UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 2023 or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________ Commission File No. 0-9143 HURCO COMPANIES, INC. (Exact name of registrant as specified in its charter) Indiana 35-1150732 (State or other ju ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for Hurco Companies, Inc. are presented, including statements of operations, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with detailed notes on accounting policies and financial instruments [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company experienced a significant decline in net income for both the three and nine months ended July 31, 2023, compared to the prior year, primarily due to decreased sales and higher effective tax rates Three Months Ended July 31, 2023 vs. 2022 (in thousands, except per share data) | Metric | 2023 | 2022 | Change (YoY) | | :----------------------- | :----- | :----- | :----------- | | Sales and service fees | $53,201 | $57,640 | -8% | | Gross profit | $13,448 | $14,399 | -6.6% | | Operating income | $1,012 | $1,752 | -42.3% | | Net income | $260 | $1,238 | -79% | | Basic income per common share | $0.04 | $0.19 | -78.9% | | Diluted income per common share | $0.04 | $0.18 | -77.8% | | Dividends paid per share | $0.16 | $0.15 | +6.7% | Nine Months Ended July 31, 2023 vs. 2022 (in thousands, except per share data) | Metric | 2023 | 2022 | Change (YoY) | | :----------------------- | :------- | :------- | :----------- | | Sales and service fees | $161,702 | $187,352 | -13.7% | | Gross profit | $38,749 | $46,908 | -17.4% | | Operating income | $3,237 | $10,049 | -67.8% | | Net income | $1,967 | $6,802 | -71.1% | | Basic income per common share | $0.30 | $1.02 | -70.6% | | Diluted income per common share | $0.30 | $1.01 | -70.3% | | Dividends paid per share | $0.47 | $0.44 | +6.8% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a comprehensive loss for the three months ended July 31, 2023, and a comprehensive income for the nine months, primarily influenced by foreign currency translation gains/losses and derivative instrument gains/losses Comprehensive Income (Loss) (in thousands) | Period | 2023 | 2022 | | :------------------- | :------- | :------- | | Three Months Ended July 31 | $(1,601) | $(1,670) | | Nine Months Ended July 31 | $8,622 | $(5,129) | Total Other Comprehensive Income (Loss) (in thousands) | Period | 2023 | 2022 | | :------------------- | :------- | :-------- | | Three Months Ended July 31 | $(1,861) | $(2,908) | | Nine Months Ended July 31 | $6,655 | $(11,931) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of July 31, 2023, total assets slightly decreased compared to October 31, 2022, with a notable decrease in cash and cash equivalents but an increase in inventories. Total liabilities decreased, while shareholders' equity increased Balance Sheet Highlights (in thousands) | Metric | July 31, 2023 | October 31, 2022 | Change | | :-------------------------- | :-------------- | :--------------- | :------- | | Cash and cash equivalents | $41,030 | $63,922 | -35.8% | | Accounts receivable, net | $33,281 | $38,444 | -13.4% | | Inventories, net | $178,423 | $156,207 | +14.2% | | Total current assets | $261,963 | $268,069 | -2.3% | | Total assets | $303,217 | $306,237 | -1.0% | | Total current liabilities | $63,843 | $73,336 | -12.9% | | Total non-current liabilities | $13,573 | $10,257 | +32.3% | | Total liabilities | $77,416 | $83,593 | -7.4% | | Total shareholders' equity | $225,801 | $222,644 | +1.4% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced negative cash flow from operating activities for both the three and nine months ended July 31, 2023, primarily due to changes in working capital, particularly an increase in inventories. Cash and cash equivalents decreased significantly Cash Flows from Operating Activities (in thousands) | Period | 2023 | 2022 | | :------------------- | :-------- | :-------- | | Three Months Ended July 31 | $(9,147) | $(5,871) | | Nine Months Ended July 31 | $(16,182) | $2,441 | Net Increase (Decrease) in Cash and Cash Equivalents (in thousands) | Period | 2023 | 2022 | | :------------------- | :--------- | :--------- | | Three Months Ended July 31 | $(11,125) | $(8,506) | | Nine Months Ended July 31 | $(22,892) | $(10,527) | Cash and Cash Equivalents at End of Period (in thousands) | Period | 2023 | 2022 | | :------------------- | :-------- | :-------- | | July 31 | $41,030 | $73,536 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased slightly from October 31, 2022, to July 31, 2023, driven by net income and other comprehensive income, partially offset by dividends paid and stock repurchases Shareholders' Equity (in thousands) | Metric | July 31, 2023 | October 31, 2022 | | :-------------------------- | :-------------- | :--------------- | | Total Shareholders' Equity | $225,801 | $222,644 | - Key changes for the nine months ended July 31, 2023 (in thousands) include net income of **$1,967**, other comprehensive income of **$6,655**, stock-based compensation expense of **$1,967**, stock repurchases of **$(4,609)**, and dividends paid of **$(3,093)**[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide additional information and details regarding the company's accounting policies, financial instruments, equity compensation, debt, and other financial matters, offering context to the condensed consolidated financial statements [1. GENERAL](index=8&type=section&id=1.%20GENERAL) This section provides an overview of Hurco Companies, Inc.'s business, including its products, global operations, and factors affecting operating results - Hurco Companies, Inc. designs, manufactures, and sells computerized (CNC) machine tools (vertical machining centers and turning centers) to the metal cutting industry globally, along with components, automation integration, software, accessories, and customer support[21](index=21&type=chunk)[24](index=24&type=chunk) - Operating results have been affected by international business disruption due to COVID-19, vendor delays, transportation issues, high inflation, foreign currency volatility, competitive labor markets, and political friction[22](index=22&type=chunk) [2. REVENUE RECOGNITION](index=8&type=section&id=2.%20REVENUE%20RECOGNITION) This section details the company's policies for recognizing revenue from machine tool sales, installation services, and maintenance contracts - Revenue from sales of machine tool systems is recognized upon delivery of the product to the customer or distributor, normally at the time of shipment, as the customer obtains control[26](index=26&type=chunk) - Installation for three-axis machines is considered inconsequential; for five-axis machines, installation revenue is recognized prorata over the installation process[27](index=27&type=chunk) - Service fees from maintenance contracts are deferred and recognized prorata over the contract term[28](index=28&type=chunk) [3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES](index=9&type=section&id=3.%20DERIVATIVE%20INSTRUMENTS%20AND%20HEDGING%20ACTIVITIES) The company utilizes foreign currency forward exchange contracts to mitigate risks from exchange rate fluctuations on investments, sales, purchases, receivables, and payables - The company uses foreign currency forward exchange contracts to reduce the potential effects of foreign exchange rate movements on its net equity investment in foreign subsidiaries, gross profit, net earnings from foreign currency sales/purchases, and foreign currency receivables/payables[29](index=29&type=chunk)[30](index=30&type=chunk) - Derivatives designated as cash flow hedges mitigate risk from forecasted inter-company sales and purchases (Pound Sterling, Euro, New Taiwan Dollar), with effective portions of gains/losses deferred in Accumulated other comprehensive income (loss) and reclassified to Cost of sales and service[31](index=31&type=chunk) - A forward contract with a notional amount of **€3.0 million** is designated as a net investment hedge for Euro-denominated assets, with changes in fair value reported as a cumulative translation adjustment in Accumulated other comprehensive income (loss)[33](index=33&type=chunk) Fair Value of Derivative Instruments (July 31, 2023, in thousands) | Derivative Type | Balance Sheet Location | Fair Value | | :---------------------------------- | :--------------------- | :--------- | | Designated as Hedging Instruments (Assets) | Derivative assets | $7 | | Designated as Hedging Instruments (Liabilities) | Derivative liabilities | $1,457 | | Not Designated as Hedging Instruments (Assets) | Derivative assets | $162 | | Not Designated as Hedging Instruments (Liabilities) | Derivative liabilities | $1,146 | [4. EQUITY INCENTIVE PLAN](index=13&type=section&id=4.%20EQUITY%20INCENTIVE%20PLAN) This section outlines the company's equity incentive plan, including grants of restricted stock and performance units to directors and executive officers - The 2016 Equity Incentive Plan is the active plan for granting stock options, restricted stock, and performance units; no stock options remained outstanding as of July 31, 2023[39](index=39&type=chunk)[41](index=41&type=chunk) - On March 9, 2023, **17,226 shares** of time-based restricted stock were granted to non-employee directors, vesting in one year, with a grant date fair value of **$27.86 per share**[42](index=42&type=chunk) - On January 3, 2023, executive officers received **29,376** time-based restricted shares (vesting over three years, **$26.38/share** fair value) and performance stock units (PSUs) tied to average net income (**47,003 target PSUs-NI**) and free cash flow (**41,126 target PSUs-FCF**) for fiscal years 2023-2025[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - Stock-based compensation expense for the nine months ended July 31, 2023, was approximately **$2.3 million**, with an estimated **$4.5 million** of unrecognized cost remaining as of July 31, 2023[48](index=48&type=chunk) [5. EARNINGS PER SHARE](index=16&type=section&id=5.%20EARNINGS%20PER%20SHARE) This section presents the basic and diluted earnings per common share for the three and nine months ended July 31, 2023 and 2022 Income Per Common Share (Three Months Ended July 31) | Metric | 2023 | 2022 | | :----------- | :--- | :--- | | Basic | $0.04 | $0.19 | | Diluted | $0.04 | $0.18 | Income Per Common Share (Nine Months Ended July 31) | Metric | 2023 | 2022 | | :----------- | :--- | :--- | | Basic | $0.30 | $1.02 | | Diluted | $0.30 | $1.01 | [6. ACCOUNTS RECEIVABLE](index=16&type=section&id=6.%20ACCOUNTS%20RECEIVABLE) This section details the company's accounts receivable, net of allowances for doubtful accounts - Accounts receivable are net of allowances for doubtful accounts of **$1.5 million** as of both July 31, 2023, and October 31, 2022[50](index=50&type=chunk) [7. INVENTORIES](index=17&type=section&id=7.%20INVENTORIES) This section provides a breakdown of the company's inventories, including purchased parts, work-in-process, and finished goods, net of reserves Inventories, Net (in thousands) | Metric | July 31, 2023 | October 31, 2022 | Change | | :-------------------------- | :-------------- | :--------------- | :------- | | Purchased parts and sub-assemblies | $46,884 | $46,796 | +0.2% | | Work-in-process | $19,446 | $16,539 | +17.6% | | Finished goods | $115,852 | $96,305 | +20.3% | | Inventories, gross | $182,182 | $159,640 | +14.1% | | Reserve for purchased parts and sub-assemblies | $(3,759) | $(3,433) | +9.5% | | Inventories, net | $178,423 | $156,207 | +14.2% | [8. LEASES](index=17&type=section&id=8.%20LEASES) This section describes the company's accounting for operating leases, including right-of-use assets, lease liabilities, and related expenses - The company records right-of-use assets and lease liabilities for operating leases with terms over **12 months**[53](index=53&type=chunk) Operating Lease Expense (Nine Months Ended July 31, in thousands) | Year | Amount | | :--- | :----- | | 2023 | $3,900 | | 2022 | $3,800 | - As of July 31, 2023, the weighted-average remaining lease term was approximately **4.2 years**, and the weighted-average discount rate was approximately **2.9%**[56](index=56&type=chunk) [9. SEGMENT INFORMATION](index=18&type=section&id=9.%20SEGMENT%20INFORMATION) The company operates as a single segment focused on industrial automation equipment, specifically CNC machine tools and related products/services - Hurco operates in a single segment: industrial automation equipment, focusing on the design, manufacture, and sale of computerized (CNC) machine tools and related products/services to the metal cutting industry[57](index=57&type=chunk) [10. GUARANTEES AND PRODUCT WARRANTIES](index=18&type=section&id=10.%20GUARANTEES%20AND%20PRODUCT%20WARRANTIES) This section details the company's outstanding third-party payment guarantees and its product warranty reserve - As of July 31, 2023, the company had **nine** outstanding third-party payment guarantees totaling approximately **$0.9 million**, which are accrued at fair value and considered insignificant[58](index=58&type=chunk) Warranty Reserve (in thousands) | Metric | July 31, 2023 | July 31, 2022 | | :-------------------------- | :-------------- | :-------------- | | Balance, beginning of period | $1,426 | $1,516 | | Provision for warranties | $1,949 | $2,183 | | Charges to the reserve | $(2,119) | $(2,177) | | Impact of foreign currency translation | $62 | $(85) | | Balance, end of period | $1,318 | $1,437 | - The year-over-year decrease in the warranty reserve was primarily due to a lower volume of machine sales[59](index=59&type=chunk) [11. DEBT AGREEMENTS](index=20&type=section&id=11.%20DEBT%20AGREEMENTS) This section outlines the company's revolving credit facilities and other uncommitted credit lines, along with associated covenants and available borrowing capacity - The company maintains a **$40.0 million** unsecured revolving credit facility (2018 Credit Agreement) with Bank of America, N.A., maturing December 31, 2023, and other uncommitted credit facilities in Taiwan (**150 million NTD**), China (**32.5 million CNY**), and Germany (**€1.5 million**)[60](index=60&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - As of July 31, 2023, there were no borrowings outstanding under any credit facilities, with approximately **$51.0 million** of available borrowing capacity[65](index=65&type=chunk) - The 2018 Credit Agreement includes covenants requiring a minimum working capital of **$125.0 million** and a minimum tangible net worth of **$176.5 million**, along with restrictions on dividends and stock repurchases[62](index=62&type=chunk) [12. INCOME TAXES](index=20&type=section&id=12.%20INCOME%20TAXES) This section provides details on the company's income tax expense and effective tax rates, highlighting factors influencing year-over-year changes Income Tax Expense (Nine Months Ended July 31, in thousands) | Year | Amount | | :--- | :----- | | 2023 | $1,300 | | 2022 | $3,000 | Effective Tax Rate (Nine Months Ended July 31) | Year | Rate | | :--- | :--- | | 2023 | 40% | | 2022 | 31% | - The year-over-year increase in the effective tax rate was primarily due to changes in geographic mix of income and loss, discrete items related to stock compensation, the impact of valuation allowances for China operations, and lower levels of consolidated income before taxes[69](index=69&type=chunk) - The Inflation Reduction Act of 2022 is not expected to have a material impact on the company's income taxes[67](index=67&type=chunk) [13. FINANCIAL INSTRUMENTS](index=22&type=section&id=13.%20FINANCIAL%20INSTRUMENTS) This section describes the company's financial instruments, their fair value categorization, and derivative notional amounts - The company categorizes financial assets and liabilities measured at fair value into a three-tier hierarchy: Level 1 (observable inputs like quoted prices), Level 2 (inputs other than quoted prices, directly or indirectly observable), and Level 3 (unobservable inputs)[72](index=72&type=chunk) - Cash and cash equivalents, along with deferred compensation mutual fund investments, are classified as **Level 1** assets. Derivative assets and liabilities related to foreign currency forward exchange contracts are classified as **Level 2**[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) Derivative Notional Amounts (U.S. dollar equivalent, in millions) | Date | Amount | | :----------- | :----- | | July 31, 2023 | $93.0 | | October 31, 2022 | $102.8 | [14. CONTINGENCIES AND LITIGATION](index=24&type=section&id=14.%20CONTINGENCIES%20AND%20LITIGATION) The company is involved in various claims and lawsuits, none of which are expected to have a material adverse effect on its financial position or operations - The company is involved in various claims and lawsuits arising in the normal course of business, but does not expect any of these to have a material adverse effect on its consolidated financial position or results of operations[78](index=78&type=chunk) [15. NEW ACCOUNTING PRONOUNCEMENTS](index=24&type=section&id=15.%20NEW%20ACCOUNTING%20PRONOUNCEMENTS) The company has reviewed recent accounting pronouncements and anticipates no material impact on its condensed consolidated financial statements - The company reviewed all recently issued accounting pronouncements and concluded they are either not applicable or not expected to have a significant impact on its condensed consolidated financial statements as of July 31, 2023[79](index=79&type=chunk) [Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, liquidity, capital resources, and operating results, highlighting its business model and challenges in a volatile global environment [EXECUTIVE OVERVIEW](index=25&type=section&id=EXECUTIVE%20OVERVIEW) Hurco is an international industrial technology company specializing in CNC machine tools (Hurco, Milltronics, Takumi brands) and automation solutions (ProCobots), with significant foreign sales (56% Europe, 8% Asia Pacific in 9M FY23) and manufacturing operations. The company faces risks from global economic disruptions, inflation, and currency volatility - Hurco designs, manufactures, and sells computerized (CNC) machine tools (vertical machining centers and turning centers) to the metal cutting industry, along with machine tool components, automation integration equipment, software, and support services[82](index=82&type=chunk)[85](index=85&type=chunk) - Approximately **56%** of revenues for the nine months of fiscal year 2023 were from Europe, and **8%** from the Asia Pacific region[84](index=84&type=chunk) - The company's operating results have been affected by international business disruption due to COVID-19, vendor delays, transportation issues, unusually high inflation, volatility of foreign currencies, competitive labor markets, and political friction[89](index=89&type=chunk) [RESULTS OF OPERATIONS](index=26&type=section&id=RESULTS%20OF%20OPERATIONS) Sales and profitability declined for both the three and nine months ended July 31, 2023, driven by decreased machine tool shipments, though gross profit margins remained stable [Three Months Ended July 31, 2023 Compared to Three Months Ended July 31, 2022](index=26&type=section&id=Three%20Months%20Ended%20July%2031%2C%202023%20Compared%20to%20Three%20Months%20Ended%20July%2031%2C%202022) Sales and operating income decreased significantly for the three months ended July 31, 2023, primarily due to lower machine tool sales in the Americas and Asia Pacific - Sales and service fees for the third quarter of fiscal year 2023 decreased by **$4.4 million**, or **8%**, to **$53.2 million**, compared to the prior year, including a favorable currency impact of **$0.6 million (1%)**[90](index=90&type=chunk) Sales and Service Fees by Geographic Region (Three Months Ended July 31, in thousands) | Region | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :----------- | :----- | :--------- | :----- | :--------- | :------- | :------- | | Americas | $18,272 | 34% | $23,736 | 41% | $(5,464) | (23)% | | Europe | $31,162 | 59% | $28,932 | 50% | $2,230 | 8% | | Asia Pacific | $3,767 | 7% | $4,972 | 9% | $(1,205) | (24)% | | Total | $53,201 | 100% | $57,640 | 100% | $(4,439) | (8)% | - European sales increased by **8%** due to increased volume and improved mix of higher-performance Hurco VMX and five-axis machines, and increased sales of Milltronics machines and LCM components, despite overall sales decline[92](index=92&type=chunk) Sales and Service Fees by Product Category (Three Months Ended July 31, in thousands) | Product Category | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :-------------------------- | :----- | :--------- | :----- | :--------- | :------- | :------- | | Computerized Machine Tools | $43,189 | 81% | $48,414 | 84% | $(5,225) | (11)% | | Computer Control Systems and Software | $778 | 1% | $652 | 1% | $126 | 19% | | Service Parts | $7,166 | 14% | $6,588 | 11% | $578 | 9% | | Service Fees | $2,068 | 4% | $1,986 | 4% | $82 | 4% | | Total | $53,201 | 100% | $57,640 | 100% | $(4,439) | (8)% | - Orders for the third quarter decreased by **$10.8 million**, or **20%**, to **$42.1 million**, with significant declines in the Americas (**33%**) and Asia Pacific (**43%**), partially offset by a favorable currency impact of **$1.1 million (2%)**[96](index=96&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk) - Gross profit decreased by **$1.0 million** to **$13.4 million**, but the gross profit margin remained stable at **25%** due to an increased mix of higher-performance VMX and five-axis machines sold in Europe[100](index=100&type=chunk) - Operating income decreased by **$2.2 million** to **$1.0 million**, primarily due to lower sales volume and the negative impact of fixed costs[102](index=102&type=chunk) - The effective tax rate increased to **60%** from **28%**, driven by changes in geographic income mix, stock compensation items, valuation allowances for China operations, and lower consolidated income before taxes[103](index=103&type=chunk) [Nine Months Ended July 31, 2023 Compared to Nine Months Ended July 31, 2022](index=28&type=section&id=Nine%20Months%20Ended%20July%2031%2C%202023%20Compared%20to%20Nine%20Months%20Ended%20July%2031%2C%202022) Sales and operating income declined substantially for the nine months ended July 31, 2023, driven by reduced machine tool shipments across all regions, especially Asia Pacific - Sales and service fees for the nine months of fiscal year 2023 decreased by **$25.7 million**, or **14%**, to **$161.7 million**, compared to the prior year, including an unfavorable currency impact of **$4.1 million (2%)**[104](index=104&type=chunk) Sales and Service Fees by Geographic Region (Nine Months Ended July 31, in thousands) | Region | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :----------- | :------- | :--------- | :------- | :--------- | :------- | :------- | | Americas | $58,609 | 36% | $70,154 | 38% | $(11,545) | (16)% | | Europe | $89,745 | 56% | $93,932 | 50% | $(4,187) | (4)% | | Asia Pacific | $13,348 | 8% | $23,266 | 12% | $(9,918) | (43)% | | Total | $161,702 | 100% | $187,352 | 100% | $(25,650) | (14)% | - Asian Pacific sales decreased significantly by **43%** due to reduced shipments of Hurco and Takumi machines in China, Southeast Asia, and India[107](index=107&type=chunk) Sales and Service Fees by Product Category (Nine Months Ended July 31, in thousands) | Product Category | 2023 | % of Total | 2022 | % of Total | $ Change | % Change | | :-------------------------- | :------- | :--------- | :------- | :--------- | :------- | :------- | | Computerized Machine Tools | $132,535 | 82% | $158,774 | 85% | $(26,239) | (17)% | | Computer Control Systems and Software | $1,916 | 1% | $2,017 | 1% | $(101) | (5)% | | Service Parts | $21,101 | 13% | $20,496 | 11% | $605 | 3% | | Service Fees | $6,150 | 4% | $6,065 | 3% | $85 | 1% | | Total | $161,702 | 100% | $187,352 | 100% | $(25,650) | (14)% | - Orders for the nine months decreased by **$27.1 million**, or **15%**, to **$155.5 million**, with an unfavorable currency impact of **$4.0 million (2%)**. All geographic regions experienced declines, particularly Asia Pacific (**42%**) and Americas (**17%**)[110](index=110&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) - Gross profit decreased by **$8.2 million** to **$38.7 million**, but the gross profit margin remained relatively stable at **24%** due to an increased mix of higher-performance VMX and five-axis machines sold in Europe[116](index=116&type=chunk) - Operating income decreased by **$6.8 million** to **$3.2 million**, primarily due to lower sales volume and the negative impact of fixed costs[118](index=118&type=chunk) - The effective tax rate increased to **40%** from **31%**, driven by changes in geographic income mix, stock compensation items, valuation allowances for China operations, and lower consolidated income before taxes[120](index=120&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=32&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Cash and cash equivalents decreased, while working capital increased, with the company maintaining adequate liquidity through credit facilities despite share repurchases and dividends Cash and Cash Equivalents (in thousands) | Date | Amount | | :----------- | :------- | | July 31, 2023 | $41,030 | | October 31, 2022 | $63,922 | Working Capital (in thousands) | Date | Amount | | :----------- | :------- | | July 31, 2023 | $198,100 | | October 31, 2022 | $194,700 | - During the nine months of fiscal year 2023, the company repurchased approximately **$4.6 million** in shares under its repurchase programs and paid **$3.1 million** in cash dividends[125](index=125&type=chunk)[126](index=126&type=chunk) - As of July 31, 2023, the company had approximately **$51.0 million** available for borrowing under its credit facilities and was in compliance with all covenants[132](index=132&type=chunk) - The company believes its international cash pooling strategy and available borrowing capacity provide adequate liquidity to fund global operations and strategic plans, including product innovation, acquisitions, market penetration, dividends, and stock repurchases[133](index=133&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=33&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) There were no material changes to the critical accounting estimates described in the Annual Report on Form 10-K for the fiscal year ended October 31, 2022 - No material changes to critical accounting estimates occurred during the nine months of fiscal year 2023[135](index=135&type=chunk) [CONTRACTUAL OBLIGATIONS AND COMMITMENTS](index=33&type=section&id=CONTRACTUAL%20OBLIGATIONS%20AND%20COMMITMENTS) There have been no material changes related to contractual obligations and commitments from the information provided in the Annual Report on Form 10-K for the fiscal year ended October 31, 2022 - No material changes related to contractual obligations and commitments from the prior Annual Report on Form 10-K[136](index=136&type=chunk) [OFF BALANCE SHEET ARRANGEMENTS](index=34&type=section&id=OFF%20BALANCE%20SHEET%20ARRANGEMENTS) The company has off-balance sheet arrangements primarily consisting of third-party payment guarantees for customer machine sales, totaling approximately $0.9 million as of July 31, 2023. These are accrued at fair value and are considered insignificant - As of July 31, 2023, the company had **nine** outstanding third-party payment guarantees totaling approximately **$0.9 million**, which are accrued at fair value and considered insignificant[137](index=137&type=chunk) [CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS](index=34&type=section&id=CAUTIONARY%20STATEMENT%20CONCERNING%20FORWARD-LOOKING%20STATEMENTS) This section cautions that forward-looking statements are subject to various risks and uncertainties, including industry cyclicality, economic conditions, and international operations - Forward-looking statements are subject to risks including the cyclical nature of the machine tool industry, uncertain economic conditions, international operations, governmental actions, currency exchange rates, competition, dependence on new product development, intellectual property protection, supply chain limitations, raw material prices, loss of key personnel, acquisition integration, data privacy/security, technology obsolescence, asset impairment, tax consequences, tax loss carryforwards, SOFR rate changes, and the impact of the COVID-19 pandemic[139](index=139&type=chunk)[140](index=140&type=chunk) [Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to interest rate and foreign currency exchange risks, and its use of hedging instruments to manage these exposures [Interest Rate Risk](index=35&type=section&id=Interest%20Rate%20Risk) The company's interest rate risk is tied to variable rates on credit agreements, though no borrowings were outstanding as of July 31, 2023 - Interest on borrowings under bank credit agreements is tied to prevailing domestic and foreign interest rates; however, as of July 31, 2023, the company had no borrowings outstanding under any of its credit facilities[141](index=141&type=chunk) [Foreign Currency Exchange Risk](index=35&type=section&id=Foreign%20Currency%20Exchange%20Risk) The company faces significant foreign currency exchange risk from international sales and uses forward exchange contracts to hedge these exposures - Approximately **64%** of revenues for the nine months of fiscal year 2023 were derived from customers outside the Americas, with invoices and payments in various foreign currencies, exposing the company to significant foreign currency exchange risk[142](index=142&type=chunk) - The company uses foreign currency forward exchange contracts to hedge cash flow risk related to forecasted inter-company sales and purchases (primarily Euro, Pound Sterling, and New Taiwan Dollar) and to protect against fluctuations on receivables and payables[144](index=144&type=chunk) Forward Contracts Designated as Cash Flow Hedges (July 31, 2023, in thousands) | Currency | Notional Amount | USD Equivalent | Maturity Dates | | :--------------- | :-------------- | :------------- | :--------------- | | Euro (Sale) | €10,500 | $11,643 | Aug 2023 - Jul 2024 | | Sterling (Sale) | £4,100 | $5,267 | Aug 2023 - Jul 2024 | | New Taiwan Dollar (Purchase) | NT$565,000 | $18,291 | Aug 2023 - Jul 2024 | Forward Contracts Not Designated as Hedges (July 31, 2023, in thousands) | Currency | Notional Amount | USD Equivalent | Maturity Dates | | :--------------- | :-------------- | :------------- | :--------------- | | Euro (Sale) | €16,296 | $18,024 | Aug 2023 - Jan 2024 | | Sterling (Sale) | £815 | $1,048 | Aug 2023 | | New Taiwan Dollar (Purchase) | NT$1,080,500 | $34,514 | Aug 2023 - Sep 2023 | - A forward contract with a notional amount of **€3.0 million** is designated as a net investment hedge for Euro-denominated assets, resulting in a realized gain of **$1.3 million** and an unrealized loss of **$0.2 million** (net of tax) as of July 31, 2023[146](index=146&type=chunk) [Item 4. CONTROLS AND PROCEDURES](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of July 31, 2023. No material changes in internal control over financial reporting occurred during the three months ended July 31, 2023 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of July 31, 2023[147](index=147&type=chunk) - There were no changes in internal control over financial reporting during the three months ended July 31, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[148](index=148&type=chunk) [PART II - OTHER INFORMATION](index=37&type=section&id=Part%20II%20-%20Other%20Information) This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits [Item 1. LEGAL PROCEEDINGS](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various claims and lawsuits arising in the normal course of business, for which it accrues minimum liabilities and maintains insurance. No material adverse effect on financial position or results of operations is expected - The company does not expect any current claims or lawsuits, individually or in the aggregate, to have a material adverse effect on its consolidated financial position or results of operations[150](index=150&type=chunk) [Item 1A. RISK FACTORS](index=37&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended October 31, 2022 - No material changes from the risk factors disclosed in Part I, Item 1A – Risk Factors in the Annual Report on Form 10-K for the year ended October 31, 2022[151](index=151&type=chunk) [Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any shares of its common stock in the third quarter of fiscal 2023 - The company did not repurchase any shares of its common stock in the third quarter of fiscal 2023[152](index=152&type=chunk) [Item 5. OTHER INFORMATION](index=37&type=section&id=Item%205.%20Other%20Information) During the period covered by this report, the Audit Committee engaged the independent registered public accounting firm to perform non-audit, tax planning services. No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the period - The Audit Committee engaged the independent registered public accounting firm to perform non-audit, tax planning services[153](index=153&type=chunk) - No directors or officers adopted, modified, or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy Rule 10b5-1(c) of the Exchange Act during the three months ended July 31, 2023[154](index=154&type=chunk) [Item 6. EXHIBITS](index=38&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate documents, certifications by the Chief Executive Officer and Chief Financial Officer, and financial information formatted in Inline XBRL - Key exhibits include Amended and Restated Articles of Incorporation and By-Laws, certifications by the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a) and Section 906 of Sarbanes-Oxley Act), and financial information formatted in Inline XBRL[158](index=158&type=chunk) [SIGNATURES](index=39&type=section&id=Signatures) The report is signed on behalf of Hurco Companies, Inc. by Sonja K. McClelland, Executive Vice President, Treasurer & Chief Financial Officer, on September 8, 2023 - The report was signed by Sonja K. McClelland, Executive Vice President, Treasurer & Chief Financial Officer, on September 8, 2023[160](index=160&type=chunk)

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This section presents Hurco's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Hurco Companies, Inc.'s unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, cash flows, and changes in shareholders' equity, along with detailed notes explaining accounting policies, revenue recognition, derivative instruments, equity incentive plans, and other financial details for the three and six months ended April 30, 2023 and 2022 [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | (In thousands, except per share data) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Sales and service fees ($) | $ 53,819 | $ 62,825 | $ 108,501 | $ 129,712 | | Gross profit ($) | $ 12,583 | $ 15,602 | $ 25,301 | $ 32,509 | | Operating income ($) | $ 991 | $ 3,087 | $ 2,225 | $ 8,297 | | Net income ($) | $ 377 | $ 2,029 | $ 1,707 | $ 5,564 | | Basic Income per common share ($) | $ 0.06 | $ 0.30 | $ 0.26 | $ 0.83 | | Diluted Income per common share ($) | $ 0.06 | $ 0.30 | $ 0.26 | $ 0.83 | | Dividends paid per share ($) | $ 0.16 | $ 0.15 | $ 0.31 | $ 0.29 | - For the three months ended April 30, 2023, sales and service fees decreased by **14%** YoY to **$53.8 million**, while net income significantly dropped by **81%** to **$0.377 million**; basic and diluted EPS also saw a substantial decline from **$0.30** to **$0.06**[10](index=10&type=chunk) - For the six months ended April 30, 2023, sales and service fees decreased by **16%** YoY to **$108.5 million**, and net income fell by **69%** to **$1.707 million**; basic and diluted EPS decreased from **$0.83** to **$0.26**[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | (In thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income ($) | $ 377 | $ 2,029 | $ 1,707 | $ 5,564 | | Total other comprehensive income (loss) ($) | $ (1,367) | $ (7,997) | $ 8,516 | $ (9,023) | | Comprehensive income (loss) ($) | $ (990) | $ (5,968) | $ 10,223 | $ (3,459) | - For the three months ended April 30, 2023, the company reported a comprehensive loss of **$0.990 million**, a significant improvement from the **$5.968 million** comprehensive loss in the prior year, primarily due to a reduced negative impact from foreign currency translation[12](index=12&type=chunk) - For the six months ended April 30, 2023, the company achieved comprehensive income of **$10.223 million**, a substantial turnaround from the **$3.459 million** comprehensive loss in the prior year, driven by a positive foreign currency translation gain[12](index=12&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | (In thousands) | April 30, 2023 | October 31, 2022 | | :------------- | :------------- | :--------------- | | Total current assets ($) | $ 272,496 | $ 268,069 | | Total assets ($) | $ 311,802 | $ 306,237 | | Total current liabilities ($) | $ 72,994 | $ 73,336 | | Total liabilities and shareholders' equity ($) | $ 311,802 | $ 306,237 | | Total shareholders' equity ($) | $ 227,705 | $ 222,644 | - As of April 30, 2023, total assets increased to **$311.8 million** from **$306.2 million** at October 31, 2022, primarily driven by an increase in inventories[15](index=15&type=chunk) - Shareholders' equity increased by approximately **$5 million** to **$227.7 million** as of April 30, 2023, compared to October 31, 2022[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | (In thousands) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used for) operating activities ($) | $ 951 | $ (837) | $ (7,035) | $ 8,312 | | Net cash provided by (used for) investing activities ($) | $ (533) | $ (432) | $ (1,132) | $ (1,005) | | Net cash provided by (used for) financing activities ($) | $ (4,905) | $ (2,657) | $ (6,686) | $ (4,904) | | Net increase (decrease) in cash and cash equivalents ($) | $ (4,733) | $ (7,987) | $ (11,767) | $ (2,021) | - For the six months ended April 30, 2023, net cash used for operating activities was **$7.035 million**, a significant decrease from **$8.312 million** provided in the prior year, primarily due to changes in inventories and accounts receivable[18](index=18&type=chunk) - Cash and cash equivalents decreased by **$11.767 million** for the six months ended April 30, 2023, ending at **$52.155 million**[18](index=18&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) | (In thousands, except shares outstanding) | April 30, 2023 | April 30, 2022 | | :-------------------------------------- | :------------- | :------------- | | Common Stock Outstanding (shares) | 6,462,138 | 6,566,994 | | Total Shareholders' Equity ($) | $ 227,705 | $ 231,651 | - For the six months ended April 30, 2023, total shareholders' equity increased from **$222.644 million** (October 31, 2022) to **$227.705 million**, driven by net income and other comprehensive income (loss), partially offset by stock repurchases and dividends paid[20](index=20&type=chunk) - The company repurchased **166,289 shares** for **$4.609 million** during the six months ended April 30, 2023[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of Hurco's accounting policies, revenue recognition, derivative instruments, equity incentive plans, and other financial details [1. General](index=8&type=section&id=1.%20GENERAL) - Hurco Companies, Inc. designs, manufactures, and sells computerized (CNC) machine tools, primarily vertical machining centers and turning centers, to the metal cutting industry globally[22](index=22&type=chunk) - The company's operations have been affected by global disruptions including COVID-19, vendor delays, transportation issues, high inflation, foreign currency volatility, and competitive labor markets[23](index=23&type=chunk) [2. Revenue Recognition](index=8&type=section&id=2.%20REVENUE%20RECOGNITION) - Revenue from machine tool sales is recognized upon delivery to the customer or distributor, as control is deemed transferred at shipment, not contingent on customer acceptance[27](index=27&type=chunk) - Installation services for three-axis machines are considered immaterial; for five-axis machines, installation revenue is recognized prorata over the installation period[28](index=28&type=chunk) - Service fees from maintenance contracts are deferred and recognized prorata over the contract term, while customer discounts and estimated product returns are recorded as revenue reductions[29](index=29&type=chunk) [3. Derivative Instruments and Hedging Activities](index=9&type=section&id=3.%20DERIVATIVE%20INSTRUMENTS%20AND%20HEDGING%20ACTIVITIES) - Hurco uses foreign currency forward exchange contracts to manage foreign currency risk related to net equity investments, gross profit from foreign currency sales/purchases, and foreign currency receivables/payables[30](index=30&type=chunk)[31](index=31&type=chunk) - As of April 30, 2023, the company had **$1.0 million** of loss, net of tax, related to cash flow hedges deferred in Accumulated other comprehensive income (loss), primarily for Euros, Pounds Sterling, and New Taiwan Dollars[33](index=33&type=chunk) Fair Value of Derivative Instruments | (In thousands) | April 30, 2023 Fair Value ($) | October 31, 2022 Fair Value ($) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Designated as Hedging Instruments: | | | | Foreign exchange forward contracts (assets) | $ 108 | $ 2,273 | | Foreign exchange forward contracts (liabilities) | $ 1,627 | $ 2,891 | | Not Designated as Hedging Instruments: | | | | Foreign exchange forward contracts (assets) | $ 64 | $ 242 | | Foreign exchange forward contracts (liabilities) | $ 650 | $ 741 | [4. Equity Incentive Plan](index=14&type=section&id=4.%20EQUITY%20INCENTIVE%20PLAN) - The 2016 Equity Incentive Plan allows for grants of stock options, restricted stock, and performance units to employees and non-employee directors; in March 2022, shareholders approved an increase of **850,000 shares** to the plan[40](index=40&type=chunk) - As of April 30, 2023, no stock options were outstanding, as all **11,559** options outstanding at October 31, 2022, were exercised[42](index=42&type=chunk) - During the first six months of fiscal 2023, the company granted **17,226 shares** of time-based restricted stock to non-employee directors, **29,376 shares** of time-based restricted stock to executive officers, and **88,129 PSUs** (**47,003 PSU-NI** and **41,126 PSU-FCF**) to executive officers[43](index=43&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) Equity Incentive Plan Activity | (In thousands, except shares) | Number of Shares | Weighted Average Grant Date Fair Value ($) | | :---------------------------- | :--------------- | :------------------------------------- | | Unvested at October 31, 2022 | 273,103 | $ 32.90 |\n| Shares or units granted | 146,954 | $ 26.40 |\n| Shares or units vested | (49,874) | $ 36.23 |\n| Shares or units cancelled | (39,916) | $ 40.22 |\n| Unvested at April 30, 2023 | 318,317 | $ 28.27 | [5. Earnings Per Share](index=17&type=section&id=5.%20EARNINGS%20PER%20SHARE) | (In thousands, except per share amounts) | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income applicable to common shareholders ($) | $ 372 | $ 2,005 | $ 1,683 | $ 5,499 | | Basic Income per share ($) | $ 0.06 | $ 0.30 | $ 0.26 | $ 0.83 | | Diluted Income per share ($) | $ 0.06 | $ 0.30 | $ 0.26 | $ 0.83 | - Basic and diluted EPS for the three months ended April 30, 2023, were **$0.06**, down from **$0.30** in the prior year, reflecting a decrease in net income[50](index=50&type=chunk) - Basic and diluted EPS for the six months ended April 30, 2023, were **$0.26**, down from **$0.83** in the prior year, consistent with the decline in net income[50](index=50&type=chunk) [6. Accounts Receivable](index=17&type=section&id=6.%20ACCOUNTS%20RECEIVABLE) - Accounts receivable are reported net of allowances for doubtful accounts, which remained consistent at **$1.5 million** as of April 30, 2023, and October 31, 2022[51](index=51&type=chunk) [7. Inventories](index=18&type=section&id=7.%20INVENTORIES) | (In thousands) | April 30, 2023 | October 31, 2022 | | :------------- | :------------- | :--------------- | | Purchased parts and sub–assemblies ($) | $ 48,551 | $ 46,796 | | Work–in–process ($) | $ 19,686 | $ 16,539 | | Finished goods ($) | $ 111,283 | $ 96,305 | | Inventories, gross ($) | $ 179,520 | $ 159,640 | | Reserve for purchased parts and sub-assemblies ($) | $ (3,689) | $ (3,433) | | Inventories, net ($) | $ 175,831 | $ 156,207 | - Net inventories increased to **$175.8 million** as of April 30, 2023, from **$156.2 million** at October 31, 2022, primarily driven by increases in finished goods and work-in-process[52](index=52&type=chunk) [8. Leases](index=18&type=section&id=8.%20LEASES) - The company records a right-of-use asset and lease liability for operating leases with terms over 12 months[54](index=54&type=chunk) - Total operating lease expense was **$2.6 million** for both the six months ended April 30, 2023, and 2022[55](index=55&type=chunk) Cash Flow Information for Leases | (In thousands) | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------- | :------------------------------ | :------------------------------ | | Cash paid for amounts included in the measurement of lease liabilities ($) | $ 2,511 | $ 2,370 | | Right-of-use assets obtained in exchange for new operating lease liabilities ($) | $ 2,372 | $ 1,515 | [9. Segment Information](index=19&type=section&id=9.%20SEGMENT%20INFORMATION) - Hurco operates in a single segment: industrial automation equipment, focusing on the design, manufacture, and sale of computerized machine tools to the metal cutting industry globally[58](index=58&type=chunk) [10. Guarantees and Product Warranties](index=19&type=section&id=10.%20GUARANTEES%20AND%20PRODUCT%20WARRANTIES) - As of April 30, 2023, the company had nine outstanding third-party payment guarantees totaling approximately **$0.9 million**, with liabilities accrued at fair value, which are insignificant[59](index=59&type=chunk) - The warranty reserve increased year-over-year primarily due to foreign currency translation impact, despite a lower volume of machine sales[61](index=61&type=chunk) Warranty Reserve Activity | (In thousands) | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------- | :------------------------------ | :------------------------------ | | Balance, beginning of period ($) | $ 1,426 | $ 1,516 | | Provision for warranties during the period ($) | $ 1,417 | $ 1,263 | | Charges to the reserve ($) | $ (1,475) | $ (1,330) | | Impact of foreign currency translation ($) | $ 67 | $ (62) | | Balance, end of period ($) | $ 1,435 | $ 1,387 | [11. Debt Agreements](index=20&type=section&id=11.%20DEBT%20AGREEMENTS) - The 2018 Credit Agreement provides an unsecured revolving credit and letter of credit facility up to **$40.0 million**, maturing December 31, 2023, with Hurco and Hurco B.V. as borrowers[62](index=62&type=chunk) - As of April 30, 2023, there were no borrowings under any of the company's credit facilities, and approximately **$51.2 million** of available borrowing capacity remained[67](index=67&type=chunk) - The credit agreement includes covenants requiring minimum working capital of **$125.0 million** and minimum tangible net worth of **$176.5 million**[64](index=64&type=chunk) [12. Income Taxes](index=21&type=section&id=12.%20INCOME%20TAXES) - The effective tax rate for the first six months of fiscal year 2023 increased to **35%** from **31%** in the prior year, primarily due to changes in the geographic mix of income and loss and a discrete item related to stock compensation[70](index=70&type=chunk) - The Inflation Reduction Act of 2022 is not expected to have a material impact on the company's income taxes[69](index=69&type=chunk) Provision for Income Taxes | (In thousands) | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :------------- | :------------------------------ | :------------------------------ | | Provision for income taxes ($) | $ 901 | $ 2,536 | [13. Financial Instruments](index=21&type=section&id=13.%20FINANCIAL%20INSTRUMENTS) - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments; cash and cash equivalents meet Level 1 criteria, while derivatives are Level 2[73](index=73&type=chunk)[74](index=74&type=chunk)[76](index=76&type=chunk) Fair Value Measurements | (In thousands) | April 30, 2023 Assets ($) | October 31, 2022 Assets ($) | April 30, 2023 Liabilities ($) | October 31, 2022 Liabilities ($) | | :------------- | :-------------------- | :---------------------- | :------------------------- | :--------------------------- | | Level 1: Deferred compensation | $ 2,243 | $ 1,996 | $ — | $ — | | Level 2: Derivatives | $ 172 | $ 2,515 | $ 2,277 | $ 3,632 | - The U.S. dollar equivalent notional amounts of foreign currency forward exchange contracts were **$98.5 million** at April 30, 2023, down from **$102.8 million** at October 31, 2022[76](index=76&type=chunk) [14. Contingencies and Litigation](index=23&type=section&id=14.%20CONTINGENCIES%20AND%20LITIGATION) - The company is involved in various claims and lawsuits in the normal course of business but does not expect them to have a material adverse effect on its financial position or results of operations[78](index=78&type=chunk) [15. New Accounting Pronouncements](index=23&type=section&id=15.%20NEW%20ACCOUNTING%20PRONOUNCEMENTS) - Recently issued accounting pronouncements are not expected to have a significant impact on the consolidated financial statements as of April 30, 2023[79](index=79&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Hurco's financial condition, liquidity, capital resources, and results of operations for the three and six months ended April 30, 2023; it covers an executive overview of the business, detailed analysis of sales, orders, gross profit, operating expenses, and income taxes, as well as discussions on liquidity, capital allocation, and risk factors [Executive Overview](index=24&type=section&id=EXECUTIVE%20OVERVIEW) - Hurco is an international industrial technology company specializing in CNC machine tools (mills and lathes) for the metal cutting industry, with significant foreign sales and manufacturing operations[82](index=82&type=chunk)[84](index=84&type=chunk) - Approximately **54%** of revenues in the first six months of fiscal year 2023 were from Europe, and **9%** from Asia Pacific, with varying pricing pressures[84](index=84&type=chunk) - The company's product portfolio includes Hurco (technology innovation), Milltronics (value-based), and Takumi (high-speed performance) brands, along with other non-Hurco branded products and automation solutions via ProCobots LLC[85](index=85&type=chunk) - Operations have been impacted by COVID-19, vendor delays, transportation issues, high inflation, foreign currency volatility, and competitive labor markets, leading to increased costs and supply chain challenges[89](index=89&type=chunk) [Results of Operations](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes Hurco's financial performance, including sales, gross profit, and operating income, for the three and six months ended April 30, 2023, compared to the prior year [Three Months Ended April 30, 2023 Compared to Three Months Ended April 30, 2022](index=25&type=section&id=Three%20Months%20Ended%20April%2030,%202023%20Compared%20to%20Three%20Months%20Ended%20April%2030,%202022) Key Financial Metrics | Metric | Q2 FY23 (in thousands) | Q2 FY22 (in thousands) | $ Change (in thousands) | % Change | | :----- | :--------------------- | :--------------------- | :------- | :------- | | Sales and Service Fees ($) | $ 53,819 | $ 62,825 | $ (9,006) | (14)% | | Gross Profit ($) | $ 12,583 | $ 15,602 | $ (3,019) | (19)% | | Operating Income ($) | $ 991 | $ 3,087 | $ (2,096) | (68)% | - Sales and service fees decreased by **14%** to **$53.8 million**, including an unfavorable currency impact of **2%**; Americas sales decreased by **18%**, Europe by **3%**, and Asia Pacific by **42%**[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - Gross profit decreased to **23%** of sales from **25%** in the prior year, primarily due to lower sales volume of vertical milling machines and the negative impact of fixed costs[99](index=99&type=chunk) - Operating income decreased significantly by **68%** to **$1.0 million**, driven by lower sales volume and the impact of fixed costs[101](index=101&type=chunk) Geographic Region Sales | Geographic Region | Q2 FY23 Sales (in thousands) | Q2 FY22 Sales (in thousands) | $ Change (in thousands) | % Change | | :---------------- | :--------------------------- | :--------------------------- | :------- | :------- | | Americas ($) | $ 18,324 | $ 22,409 | $ (4,085) | (18)% | | Europe ($) | $ 29,991 | $ 30,882 | $ (891) | (3)% | | Asia Pacific ($) | $ 5,504 | $ 9,534 | $ (4,030) | (42)% | Product Category Sales | Product Category | Q2 FY23 Sales (in thousands) | Q2 FY22 Sales (in thousands) | $ Change (in thousands) | % Change | | :--------------- | :--------------------------- | :--------------------------- | :------- | :------- | | Computerized Machine Tools ($) | $ 43,929 | $ 53,153 | $ (9,224) | (17)% | | Service Parts ($) | $ 7,244 | $ 6,941 | $ 303 | 4% | | Service Fees ($) | $ 2,032 | $ 2,107 | $ (75) | (4)% | - Orders for Q2 FY23 increased by **2%** to **$60.2 million**, despite an unfavorable currency impact of **3%**; European orders increased by **18%**, while Americas and Asia Pacific orders decreased by **9%** and **24%** respectively[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Six Months Ended April 30, 2023 Compared to Six Months Ended April 30, 2022](index=29&type=section&id=Six%20Months%20Ended%20April%2030,%202023%20Compared%20to%20Six%20Months%20Ended%20April%2030,%202022) Key Financial Metrics | Metric | 6 Months FY23 (in thousands) | 6 Months FY22 (in thousands) | $ Change (in thousands) | % Change | | :----- | :--------------------------- | :--------------------------- | :------- | :------- | | Sales and Service Fees ($) | $ 108,501 | $ 129,712 | $ (21,211) | (16)% | | Gross Profit ($) | $ 25,301 | $ 32,509 | $ (7,208) | (22)% | | Operating Income ($) | $ 2,225 | $ 8,297 | $ (6,072) | (73)% | - Sales and service fees decreased by **16%** to **$108.5 million**, including an unfavorable currency impact of **4%**; Americas sales decreased by **13%**, Europe by **10%**, and Asia Pacific by **48%**[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Gross profit decreased to **23%** of sales from **25%** in the prior year, primarily due to lower sales volume of vertical milling machines and the negative impact of fixed costs[117](index=117&type=chunk) - Operating income decreased significantly by **73%** to **$2.2 million**, driven by lower sales volume and the impact of fixed costs[119](index=119&type=chunk) Geographic Region Sales | Geographic Region | 6 Months FY23 Sales (in thousands) | 6 Months FY22 Sales (in thousands) | $ Change (in thousands) | % Change | | :---------------- | :--------------------------------- | :--------------------------------- | :------- | :------- | | Americas ($) | $ 40,337 | $ 46,418 | $ (6,081) | (13)% |\n| Europe ($) | $ 58,583 | $ 65,000 | $ (6,417) | (10)% |\n| Asia Pacific ($) | $ 9,581 | $ 18,294 | $ (8,713) | (48)% | Product Category Sales | Product Category | 6 Months FY23 Sales (in thousands) | 6 Months FY22 Sales (in thousands) | $ Change (in thousands) | % Change | | :--------------- | :--------------------------------- | :--------------------------------- | :------- | :------- | | Computerized Machine Tools ($) | $ 89,346 | $ 110,360 | $ (21,014) | (19)% | | Computer Control Systems and Software ($) | $ 1,138 | $ 1,365 | $ (227) | (17)% | | Service Parts ($) | $ 13,935 | $ 13,908 | $ 27 | 0% | | Service Fees ($) | $ 4,082 | $ 4,079 | $ 3 | 0% | - Orders for the first six months of FY23 decreased by **13%** to **$113.5 million**, including an unfavorable currency impact of **4%**; Americas orders decreased by **10%**, Europe by **8%**, and Asia Pacific by **41%**[111](index=111&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - Cash and cash equivalents decreased to **$52.2 million** at April 30, 2023, from **$63.9 million** at October 31, 2022, with approximately **18%** denominated in U.S. dollars[122](index=122&type=chunk) - Working capital increased to **$199.5 million** at April 30, 2023, from **$194.7 million** at October 31, 2022, driven by increases in inventories and prepaid assets, offset by decreases in cash and accounts receivable[123](index=123&type=chunk) - The company announced a new **$25.0 million** share repurchase program in January 2023, with **$24.5 million** remaining available as of April 30, 2023; total repurchases under all programs during the first six months of FY23 amounted to **$4.6 million**[125](index=125&type=chunk)[126](index=126&type=chunk) - Cash dividends of **$2.0 million** were paid to shareholders during the six months ended April 30, 2023[127](index=127&type=chunk) - As of April 30, 2023, the company had no borrowings under its **$40.0 million** revolving credit facility or other international credit facilities, with **$51.2 million** available for borrowing[132](index=132&type=chunk)[133](index=133&type=chunk) [Critical Accounting Estimates](index=36&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) - There were no material changes to the company's critical accounting estimates during the first six months of fiscal year 2023, as described in the Annual Report on Form 10-K for the year ended October 31, 2022[137](index=137&type=chunk) [Contractual Obligations and Commitments](index=36&type=section&id=CONTRACTUAL%20OBLIGATIONS%20AND%20COMMITMENTS) - No material changes to contractual obligations and commitments were reported from the information provided in the Annual Report on Form 10-K for the fiscal year ended October 31, 2022[138](index=138&type=chunk) [Off Balance Sheet Arrangements](index=36&type=section&id=OFF%20BALANCE%20SHEET%20ARRANGEMENTS) - As of April 30, 2023, the company had nine outstanding third-party payment guarantees totaling approximately **$0.9 million**, which are accrued at fair value and considered insignificant[139](index=139&type=chunk) [Cautionary Statement Concerning Forward-Looking Statements](index=36&type=section&id=CAUTIONARY%20STATEMENT%20CONCERNING%20FORWARD-LOOKING%20STATEMENTS) - The report contains forward-looking statements subject to known and unknown risks, including the impact of COVID-19, cyclical nature of the machine tool industry, uncertain economic conditions, international operations risks, currency exchange rate changes, and competition[140](index=140&type=chunk)[141](index=141&type=chunk)[147](index=147&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the company disclaims any obligation to update or revise them[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details Hurco's exposure to market risks, specifically interest rate risk and foreign currency exchange risk, and the strategies employed to manage them, including the use of derivative instruments [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) - Interest on borrowings under the company's bank credit agreements is tied to prevailing domestic and foreign interest rates; as of April 30, 2023, there were no outstanding borrowings[148](index=148&type=chunk) [Foreign Currency Exchange Risk](index=39&type=section&id=Foreign%20Currency%20Exchange%20Risk) - Approximately **63%** of revenues in the first six months of fiscal year 2023 were from non-Americas customers, invoiced in various foreign currencies, exposing the company to foreign currency exchange risk[149](index=149&type=chunk) - The company uses foreign currency forward exchange contracts to hedge cash flow risk from inter-company sales and purchases (primarily Euro, Pound Sterling, New Taiwan Dollar) and to protect against fluctuations on receivables and payables[151](index=151&type=chunk) Foreign Currency Forward Exchange Contracts | Forward Contracts (Designated as Hedges) | Notional Amount in Foreign Currency | Weighted Avg. Forward Rate | Contract Amount at April 30, 2023 (in thousands) | Maturity Dates | | :--------------------------------------- | :---------------------------------- | :------------------------- | :----------------------------------------------- | :------------- | | Sale Contracts: Euro | 12,850 | 1.0718 | $ 14,265 | May 2023 - Apr 2024 | | Sale Contracts: Sterling | 4,850 | 1.2114 | $ 6,103 | May 2023 - Apr 2024 | | Purchase Contracts: New Taiwan Dollar | 670,000 | 29.5060 * | $ 22,159 | May 2023 - Apr 2024 | | * New Taiwan Dollars per U.S. dollar

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Commission File No. 0-9143 HURCO COMPANIES, INC. (Exact name of registrant as specified in its charter) | Indiana | 35-1150732 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer Identification Number) | | incorporation or organization) | | One Technology Way Indianapolis, Indiana 46268 (Address of principal executive offices) (Zip code) Registrant's telephone number, including are ...

[FORM 10-K General Information](index=1&type=section&id=FORM%2010-K%20General%20Information) This section provides key filing details for HURCO COMPANIES, INC.'s Annual Report on Form 10-K for the fiscal year ended October 31, 2022 - HURCO COMPANIES, INC. filed an Annual Report on Form 10-K for the fiscal year ended October 31, 2022[2](index=2&type=chunk) General Filing Information | Indicator | Value | | :--- | :--- | | Commission File No. | 0-9143 | | State of Incorporation | Indiana | | Registrant's Telephone Number | (317) 293–5309 | | Trading Symbol | HURC | | Exchange Registered | The Nasdaq Stock Market LLC | | Well-known Seasoned Issuer | No | | Required to File Reports | Yes | | Filed All Reports in Preceding 12 Months | Yes | | Submitted Interactive Data File | Yes | | Filer Status | Accelerated filer | | Market Value of Voting Stock (Non-affiliates, April 30, 2022) | $186,306,000 | | Common Stock Outstanding (December 31, 2022) | 6,586,962 shares | [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section outlines forward-looking statements, their inherent risks, and the company's disclaimer regarding future updates - This report contains forward-looking statements, identifiable by words such as 'may', 'will', 'should', 'anticipate', 'expect', 'plan', 'believe', 'estimate', 'project', 'intend', and similar expressions[6](index=6&type=chunk) - These statements are based on current expectations and assumptions, subject to risks and uncertainties that could cause actual results to differ materially. Readers are cautioned not to place undue reliance on them, and the company disclaims any obligation to update or revise them[6](index=6&type=chunk) - Key risks include the cyclical nature of the machine tool industry, uncertain economic conditions, international operations risks, governmental actions, currency exchange rate effects, the impact of the COVID-19 pandemic, competition, dependence on new product development, intellectual property protection, supply chain limitations, raw material price increases, loss of key personnel, acquisition integration, data privacy and security, technology obsolescence, asset impairment, and tax consequences[6](index=6&type=chunk) [PART I](index=4&type=section&id=PART%20I) [Item 1. BUSINESS](index=4&type=section&id=Item%201.%20BUSINESS) Hurco Companies, Inc. is an international industrial technology company specializing in the design, manufacture, and sale of computerized (CNC) machine tools, control systems, and related solutions for the metal cutting industry. The company's strategy focuses on global market expansion and product diversity, achieved through both organic growth and strategic acquisitions. The machine tool industry is highly cyclical, with demand influenced by economic conditions and technological advancements. Hurco offers a comprehensive product portfolio under its Hurco, Milltronics, and Takumi brands, complemented by automation solutions (ProCobots) and machine tool components (LCM). The company's global manufacturing and distribution network supports its worldwide customer base. Human capital management, including employee safety, development, and diversity, along with ethical business practices, are central to its operations [General Business Overview](index=4&type=section&id=General%20Business%20Overview) Hurco Companies, Inc. is an international industrial technology company specializing in computerized machine tools, pursuing global expansion and product diversification - Hurco Companies, Inc. is an international industrial technology company that designs, manufactures, and sells computerized (CNC) machine tools, primarily vertical machining centers (mills) and turning centers (lathes), to the metal cutting industry[8](index=8&type=chunk) - The company's strategy is to design, manufacture, and sell a comprehensive line of computerized machine tools to help customers increase productivity and profitability, expanding product offerings and entering new geographic markets[11](index=11&type=chunk)[13](index=13&type=chunk) - Since 2013, Hurco has made five acquisitions to diversify its product portfolio, offering machines from entry-level to high-performance, and providing automation solutions[13](index=13&type=chunk) Financial Performance Summary | Metric | Fiscal Year 2022 | Fiscal Year 2021 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales and Service Fees | $250.8 million | $235.2 million | +$15.6 million | +7% | | Unfavorable Currency Impact on Sales | $13.9 million | N/A | N/A | -6% | | Net Income | $8.2 million | $6.8 million | +$1.4 million | +20.6% | | Diluted EPS | $1.23 | $1.01 | +$0.22 | +21.8% | [Industry Overview](index=5&type=section&id=Industry%20Overview) The machine tool industry is highly cyclical, with demand sensitive to economic conditions and short order backlogs - The machine tool industry is highly cyclical, as its products are considered capital goods, and demand can fluctuate significantly with changing economic conditions[15](index=15&type=chunk)[16](index=16&type=chunk) - The U.S. machine tool market accounts for approximately **15% of worldwide consumption**, with limited and often lagging data available for foreign markets[15](index=15&type=chunk) - Demand for capital equipment is difficult to estimate with certainty due to short order backlogs (approx. **45 days**) and the absence of common leading indicators used in other industries[16](index=16&type=chunk) [Products and Services](index=6&type=section&id=Products%20and%20Services) Hurco offers a comprehensive portfolio of CNC machine tools under Hurco, Milltronics, and Takumi brands, alongside automation solutions and components - Hurco's core products include general-purpose computerized machine tools (vertical/horizontal machining centers, turning centers, toolroom machines), most equipped with proprietary control systems and software[17](index=17&type=chunk) Contribution to Total Revenues by Product Group and Services (in thousands) | Product Group/Service | 2022 Revenue | 2022 % of Total | 2021 Revenue | 2021 % of Total | 2020 Revenue | 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Computerized Machine Tools | $211,804 | 85% | $198,602 | 85% | $139,577 | 82% | | Computer Control Systems & Software | $2,634 | 1% | $2,528 | 1% | $1,699 | 1% | | Service Parts | $28,219 | 11% | $26,425 | 11% | $22,484 | 13% | | Service Fees | $8,157 | 3% | $7,640 | 3% | $6,867 | 4% | | **Total** | **$250,814** | **100%** | **$235,195** | **100%** | **$170,627** | **100%** | - The company's product portfolio includes three CNC machine tool brands: Hurco (technology/innovation with proprietary WinMax® software), Milltronics (value-based with easy-to-use machines), and Takumi (precision, high-speed performance with industry-standard controls)[21](index=21&type=chunk)[23](index=23&type=chunk)[41](index=41&type=chunk)[53](index=53&type=chunk) - Additional offerings include ProCobots (automation solutions like collaborative robots) and LCM Precision Technology (high-value machine tool components and accessories)[21](index=21&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - Other computer control systems and software products, such as Autobend® for press brake machines and various WinMax® software options (e.g., Advanced Verification Graphics, Solid Model Import, UltiMonitor, Simultaneous Five-Axis Contouring), are sold directly to end-users or OEMs[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Operations and Market Dynamics](index=16&type=section&id=Operations%20and%20Market%20Dynamics) Hurco's global manufacturing and distribution network supports its worldwide customer base, competing through proprietary technology and customer service - Manufacturing and assembly operations are primarily conducted by wholly-owned subsidiaries in Taiwan (HML), China (NHML), the U.S. (Indianapolis facility), and Italy (LCM), with computer control systems produced by an affiliated contract manufacturer in Taiwan (HAL)[89](index=89&type=chunk)[90](index=90&type=chunk) - Products are sold through approximately **200 independent agents and distributors** globally, supplemented by direct sales and service organizations in key markets across the Americas, Europe, and Asia[92](index=92&type=chunk) - Approximately **85% of worldwide demand** for computerized machine tools is outside the U.S., with **62% of Hurco's FY2022 revenues** derived from non-Americas customers[93](index=93&type=chunk) - Demand drivers include the need for productivity improvements, replacement of aging machine tools, industrial development in emerging markets, and the declining supply of skilled machinists, but demand is highly sensitive to economic conditions and governmental policies[96](index=96&type=chunk)[101](index=101&type=chunk) - Hurco competes with numerous machine tool producers globally, many of which are larger and have greater financial resources, differentiating itself through proprietary software, technological capabilities, ease of use, reliability, quality, and extensive customer service[97](index=97&type=chunk)[99](index=99&type=chunk) - The company protects its proprietary Hurco and Milltronics control systems and machine tools through patents, trademarks, nondisclosure agreements, and trade secret law[100](index=100&type=chunk) [Human Capital and Governance](index=18&type=section&id=Human%20Capital%20and%20Governance) Hurco manages human capital through safety, development, diversity, and ethical practices, with approximately 735 global employees - As of October 31, 2022, Hurco had approximately **735 full-time employees**, with **27% in the Americas** and **73% in other global regions**, many being engineers or trained technical workers[102](index=102&type=chunk) - Human capital management focuses on employee safety and wellness (including a COVID-19 response plan and wellness program), talent acquisition and retention, development and training, diversity and inclusion, and compensation and pay equity[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[107](index=107&type=chunk) - The company fosters a strong corporate culture with high standards of ethics and compliance, guided by a Code of Business Conduct and Ethics, and maintains a whistleblower policy[108](index=108&type=chunk) [Availability of Reports and Other Information](index=19&type=section&id=Availability%20of%20Reports%20and%20Other%20Information) Hurco provides public access to its financial reports and corporate governance information on its website - Hurco makes its Annual Reports (10-K), Quarterly Reports (10-Q), proxy materials, Current Reports (8-K), press releases, and corporate governance information available free of charge on its website, www.hurco.com[110](index=110&type=chunk)[112](index=112&type=chunk) [Item 1A. RISK FACTORS](index=20&type=section&id=Item%201A.%20RISK%20FACTORS) Hurco faces a range of material risks across its operations. Industry and international risks include the cyclical nature of the machine tool market, uncertain global economic conditions (exacerbated by geopolitical conflicts), and challenges inherent in international operations such as trade barriers, currency fluctuations, and political instability, particularly concerning manufacturing in China and Taiwan. The COVID-19 pandemic continues to pose risks to operations, supply chains, and demand. Operational and strategic risks involve the need for continuous new product development, intellectual property protection, potential disruptions in manufacturing and supply chains, volatility in raw material prices, loss of key personnel, and the inherent complexities and potential disruptions from acquisitions. Financial, credit, and liquidity risks encompass inventory obsolescence, asset impairment, and negative tax consequences [Risks Related to Our Industry and International Operations](index=20&type=section&id=Risks%20Related%20to%20Our%20Industry%20and%20International%20Operations) Hurco faces risks from the cyclical machine tool industry, uncertain global economic conditions, and complexities of international operations - The machine tool industry's cyclical nature causes significant fluctuations in sales and operating results, which can adversely affect financial performance[114](index=114&type=chunk) - Uncertain global economic conditions, particularly in Europe (where **50% of revenues** are generated), the U.S., and Asia Pacific, adversely affect overall demand, with geopolitical conflicts (e.g., war in Ukraine) exacerbating these uncertainties[115](index=115&type=chunk)[182](index=182&type=chunk) - International operations (**62% of FY2022 revenues** from outside Americas) expose Hurco to risks such as trade barriers, differing labor regulations, governmental expropriation, customs and tariffs, currency exchange rate fluctuations, political instability, and compliance with complex foreign and U.S. laws (e.g., FCPA, UK Bribery Act)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[120](index=120&type=chunk)[122](index=122&type=chunk) - Concentration of manufacturing in China and Taiwan creates vulnerability to political environment changes (trade wars, blockades), natural disasters, and cyber-attacks, which could disrupt production and supply chains[119](index=119&type=chunk)[121](index=121&type=chunk) - Fluctuations in exchange rates between the U.S. Dollar and foreign currencies (Euro, Pound Sterling, Chinese Yuan, New Taiwan Dollar) can increase costs and decrease revenues, despite hedging efforts[122](index=122&type=chunk) - Hurco competes with larger companies possessing greater financial resources, making it challenging to maintain competitiveness[123](index=123&type=chunk) - Brexit could lead to increased risks for U.K. operations (Hurco Europe Ltd.), including changes in regulatory oversight, supply disruptions, increased prices/fees/tariffs, and currency fluctuations (Pound Sterling, Euro)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) [Risks Related to the COVID-19 Pandemic](index=23&type=section&id=Risks%20Related%20to%20the%20COVID-19%20Pandemic) The COVID-19 pandemic continues to pose risks to Hurco's operations, supply chains, and market demand, particularly in regions with intermittent lockdowns - Public health emergencies like COVID-19 have disrupted and could continue to disrupt operations, including temporary closures, remote work, and impacts on delivery, installation, and procurement[128](index=128&type=chunk)[129](index=129&type=chunk)[131](index=131&type=chunk) - The pandemic has led to reduced demand in certain markets, supply chain constraints, increased costs for transportation and freight, and volatility in global credit markets, potentially causing asset impairment[131](index=131&type=chunk)[132](index=132&type=chunk) - While the impact was less significant in FY2022 than in prior years, intermittent lockdowns, particularly in China due to its zero-tolerance policy, continue to affect the business[189](index=189&type=chunk) [Operational and Strategic Risks](index=24&type=section&id=Operational%20and%20Strategic%20Risks) Operational risks include new product development, intellectual property protection, supply chain disruptions, raw material price volatility, and acquisition integration challenges - Failure to timely develop and introduce new, enhanced products that are market-accepted could diminish Hurco's competitive position and growth prospects, especially given rapid technological change and evolving industry standards[133](index=133&type=chunk) - The company's continued success depends on its ability to protect intellectual property (patents, trademarks, trade secrets) from infringement, particularly in foreign countries with weaker protections, and to avoid infringing on third-party rights[134](index=134&type=chunk)[135](index=135&type=chunk) - Disruptions in manufacturing operations (Taiwan, China, U.S., Italy) or the supply of key materials and components (e.g., from HAL) due to political changes, natural disasters, or cyber-attacks could materially adversely affect the business[138](index=138&type=chunk) - Fluctuations in raw material prices (steel, iron) and other inputs (energy, transportation) can adversely affect sales, costs, and profitability if price increases cannot be passed on to customers[139](index=139&type=chunk) - The unanticipated loss of senior management or other key personnel could impair the company's ability to execute its business plan and adversely affect operating results[140](index=140&type=chunk) - Acquisitions, while strategic, involve numerous risks including integration difficulties, diversion of management attention, challenges in new markets, supply chain dependencies, insufficient revenues, loss of key employees, and potential goodwill impairment charges (e.g., **$4.9 million in FY2020**)[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[145](index=145&type=chunk) [Financial, Credit, and Liquidity Risks](index=27&type=section&id=Financial,%20Credit,%20and%20Liquidity%20Risks) Financial risks encompass data privacy compliance, cyber-attacks, inventory obsolescence, asset impairment, and unforeseen tax consequences - Failure to comply with evolving data privacy and security laws and regulations (e.g., CCPA, CPRA, GDPR) could result in substantial penalties, litigation, adverse publicity, and negatively affect operating results[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Breaches of network and system security measures, including cyber-attacks, could lead to loss of business, litigation, financial liabilities, damage to reputation, and disruption of operations[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) - Technological changes, shifts in market demand, or competitive pressures could render portions of inventory obsolete or excessive, requiring write-offs that adversely affect results of operations[153](index=153&type=chunk) - Assets, including intangible assets, may become impaired, requiring significant non-cash charges to earnings, as seen with a **$4.9 million goodwill impairment in FY2020**[155](index=155&type=chunk) - Negative or unforeseen tax consequences, including changes in tax laws (e.g., Tax Cuts and Jobs Act, OECD's base erosion and profit shifting project), changes in profitability, or valuation allowances on deferred tax assets, could materially affect results of operations and financial condition[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) [Item 1B. UNRESOLVED STAFF COMMENTS](index=30&type=section&id=Item%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments from the SEC regarding the company's filings - The company has no unresolved staff comments[160](index=160&type=chunk) [Item 2. PROPERTIES](index=30&type=section&id=Item%202.%20PROPERTIES) Hurco owns its corporate headquarters, design, and engineering facility in Indianapolis, Indiana, and leases all other facilities globally. These leased properties serve various functions including manufacturing, assembly, sales, application engineering, customer service, and warehousing across multiple countries. The company believes its facilities are well-maintained and adequate for current and foreseeable needs, with no significant difficulty anticipated in replacing leased facilities if necessary Principal Facilities and Square Footage | Principal Uses | Locations | Square Footage | | :--- | :--- | :--- | | Corporate headquarters, design and engineering, product testing, sales and marketing, application engineering, customer service, manufacturing and assembly | Indianapolis, Indiana, U.S. | 165,000 | | Manufacturing, assembly, sales, application engineering and customer service | Taichung, Taiwan | 427,500 | | Manufacturing, assembly, sales, application engineering and customer service | Waconia, Minnesota, U.S. | 61,000 | | Manufacturing, assembly, sales, application engineering and customer service | Castell'Alfero, Italy | 32,300 | | Manufacturing | Ningbo, China | 31,000 | | Sales, application engineering, customer service, and warehousing | High Wycombe, England | 26,300 | | Sales, application engineering, customer service, and warehousing | Paris, France | 12,800 | | Sales, application engineering, customer service, and warehousing | Munich and Verl, Germany | 22,400 | | Sales, application engineering, customer service, and warehousing | Milan, Italy | 12,900 | | Sales, application engineering, customer service, and warehousing | Venlo, the Netherlands | 9,700 | | Sales, application engineering, customer service, and warehousing | Toh Guan, Singapore | 5,600 | | Sales, application engineering, customer service, and warehousing | Shanghai, Qingdao and Kunshan, China | 23,700 | | Sales, application engineering, customer service, and warehousing | Chennai and Pune, India | 16,700 | | Sales, application engineering, customer service, and warehousing | Liegnitz, Poland | 1,000 | | Sales, application engineering, customer service, and warehousing | Grand Rapids, Michigan, U.S. | 3,700 | | Sales, application engineering, customer service, and warehousing | Los Angeles, California, U.S. | 11,400 | | Sales, application engineering, customer service, and warehousing | Stritez, the Czech Republic | 5,500 | - The Indianapolis facility is owned, while all other facilities are leased with terms expiring between April 2023 and January 2029[161](index=161&type=chunk) [Item 3. LEGAL PROCEEDINGS](index=31&type=section&id=Item%203.%20LEGAL%20PROCEEDINGS) Hurco is periodically involved in various claims and lawsuits arising in the normal course of business. The company accrues minimum liabilities for known claims and maintains insurance policies, expecting that these matters, individually or in aggregate, will not have a material adverse effect on its financial position or results of operations - The company is involved in routine claims and lawsuits, accruing minimum liabilities for known claims[163](index=163&type=chunk) - Hurco maintains insurance policies and expects that these claims will not have a material adverse effect on its consolidated financial position or results of operations, believing ultimate resolution will not exceed insurance coverage[163](index=163&type=chunk) [Item 4. MINE SAFETY DISCLOSURES](index=31&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to Hurco Companies, Inc - There are no mine safety disclosures applicable to the company[164](index=164&type=chunk) [Information about our Executive Officers](index=31&type=section&id=Information%20about%20our%20Executive%20Officers) This section provides a summary of Hurco's executive officers as of October 31, 2022, detailing their age, current positions, and tenure with the company. Executive officers are appointed annually by the Board of Directors, and there are no family relationships among them or with Board members - Executive officers are appointed annually by the Board of Directors, with no family relationships among them or with Board members[165](index=165&type=chunk) Executive Officers as of October 31, 2022 | Name | Age | Position(s) with the Company | | :--- | :--- | :--- | | Michael Doar | 67 | Executive Chairman of the Board | | Gregory S. Volovic | 58 | Director, President, and Chief Executive Officer | | Sonja K. McClelland | 51 | Executive Vice President, Treasurer and Chief Financial Officer | | HaiQuynh Jamison | 44 | Corporate Controller and Principal Accounting Officer | | Jonathon D. Wright | 40 | General Counsel and Corporate Secretary | - Michael Doar has been with Hurco since November 2001, serving as Executive Chairman since March 2021. Gregory S. Volovic joined in March 2005, becoming President in March 2013 and CEO in March 2021. Sonja K. McClelland has been with the company since September 1996, appointed Executive Vice President, Treasurer, and CFO in 2017. HaiQuynh Jamison joined in March 2006, becoming Corporate Controller and Principal Accounting Officer in March 2021. Jonathon D. Wright has served as General Counsel since 2016 and Corporate Secretary since March 2021[166](index=166&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk) [PART II](index=32&type=section&id=PART%20II) [Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=32&type=section&id=Item%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Hurco's common stock is traded on the Nasdaq Global Select Market under the symbol "HURC". As of December 31, 2022, there were 110 holders of record. The company initiated cash dividends in Q3 fiscal year 2013 and expects to continue quarterly dividends, subject to Board discretion and limitations imposed by its U.S. credit agreement - Hurco's common stock is traded on the Nasdaq Global Select Market under the symbol "HURC"[172](index=172&type=chunk) - As of December 31, 2022, there were **110 holders of record** of the company's common stock[173](index=173&type=chunk) - The company began declaring cash dividends in the third quarter of fiscal year 2013 and expects to continue quarterly dividends, subject to Board discretion and factors such as results of operations, financial condition, capital requirements, and regulatory/contractual restrictions[174](index=174&type=chunk) - Dividend payments are limited by the company's U.S. credit agreement[175](index=175&type=chunk) [Item 6. RESERVED](index=33&type=section&id=Item%206.%20RESERVED) This item is reserved and contains no information [Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=33&type=section&id=Item%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides an in-depth analysis of Hurco's financial condition, liquidity, capital resources, and results of operations, focusing on fiscal year 2022 compared to 2021. The company, a global industrial technology firm, saw increased sales and net income in FY2022, driven by inflationary price increases and higher-performance machine shipments, despite unfavorable currency impacts and COVID-19 related disruptions in some regions. Orders and backlog decreased year-over-year. Liquidity decreased due to inventory increases, but the company maintains adequate borrowing capacity and a balanced capital allocation strategy, including share repurchases and dividends. Critical accounting estimates, such as goodwill impairment, inventory reserves, and income taxes, involve significant judgment [Executive Overview](index=33&type=section&id=Executive%20Overview) This overview details Hurco's business model, geographic revenue distribution, product portfolio, and exposure to currency fluctuations and COVID-19 impacts - Hurco is an international industrial technology company that designs, manufactures, and sells computerized (CNC) machine tools, primarily vertical machining centers and turning centers, to the metal cutting industry[179](index=179&type=chunk) - Approximately **50% of FY2022 revenues** were from Europe, where higher-performance VMX series machines are typically sold, and **12% from Asia Pacific**, a region with greater pricing pressures[182](index=182&type=chunk) - The company's three main brands (Hurco, Milltronics, Takumi) and other non-Hurco branded products, automation solutions (ProCobots), and machine tool components (LCM) are responsible for the vast majority of revenue[183](index=183&type=chunk) - Sales to foreign customers are denominated in local currencies (Euro, Pound Sterling, Chinese Yuan), and product costs are primarily in New Taiwan Dollar and U.S. Dollar, exposing the company to currency exchange rate fluctuations, which are mitigated by derivative instruments[185](index=185&type=chunk)[186](index=186&type=chunk) - The COVID-19 pandemic caused significant disruptions in FY2020 and FY2021, and while less impactful in FY2022, intermittent lockdowns (e.g., in China) continue to affect business, leading to supply chain delays, increased costs, and inflationary pressures[188](index=188&type=chunk)[189](index=189&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section analyzes Hurco's sales, gross profit, operating income, and net income performance for fiscal year 2022, highlighting key drivers and regional variations Selected Consolidated Statements of Operations Data (as % of Revenues and Year-to-Year % Change) | Metric | 2022 (% of Rev) | 2021 (% of Rev) | 2020 (% of Rev) | '22 vs. '21 % Change | '21 vs. '20 % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales and service fees | 100% | 100% | 100% | 7% | 38% | | Gross profit | 26% | 24% | 21% | 15% | 54% | | Selling, general and administrative expenses | 21% | 20% | 24% | 12% | 11% | | Goodwill impairment | — | — | 3% | — | (100)% | | Operating income (loss) | 5% | 4% | (6)% | 24% | 204% | | Net income (loss) | 3% | 3% | (4)% | 22% | 208% | - Sales and service fees for fiscal year 2022 increased by **$15.6 million (7%)** to **$250.8 million**, despite an unfavorable currency impact of **$13.9 million (6%)**[194](index=194&type=chunk) Net Sales and Service Fees by Geographic Region (in thousands) | Region | 2022 Sales | 2022 % of Total | 2021 Sales | 2021 % of Total | Increase/Decrease (Amount) | Increase/Decrease (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Americas | $95,964 | 38% | $86,301 | 37% | $9,663 | 11% | | Europe | $126,050 | 50% | $117,522 | 50% | $8,528 | 7% | | Asia Pacific | $28,800 | 12% | $31,372 | 13% | $(2,572) | (8)% | | **Total** | **$250,814** | **100%** | **$235,195** | **100%** | **$15,619** | **7%** | - Americas sales increased **11%** due to inflationary price increases and higher shipments of VM and five-axis Hurco machines. European sales increased **7%** (despite an **11% unfavorable currency impact**) from price increases and higher shipments of Hurco, Takumi, and Milltronics machines, plus LCM components. Asia Pacific sales decreased **8%** (including a **3% unfavorable currency impact**) due to reduced shipments in China and Southeast Asia from COVID-19 lockdowns, partially offset by India[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) Net Sales and Service Fees by Product Category (in thousands) | Product Category | 2022 Sales | 2022 % of Total | 2021 Sales | 2021 % of Total | Increase/Decrease (Amount) | Increase/Decrease (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Computerized Machine Tools | $211,804 | 85% | $198,602 | 85% | $13,202 | 7% | | Computer Control Systems and Software | $2,634 | 1% | $2,528 | 1% | $106 | 4% | | Service Parts | $28,219 | 11% | $26,425 | 11% | $1,794 | 7% | | Service Fees | $8,157 | 3% | $7,640 | 3% | $517 | 7% | | **Total** | **$250,814** | **100%** | **$235,195** | **100%** | **$15,619** | **7%** | - Sales of computerized machine tools and computer control systems/software increased by **7%** and **4%** respectively, driven by inflationary price increases and higher shipments of VM and five-axis Hurco machines in North America and Europe. Service parts and fees also increased by **7%** each[200](index=200&type=chunk) - Orders for fiscal year 2022 decreased by **$24.5 million (9%)** to **$240.9 million**, including an unfavorable currency impact of **$14.3 million (5%)**. Backlog at October 31, 2022, decreased to **$44.8 million** from **$60.0 million** in 2021[201](index=201&type=chunk)[205](index=205&type=chunk) - Gross profit increased to **$64.5 million (26% of sales)** in FY2022 from **$56.2 million (24% of sales)** in FY2021, benefiting from increased sales of higher-performance machines, improved leverage of fixed overhead, and inflationary price increases[206](index=206&type=chunk) - Selling, general, and administrative expenses increased to **$51.7 million (21% of sales)** in FY2022 from **$46.0 million (20% of sales)** in FY2021, primarily due to higher marketing, tradeshow, sales commission, and employee benefit costs, partially offset by a favorable currency impact[207](index=207&type=chunk) - Operating income increased to **$12.7 million (5% of sales)** in FY2022 from **$10.2 million (4% of sales)** in FY2021, driven by increased sales of higher-performance machines and inflationary price increases[208](index=208&type=chunk) - Net income for fiscal year 2022 was **$8.2 million ($1.23 per diluted share)**, up from **$6.8 million ($1.01 per diluted share)** in FY2021, primarily due to increased sales of higher-performance machines and inflationary price increases[212](index=212&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section examines Hurco's cash position, working capital, capital expenditures, share repurchase programs, dividends, and credit facilities, affirming adequate liquidity Cash and Working Capital (in thousands) | Metric | October 31, 2022 | October 31, 2021 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | $63,922 | $84,063 | $(20,141) | -23.96% | | Working Capital | $194,700 | $208,700 | $(14,000) | -6.71% | | Inventories, net | $156,200 | $148,200 | +$8,000 | +5.40% | - The decrease in cash and cash equivalents was primarily a result of increases in inventories. Approximately **31% of cash and cash equivalents** are held in the U.S., with the balance in foreign operations[213](index=213&type=chunk) - Capital expenditures were **$2.2 million** in FY2022, primarily for software development, factory equipment, and general software/equipment, funded by cash flows from operations[216](index=216&type=chunk) - The Board approved a **$7.0 million share repurchase program** in March 2021, under which **$2.9 million** in shares were repurchased in FY2022. An additional **$25.0 million share repurchase program** was approved in January 2023[217](index=217&type=chunk)[218](index=218&type=chunk) - Cash dividends of **$3.9 million** were paid to shareholders in FY2022[219](index=219&type=chunk) - Hurco maintains a **$40.0 million unsecured revolving credit and letter of credit facility** (2018 Credit Agreement) with Bank of America, N.A., maturing December 31, 2023, and other uncommitted revolving credit facilities in Taiwan, China, and Germany[220](index=220&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - As of October 31, 2022, there were no borrowings under any credit facilities, and **$50.6 million** was available for borrowing. The company was in compliance with all covenants, including maintaining minimum working capital of **$125.0 million** and tangible net worth of **$176.5 million**[222](index=222&type=chunk)[225](index=225&type=chunk) - The company's international cash pooling strategy and borrowing capacity provide adequate liquidity to fund global operations and strategic plans, including product innovation, acquisitions, market penetration, dividends, and stock repurchases[226](index=226&type=chunk)[227](index=227&type=chunk) [Contractual Obligations and Commitments](index=41&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details Hurco's contractual obligations, including operating leases and tax liabilities, and outlines estimated capital spending for the upcoming fiscal year Contractual Obligations and Commitments as of October 31, 2022 (in thousands) | Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $9,092 | $4,132 | $3,477 | $986 | $497 | | Accrued and deferred taxes and credits | $5,444 | $38 | $802 | $509 | $4,095 | | **Total** | **$14,536** | **$4,170** | **$4,279** | **$1,495** | **$4,592** | - The company has no material non-cancelable commitments for procurement of materials and services, nor any minimum purchase or "take-or-pay" agreements[228](index=228&type=chunk) - Capital spending for fiscal year 2023 is estimated at **$3.7 million**, to be funded by cash on hand and cash generated from operations[229](index=229&type=chunk) [Off Balance Sheet Arrangements](index=42&type=section&id=Off%20Balance%20Sheet%20Arrangements) Hurco's off-balance sheet arrangements primarily consist of third-party payment guarantees for customer financing, not expected to materially impact financial results - As of October 31, 2022, Hurco had nine outstanding third-party payment guarantees totaling approximately **$0.7 million**, related to customer financing for machine sales[231](index=231&type=chunk) - These guarantees are not expected to have a material adverse effect, as the company retains title to machines until payment is complete, allowing for recovery in case of customer default[231](index=231&type=chunk) [Critical Accounting Estimates](index=42&type=section&id=Critical%20Accounting%20Estimates) This section outlines Hurco's critical accounting estimates, which involve significant judgment and can materially affect financial reporting - Critical accounting estimates involve significant subjectivity and judgment, and changes could materially impact financial condition or operating results[233](index=233&type=chunk)[234](index=234&type=chunk) - Key estimates include goodwill and intangible assets impairment (no goodwill as of Oct 31, 2022), impairment of long-lived assets, inventories and related reserves, income taxes (deferred tax assets/liabilities, valuation allowances), capitalized software development costs, derivative financial instruments, and stock compensation[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk) [Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=44&type=section&id=Item%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Hurco is exposed to market risks, primarily foreign currency exchange risk, due to its extensive international operations. While interest on credit agreements is tied to floating rates, there were no outstanding borrowings at fiscal year-end 2022. The company actively manages foreign currency risk through forward exchange contracts to hedge cash flow risks from inter-company sales/purchases and net investments in foreign assets, primarily involving the Euro, Pound Sterling, and New Taiwan Dollar - Interest on borrowings under bank credit agreements is tied to prevailing domestic and foreign interest rates; however, no borrowings were outstanding at October 31, 2022[242](index=242&type=chunk) - Hurco is exposed to significant foreign currency exchange risk, as **62% of FY2022 revenues** were from customers outside the Americas, with sales invoiced in foreign currencies (Euro, Pound Sterling, Chinese Yuan) and purchases made in New Taiwan Dollar and Euro[243](index=243&type=chunk)[244](index=244&type=chunk) - The company uses foreign currency forward exchange contracts to hedge cash flow risk related to forecasted inter-company sales and purchases (Euro, Pound Sterling, New Taiwan Dollar) and to protect against fluctuations on inter-company receivables, payables, and loans[245](index=245&type=chunk) Forward Contracts Designated as Cash Flow Hedges (as of October 31, 2022, in thousands) | Currency | Notional Amount (Foreign Currency) | Weighted Avg. Forward Rate | Contract Amount at Forward Rates (U.S. Dollars) | Maturity Dates | | :--- | :--- | :--- | :--- | :--- | | Euro (Sale) | 18,750 | 1.0689 | $20,041 | Nov 2022 - Oct 2023 | | Sterling (Sale) | 5,250 | 1.2342 | $6,479 | Nov 2022 - Oct 2023 | | New Taiwan Dollar (Purchase) | 830,000 | 28.7542* | $28,865 | Nov 2022 - Oct 2023 | *New Taiwan Dollars per U.S. Dollar Forward Contracts Not Designated as Hedges (as of October 31, 2022, in thousands) | Currency | Notional Amount (Foreign Currency) | Weighted Avg. Forward Rate | Contract Amount at Forward Rates (U.S. Dollars) | Maturity Dates | | :--- | :--- | :--- | :--- | :--- | | Euro (Sale) | 20,056 | 0.9981 | $20,018 | Nov 2022 - Dec 2022 | | Sterling (Sale) | 999 | 1.1452 | $1,145 | Nov 2022 | | New Taiwan Dollar (Purchase) | 708,811 | 31.1668* | $22,743 | Nov 2022 - Feb 2023 | *New Taiwan Dollars per U.S. Dollar - A forward contract with a notional amount of **€3.0 million** was designated as a hedge of net investment in Euro-denominated assets, with a realized gain of **$0.9 million** and an unrealized gain of **$0.4 million** (net of tax) recorded as cumulative translation adjustments as of October 31, 2022[247](index=247&type=chunk) [Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=46&type=section&id=Item%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section includes management's report on internal control over financial reporting, the independent auditor's report, the consolidated financial statements, and detailed notes to these statements. Management affirmed the effectiveness of internal controls as of October 31, 2022. RSM US LLP provided an unqualified opinion on both the financial statements and internal controls, highlighting accounting for income taxes (deferred tax assets and liabilities) as a critical audit matter. The consolidated financial statements provide a comprehensive view of the company's financial performance and position, with the notes offering extensive disclosures on accounting policies, business operations, inventories, credit facilities, financial instruments, income taxes, employee benefits, stock-based compensation, related party transactions, contingencies, warranties, leases, and segment information [Management's Annual Report on Internal Control over Financial Reporting](index=46&type=section&id=Management's%20Annual%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) Management affirmed the effectiveness of Hurco's internal control over financial reporting as of October 31, 2022, with independent auditor attestation - Management assessed the effectiveness of the company's internal control over financial reporting as of October 31, 2022, based on the COSO (2013 framework) criteria[251](index=251&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of October 31, 2022[253](index=253&type=chunk) - RSM US LLP, the independent registered public accounting firm, also audited and issued an attestation report on the effectiveness of internal control over financial reporting[253](index=253&type=chunk) [Report of Independent Registered Public Accounting Firm](index=47&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) RSM US LLP issued an unqualified opinion on Hurco's financial statements and internal controls, identifying income tax accounting as a critical audit matter - RSM US LLP issued an unqualified opinion on Hurco's consolidated financial statements for the three years ended October 31, 2022, and on the effectiveness of its internal control over financial reporting as of October 31, 2022[257](index=257&type=chunk) - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and estimates[259](index=259&type=chunk)[261](index=261&type=chunk) - A critical audit matter identified was 'Accounting for Income Taxes – Deferred Tax Assets and Liabilities', due to the complexity of tax regulations across multiple jurisdictions and the subjectivity in evaluating the realizability of deferred tax assets[266](index=266&type=chunk)[267](index=267&type=chunk) [Consolidated Financial Statements](index=51&type=section&id=Consolidated%20Financial%20Statements) This section presents Hurco's consolidated statements of operations, balance sheets, and cash flows for the reported fiscal years Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Sales and service fees | $250,814 | $235,195 | $170,627 | | Gross profit | $64,478 | $56,249 | $36,457 | | Operating income (loss) | $12,747 | $10,248 | $(9,862) | | Net income (loss) | $8,226 | $6,764 | $(6,247) | | Diluted EPS | $1.23 | $1.01 | $(0.93) | | Dividends paid per share | $0.59 | $0.55 | $0.51 | Consolidated Balance Sheets (as of October 31, in thousands) | Asset/Liability/Equity | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $63,922 | $84,063 | | Total current assets | $268,069 | $289,870 | | Total assets | $306,237 | $332,935 | | Total current liabilities | $73,336 | $81,170 | | Total liabilities | $83,593 | $94,516 | | Total shareholders' equity | $222,644 | $238,419 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $(3,966) | $32,175 | $10,932 | | Net cash provided by (used for) investing activities | $(2,092) | $(3,345) | $(1,179) | | Net cash provided by (used for) financing activities | $(6,903) | $(3,521) | $(10,851) | | Net increase (decrease) in cash and cash equivalents | $(20,141) | $26,204 | $916 | | Cash and cash equivalents at end of period | $63,922 | $84,063 | $57,859 | [Notes to Consolidated Financial Statements](index=56&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on Hurco's accounting policies, financial instruments, income taxes, and segment information, offering comprehensive financial context - The notes detail significant accounting policies including consolidation, cash flows, foreign currency translation, hedging (cash flow and net investment hedges), revenue recognition, product warranty, research and development costs, software development costs, goodwill and intangible assets, impairment of long-lived assets, earnings per share, income taxes, and stock compensation[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk)[285](index=285&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) - Inventories, net were **$156.2 million** at October 31, 2022, up from **$148.2 million** in 2021, with finished goods consigned to distributors at **$10.9 million**[331](index=331&type=chunk) - The company had no borrowings under its credit facilities as of October 31, 2022, with **$50.6 million** available borrowing capacity[336](index=336&type=chunk) - Deferred tax assets were **$9.8 million** (offset by a **$1.8 million valuation allowance**) and deferred tax liabilities were **$4.7 million** as of October 31, 2022. Net operating loss carryforwards totaled **$5.8 million**[266](index=266&type=chunk)[351](index=351&type=chunk)[353](index=353&type=chunk) - Stock-based compensation expense was **$2.7 million** in FY2022, with **$3.2 million** of unrecognized cost expected to be recognized by Q1 FY2025[386](index=386&type=chunk) - Related party transactions include purchases of controls from Hurco Automation, Ltd. (35% owned affiliate) totaling **$10.5 million** in FY2022[387](index=387&type=chunk) - Product warranty reserve was **$1.4 million** at October 31, 2022, decreasing from **$1.5 million** in 2021 primarily due to foreign currency translation impact[392](index=392&type=chunk)[393](index=393&type=chunk) - Operating lease expense was **$5.1 million** in FY2022, with a weighted-average remaining lease term of **3.1 years** and a weighted-average discount rate of **2.1%**[398](index=398&type=chunk)[399](index=399&type=chunk) Quarterly Financial Information (Unaudited, in thousands, except per share data) | Metric | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales and service fees | $66,887 | $62,825 | $57,640 | $63,462 | | Gross profit | $16,907 | $15,602 | $14,399 | $17,570 | | Gross profit margin | 25% | 25% | 25% | 28% | | Operating income (loss) | $5,210 | $3,087 | $1,752 | $2,698 | | Net income (loss) | $3,535 | $2,029 | $1,238 | $1,424 | | Diluted EPS | $0.53 | $0.30 | $0.18 | $0.22 | - Hurco operates in a single segment: industrial automation equipment. In FY2022, **62% of revenues** were from customers outside the Americas[402](index=402&type=chunk)[403](index=403&type=chunk) Net Sales and Service Fees by Geographic Area (in thousands) | Geographic Area | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | United States of America | $92,050 | $83,218 | $64,500 | | Canada | $3,996 | $2,636 | $1,621 | | Central & South Americas | $1,279 | $989 | $1,543 | | **Total Americas** | **$97,325** | **$86,843** | **$67,664** | | Germany | $42,026 | $37,584 | $24,993 | | United Kingdom | $26,629 | $30,314 | $19,679 | | Italy | $16,499 | $12,718 | $8,599 | | France | $14,291 | $14,252 | $10,797 | | Other Europe | $24,437 | $21,467 | $14,034 | | **Total Europe** | **$123,882** | **$116,335** | **$78,102** | | China | $10,293 | $14,284 | $14,225 | | Other Asia Pacific | $18,553 | $16,047 | $10,048 | | **Total Asia Pacific** | **$28,846** | **$30,331** | **$24,273** | | Other Foreign | $761 | $1,686 | $588 | | **Grand Total** | **$250,814** | **$235,195** | **$170,627** | - Recently adopted accounting pronouncements include ASU No. 2019-12 (Income Taxes) and ASU No. 2020-04 (Reference Rate Reform), neither of which had a significant effect on accounting policies or financial statements[408](index=408&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk) [Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=83&type=section&id=Item%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) There have been no changes in or disagreements with the company's independent accountants on accounting and financial disclosure matters - There are no changes in or disagreements with accountants on accounting and financial disclosure[411](index=411&type=chunk) [Item 9A. CONTROLS AND PROCEDURES](index=83&type=section&id=Item%209A.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the effectiveness of Hurco's disclosure controls and procedures as of October 31, 2022, concluding they were effective. No material changes in internal control over financial reporting occurred during the fourth quarter of fiscal year 2022 - Management concluded that disclosure controls and procedures were effective as of October 31, 2022[412](index=412&type=chunk) - No changes in internal control over financial reporting occurred during the fourth quarter of fiscal year 2022 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[413](index=413&type=chunk) [Item 9B. OTHER INFORMATION](index=84&type=section&id=Item%209B.%20OTHER%20INFORMATION) During the fourth quarter of fiscal year 2022, the Audit Committee did not engage the independent registered public accounting firm for any new non-audit services. The section also includes a performance graph comparing Hurco's cumulative five-year total return against the Russell 2000 index, the Nasdaq Global Select index, and a customized peer group - The Audit Committee did not engage the independent registered public accounting firm for any new non-audit services during the fourth quarter of fiscal year 2022[415](index=415&type=chunk) Cumulative Five-Year Total Return (October 31, 2017 - October 31, 2022) | Index/Company | 10/31/17 | 10/31/18 | 10/31/19 | 10/31/20 | 10/31/21 | 10/31/22 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Hurco Companies, Inc. | 100.00 | 91.92 | 79.53 | 69.46 | 76.83 | 56.03 | | Russell 2000 | 100.00 | 101.85 | 106.85 | 106.70 | 160.91 | 131.07 | | Nasdaq Global Select | 100.00 | 105.90 | 124.90 | 169.56 | 237.87 | 165.32 | | Peer Group | 100.00 | 109.79 | 107.62 | 115.12 | 156.51 | 121.16 | [Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](index=86&type=section&id=Item%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to Hurco Companies, Inc - This item is not applicable[419](index=419&type=chunk) [PART III](index=86&type=section&id=PART%20III) [Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=86&type=section&id=Item%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) The information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of shareholders, with the exception of executive officer information already provided in Part I of this report - Information is incorporated by reference from the 2023 proxy statement, except for executive officer information included in Part I[420](index=420&type=chunk) [Item 11. EXECUTIVE COMPENSATION](index=86&type=section&id=Item%2011.%20EXECUTIVE%20COMPENSATION) The information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of shareholders - Information is incorporated by reference from the 2023 proxy statement[421](index=421&type=chunk) [Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=86&type=section&id=Item%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) The information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of shareholders - Information is incorporated by reference from the 2023 proxy statement[422](index=422&type=chunk) [Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=86&type=section&id=Item%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS,%20AND%20DIRECTOR%20INDEPENDENCE) The information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of shareholders - Information is incorporated by reference from the 2023 proxy statement[423](index=423&type=chunk) [Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=86&type=section&id=Item%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 annual meeting of shareholders - Information is incorporated by reference from the 2023 proxy statement[424](index=424&type=chunk) [PART IV](index=87&type=section&id=PART%20IV) [Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES](index=87&type=section&id=Item%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements included in Item 8, provides Schedule II – Valuation and Qualifying Accounts and Reserves, and details the exhibits filed with or incorporated by reference into the report. Schedule II presents the changes in allowance for doubtful accounts and income tax valuation allowance for the past three fiscal years - The section includes a list of consolidated financial statements found in Item 8[426](index=426&type=chunk) Schedule II – Valuation and Qualifying Accounts and Reserves (in thousands) | Description | Balance at Beginning of Period | Charged to/ (Recovered from) Costs and Expenses | Charged to Other Accounts | Deductions | Balance at End of Period | | :--- | :--- | :--- | :--- | :--- | :--- | | **Allowance for doubtful accounts:** | | | | | | | October 31, 2022 | $1,645 | $(74) | $— | $85 (1) | $1,486 | | October 31, 2021 | $1,401 | $268 | $— | $24 (1) | $1,645 | | October 31, 2020 | $891 | $575 | $— | $65 (1) | $1,401 | | **Income tax valuation allowance:** | | | | | | | October 31, 2022 | $1,871 | $502 | $— | $619 | $1,754 | | October 31, 2021 | $2,164 | $49 | $— | $342 | $1,871 | | October 31, 2020 | $2,227 | $50 | $— | $113 | $2,164 | (1) Receivable write–offs. - An index of exhibits filed with the report (e.g., Subsidiaries, Consents, Certifications, XBRL data) and exhibits incorporated by reference (e.g., Articles of Incorporation, By-Laws, Equity Incentive Plans, Employment Agreements, Credit Agreements) is provided[431](index=431&type=chunk)[432](index=432&type=chunk)[435](index=435&type=chunk) [Item 16. FORM 10-K SUMMARY](index=90&type=section&id=Item%2016.%20FORM%2010-K%20SUMMARY) This item is not applicable and contains no information - This item is not applicable[433](index=433&type=chunk) [SIGNATURES](index=91&type=section&id=SIGNATURES) This section contains the official signatures of Hurco Companies, Inc.'s authorized officers and directors, affirming the report's submission - The report is duly signed on behalf of Hurco Companies, Inc. by its authorized officers and directors, including the Chief Executive Officer, Chief Financial Officer, Corporate Controller, Executive Chairman of the Board, and other Directors, as of January 6, 2023[437](index=437&type=chunk)[439](index=439&type=chunk)[440](index=440&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) | | | Name of each exchange on which | | --- | --- | --- | | Title of each class | Trading Symbol(s) | registered | | Common Stock, no par value | HURC | The Nasdaq Stock Market LLC | Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period t ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Commission File No. 0-9143 HURCO COMPANIES, INC. (Exact name of registrant as specified in its charter) | Indiana | 35-1150732 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer Identification Number) | | incorporation or organization) | | | One Technology Way | | | Indianapolis, Indiana | 46268 | | (Address of principal executive offices) | (Zip code) | Registrant's telephone num ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Commission File No. 0-9143 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) Commission File No. 0-9143 HURCO COMPANIES, INC. (Exact name of registrant as specified in its charter) Indiana 35-1150732 incorporation or organization) (State or other jurisdiction of (I.R.S. Employer Identification Number) One Technology Way Indianapolis, Indiana 46268 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (317) 293–5309 Securities registered pursua ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Commission File No. 0-9143 HURCO COMPANIES, INC. (Exact name of registrant as specified in its charter) | Indiana | 35-1150732 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer Identification Number) | | incorporation or organization) | | | One Technology Way | | | Indianapolis, Indiana | 46268 | | (Address of principal executive offices) | (Zip code) | | Registrant's telephone n ...