Coda Octopus Group, Inc. Q2 FY2025 earnings call

Business Segment Highlights - Marine Technology: Revenue increased 10% to $3.9 million. Echoscope accounts for 65.5% of its revenue, DAVD accounts for 34.2%. Hardware sales increased 65% to $3.3 million, with sales to Asia up ~105% to $2.2 million. Rental assets underutilized in Q2 impacted gross margin, but uptick in rental fleet utilization expected. - Marine Engineering: Revenue increased 2.3% to $1.84 million. Gross profit margin rose to 55.5% from 50.7%. Saw increased inquiries on defense programs and opportunities for direct contracts with DOD. - Newly Acquired Business: Precision Acoustics contributed 18.5% to consolidated revenue and 13.4% to operating income, adding diversification to revenue structure. ### Technology Highlights - Echoscope: Big growth opportunities in defense space with new underwater vehicles. Next-gen NanoGen series 3D sonars nearly launched, designed for small underwater vehicles and robots. - DAVD: Tethered variant in adoption with US Navy, Q2 orders over $1.5 million for systems to reach ~12 navy commands. Untethered system development progressing, first order for 16 systems in Q3, with large potential market in US defense divers.

In the second quarter of 2025, total revenue was $7 million, an increase of 31.8% compared to $5.3 million in the second quarter of 2024. The core Marine Technology business generated revenue of $3.9 million, a 10% increase from $3.5 million in the second quarter of 2024, accounting for 55.3% of total consolidated revenue. The newly added Acoustic Sensors and Materials business (Precision Acoustics Limited) recorded revenue of $1.3 million, contributing 18.5% to consolidated revenue. The Marine Engineering business generated revenue of $1.84 million, a 2.3% increase from $1.8 million in the second quarter of 2024.

Forward-looking Statements - Expect marine technology business margins to improve as Q2's exceptional circumstances (high Asia sales commission) are seen as an outlier. - Anticipate stronger margins in the marine technology business going forward. - Expect SG&A percentage to potentially come down slightly. - Expect to deliver 16 DAVD untethered systems in the third quarter, which could generate around $800,000 in revenue.

Risks - Weakening of the U.S. Dollar against the British pound and Danish kroner resulted in higher operating costs when translated to U.S. Dollars. - Global policy environment uncertainty, which led to pausing certain M&A activities until stabilized. - Noncash items such as exchange rate variances, amortization in PAL, depreciation, and stock-based compensation impacted SG&A.

Q: During the last earnings call, what changed that led to stronger than expected second quarter demand from Marine Products? Did orders pull forward quicker than expected?

A: Strong inquiries around Echoscope technology, especially from Asia on outright purchase side, strong pickup around DAVD program with $1.2 million worth of DAVD sales in the quarter, though saw downturn in European developers' inquiries in Q2 but seeing more rentals ahead in Q3.

Q: Did you share the expected timing of the new NanoEchoscope release?

A: On the cusp of releasing Nano, Blair Cunningham has significant trials at the end of this month for a critical defense program; after trials concluded, would make announcement to customer base, with Nano addressing smaller classes of underwater vehicles, allowing easier use by divers and robots.

Q: Can you help range or provide a range of sizes for the different opportunities of the five development programs and timeline?

A: Five programs relate to integrating DAVD with existing equipment or new applications like deep saturation dive suits, mostly for integration with untethered additional dive equipment to work with existing UBAs, with programs focused on bringing sensors used by divers into DAVD ecosystem.

Q: On the gross margin percentage, should we model that for the back half of the year?

A: Marine technology business margins were 67.7% in Q2 2025 vs 80.2% in 2024, Q2 was an exceptional quarter due to high Asia sales commission, expect margins to go up for rest of year; Precision Acoustics' margin range is 57-65%, marine engineering business margins expected to be steady.

Q: On the SG&A side, is there any reason to think that that percentage might come down?

A: SG&A percentage this quarter impacted by exchange rate variances, added Precision Acoustics business, and noncash items. Exchange rate impact expected to continue, but SG&A percentage might come down slightly.

Q: What kind of revenue might the 16 DAVD untethered systems delivered in the third quarter generate?

A: We are on contract for delivery of 16 units, and if delivered in Q3, it will be around $800,000 in revenue.