Hurco(HURC) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Hurco Companies, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents Hurco Companies, Inc.'s unaudited condensed consolidated financial statements and related notes for periods ended July 31, 2025, and October 31, 2024 Condensed Consolidated Statements of Operations This table provides a summary of the company's sales, gross profit, operating income, and net income for specified periods Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales and service fees | $45,806 | $42,651 | $133,087 | $132,882 | | Gross profit | $9,112 | $7,843 | $25,231 | $25,557 | | Operating (loss) income | $(1,650) | $(2,533) | $(6,810) | $(7,795) | | Net (loss) income | $(3,693) | $(9,596) | $(12,076) | $(15,166) | | Basic (Loss) income per common share | $(0.58) | $(1.47) | $(1.87) | $(2.33) | | Diluted (Loss) income per common share | $(0.58) | $(1.47) | $(1.87) | $(2.33) | Condensed Consolidated Statements of Comprehensive Income (Loss) This table details the company's net income and other comprehensive income components for specified periods Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net (loss) income | $(3,693) | $(9,596) | $(12,076) | $(15,166) | | Total other comprehensive (loss) income | $6,310 | $1,210 | $9,277 | $1,723 | | Comprehensive (loss) income | $2,617 | $(8,386) | $(2,799) | $(13,443) | Condensed Consolidated Balance Sheets This table presents the company's assets, liabilities, and shareholders' equity at specific balance sheet dates Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | July 31, 2025 | October 31, 2024 | | :-------------------------------- | :------------ | :--------------- | | Cash and cash equivalents | $44,494 | $33,330 | | Accounts receivable, net | $27,645 | $36,678 | | Inventories | $147,538 | $153,037 | | Total current assets | $228,294 | $228,577 | | Total assets | $269,088 | $268,643 | | Total current liabilities | $51,539 | $47,789 | | Total non–current liabilities | $13,877 | $13,682 | | Total liabilities and shareholders' equity | $269,088 | $268,643 | | Total shareholders' equity | $203,672 | $207,172 | Condensed Consolidated Statements of Cash Flows This table outlines the company's cash flows from operating, investing, and financing activities for specified periods Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by (used for) operating activities | $2,538 | $(622) | $13,872 | $(1,312) | | Net cash provided by (used for) investing activities | $(745) | $(734) | $(1,925) | $(1,903) | | Net cash provided by (used for) financing activities | $(2,000) | $(508) | $(2,352) | $(2,916) | | Net increase (decrease) in cash and cash equivalents | $687 | $(1,488) | $11,164 | $(5,730) | | Cash and cash equivalents at end of period | $44,494 | $36,054 | $44,494 | $36,054 | Condensed Consolidated Statements of Changes in Shareholders' Equity This section details changes in common stock, retained earnings, and comprehensive loss for shareholders' equity Condensed Consolidated Statements of Changes in Shareholders' Equity (in thousands, except shares) | Metric (in thousands, except shares) | July 31, 2025 | October 31, 2024 | | :----------------------------------- | :------------ | :--------------- | | Common Stock Shares Outstanding | 6,402,396 | 6,435,624 | | Retained Earnings | $149,346 | $161,422 | | Accumulated Other Comprehensive Loss | $(7,095) | $(16,394) | | Total Shareholders' Equity | $203,672 | $207,172 | - For the nine months ended July 31, 2025, the company reported a net loss of $(12,076) thousand, contributing to a decrease in retained earnings. Stock repurchases amounted to $(2,000) thousand, reducing common stock and additional paid-in capital. Accumulated other comprehensive loss improved significantly from $(16,394) thousand to $(7,095) thousand, primarily due to other comprehensive income (loss) of $9,277 thousand[18] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies and financial statement items Note 1. General This note describes Hurco Companies, Inc.'s business operations and the nature of the financial information presented - Hurco Companies, Inc. designs, manufactures, and sells computerized (CNC) machine tools, primarily vertical machining centers and turning centers, to the metal cutting industry globally[21] - The condensed consolidated financial information for July 31, 2025, and the three and nine months ended July 31, 2025 and 2024, is unaudited and includes normal recurring adjustments[22] Note 2. Revenue Recognition This note outlines the company's policies for recognizing revenue from machine tool sales and service fees - Revenue from machine tool sales is recognized upon delivery to the customer or distributor, typically at shipment, as the customer obtains control at this point[24][25] - Service fees from maintenance contracts are deferred and recognized prorata over the contract term, with discounts and estimated returns recorded as revenue reductions[26] Note 3. Derivative Instruments and Hedging Activities This note details the company's use of foreign currency derivatives to manage exchange rate risks - The company uses foreign currency forward exchange contracts to manage foreign currency risk related to net equity investments, gross profit, and foreign currency receivables/payables, primarily for Euros, Pounds Sterling, and other currencies[27][28] - Derivatives designated as hedging instruments defer effective gains/losses in Accumulated other comprehensive loss, while non-designated derivatives report fair value changes in Other (expense) income, net[29][31][33] Fair Value of Derivative Instruments (in thousands) | Derivatives | July 31, 2025 (Fair Value) | October 31, 2024 (Fair Value) | | :---------------------------------------- | :------------------------- | :---------------------------- | | Designated as Hedging Instruments: | | | | Foreign exchange forward contracts (assets) | $612 | $165 | | Foreign exchange forward contracts (liabilities) | $669 | $430 | | Not Designated as Hedging Instruments: | | | | Foreign exchange forward contracts (assets) | $2,170 | $158 | | Foreign exchange forward contracts (liabilities) | $1,369 | $275 | Effect of Derivative Instruments on Statements of Operations (Three Months Ended July 31, in thousands) | Derivative Type (Net of Tax) | 2025 (Gain/Loss) | 2024 (Gain/Loss) | | :---------------------------------------- | :--------------- | :--------------- | | Designated (Other Comprehensive Income) | $544 | $(248) | | Reclassified from OCI (Cost of sales and service) | $(304) | $(373) | | Not Designated (Other (expense) income, net) | $2,395 | $(632) | Note 4. Equity Incentive Plan This note describes the company's equity incentive plan, including share grants and stock-based compensation expense - The Hurco Companies, Inc. 2016 Equity Incentive Plan, amended in March 2022 and March 2025, allows for grants of stock options, restricted stock, and performance stock units, with an additional 850,000 shares authorized[38] - In January 2025, executive officers received time-based restricted shares (75,119 shares at $19.81/share) and PSUs (50,078 'PSU – NI' and 41,735 'PSU – FCF' at $19.81/PSU) with three-year vesting periods tied to net income and free cash flow goals[41][42][43][44] Restricted Stock and PSU Activity (Nine Months Ended July 31, 2025) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :-------------------------- | :--------------- | :------------------------------------- | | Unvested at October 31, 2024 | 378,092 | $24.97 | | Shares or units granted | 210,325 | $19.41 | | Shares or units vested | (71,244) | $25.80 | | Shares or units cancelled | (42,472) | $31.06 | | Shares withheld | (17,748) | $28.51 | | Unvested at July 31, 2025 | 456,953 | $21.58 | - Stock-based compensation expense for the nine months ended July 31, 2025, was approximately $1.6 million, up from $1.1 million in the prior year, with $3.5 million unrecognized cost as of July 31, 2025[46] Note 5. Earnings (Loss) Per Share This note presents the calculation of basic and diluted earnings (loss) per share for common shareholders Earnings (Loss) Per Share (in thousands, except per share amounts) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net (loss) income applicable to common shareholders | $(3,693) | $(9,596) | $(12,076) | $(15,166) | | Weighted average shares outstanding | 6,463 | 6,513 | 6,474 | 6,505 | | (Loss) income per share (Basic & Diluted) | $(0.58) | $(1.47) | $(1.87) | $(2.33) | - Stock options and contingently issuable securities were excluded from diluted loss per share calculations due to their anti-dilutive effect resulting from net losses[48] Note 6. Accounts Receivable This note provides details on accounts receivable, net of the provision for credit losses Accounts Receivable, Net of Provision for Credit Losses (in thousands) | Date | Accounts Receivable, Net | | :-------------- | :----------------------- | | July 31, 2025 | $27,645 | | October 31, 2024 | $36,678 | - The provision for credit losses was $1.3 million as of July 31, 2025, a decrease from $1.5 million as of October 31, 2024[49] Note 7. Inventories This note breaks down the company's inventory by category and states its valuation method Inventories (in thousands) | Category | July 31, 2025 | October 31, 2024 | | :------------------------ | :------------ | :--------------- | | Purchased parts and sub–assemblies | $37,122 | $35,385 | | Work–in–process | $11,476 | $13,428 | | Finished goods | $98,940 | $104,224 | | Total Inventories | $147,538 | $153,037 | - Inventories are priced at the lower of cost (first-in, first-out method) or net realizable value[50] Note 8. Leases This note details the company's lease portfolio, including right-of-use assets and lease liabilities - The company's lease portfolio includes production facilities, warehouses, offices, vehicles, and equipment, with terms generally ranging from two to five years, and right-of-use assets and lease liabilities recorded for leases over 12 months[51][52] Operating Lease Expense (in thousands) | Period | 2025 (Operating Lease Expense) | 2024 (Operating Lease Expense) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Three Months Ended July 31 | $1,300 | $1,300 | | Nine Months Ended July 31 | $4,000 | $4,100 | Maturities of Undiscounted Lease Commitments (as of July 31, 2025, in thousands) | Period | Amount | | :------------------ | :----- | | Remainder of 2025 | $1,228 | | 2026 | $4,360 | | 2027 | $3,517 | | 2028 | $2,303 | | 2029 | $772 | | 2030 and thereafter | $926 | | Total | $13,106 | | Less: Imputed interest | $(800) | | Present value of operating lease liabilities | $12,306 | - As of July 31, 2025, the weighted-average remaining lease term was approximately 3.5 years, and the weighted-average discount rate was approximately 3.4%[55] Note 9. Segment Information This note identifies the company's single operating segment and provides sales data by product group - The company operates in a single operating and reportable segment: industrial automation equipment, which includes the design, manufacture, and sale of computerized machine tools to the metal cutting industry[56] Sales and Service Fees by Product Group and Services (in thousands) | Product Group / Service | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Computerized Machine Tools | $36,889 | $33,191 | $106,347 | $104,176 | | Computer Control Systems and Software | $530 | $697 | $1,843 | $1,866 | | Service Parts | $6,309 | $6,535 | $18,404 | $20,389 | | Service Fees | $2,078 | $2,228 | $6,493 | $6,451 | | Total | $45,806 | $42,651 | $133,087 | $132,882 | Note 10. Guarantees and Product Warranties This note discusses outstanding third-party payment guarantees and the estimated liability for product warranties - As of July 31, 2025, the company had four outstanding third-party payment guarantees totaling approximately $0.4 million, which are accrued at fair value and considered insignificant[58] - Product warranties are generally one year for machines and shorter for service parts, with an estimated liability recognized at the time of sale based on historical trends[59] Changes in Warranty Estimated Liability (in thousands) | Metric | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Balance, beginning of period | $1,086 | $1,294 | | Provision for warranties during the period | $1,747 | $1,629 | | Charges to the estimated liability | $(1,890) | $(1,861) | | Impact of foreign currency translation | $18 | $14 | | Balance, end of period | $961 | $1,076 | - The year-over-year decrease in warranty liability was primarily due to lower sales volume of more complex, higher-performance machines[60] Note 11. Debt Agreements This note outlines the company's credit facilities, including terms, covenants, and available borrowing capacity - The 2018 Credit Agreement provides an unsecured revolving credit and letter of credit facility of up to $40.0 million, maturing on December 31, 2025, with covenants including minimum working capital of $125.0 million and tangible net worth of $176.5 million[61][63] - Additional credit facilities include a €1.5 million revolving credit facility in Germany, a 150 million New Taiwan Dollars facility in Taiwan, and a 32.5 million Chinese Yuan facility in China[65] - As of July 31, 2025, there were no borrowings under any credit facilities, with approximately $51.2 million of available borrowing capacity remaining[66] Note 12. Income Taxes This note details income tax expense, effective tax rate, valuation allowances, and unrecognized tax benefits Income Tax Expense and Effective Tax Rate (in thousands) | Metric | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :---------------------- | :------------------------------ | :------------------------------ | | Income tax expense | $3,126 | $6,438 | | Effective tax rate | (35)% | (74)% | - The year-over-year reduction in income tax expense was mainly due to a lower valuation allowance against U.S. deferred tax assets and changes in geographic income mix, partially offset by an increased valuation allowance against Italian deferred tax assets[68] - A valuation allowance of $5.3 million was recorded for the nine months of fiscal 2025 (compared to $8.2 million in 2024) against U.S., Chinese, and Italian deferred tax assets, reflecting unlikelihood of realization[68] - Unrecognized tax benefits were $29,000 as of July 31, 2025, including accrued interest, with no material impact expected from the U.S. OBBB bill[69][71] Note 13. Financial Instruments This note explains the fair value hierarchy for financial instruments and notional amounts of derivative contracts - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments, with cash and cash equivalents as Level 1 and derivatives as Level 2, estimated using market prices and exchange rates[74][75][77] Fair Value Hierarchy for Financial Assets and Liabilities (in thousands) | Category | July 31, 2025 (Assets) | October 31, 2024 (Assets) | July 31, 2025 (Liabilities) | October 31, 2024 (Liabilities) | | :---------- | :--------------------- | :------------------------ | :-------------------------- | :----------------------------- | | Level 1: Mutual Funds | $3,282 | $2,942 | — | — | | Level 2: Derivatives | $2,782 | $323 | $2,038 | $705 | - The U.S. dollar equivalent notional amounts of foreign currency forward exchange contracts were $89.1 million at July 31, 2025, up from $85.1 million at October 31, 2024[77] Note 14. Contingencies and Litigation This note addresses routine claims and lawsuits, with management expecting no material adverse financial effects - The company is involved in routine claims and lawsuits, accruing minimum liabilities when an estimated loss range is known, with management expecting no material adverse effect on financial position or results of operations[79] Note 15. New Accounting Pronouncements This note outlines new ASUs being assessed for impact on segment reporting, income taxes, and expense disaggregation - The company is assessing the impact of new ASUs: ASU No. 2023-07 (Segment Reporting, effective FY2025), ASU No. 2023-09 (Income Taxes, effective FY2026), and ASU No. 2024-03 (Expense Disaggregation, effective FY2028)[80][81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, liquidity, capital resources, and results of operations for specified periods Executive Overview This overview introduces Hurco Companies, Inc.'s business, market presence, and key financial drivers - Hurco Companies, Inc. is an international industrial technology company specializing in the design, manufacture, and sale of computerized (CNC) machine tools for the metal cutting industry[85] - Approximately 51% of fiscal 2025 nine-month revenues came from Europe, and 11% from Asia Pacific, with sales and order trends varying by region in a cyclical industry[87] - Sales and service fees for the nine months of fiscal 2025 increased slightly year-over-year, driven by increased sales of Hurco and Milltronics machines in the Americas and Takumi machines in Asia Pacific[88] - The company's product portfolio includes Hurco, Milltronics, and Takumi brands, along with non-Hurco branded products and automation solutions through ProCobots LLC and machine tool components from LCM Precision Technology S.r.l.[89] - Sales to foreign customers are denominated in local currencies (Euro, Pound Sterling, Chinese Yuan), while product costs are primarily in New Taiwan Dollar and U.S. dollar, exposing the company to foreign currency exchange risk mitigated by derivatives[91][92] Results of Operations Three Months Ended July 31, 2025 Compared to Three Months Ended July 31, 2024 This section analyzes the company's financial performance for the third quarter of fiscal 2025 versus the prior year Sales and Service Fees This section details the changes in sales and service fees for the three-month period - Sales and service fees for the third quarter of fiscal year 2025 increased by $3.2 million, or 7%, to $45.8 million, including a favorable currency impact of $1.4 million, or 3%[93] Sales and Service Fees by Geographic Region This section breaks down sales and service fees by geographic region for the three-month period Sales and Service Fees by Geographic Region (Three Months Ended July 31, in thousands) | Region | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :----------- | :--------- | :-------------- | :--------- | :-------------- | :------- | :------- | | Americas | $16,901 | 37% | $15,389 | 36% | $1,512 | 10% | | Europe | $24,166 | 53% | $24,068 | 56% | $98 | 0% | | Asia Pacific | $4,739 | 10% | $3,194 | 8% | $1,545 | 48% | | Total | $45,806 | 100% | $42,651 | 100% | $3,155 | 7% | - Americas sales increased by 10% due to higher Hurco and Milltronics machine shipments; European sales increased by less than 1% (with 5% favorable currency impact); Asia Pacific sales surged by 48% (with 4% favorable currency impact) driven by Takumi machine sales[94][95][96] Sales and Service Fees by Product Category This section categorizes sales and service fees by product type for the three-month period Sales and Service Fees by Product Category (Three Months Ended July 31, in thousands) | Product Category | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :------------------------------ | :--------- | :-------------- | :--------- | :-------------- | :------- | :------- | | Computerized Machine Tools | $36,889 | 80% | $33,191 | 78% | $3,698 | 11% | | Computer Control Systems and Software | $530 | 1% | $697 | 2% | $(167) | (24)% | | Service Parts | $6,309 | 14% | $6,535 | 15% | $(226) | (3)% | | Service Fees | $2,078 | 5% | $2,228 | 5% | $(150) | (7)% | | Total | $45,806 | 100% | $42,651 | 100% | $3,155 | 7% | - Computerized machine tool sales increased by 11%, driven by Hurco in Americas/UK/Italy and Takumi in Asia Pacific, while computer control systems and software sales decreased by 24%[98] Orders This section reports new orders booked, detailing changes by geographic region for the three-month period - Orders for the third quarter of fiscal year 2025 decreased by $11.8 million, or 22%, to $41.0 million, including a favorable currency impact of $1.2 million, or 2%[99] New Orders Booked by Geographic Region (Three Months Ended July 31, in thousands) | Region | 2025 Orders | 2025 % of Total | 2024 Orders | 2024 % of Total | $ Change | % Change | | :----------- | :---------- | :-------------- | :---------- | :-------------- | :------- | :------- | | Americas | $15,557 | 38% | $17,625 | 33% | $(2,068) | (12)% | | Europe | $20,274 | 49% | $28,349 | 54% | $(8,075) | (28)% | | Asia Pacific | $5,165 | 13% | $6,841 | 13% | $(1,676) | (24)% | | Total | $40,996 | 100% | $52,815 | 100% | $(11,819) | (22)% | - Orders decreased across all regions: Americas (-12%) due to reduced demand for Hurco and Milltronics machines; Europe (-28%, with 4% favorable currency impact) due to decreased demand for Hurco and Takumi machines in Germany, UK, and France, and LCM accessories; Asia Pacific (-24%, with 1% favorable currency impact) due to reduced Hurco machine orders in China[99][100][101] Gross Profit This section analyzes the changes in gross profit and gross profit percentage for the three-month period - Gross profit for the third quarter of fiscal year 2025 increased to $9.1 million (20% of sales) from $7.8 million (18% of sales), primarily due to a higher concentration of machine sales in Europe and lower fixed costs[102] Operating Expenses This section details selling, general, and administrative expenses for the three-month period - Selling, general, and administrative expenses for the third quarter of fiscal year 2025 were $10.8 million (23% of sales), up from $10.4 million (24% of sales), mainly due to an unfavorable currency impact of $0.3 million, or 3%[103] Operating Income/Loss This section discusses the operating loss and factors contributing to its change for the three-month period - Operating loss for the third quarter of fiscal year 2025 decreased to $1.7 million from $2.5 million, primarily due to a higher concentration of machine sales in Europe and lower fixed costs from cost savings[104] Other (Expense) Income, Net This section analyzes other expense, net, including foreign currency exchange loss and equity investment income - Other expense, net, for the third quarter of fiscal year 2025 increased to $1.5 million from $0.1 million, mainly due to an increase in foreign currency exchange loss and a decrease in equity investment income[105] Income Taxes This section details income tax expense and the impact of valuation allowances for the three-month period - Income tax expense for the third quarter of fiscal year 2025 was $0.6 million, down from $7.0 million, mainly due to a lower valuation allowance ($1.6 million vs. $8.2 million) against U.S. deferred tax assets and changes in geographic income mix[106] Nine Months Ended July 31, 2025, Compared to Nine Months Ended July 31, 2024 This section analyzes the company's financial performance for the nine months of fiscal 2025 versus the prior year Sales and Service Fees This section details the changes in sales and service fees for the nine-month period - Sales and service fees for the nine months of fiscal year 2025 increased slightly by $0.2 million, or less than 1%, to $133.1 million, including a favorable currency impact of $1.2 million, or less than 1%[107] Sales and Service Fees by Geographic Region This section breaks down sales and service fees by geographic region for the nine-month period Sales and Service Fees by Geographic Region (Nine Months Ended July 31, in thousands) | Region | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :----------- | :--------- | :-------------- | :--------- | :-------------- | :------- | :------- | | Americas | $50,370 | 38% | $48,986 | 37% | $1,384 | 3% | | Europe | $67,388 | 51% | $69,538 | 52% | $(2,150) | (3)% | | Asia Pacific | $15,329 | 11% | $14,358 | 11% | $971 | 7% | | Total | $133,087 | 100% | $132,882 | 100% | $205 | 0% | - Americas sales increased by 3%; European sales decreased by 3% (with 2% favorable currency impact); Asia Pacific sales increased by 7% (with less than 1% unfavorable currency impact) driven by Takumi machine sales[109][110][111] Sales and Service Fees by Product Category This section categorizes sales and service fees by product type for the nine-month period Sales and Service Fees by Product Category (Nine Months Ended July 31, in thousands) | Product Category | 2025 Sales | 2025 % of Total | 2024 Sales | 2024 % of Total | $ Change | % Change | | :------------------------------ | :--------- | :-------------- | :--------- | :-------------- | :------- | :------- | | Computerized Machine Tools | $106,347 | 80% | $104,176 | 79% | $2,171 | 2% | | Computer Control Systems and Software | $1,843 | 1% | $1,866 | 1% | $(23) | (1)% | | Service Parts | $18,404 | 14% | $20,389 | 15% | $(1,985) | (10)% | | Service Fees | $6,493 | 5% | $6,451 | 5% | $42 | 1% | | Total | $133,087 | 100% | $132,882 | 100% | $205 | 0% | - Computerized machine tool sales increased by 2%, driven by Hurco/Milltronics in Americas and Takumi in Asia Pacific, while service parts sales decreased by 10%[113] Orders This section reports new orders booked, detailing changes by geographic region for the nine-month period - Orders for the nine months of fiscal year 2025 decreased by $22.4 million, or 15%, to $124.8 million, including a favorable currency impact of $0.9 million, or less than 1%[114] New Orders Booked by Geographic Region (Nine Months Ended July 31, in thousands) | Region | 2025 Orders | 2025 % of Total | 2024 Orders | 2024 % of Total | $ Change | % Change | | :----------- | :---------- | :-------------- | :---------- | :-------------- | :------- | :------- | | Americas | $47,145 | 38% | $55,490 | 38% | $(8,345) | (15)% | | Europe | $60,730 | 49% | $75,757 | 51% | $(15,027) | (20)% | | Asia Pacific | $16,906 | 13% | $15,978 | 11% | $928 | 6% | | Total | $124,781 | 100% | $147,225 | 100% | $(22,444) | (15)% | - Orders decreased in Americas (-15%) and Europe (-20%, with 1% favorable currency impact), while Asia Pacific orders increased by 6% (with less than 1% unfavorable currency impact)[115][116][117] Gross Profit This section analyzes the changes in gross profit and gross profit percentage for the nine-month period - Gross profit for the nine months of fiscal year 2025 was $25.2 million (19% of sales), slightly down from $25.6 million (19% of sales) in the prior year[118] Operating Expenses This section details selling, general, and administrative expenses for the nine-month period - Selling, general, and administrative expenses for the nine months of fiscal year 2025 decreased to $32.0 million (24% of sales) from $33.4 million (25% of sales), due to lower discretionary spending and reduced employee health insurance costs[119] Operating Income/Loss This section discusses the operating loss and factors contributing to its change for the nine-month period - Operating loss for the nine months of fiscal year 2025 decreased to $6.8 million from $7.8 million, primarily due to lower fixed costs, reduced discretionary spending, and lower employee health insurance costs[120] Other (Expense) Income, Net This section analyzes other expense, net, including foreign currency exchange loss and equity investment income - Other expense, net, for the nine months of fiscal year 2025 increased to $2.5 million from $1.1 million, mainly due to an increase in foreign currency exchange loss and a decrease in equity investment income[121] Income Taxes This section details income tax expense and the impact of valuation allowances for the nine-month period - Income tax expense for the nine months of fiscal year 2025 was $3.1 million, down from $6.4 million, mainly due to a lower valuation allowance ($5.3 million vs. $8.2 million) against U.S. deferred tax assets and changes in geographic income mix[122] Liquidity and Capital Resources This section discusses the company's cash position, working capital, capital expenditures, and borrowing capacity Cash and Cash Equivalents (in thousands) | Date | Amount | | :-------------- | :----- | | July 31, 2025 | $44,494 | | October 31, 2024 | $33,330 | - Working capital decreased to $176.8 million at July 31, 2025, from $180.8 million at October 31, 2024, primarily due to decreases in accounts receivable and inventories[124] - Capital expenditures for the nine months of fiscal 2025 were $2.3 million, mainly for software development and facility improvements[125] - The company repurchased $2.0 million (104,472 shares) of common stock during Q3 FY2025 under its $25.0 million program, with $19.7 million remaining available[126] - The company temporarily suspended its regular quarterly cash dividend on June 14, 2024, to enhance financial flexibility and focus on strengthening the balance sheet and reinvesting in core business[127] - As of July 31, 2025, the company had no borrowings under its $40.0 million 2018 Credit Agreement or other credit facilities, with approximately $51.2 million available borrowing capacity[133][134][135] Critical Accounting Estimates This section confirms no material changes to critical accounting estimates during the nine months of fiscal 2025 - There were no material changes to the company's critical accounting estimates during the nine months of fiscal year 2025, as described in the Annual Report on Form 10-K for the year ended October 31, 2024[137] Contractual Obligations and Commitments This section states no material changes to contractual obligations and commitments since the last annual report - There have been no material changes to contractual obligations and commitments from the information provided in the Annual Report on Form 10-K for the fiscal year ended October 31, 2024[138] Off Balance Sheet Arrangements This section discloses outstanding third-party payment guarantees related to customer financing for machine sales - As of July 31, 2025, the company's subsidiaries had four outstanding third-party payment guarantees totaling approximately $0.4 million, related to customer financing for machine sales, considered insignificant[139] Cautionary Statement Concerning Forward-Looking Statements This section warns that forward-looking statements are subject to risks, including industry cyclicality, economic conditions, and international operations - This section contains forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially, including industry cyclicality, uncertain economic conditions, and international operations risks[140][142] - Readers are cautioned not to place undue reliance on these statements, and the company disclaims any obligation to update or revise them[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to interest rate and foreign currency exchange risks and hedging strategies - The company is exposed to interest rate risk, though no borrowings were outstanding, and significant foreign currency exchange risk, with 62% of revenues from outside the Americas and product costs predominantly in New Taiwan Dollar and U.S. dollar[145][146][147] - Foreign currency forward exchange contracts are used to hedge cash flow risk from inter-company sales/purchases and to protect against fluctuations on inter-company receivables/payables, without speculating in financial markets[148] Forward Contracts Designated as Cash Flow Hedges (as of July 31, 2025, in thousands) | Contract Type | Notional Amount in Foreign Currency | Weighted Avg. Forward Rate | Contract Amount at Forward Rates in U.S. Dollars (July 31, 2025) | Maturity Dates | | :---------------- | :---------------------------------- | :------------------------- | :--------------------------------------------------------------- | :------------------- | | Sale Contracts: | | | | | | Euro | 5,000 | 1.1071 | $5,763 | Aug 2025 - Jul 2026 | | Sterling | 2,950 | 1.2883 | $3,908 | Aug 2025 - Jul 2026 | | Purchase Contracts: | | | | | | New Taiwan Dollar | 485,000 | 30.0091 * | $16,587 | Aug 2025 - Jul 2026 | * New Taiwan Dollars per U.S. dollar Forward Contracts Not Designated as Hedges (as of July 31, 2025, in thousands) | Contract Type | Notional Amount in Foreign Currency | Weighted Avg. Forward Rate | Contract Amount at Forward Rates in U.S. Dollars (July 31, 2025) | Maturity Dates | | :---------------- | :---------------------------------- | :------------------------- | :--------------------------------------------------------------- | :------------------- | | Sale Contracts: | | | | | | Euro | 14,397 | 1.0851 | $16,575 | Aug 2025 - Dec 2025 | | Purchase Contracts: | | | | | | New Taiwan Dollar | 1,378,415 | 30.8336 * | $46,442 | Aug 2025 - Mar 2026 | * New Taiwan Dollars per U.S. dollar - 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 $1.2 million and an unrealized loss of $0.1 million, net of tax, recorded in Accumulated other comprehensive loss[150] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal control - Management concluded that the company's disclosure controls and procedures were effective as of July 31, 2025, with no material changes in internal control over financial reporting during the three months ended July 31, 2025[151][152] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits for the reporting period Item 1. Legal Proceedings This section addresses routine claims and lawsuits, with no expected material adverse effects on financial position or results - The company is involved in routine claims and lawsuits, accruing minimum liabilities for known claims, with management expecting no material adverse effect on financial position or results of operations[155] Item 1A. Risk Factors This section updates risk factors, adding a new risk related to changes in U.S. trade policy and tariffs - A new risk factor has been added concerning changes in U.S. trade policy, including tariffs, which could increase operating costs, require supplier transitions, and lead to retaliatory tariffs, potentially impacting business and financial condition[156][157] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, including shares repurchased and remaining authorization - The company has a share repurchase program approved on January 6, 2023, for up to $25.0 million, extended through November 10, 2026, with 104,472 shares repurchased for $2.0 million during the three months ended July 31, 2025[158] Share Repurchase Activity (Three Months Ended July 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs ($ in thousands) | | :-------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | May 1-31, 2025 | — | $— | — | $21,688 | | June 1-30, 2025 | 36,275 | $18.16 | 36,275 | $21,029 | | July 1-31, 2025 | 68,197 | $19.74 | 68,197 | $19,682 | | Total | 104,472 | | 104,472 | | - As of July 31, 2025, $19.7 million remained available under the share repurchase program[158][159] Item 5. Other Information This section discloses Audit Committee engagement for non-audit services and confirms no changes to Rule 10b5-1 trading arrangements - The Audit Committee engaged the independent registered public accounting firm for non-audit, tax planning services during the reporting period[161] - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the three months ended July 31, 2025[162] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and certifications - Exhibits include Amended and Restated Articles of Incorporation and By-Laws, CEO and CFO certifications (pursuant to Rule 13a-14(a) and Section 906 of Sarbanes-Oxley Act), and Inline XBRL formatted financial statements and related information[164] Signatures This section contains the required signatures for the Form 10-Q filing on behalf of Hurco Companies, Inc - The report is signed by Sonja K. McClelland, Executive Vice President, Treasurer & Chief Financial Officer, on behalf of Hurco Companies, Inc., on September 5, 2025[166]