HURCO : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

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The following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) contains information intended to help provide an
understanding of our financial condition and other related matters, including
our liquidity, capital resources and results of operations. The MD&A is provided
as a supplement to, and should be read in conjunction with, our unaudited
financial statements and the notes accompanying our unaudited financial
statements appearing elsewhere in this report, as well as our audited financial
statements, the accompanying notes and the MD&A included in our Annual Report on
Form 10-K for the year ended October 31, 2020.

EXECUTIVE OVERVIEW

Hurco Companies, Inc. is an international, industrial technology company
operating in a single segment. We design, manufacture and sell computerized
(i.e., CNC) machine tools, consisting primarily of vertical machining centers
(mills) and turning centers (lathes), to companies in the metal cutting industry
through a worldwide sales, service and distribution network. Although the
majority of our computer control systems and software products are proprietary,
they predominantly use industry standard personal computer components. Our
computer control systems and software products are primarily sold as integral
components of our computerized machine tool products. We also provide machine
tool components, automation integration equipment and solutions for job shops,
software options, control upgrades, accessories and replacement parts for our
products, as well as customer service, training and applications support.

The following overview is intended to provide a brief explanation of the
principal factors that have contributed to our recent financial performance.

This overview is intended to be read in conjunction with the more detailed
information included in our financial statements that appear elsewhere in this
report.

The market for machine tools is international in scope. We have both significant
foreign sales and significant foreign manufacturing operations. During the nine
months of fiscal 2021, approximately 49% of our revenues were attributable to
customers in Europe, where we typically sell more of our higher-performance,
higher-priced VMX series machines. Additionally, approximately 14% of our
revenues were attributable to customers in the Asia Pacific region, where we
encounter greater pricing pressures.

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

We principally sell our products through more than 200 independent agents and
distributors throughout the Americas, Europe, and Asia. Although some
distributors carry competitive products, we are the primary line for the
majority of our distributors globally. We also have our own direct sales and
service organizations in China, France, Germany, India, Italy, the Netherlands,
Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United
States, which are among the world’s principal machine tool consuming markets.

The vast majority of our machine tools are manufactured to our specifications
primarily by our wholly-owned subsidiary in Taiwan, HML. Machine castings to
support HML’s production are manufactured at our wholly-owned subsidiary in
Ningbo, China, NHML. Components to support our SRT line of five-axis machining
centers, such as the direct drive spindle, swivel head, and rotary table, are
manufactured by our wholly-owned subsidiary in Italy, LCM.



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

We operate in the industrial equipment industry and have a global footprint that
subjects us to various business risks in many different countries. The COVID-19
pandemic had a significant impact on our business and industry in fiscal 2020.
We are currently participating in challenging global market conditions, with
continued COVID-19 business restrictions, vendor delays, chronic logistics
issues and inflationary increases in cost of materials. During the nine months
of fiscal 2021, our sales increased year-over-year in all regions as countries
began to lift the government-mandated COVID-19 stay-at-home orders or other
similar operating restrictions. However, we cannot predict the duration or
scope of impact of the COVID-19 pandemic on a global basis and the impact that
any new developments, including variants and surges, could have on our financial
results. We will continue to evaluate and disclose any trends and uncertainties
that have had or are reasonably expected to have, a material effect on our
consolidated financial position, results of operations, changes in shareholders’
equity and cash flows for and at the end of each interim period.

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




RESULTS OF OPERATIONS

Three Months Ended July 31, 2021 Compared to Three Months Ended July 31, 2020

Sales and Service Fees. Sales and service fees for the third quarter of fiscal
2021 were $54.2 million, an increase of $8.8 million, or 19%, compared to the
corresponding prior year period, and included a favorable currency impact of
$2.3 million, or 5%, when translating foreign sales to U.S. Dollars for
financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth net sales and service fees by geographic region
for the third quarter ended July 31, 2021 and 2020 (dollars in thousands):




                                    Three Months Ended
                                         July 31,
                     2021               2020          $ Change     % Change
Americas        $ 19,150     35 %  $ 17,870     39 %  $   1,280           7 %
Europe            28,403     53 %    19,538     43 %      8,865          45 %
Asia Pacific       6,625     12 %     7,974     18 %    (1,349)        (17) %
Total           $ 54,178    100 %  $ 45,382    100 %  $   8,796          19 %



Sales in the Americas for the third quarter of fiscal 2021 increased by 7%,
compared to the corresponding period in fiscal 2020. The increase in sales in
the Americas for the third quarter of fiscal 2021 was due to an increased volume
of machine shipments, both Hurco and Milltronics, and an increase in sales of
ProCobots automation solutions. The improved sales volume of machines primarily
reflected increased shipments of Hurco VM and VMX machines as well as
Milltronics toolroom machines.

European sales for the third quarter of fiscal 2021 increased by 45%, compared
to the corresponding period in fiscal 2020, and included a favorable currency
impact of 10%, when translating foreign sales to U.S. Dollars for financial
reporting purposes. The year-over-year increase in European sales was
attributable to increased volume of shipments of Hurco and Takumi machines in
Germany, the United Kingdom, and Italy, as well as increased shipments of
machine tool components and accessories manufactured by LCM. The improved sales
volume of machines was primarily attributable to increased shipments of Hurco
Lathes, VM and VMX machines.



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Asian Pacific sales for the third quarter of fiscal 2021 decreased by 17%,
compared to the corresponding period in fiscal 2020, and included a favorable
currency impact of…

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