Coda Octopus Group, Inc. (Nasdaq: CODA) Q3 2025 Earnings Call | 09/15/2025

Summary of Coda Octopus Group, Inc. Q3 2025 Earnings Call (9/15/2025)

Overview: Coda Octopus Group, Inc. reported a solid Q3 fiscal 2025 performance with a 29% revenue increase despite a challenging global policy environment. The call, hosted by Chair and CEO Annemarie Gayle, Interim CFO Gail Jarden, and President of Technology Blair Cunningham, highlighted progress in the company’s core marine technology business, the marine engineering business, and the newly acquired acoustic sensors and materials business unit.

Business Structure:

• Marine Technology Business: Core segment, contributing 56.4% of Q3 net revenue, focused on underwater imaging sonar (Echoscope) and diver augmented vision display (DAVID). This segment drives the company’s growth strategy in the subsea market.
• Marine Engineering Business: Supplies proprietary parts to defense contractors, with long-standing relationships spanning over 48 years.
• Acoustic Sensors and Materials Business: Acquired Precision Acoustics Limited in October 2024, adding diversification and resilience.

Q3 Financial Performance:

• Revenue: Total revenue reached $7.1 million, up 29% from $5.5 million in Q3 2024.
  • Marine Technology Business: $4.0 million, up 30.7% (57.7% from Echoscope, 42.3% from DAVID). Hardware sales surged 103.6% to $2.7 million, though Asia sales dropped 27.9% to $1.1 million, and rental assets were underutilized due to reduced U.S. offshore renewable funding.
  • Acoustic Sensors and Materials: Contributed $1.5 million (20.6% of net revenue).
  • Marine Engineering Business: Revenue fell 33.2% to $1.6 million due to delays in defense contract awards.
• Gross Profit and Margin: Gross profit was $4.8 million (vs. $4.0 million in Q3 2024), with a consolidated gross margin of 68.3% (vs. 73.9%).
  • Marine Technology: 77.0% (vs. 82.9%), impacted by a shift to hardware sales over rentals.
  • Acoustic Sensors: 54.8%, affected by higher commission costs and sales mix.
  • Marine Engineering: 58.9% (vs. 62.6%), reflecting project mix.
• Operating Expenses: Increased to $3.4 million from $2.7 million, driven by the Precision Acoustics acquisition (16% of costs) and currency exchange impacts (weakening USD vs. GBP and DKK).
• SG&A: Rose 32.8% to $2.9 million (40.6% of revenue vs. 39.5% in Q3 2024), due to acquisition-related costs and earnout accruals.
• Operating Income: $1.38 million (19.5% margin) vs. $1.39 million (25.4% margin) in Q3 2024.
• Net Income: $1.28 million ($0.11 per diluted share), stable compared to $1.27 million ($0.11 per share) in Q3 2024.
• Balance Sheet: Cash and equivalents at $26.2 million (up $3.7 million from October 2024), with no debt.

Key Operational Highlights:

• Marine Technology Business:
  • Echoscope: Launched the ultra-compact NanoGen series, designed for small underwater vehicles, drones, and diver wearable systems. Successful trials with defense customers were completed, with three more planned for Q4 2025. The technology consolidates multiple sensors into a single, power-efficient unit.
  • DAVID: Delivered 16 untethered systems to U.S. Special Forces for evaluation, integrated with the Navy’s Mark 16 breathing apparatus. Completed deliverables for a foreign Navy’s dust hardening program. Received an initial order from a major European Navy for DAVID systems.
  • Ship Hull Scanning Solution: Received additional funding for integration of Echoscope Pipe SIVS, enhancing capabilities for infrastructure inspection and seabed mapping. Deployments include a U.S. defense customer (Phase 3 evaluation in October) and a foreign Navy.
  • Market Opportunity: The unmanned underwater vehicle market ($4.8 billion in 2024, projected to reach $11.1 billion by 2030) drives demand for Echoscope and DAVID technologies.
• Marine Engineering Business: Revenue declined due to delays in defense contract funding, but inquiries increased, signaling future potential.
• Acoustic Sensors and Materials: Contributed 20.6% to revenue and 18% to operating income, enhancing diversification and supporting larger defense requirements.

Strategic Focus:

• Growth Strategy: Centered on increasing market share in the defense sector for underwater imaging and diving technologies, leveraging Echoscope’s single-sensor advantage and DAVID’s augmented reality capabilities.
• M&A Strategy: Continuing to build a pipeline for value-accretive acquisitions complementary to DAVID, with plans to pursue in fiscal 2025.
• Revenue Model Shift: Aiming for a multi-year, recurring sales model, particularly for DAVID, to enhance stability and scalability.
• Defense Market: Significant progress in integrating technologies into defense programs, with four U.S. DoD proposals in final evaluation stages for robotics platform integration.

Challenges:

• Underutilization of rental assets due to U.S. policy shifts reducing offshore renewable funding.
• Delays in defense contract awards impacting the marine engineering business.
• Increased operating expenses and lower margins due to acquisition costs and currency fluctuations.

Outlook:

• The company expects continued growth in the marine technology business, driven by Echoscope NanoGen and DAVID deployments.
• Anticipates broader adoption of DAVID by the European Navy and further defense program integrations.
• No specific guidance provided, but the focus remains on executing growth strategies and leveraging cash for M&A.

Q&A Highlights:

• NanoGen Feedback: Customers praised the reduced size and weight, enabling integration into smaller platforms like the U.S. Navy’s DSEND system.
• DAVID Revenue: On track for $4 million in fiscal 2025 (up from $1.2 million in 2024), despite a revised target from $4.5 million.
• China Exposure: Minimal supply chain reliance on China; sales to China limited due to UK export restrictions.
• Sales Growth: Echoscope and DAVID drove significant hardware sales growth, but rental declines tempered overall performance. Defense market adoption is slower due to lengthy evaluation processes.
• Stock Buyback: Considered a board-level decision, with current focus on M&A to enhance technology offerings.