Coda Octopus Group, Inc. (CODA) Earnings Call Transcript

Thanks, operator. Good morning, everyone, and I appreciate you being here for Coda Octopus's earnings call covering Fiscal Year 2025. Ahead of management's prepared comments, we'd like to remind everyone that some of what gets said today may count as forward-looking statements under securities law, and those come with various risks and uncertainties. Because of that, we want to caution you that many factors — quite a few beyond our control — could lead actual results and events to turn out quite differently from what those forward-looking statements describe. If you'd like more detail on the risks, uncertainties and assumptions tied to our forward-looking statements, please review the disclosures included in our earnings release as well as the public filings we've made with the Securities and Exchange Commission. Except where the law demands otherwise, we take on no duty or commitment to revise any forward-looking statements so they account for situations or developments arising after those statements were issued. For thorough disclosures and descriptions of our operations, along with the uncertainties and other shifting conditions we face—including, though not restricted to, the risks and uncertainties laid out in our Form 10-K covering the year that closed October 31, 2025, and our Forms 10-Q for the first, second and third quarters of fiscal year 2025—we point you to the documents we file with the Securities and Exchange Commission. You can obtain Coda Octopus' Securities and Exchange Commission filings at no cost by going to the SEC website, www.sec.gov. Before we continue, I want to note that today's session is being captured and you'll be able to hear it again through a hyperlink posted on the Investor Relations page of Coda Octopus' site. One more thing to keep in mind: the figures we're discussing cover fiscal year 2025, and whenever we draw a comparison, it's against fiscal year 2024 unless we say otherwise. At this point, I'll hand things over to Annmarie Gayle, the company's Chair and CEO. Annmarie?

Thanks, Dillon, and welcome everyone joining us. I'm glad all of you could be here as we go through our results for fiscal year 2025. Despite a challenging policy environment globally, our consolidated net revenue climbed 30.7% in fiscal year 2025, and I'd say the results we delivered were strong. If you're new to Coda Octopus, we operate through 3 distinct businesses: the Marine Technology Business, the Defense Engineering Services Business, and the Acoustics Sensors and Materials Business unit, which we recently acquired. Of those, the Marine Technology Business is our primary operation. It generates most of our revenue. In fiscal year 2025, it represented 49.8% of our consolidated net revenue. This business sits at the center of how we're building out our growth plan. In the subsea market, the Marine Technology Business is a competitor, and it owns important disruptive technologies that work on the water. By way of a full real-time information platform, those technologies bring the smartphone revolution onto the water — they give vision on the water and let our customers decide things in real time. Because it provides real-time 3D perception on the water, this technology is a crucial enabler of the AI-enabled autonomous capability that's emerging quickly and that the subsea market needs. Two specific addressable markets matter here: the imaging sonar market and the diving market. These market segments are what our growth strategy is built around. Let's turn now to our flagship imaging sonar, the Echoscope. The Echoscope is a sonar system that produces volumetric images in 3D, in real time, and it can create those underwater pictures instantly even when water clarity is zero. Within the commercial offshore marine sector, it is used widely for many kinds of underwater work. Revenue we earn each year is heavily tied to that commercial offshore marine marketplace. If our company is going to deliver the growth that shareholders anticipate, expanding our share of the defense market for underwater imaging sensors is essential. Around the world, many defense programs currently underway are bringing in new types of underwater vehicles. Large sums are budgeted for that purpose. Because the Echoscope works as one sensor serving numerous at-sea operations, it provides a notable edge compared with competing technologies. Multiple sensors can now be brought together into one unit that uses power efficiently, and this doesn't sacrifice any of the different missions that need to be carried out. We just introduced the NANO Gen Series, which is our newest line of extremely compact 3-dimensional sonars. Each 3-dimensional sonar in the NANO Gen Series is only a bit larger than a smartphone, and it was built with the new small class of on-the-water platforms in mind — covering manned, unmanned, surface, subsurface and fully autonomous robotic vehicles. By including the NANO Gen Series, we're able to serve a broader portion of the imaging sonar market. DAVD, which stands for the Diver Augmented Vision Display system, is our second major technology. For diving operations, the DAVD delivers a real-time information platform that boosts both safety and efficiency. When we look at where DAVD technology can be sold, it spans two areas: defense and commercial diving. Special operations divers are the target users for the untethered version of DAVD, and from our standpoint, that's where the greatest market opportunity for this technology lies. Our tethered DAVD system is already deployed and in service, so business development resources are now focused on expanding its adoption. Turning to the untethered DAVD variant — the one we regard as representing DAVD technology's largest addressable market — it underwent a Hardening Program that spanned multiple years, which we successfully concluded during fiscal year 2025. Following the successful completion of that Hardening Program, we shipped a small lot of 16 new generation untethered DAVD systems. The approved Navy Use evaluation is now underway for that variant, and we anticipate it will drive broader uptake of the technology. We're equally pleased to have brought Precision Acoustics Limited into the fold — a well-known name in acoustics and measurement sensors with extensive use across the medical field. This acquisition deepens our know-how in underwater acoustics, which matters greatly if we're to hold and grow our edge in real-time 3D imaging on the water. On top of that, it positions the group to pursue bigger defense contracts. Shifting now to fiscal year 2025 highlights for our core operation, the Marine Technology Business. Products and solutions from this business are sold across the globe. Here's what stood out during the period: revenue for this business rose 3.2%. Looking at how its revenue broke down in the 2025 period, the defense sector accounted for 46%, while commercial marine made up 54%. Echoscope was responsible for 71.9% of the revenue this business brought in, with DAVD contributing 28.1%. Hardware sales climbed 30.5%, reaching $9.4 million, up from $7.2 million in the prior fiscal year. In Asia, a market of strategic importance to this business, hardware sales grew roughly 7.7%, totaling $5.9 million versus $5.5 million in the prior fiscal year. Rental assets saw significant underutilization in fiscal year 2025, which led to fewer rental units and related services. The gross profit margin for this business was also affected. What we're seeing there is a consequence of the shift in American policy regarding financial support for offshore renewables. That shift led to numerous projects being put on hold, as Shell, Orsted, BP and others have reported. Let me move on to the highlights for the Defense Engineering Services Business. Revenue for that business was up 5.6% in fiscal year 2025. We've had relationships with prime defense contractors for a very long time, and we've been serving the defense market for nearly 50 years. Our results depend on the funding that comes through for defense programs. In the fourth quarter, contract awards arrived later than expected because of the U.S. There's the matter of a government shutdown, and after that came reliance on continuing resolutions as a way to keep those programs funded. For the Defense Engineering Business to do well, it has to keep adding defense programs that purchase its proprietary parts. Now I'll move on to key points about Precision Acoustics Limited, which we recently acquired. During fiscal year 2025, that unit was responsible for 20.4% of our net consolidated revenue. We continue to feel very good about this acquisition, and we'd like to restate that it positions the group to address larger defense requirements as one integrated entity, particularly in the area of underwater acoustics. Executing our growth strategy remains our number one priority. Blair Cunningham, who serves as our President of Technology, is going to bring you up to speed on how we are doing and on the different milestones tied to our core technologies, since those technologies form the foundation of our growth strategy. At this point I'll hand things over to Blair Cunningham.

Thanks, Annmarie, and good morning to all of you. I'll spend today's time on the headway we've achieved with our two core technologies, Echoscope and DAVD. During fiscal year 2025, sales rose for both Echoscope and DAVD, and on top of that, the defense community showed considerable enthusiasm. The Echoscope, which is our flagship technology. The Echoscope still stands as our biggest chance for growth that can scale, especially in the defense and security market. That sector is undergoing a fundamental reshaping thanks to the broad uptake of next-generation underwater platforms, spanning manned, unmanned, surface, subsurface and fully autonomous robotic vehicles. Defense undersea work is moving on from big custom-built platforms toward compact, linked vehicles — increasingly able to operate on their own — that can be fielded in large numbers. That shift rewards technology delivering the most capability for each dollar spent, while also allowing fast manufacturing, plug-in improvements and the ability to handle different missions. A sizable portion of these fresh efforts targets reducing reliance on humans staying in the loop to supervise and make mission-critical calls. By introducing the Echoscope PIPE NANO Gen Series — our extremely small real-time 3D imaging sonar — we've taken an important stride toward making next-generation subsea AI-driven autonomy possible. With the subsea sector shifting away from workflows that depend heavily on vessels and human intervention, the NANO Gen Series offers the real-time 3D perception needed to enable scalable, software-driven autonomy across an expanding array of platforms. True real-time 3D imaging comes in an ultracompact form factor with the NANO Gen Series, which lets autonomous systems perceive, navigate and make decisions on their own beneath the surface. Where conventional sonars are built mainly for gathering data, the NANO Gen Series serves as a core perception sensor for AI-enabled platforms, enabling navigation, obstacle avoidance, target guidance and adaptive mission execution without depending on bandwidth-limited communications or post processing. One NANO Gen Series sensor can handle a range of valuable jobs at once — subsea navigation, inspection, 3D modeling, subsea imaging, change detection, and spotting gas and oil leaks. That lets operators and platform developers cut down on hardware, simplify integration, and bring total system cost down. Because it can take on multiple missions, NANO Gen Series works as a platform-agnostic technology, which speeds up adoption across AUVs, ROVs, hybrid vehicles, resident subsea systems, and future autonomous fleets. NANO Gen Series lines up with the subsea market's biggest growth drivers: autonomy, edge AI, lower operational cost, and scalable deployment. With one small, integrated sensor making greater autonomy and mission effectiveness possible, the NANO Gen Series reinforces Echoscope's position as a vital technology supplier for the coming wave of smart subsea platforms. Interest has been robust and is building quickly, backed by very successful trials involving multiple important defense clients — the U.S. Navy among them, plus a number of allied foreign navies — across their various subsea vehicle efforts; these collaborations cover next-generation platforms built for multi-mission work, bringing together crewed and autonomous operations inside one framework. Through close collaboration with naval special operations forces, program sponsors, and makers of platforms and control systems, we keep our technology matched to genuine operational needs and evolving concepts of use. Working together this way lets us show top-tier results and fast incorporation across many different subsea platforms. As the market shifts away from traditional sonar built for just one job and moves toward AI-driven perception, customers more and more view our offering as a core enabling technology for subsea autonomy, situational awareness, and mission flexibility down the road; regarding the active opportunities where demonstrations with end customers and operational trials are already complete, we anticipate that procurement and program decisions will be wrapped up in early 2026; at present, those programs are moving through the final stages of technical assessment, operational validation, and internal budget approval within the defense organizations involved. Assuming those bids get won, initial shipments should start in fiscal 2026, matching when customers plan to deploy and how long platform integration takes. These efforts are designed for multi-mission underwater vehicles that run both with crews and autonomously, which gives us a strong foundation for additional orders, broader platform use, and fleet-wide adoption over time. Given how much strategic weight these efforts carry and the shift toward next-generation undersea capabilities powered by AI, we view these upcoming choices as a major turning point — one that could convert proven technical strength into repeat production deals and lasting growth. Even though the work happening right now is focused on 3D perception, navigation, and obstacle avoidance, all enabled through the NANO Gen Series, these efforts create bigger, longer-term chances for growth in our DAVD augmented vision display offerings. Several of these subsea vehicle initiatives back diver operations or have included manned subsea platforms, and those two areas align perfectly with what DAVD is designed for and the markets it targets. Turning now to the second key pillar of our growth strategy, DAVD, which stands for Diver Augmented Vision Display. This technology is an advanced augmented reality system developed with a specific purpose: enhancing diver safety, performance, and situational awareness when operating in low visibility and technically challenging underwater conditions. During fiscal 2025, DAVD gained real traction. We saw stronger interest at home from defense organizations beyond the Navy and from government agencies, along with inquiries from several foreign navies and commercial diving operators. Across multiple programs we secured contracts, and we delivered a number of next-generation DAVD systems to that wider group of users. We'll continue backing these systems, spreading awareness, and encouraging still greater uptake among that community. As a critical life support and visualization element, DAVD is in use today, boosting diver safety and mission effectiveness: it supplies live life support readings through the DAVD head-up display and delivers 3D situational awareness by way of the compact Echoscope PIPE NANO Gen Series sonar. What we're seeing here is a wider acknowledgment that DAVD and Echoscope technologies have become essential, mission-critical assets as advanced military diving and underwater operations keep evolving. In fiscal year 2025, we wrapped up the funded DUS Hardening Program, and through it, DAVD technology drew joint adoption funding for the special forces market from both the U.S. and a leading foreign Navy. Once that DUS Hardening Program was successfully finished and delivered, fiscal year 2025 brought us the first order — 16 units of the new generation untethered DAVD systems — for U.S. Special Forces fleet evaluation. What we have here represents the result of a great deal of testing in the field along with input provided directly by working divers, all made possible through funding from the DUS Hardening Program. Once the first production batch of 16 DAVD untethered systems was handed over for the U.S. Navy MK16 Rebreather system during fiscal year 2025, this untethered version of DAVD began going through the last stage of the U.S. Navy's Authorization for Navy Use, otherwise known as ANU, approval process. Once that wraps up, we anticipate it will help drive continued wider operational employment and uptake of the untethered system. Our untethered DAVD system continues to roll out to a widening roster of EOD and Special Forces dive teams, who employ it both for fleet assessment and for operations with particular assignments. Of everything in our pipeline, this untethered DAVD offering stands as the strongest expansion opportunity for this game-changing technology. For context, the United States alone holds an estimated 14,000 divers who form the prospective government and defense customer base for the untethered DAVD system. The upcoming fiscal year 2026 is hugely important for us as a business, since we expect to reach new milestones — among them, broader adoption of DAVD by navies outside the U.S., plus Echoscope being picked up on a number of new autonomous platforms powered by AI, where it would serve as a key perception sensor handling navigation, obstacle avoidance and target guidance. With that, I'll turn things over to Annmarie now, and I'll be available for your questions.

Appreciate that, Blair. At this point I'd like to hand things over to Gayle Jardine, our Interim CFO, so she can walk everyone through the numbers for fiscal year 2025, and after that I'll share some final thoughts.

Thanks, Annmarie, and hello everybody, good morning. I'd like to walk you through the financial results for our fiscal year 2025. Beginning with revenue. During fiscal year 2025, total revenue came in at $26.6 million, up from $20.3 million in fiscal year 2024 — that's growth of 30.7%. Revenue from our core business, the Marine Technology Business, was $13.2 million, versus $12.8 million, which works out to a 3.2% rise over fiscal year 2024. Our Acoustic Sensors and Materials Business, brought into the group in October 2024, posted revenue of $5.4 million in fiscal year 2025 and contributed 20.4% to our consolidated net revenue. Revenue from our Defense Engineering Business reached $7.9 million, compared with $7.5 million, a 5.6% improvement over fiscal year 2024. Turning to gross profit and margin. For fiscal year 2025, gross profit was $17.7 million, versus $14.2 million in fiscal year 2024. Consolidated gross margin came to 66.5%, compared with 69.8% in fiscal year 2024. That 3.3 percentage point decline stems primarily from the lower-margin Acoustic Sensors and Material Business joining us, which is responsible for 2 percentage points, plus the mix of type and geography of sales within our core business. At our Marine Technology business, gross margin fell to 74.5% in fiscal year 2025, down from 77.9% in fiscal year 2024, which mirrors the mix of type and geography of sales, with 30.5% more units of hardware sold alongside a 36.6% drop in higher-margin rental sales. The Acoustic Sensors and Materials business delivered gross margin of 58.6%. Gross margin for our Defense Engineering Business rose to 58.6% in fiscal year 2025, compared with 55.8% in fiscal year 2024, once again mirroring the mix of engineering projects during fiscal '25. Now on to operating expenses. For fiscal year 2025, total operating expenses rose by 24.0% to $13.1 million, compared with $10.6 million in fiscal year 2024. The primary drivers behind the higher total operating expenses were bringing Precision Acoustics Limited into the group, which contributed 22.1% to these costs, along with the U.S. dollar weakening against the British pound and Danish kroner, which had an effect on these costs when converted into U.S. dollars from the base currencies used for reporting purposes. Our selling, general and administrative costs for fiscal year 2025 came to $10.7 million, up 27.9% from $8.3 million in fiscal year 2024, mirroring the addition of the new business unit into the group and the inclusion of the earn-out provision under the Precision Acoustics Limited acquisition agreement. SG&A as a percentage of consolidated net revenue was 40.2% in fiscal year 2025, compared with 41.1% in fiscal year 2024. Operating income for fiscal year 2025 was $4.5 million, compared with $3.6 million in fiscal year 2024, an increase of 26.6%. Our operating margin came in at 17.1%, down from 17.6% in fiscal year 2024. We chalk that up to total operating expenses rising 24.0% overall, combined with consolidated net revenue growing 30.7%. For fiscal year 2025, pretax income reached $5.5 million, versus $4.6 million in fiscal year 2024. Net income after taxes for fiscal year 2025 was $4.1 million, or $0.37 per diluted share, compared with $3.6 million, or $0.32 per diluted share, in fiscal year 2024. During fiscal year 2025, we recorded a current tax expense provision of $1.1 million, against $0.7 million in fiscal year 2024. Let me move on now to the balance sheet. On October 31, 2025, cash and cash equivalents totaled $28.7 million, with no debt outstanding. That's $6.2 million higher than October 31, 2024, when the comparable amount stood at $22.5 million. Total assets grew by $6.9 million, reaching $64.5 million in fiscal year 2025. To wrap up with the financial effect during fiscal year 2025 from bringing the Acoustic Sensors and Materials Business into the group: it accounted for 20.4% of net consolidated revenue and 18.0% of gross profit. This business's gross profit margin was $3.2 million, or 58.6%. Thank you. That wraps up my summary. I'll now hand the call back to Annmarie for her closing remarks.

Thank you, Gayle. The revenue growth we achieved in fiscal year 2025, along with our overall financial results, including earnings per share, makes me quite happy. I'm likewise pleased by how we are advancing on the important milestones tied to expanding our business. A few of those are the following: regarding the makeup of our revenue, we grew sales within the defense sector, with 46% of our core business revenue coming from defense and 54% from the commercial marine offshore sector, and we recorded $3.7 million in sales tied to DAVD during fiscal year 2025; we also finished the DAVD Hardening Program successfully, which opens the door for wider uptake of DAVD technology among military diving customers, contingent on securing approved Navy Use status. Then there's the introduction of our NANO Gen Series sonar, which we feel is strongly positioned to serve as a core real-time perception sensor within the fast-growing AI-enabled autonomous and semi-autonomous platforms in the subsea market. And last, we booked our initial order for the DAVD untethered system from a highly influential European foreign Navy. It's our firm view that fiscal year 2025 mattered greatly for wrapping up the key development work under the DAVD program, work that was necessary before broader adoption could happen, and also for bringing the NANO Gen Series to market, which puts us in position to serve an expanding array of AI-enabled subsea robotic and autonomous systems. When it comes to deploying cash, we will keep pursuing our M&A strategy throughout fiscal year 2026, and our M&A pipeline keeps growing. We are extremely eager to complete one more acquisition in fiscal year 2026. Via this strategy, our goal is to shift the revenue model of the Marine Technology Business toward a multiyear program-based adoption model, one that sustains recurring multiple sales on the programs of records and long-tail revenue, as we have begun to observe with the DAVD products line. We keep striving to build stable long-term shareholder value and to carry out our strategy for growing the business, which stands as our single biggest priority at the group. In closing, we want to express our gratitude to our shareholders for their ongoing support. We're now glad to take any questions. Operator?

Kevin here, filling in for Brian. To start, we heard something regarding specific shipments made to the Indian Navy by way of International Prime. Which Coda products went out to the Indian Navy? Also, is this a completely new account for you, or have you done business with the Indian Navy before? And more generally, do you expect any meaningful opportunities in India over the near to medium term?

Apologies, and I appreciate that question. Regarding the Indian Navy, I don't have clarity on it — I'm not certain where that originated from.

Alright. Perhaps I've got that wrong. Let me switch to another topic. Could you give us an update on how things are going in Europe? From what I understand, you handed over two untethered systems to a European Navy. How satisfied are they? And do you anticipate bigger orders coming from that Navy down the road?

Yes. I appreciate that question very much. I'm truly, truly thrilled about how that's shaping up. Like we said before, the DAVD untethered Hardening Program has been finished. That really sets the stage for wider uptake. So where we stand right now with the DAVD technology, which stands as one of our main growth pillars, it feels like the past year was all about getting the Hardening Program done and getting systems into the hands of the U.S. Navy, and honestly, at this point we're just waiting for that approved Navy Use status to come through, because once it does, the product becomes operational and that becomes the trigger for wider uptake. Then shifting attention beyond the U.S., honestly what matters most for Coda Octopus this year is wider uptake of this technology beyond the U.S; and during our fourth quarter, we handed over 2 systems to a highly, highly influential European Navy, and we'll be delivering training to that Navy during our Q2, and after that we think that becomes the trigger for additional uptake of the DAVD untethered system. So that has us truly, truly thrilled, and we're standing by to assist that customer. And our expectation would be that Q3, Q4 is when we begin to get a handle on what opportunities exist with that customer.

Also, could you put a number on how many untethered DAVD systems have been delivered altogether? And in the prior quarter, I think you mentioned...

Pardon me, would you mind saying that again? Could you — apologies, can you say that once more?

Yes. Might you be able to put a figure on how many DAVD untethered systems have been delivered so far in total? Also, I believe during the prior quarter you mentioned aiming for $3.5 million to $4 million in DAVD during fiscal 2025. Was that goal met? And with the momentum you have, what sort of range should we anticipate for DAVD's revenue contribution in fiscal '26?

For fiscal 2025, DAVD came in at $3.7 million. As for 2026, naturally our internal business plan assumes we will exceed that figure. That said, it's genuinely hard to predict, since we're still awaiting the conclusion of the assessment regarding the approval — the approved Navy Use status for the product — which must be in place before the product can be operational. We anticipate having that around the close of Q2. And honestly, Q3 and Q4 are when we'll truly begin to grasp what revenues for the untethered variant will look like in 2026. So DAVD revenue is going to be uneven and weighted toward the third and fourth quarters, purely because until it clears that process — we've delivered the evaluation systems — and until it appears on the annual list, meaning the approved Navy Use list, it's extremely hard for us to put a number on what the budget will be. Beyond that, though, we're very focused on, as I mentioned this year, achieving wider adoption of the DAVD technology beyond the U.S. We believe we've completed all the development programs; we have a solid grasp of where the product's trajectory stands in the U.S. We're essentially awaiting budgets and awaiting clarity on the budget line appropriation. Programs right now are being funded through continuing resolutions. So we genuinely don't know what the 2026 U.S. budget will look like. There will be a budget, but we lack visibility into it at this moment. Setting that aside, we treat it as a given and assume we will surpass our $3.7 million, but our real laser focus now is on wider adoption — now that the development program is finished — wider adoption beyond the U.S. And this delivery to this European Navy is genuinely a pivotal moment for the technology, since this is a trendsetter Navy in Europe. So we're quite excited about that. So I can't state what our target is. I honestly don't know, because we're awaiting budget allocation in the U.S. But what I think we're seeing is that we did $3.7 million in fiscal 2025, and we expect to beat that.