Coda Octopus Group Q3 Earnings Call Highlights

Key Points

• Q3 revenue rose 9.2% to $7.7 million and pretax income increased 16% to $1.8 million, as Defense Engineering Services and Acoustic Sensors offset weaker Marine Technology sales.
• Defense Engineering revenue surged 68.3% to $2.7 million, supported by U.S. sustainment, repair and spare-parts activity; year-to-date spare-parts orders exceeded $2.4 million.
• Marine Technology revenue fell 15.2% amid Middle East and Asian market disruptions, though rental revenue more than doubled. The company also advanced DAVD and Nano programs, ended the quarter with $31.7 million in cash and no debt, and moved to positive retained earnings.

Coda Octopus Group NASDAQ: CODA reported higher fiscal third-quarter revenue and pretax income, as growth in its defense engineering and acoustic businesses offset a decline in marine technology sales tied to geopolitical disruption in the Middle East and parts of Asia.

Total revenue for the quarter ended July 31 was $7.7 million, up 9.2% from $7.1 million a year earlier. Pretax income rose 16% to $1.8 million, while net income was $1.4 million, or $0.12 per diluted share, compared with $1.3 million, or $0.11 per diluted share, in the prior-year quarter.

“While geopolitical instability in the Middle East adversely affected customer activity in certain international markets and resulted in lower revenue within our Marine Technology business, the strength of our Defense Engineering Services and Acoustic Sensors and Materials businesses enabled us to deliver growth in both revenue and pre-tax income,” Chair and CEO Annmarie Gayle said.

Marine Revenue Declines as Rental Activity Rises

Marine Technology, which accounted for 43.8% of consolidated revenue in the quarter, generated $3.4 million in revenue, down 15.2% from $4 million a year earlier. Hardware revenue fell 17.8% to $2.3 million, which Gayle attributed primarily to reduced customer activity in the Middle East and parts of Asia.

Rental revenue partly offset the hardware decline, rising 131.1% to about $700,000 from about $300,000 in the prior-year period as rental asset utilization improved. The higher rental contribution and lower commission costs associated with changes in sales geography helped Marine Technology gross margin increase to 78.5% from 77%.

During the question-and-answer session, Gayle said the company did not see structural changes in its Middle East and Asian marine markets, but rather deferred opportunities amid uncertainty. She cited offshore project disruption, security concerns, personnel safety issues and customer supply-chain challenges.

“We continue to see opportunities, we continue to have visibility of what customers are doing,” Gayle said. “But the fact still remains that it is very challenging offshore to really run a project.”

Defense Engineering Growth Driven by Sustainment Work

Defense Engineering Services revenue increased 68.3% to $2.7 million, from $1.6 million in the prior-year quarter. The business benefited from greater activity and funding across established defense programs, including higher activity at the company’s U.K. defense operations.

In the U.S., the company reported stronger demand for repairs and spare parts supporting long-running sustainment programs. Gayle said one of Coda Octopus’s prime contractor customers received a multiyear U.S. government repair and sustainment award during the quarter, leading to increased repair activity and additional subcontract opportunities for the company.

Year-to-date orders for spare parts supporting sustainment systems exceeded $2.4 million, according to management. Defense Engineering Services also is supporting several prime contractors developing rugged, deployable radio-frequency electronic-warfare systems for unmanned systems, helicopters, airborne pods and ground vehicles.

Gayle said the company expects demand in sustainment programs to remain uneven, describing the business as “lumpy,” but noted that increased use of parts already held in warehouses could drive replenishment demand for spares and repairs.

DAVD and Nano Programs Advance

President of Technology Blair Cunningham highlighted progress in Coda Octopus’s underwater technology initiatives, including DAVD diving systems, Echoscope sonar systems and the Nano Gen Series sonar platform.

The company completed the U.S. Navy’s Authorization for Navy Use Assessment for its DAVD Untethered System, incorporating the DAVD Gen4 heads-up display. Coda Octopus previously delivered 16 DAVD Untethered systems to the Navy during the year, bringing total deliveries to 24 systems. Cunningham said the approval permits the systems to be fully evaluated and used by operational commands.

Since the previous earnings call, the company received approximately $1.4 million in U.S. Navy orders for tethered DAVD systems and related peripherals. The orders included four DAVD FLEX systems and Echoscope sonars for training purposes. Management said it was encouraged by indications that DAVD could become part of diving-school and academy curricula.

Gayle said Navy authorization and field deployment are important steps toward broader procurement, though she emphasized that defense technology sales cycles are long-term and require deployment and user acceptance testing before larger-scale purchasing may occur.

Internationally, the company continued work with a European Navy that recently acquired DAVD systems. Gayle said Coda Octopus expects greater visibility into that customer’s procurement roadmap later in the year. She added that broader adoption by that customer could encourage other European navies, though their procurement processes would take time.

For Nano, an ultra-compact real-time 3D imaging sonar designed for small subsea robotics and autonomous underwater platforms, Cunningham said the company was working with robotic original equipment manufacturers, research groups and direct customers on integrations. During the Q&A session, management said a customer program involving Nano and Echoscope systems was approaching sea acceptance trials, with results potentially available in the fourth quarter.

Margins, Balance Sheet and Investment Plans

Gross profit rose to $5.1 million from $4.8 million, while consolidated gross margin declined to 65.4% from 68.3%, reflecting revenue composition and project and product mix. Acoustic Sensors and Materials revenue increased 10.4% to $1.6 million, although its gross margin declined to 52.4% from 54.8% because of product mix. Defense Engineering Services gross margin was 56.9%, compared with 58.9% a year earlier.

Operating income increased to $1.5 million from $1.4 million, and operating margin rose to 19.9% from 19.5%. Selling, general and administrative expenses declined to $2.8 million from $2.9 million, with lower payroll-related costs and favorable foreign exchange movements partly offset by higher contingent consideration expense related to the PAL earn-out.

At July 31, Coda Octopus had $31.7 million in cash and cash equivalents and no debt. Total assets were $68.9 million, up from $64.5 million at Oct. 31, 2025.

Gayle also said the company moved from an accumulated deficit to positive retained earnings for the first time in its history, calling it primarily an accounting milestone reflecting sustained profitability and financial discipline. The company remains active in evaluating acquisition opportunities, she said, while continuing to invest in research and development and business development efforts aimed at expanding defense-program adoption of its technologies.

About Coda Octopus Group (NASDAQ:CODA)

Coda Octopus Group, Inc is a technology company that develops and sells real-time 3D sonar systems and related solutions for underwater applications. Its flagship Echoscope® real-time 3D sonar system enables clients to visualize subsea structures and seabed conditions in unprecedented detail. The company's product portfolio also includes BathyCORR® geophysical survey processing software, a range of ROV and USV inspection tools, and advanced subsea positioning and motion reference units. These technologies support tasks such as inspection, maintenance, salvage, survey, and security in challenging marine environments.

The company serves a broad set of industries, including offshore oil and gas, marine mining, defense, civil engineering, telecommunications, and scientific research.

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