or 23% of sales, compared to $10.8 million, or 23% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.1 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The increase in selling, general, and administrative expenses was primarily due to the unfavorable currency impact and increased global wages, sales commissions, and employee benefits.

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Operating Income (Loss). Operating income for the third quarter of fiscal year 2026 was $2.3 million, compared to an operating loss of $1.7 million, for the corresponding period in fiscal year 2025. The improvement from operating loss to operating income was primarily attributable to an increased volume of machine sales and a greater mix of higher-performance machines sold, as well as price increases implemented in the first quarter of fiscal 2026 and tariff refund claims filed with the United States Customs and Border Protection.

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Other Income (Expense), Net. Other income, net for the third quarter of fiscal year 2026 was $0.3 million compared to other expense, net of $1.5 million, for the corresponding period in fiscal year 2025. The change was due mainly to a decrease in foreign currency exchange loss.

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Income Taxes. Income tax expense for the third quarter of fiscal year 2026 was $0.4 million, compared to $0.6 million, for the corresponding prior year period. The reduction in income tax expense was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates.

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Nine Months Ended July 31, 2026, Compared to Nine Months Ended July 31, 2025

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Sales and Service Fees. Sales and service fees for the first nine months of fiscal year 2026 were $137.8 million, an increase of $4.7 million, or 4%, compared to the corresponding prior year period, and included a favorable currency impact of $3.1 million, or 2%, 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 nine months ended July 31, 2026 and 2025 (dollars in thousands):

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Sales in the Americas for the first nine 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 machines and larger, higher-performance vertical milling machines, increased shipments of Takumi lathes and vertical milling machines, and increased shipments of Milltronics toolroom lathes.

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European sales for the first nine months of fiscal year 2026 decreased by 8%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 5%, when translating foreign sales to U.S. dollars for financial reporting purposes. The 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 vertical milling machines and increased sales of ProCobots automation solutions.

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Asian Pacific sales for the first nine months of fiscal year 2026 increased by 30%, 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 increase in Asian Pacific sales was primarily due to increased shipments of Hurco vertical milling machines in China and Southeast Asia, as well as increased shipment of Takumi vertical milling machines and private labeled machine frames produced for third parties.

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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, 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 first nine months of fiscal year 2026 increased by 4%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco and Takumi machines in the Americas and Asia Pacific, as well as increased shipment of private labeled machine frames produced for third parties in Asia Pacific. Sales of computer control systems and software for the first nine months of fiscal year 2026 decreased by 19%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas. Sales of service parts for the first nine months of fiscal year 2026 increased by 8%, compared to the corresponding prior year period, primarily due to increases in sales of aftermarket service parts for Hurco and Takumi products in the United Kingdom, Germany, and Asia Pacific. Service fees for the first nine 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 2%, when translating foreign sales to U.S. dollars for financial reporting purposes.

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Orders. Orders for the first nine months of fiscal year 2026 were $155.0 million, an increase of $30.2 million, or 24%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $3.1 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 nine months ended July 31, 2026, and 2025 (dollars in thousands):

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Orders in the Americas for the first nine months of fiscal year 2026 increased by 40%, 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, Takumi lathes and vertical milling machines, as well as Milltronics toolroom lathes.

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European orders for the first nine months of fiscal year 2026 increased by 7%, compared to the corresponding prior year period, and included a favorable currency impact of 5%, when translating foreign orders to U.S. dollars. The increase in orders was driven primarily by increased customer demand for Hurco higher-performance vertical milling machines in the United Kingdom and electro-mechanical components and accessories manufactured by LCM, partially offset by decreased customer demand for Hurco machines in Germany and France.

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Asian Pacific orders for the first nine months of fiscal year 2026 increased by 41%, compared to the corresponding prior year period, and included an unfavorable currency impact of 1%, when translating foreign orders to U.S. dollars. The increase in Asian Pacific orders was driven primarily by increased customer demand for Takumi machines and for private labeled machine frames produced for third parties, partially offset by decreased customer demand for Hurco machines in China.

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Gross Profit. Gross profit for the first nine months of fiscal year 2026 was $31.5 million, or 23% of sales, compared to $25.2 million, or 19% of sales, for the corresponding prior year period. Most of the increase in gross profit was attributable to an increased volume of machine sales and a greater mix of higher-performance machines sold, as well as price increases implemented in the first quarter of fiscal 2026. Additionally, a smaller portion of the gross profit improvement included tariff refund claims filed with the United States Customs and Border Protection.

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Operating Expenses. Selling, general, and administrative expenses for the first nine months of fiscal year 2026 were $33.1 million, or 24% of sales, compared to $32.0 million, or 24% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.8 million, when translating foreign expenses to U.S. dollars for financial reporting purposes. The increase was primarily due to the unfavorable impact of currency translation and increased global wages, sales commissions, and employee benefits.

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Operating Income (Loss). Operating loss for the first nine months of fiscal year 2026 was $1.7 million, compared to $6.8 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, as well as price increases implemented in the first quarter of fiscal 2026 and tariff refund claims filed with the United States Customs and Border Protection.

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Other Income (Expense), Net. Other expense, net for the first nine months of fiscal year 2026 decreased to $0.5 million from $2.5 million for the corresponding period in fiscal year 2025, due mainly to a decrease in foreign currency exchange loss.

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Income Taxes. Income tax expense for the first nine months of fiscal year 2026 was $1.7 million, compared to $3.1 million for the corresponding prior year period. The year-over-year decrease in income tax expense was primarily due to a $1.2 million valuation allowance recorded during the first quarter of 2025 on our Italian deferred tax assets and changes in geographic mix of income and loss that include jurisdictions with differing tax rates. A full valuation allowance has been recorded against our Italian, U.S., and Chinese deferred tax assets as of July 31, 2026, based on our conclusion that the deferred tax assets were not more likely than not to be realized under generally accepted accounting principles.

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LIQUIDITY AND CAPITAL RESOURCES

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At July 31, 2026, we had cash and cash equivalents of $52.1 million, compared to $48.7 million at October 31, 2025. Approximately 18% of the $52.1 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 $166.7 million at July 31, 2026, compared to $173.1 million at October 31, 2025. The decrease in working capital was primarily driven by a decrease in inventories and an increase in accounts payable and customer deposits, partially offset by increases in cash and cash equivalents and prepaid and other assets.

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Capital expenditures of $2.4 million during the first nine months of fiscal year 2026 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. We did not repurchase any shares of our common stock during the first nine months of fiscal 2026. As of July 31, 2026, 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 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 a 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 (as amended, the "2018 Credit Agreement"). The 2018 Credit Agreement provided for an unsecured revolving credit and letter of credit facility in a maximum aggregate amount of $40.0 million. The 2018 Credit Agreement provided that the maximum amount of outstanding letters of credit at any one time could not exceed $10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V. at any one time could not exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time could not exceed $20.0 million. The scheduled maturity date of the 2018 Credit Agreement was December 31, 2025, and on that date, the 2018 Credit Agreement terminated in accordance with its terms.

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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 were subject to review and termination by the respective underlying lending institution from time to time. On December 31, 2025, the 150 million New Taiwan Dollars Taiwan credit facility and the 32.5 million Chinese Yuan China credit facility terminated in accordance with their terms.

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On January 5, 2026, we entered into a credit agreement with Bank of America, N.A., as the lender (the "2026 Credit Agreement"). The 2026 Credit Agreement provides for a secured revolving credit and letter of credit facility in a maximum aggregate amount of $20.0 million. The 2026 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 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 2026 Credit Agreement, we are the borrower, and certain of our subsidiaries are guarantors. Our obligations under the 2026 Credit Agreement are secured by a security interest in substantially all of our personal property and substantially all of the personal property of each subsidiary guarantor. The scheduled maturity date of the 2026 Credit Agreement is December 31, 2026.

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Borrowings under the 2026 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 2.50% 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 1.50% per annum. Any outstanding letters of credit carry an annual rate of 2.50%.

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The 2026 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 2026 Credit Agreement plus our cash on hand is not less than $10.0 million, we are in pro forma compliance with the maximum consolidated leverage ratio covenant as described below, and 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 $10.0 million; and (3) requiring that we maintain a maximum consolidated leverage ratio of total debt to EBITDA no greater than 2.00 to 1.00, with EBITDA defined as the greater of (i) consolidated EBITDA for the most recently completed measurement period and (ii) $1.00. We may use the proceeds from advances under the 2026 Credit Agreement for general corporate purposes.

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The maximum consolidated leverage ratio covenant effectively prohibits us from borrowing any amounts under the 2026 Credit Agreement when our consolidated EBITDA for the most recently completed measurement period is negative. As of the date of this report, the most recently completed measurement period was our twelve months ended July 31, 2026, during which our consolidated EBITDA was negative. In order to borrow in compliance with the maximum consolidated leverage ratio covenant set forth above, we are effectively prohibited from borrowing under the 2026 Credit Agreement until we have positive consolidated EBITDA for our most recently completed four fiscal quarters.

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As of July 31, 2026, our credit facilities consisted of a €1.5 million revolving credit facility in Germany and the $20.0 million secured revolving credit and letter of credit facility. We had no debt or borrowings outstanding under any of our credit facilities as of July 31, 2026.

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We also 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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We borrowed only $1.6 million during fiscal years 2015-2018 to fund start-up costs related to expansion in China and have not had any borrowings under any of our debt facilities at any other time over the last ten fiscal years, even during prolonged recessionary industry cycles. While we are currently in the process of evaluating a longer-term global credit solution, we believe our current cash on hand, expected cash flow from operations, and access to cash pooling 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 condensed consolidated 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, 2025, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. During the first nine months of fiscal year 2026, 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, 2025.

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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, 2025.

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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, 2026, we had four outstanding third party payment guarantees totaling approximately $0.3 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.