Coda Octopus Group, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights:

• Consolidated net revenue in fiscal year 2025 increased by 30.7%.
• Core business is marine technology, which generated 49.8% of consolidated net revenue in fiscal year 2025. The marine technology business operates in the subsea market, focusing on imaging sonar (Echoscope) and diving (DAVID) markets.
• Echoscope is a real-time three-dimensional volumetric imaging sonar used in commercial offshore marine. Launched Nanogen series, an ultra-compact real-time 3D imaging sonar.
• DAVID is a Diver Augmented Vision Display system. Successfully concluded a multiyear hardening program for the untethered DAVID variant, delivered 16 new generation untethered systems, and it's going through Navy use assessment.
• Acquired Precision Acoustics Limited, expanding expertise in underwater acoustics and positioning the group to compete for larger defense contracts.
• Highlights of marine technology business: Increased revenue by 3.2%, rental assets underutilized impacting gross profit margin.
• Defense engineering services revenue increased by 5.6%.

Segment Performance:

• Marine technology: Revenue increased by 3.2% in fiscal year 2025. Revenue structure: 46% from defense sector, 54% from commercial marine sector. 71.9% of revenue from Echoscope, 28.1% from DAVID. Hardware sales were $9.5 million, an increase of 30.5% compared to the previous fiscal year, with hardware sales to Asia being $5.9 million, an increase of approximately 7.7%.
• Defense engineering services: Revenue increased by 5.6% in fiscal year 2025. This business has long-standing relationships with prime defense contractors but experienced delays in contract awards due to the US government shutdown and continuing resolution.
• Acoustics, sensors, and materials: Added to the group in October 2024, recorded revenue of $5.4 million in fiscal year 2025, contributing 20.4% to consolidated net revenue.

Guidance:

• Expect to beat the $3.7 million DAVID revenue from fiscal year 2025, but revenue will be lumpy due to waiting for approved Navy use status of the untethered DAVID system.
• Focus on broader adoption of DAVID technology outside the US, with a key benchmark in 2026 being meaningful adoption outside the US.
• Intend to prosecute M&A strategy in fiscal year 2026, aiming to close another accretive acquisition.

Risks:

• Global policy environment challenges.
• Impact of the lower margin acoustic sensors and materials business on gross margin.
• Delays in defense contract awards due to US government shutdowns and continuing resolutions.
• Uncertainties in budget allocations for defense programs affecting revenue from defense engineering services.
• Exchange rate fluctuations, such as the weakening of the US dollar against the British pound and Danish kroner impacting operating expenses when translated.

Q: Please provide an update on deliveries to the Indian Navy, opportunities in India, progress in Europe with DAVID untethered systems, cumulative deliveries of untethered DAVID, DAVID contribution guidance for fiscal 2026, number of foreign navies testing DAVID, sales cycle for DAVID, time frame for deliveries, feedback on next-generation sonar.

A: Annmarie Gayle and Blair Cunningham discussed that the Indian Navy aspect was unclear, progress in Europe with DAVID untethered systems, fiscal 2025 DAVID revenue was $3.7 million with expectations to beat it in 2026 but revenue would be lumpy, details on foreign navies testing DAVID, sales cycle with gestation periods, and positive feedback on the next-generation Nanogen series sonar.

Q: How to characterize the offshore commercial demand environment in 2026 and capital allocation with $28 million in cash on hand.

A: Annmarie Gayle stated that the commercial marine market is well established, focus is on the defense market for growth, with 46% of core business revenue from defense in fiscal 2025, and intention to use cash for accretive value-added acquisitions in 2026, actively looking for acquisition targets.