Coda Octopus reports higher Q3 revenue, pre-tax income

Coda Octopus Group (NASDAQ: CODA ) held its third-quarter earnings conference call on Monday. Below is the complete transcript from the call. This content is powered APIs. 2% increase in consolidated revenue and a 16% increase in pre-tax income for Q3 2026, despite geopolitical challenges impacting its Marine Technology segment.

3% increase in revenue, driven by increased activity and funding in defense programs. The company is expanding its long-term growth strategy by focusing on proprietary underwater technologies such as Echoscope, DAVD, and Nano Series, particularly in defense and autonomous underwater vehicle applications. 4% due to changes in revenue composition, despite higher-margin rental activity in the Marine Technology business. 7 million, supporting its strong balance sheet and financial flexibility.

The company achieved a milestone by transitioning from an accumulated deficit to positive retained earnings, indicating sustained profitability. Future outlook includes continued focus on defense applications, M&A opportunities, and leveraging new technologies like Voice Hub 4 and Nano Series. Management is optimistic about expanding adoption of technologies in defense markets and emphasized ongoing R&D and strategic investments for long-term growth. Full Transcript OPERATOR Greetings and welcome to the Coda Octopus Group third quarter 2026 earnings conference call.

At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation, and you may be placed into the question queue at any time by pressing 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero on your telephone keypad.

It's now my pleasure to turn the call over to Dylan King, Investor Relations. Dylan, please go ahead. Dylan King, Investor Relations Thank you, operator. Good morning, everyone, and welcome to Coda Octopus Group's third quarter fiscal 2026 earnings conference call.

S. securities laws. These statements are subject to a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as may be required by law.

We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified in our Form 10-K for the year ended October 31, 2025, and Form 10-Q for the first, second, and third quarters of our fiscal year 2026. You may get Coda Octopus Group Securities and Exchange Commission filings free by visiting the SEC website at I would also like to remind everyone that this call is being recorded and will be made available for replay through the Investor Relations section of Coda Octopus Group's website.

Finally, as a reminder, this is our third quarter fiscal 2026 reporting, and all comparisons, unless explicitly stated otherwise, are with our third quarter fiscal 2025. With that, I will now turn the call over to the Company's Chair and CEO, Annemarie Gale. Annemarie. Annemarie Gale, Chair and CEO Thanks, Dylan, and good morning, everyone.

Thank you for joining us for our third quarter fiscal 2026 earnings call. 2% and pre-tax income increasing 16%. 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. Our performance this quarter highlights the resilience of our diversified business model and the strength of our financial fundamentals.

I am pleased with how the business has continued to perform despite challenging market conditions in some regions. Our company comprises three operating segments: Marine Technology, Defense Engineering Services, and Acoustic Sensors and Materials. 8% of consolidated revenue during the quarter. Our long-term growth strategy remains focused on expanding adoption of our proprietary underwater technologies, including Echoscope, DAVD, and the recently introduced Nano Series, particularly within defense and autonomous underwater vehicle applications where we continue to see significant long-term opportunities.

2% during the quarter. The decline primarily reflected reduced customer activity in the Middle East and parts of Asia following geopolitical instability in the region. 7 million in the prior-year period. 3 million in the prior-year period.

The higher contributions from rentals, together with lower commission costs resulting from changes in sales geography, contributed positively to gross margins within this business. 3% compared with the prior-year period. The business benefited from increased activity and funding across several long-standing defense programs, resulting in both higher order intake and higher execution levels. During the quarter, our UK defence operations experienced increased customer activity and contributed higher revenues compared with the prior-year period.

S. defense engineering business, we continue to see strengthening demand for repairs and spares under some of the sustainment defense programs that we have supported for decades. S. Government.

Following that award, we experienced increased repair-related activity and additional subcontract opportunities associated with the program. We continue to see encouraging demand trends in this area. 4 million year to date. We also continue to make progress in electronic warfare, which remains an important area of defense investment.

S. Defense Engineering Services segment is currently supporting several prime contractors in the development of rugged, deployable RF electronic warfare systems for a range of platforms including unmanned systems, helicopters, airborne pods, and ground vehicles. We believe these programs represent a meaningful future opportunity, enabling us to build upon our long-standing positions on legacy defense systems while expanding into next-generation defense programs as technologies and operational requirements continue to evolve. 4% during the quarter, while gross margins were lower due to product mix.

We continue to see encouraging demand for our acoustic materials and acoustic test tank solutions across international markets. While market conditions in certain international regions remain challenging, our diversified business model enabled us to deliver growth in both revenue and pre-tax income during the quarter. We remain focused on executing our long-term growth strategy, strengthening our position across defense, marine, and acoustic markets, and expanding adoption of our proprietary technologies.

With that, I will hand the call over to Blair Cunningham, our President of Technology, who will provide an update on our technology initiatives, recent milestones, and market activities. Blair Cunningham (President of Technology) Thank you, Anne Marie, and good morning, everyone. As Annemarie noted, our strategic focus remains on expanding adoption of our proprietary underwater technologies, including DAVD, Echoscope Nano, and our next-generation underwater communication system, Voice Hub 4. I will briefly highlight several notable developments during the quarter.

S. Navy's Authorization for Navy Use assessment for the DAVD Untethered System incorporating the DAVD Gen 4 HUD. S. Navy earlier this year, bringing total deliveries to 24 systems.

With ANU approval now in place, these systems can be fully evaluated and utilized by operational commands. We continue to provide training and support for the Untethered system and believe the military diving market represents a significant long-term opportunity for DAVD. S. Navy for DAVD tethered systems and related peripherals, supporting deployment to additional commands and adoption of the latest DAVD Flex technology.

We are also encouraged by indications that DAVD may be incorporated into diving school and academy training curricula. The recent orders included four DAVD Flex systems and Echoscope sonars specifically for training purposes, which we believe reflects growing institutional acceptance of the technology within the naval diving community. Internationally, we continue to work closely with the European Navy that recently acquired DAVD systems. We remain encouraged by customer feedback and believe this deployment provides a strong foundation for further expansion within international military diving markets.

We expect to gain greater visibility into that customer's procurement roadmap later this year. In addition, we continue to make progress on a number of funded defense programs awarded during the year under separate contractual arrangements where our DAVD and Nano technologies are being integrated as key vision and mission-enabling components. These programs, spanning diver-machine teaming, critical diver health-state monitoring, and advanced deep saturation diving, provide further opportunities to demonstrate our technologies in operationally relevant environments and support their growing adoption across a broader range of defense applications.

We're also pleased with the early market response to our NanoGen Series sonar, our ultra-compact real-time 3D imaging sonar designed specifically for small subsea robotics and AI-enabled autonomous underwater platforms. We are actively working with a number of subsea robotic OEMs, research groups, and direct customers globally to integrate Nano into next-generation underwater platforms, enabling advanced real-time 3D perception, navigation, and autonomy capabilities that were previously impractical on vehicles of this size. S. and European defense markets, particularly for diving systems and delivery vehicles, autonomous and unmanned underwater systems.

We believe Nano's combination of ultra-compact form factor, low power consumption, and real-time 3D imaging capability positions it well to address the rapidly evolving requirements of this emerging sector. This growing interest is further supported by the innovative software and hardware ecosystem we have developed around Nano, providing OEMs and integrators with multiple levels of engagement from straightforward sensor integration through to a more comprehensive solution incorporating Nano's real-time data and processing capabilities, providing the high-quality real-time 3D data critical to delivering true AI-enabled 3D perception and autonomy solutions. S.

defense market, driven both by increased spending on spares, repairs, and sustainment of established defense systems as well as investment in next-generation capabilities, including electronic warfare, unmanned systems, and increasingly autonomous platforms. We believe this broader increase in defense spending, combined with the growing demand for more capable and autonomous systems, creates additional opportunities for our Nano technology. Our established defense relationships and engineering capabilities provide a strong pathway for introducing Nano into these programs and expanding its long-term growth potential.

Overall, I believe we're making steady progress in expanding adoption of our technologies and advancing opportunities that support long-term growth. With that, I will turn the call back to Annemarie and look forward to answering your questions during the Q&A session. Annemarie Gale, Chair and CEO Thank you, Blair. Before turning to the financial results, I would like to formally welcome Mark Kelly, who recently joined the company as our Chief Financial Officer.

Mark brings extensive financial and operational leadership experience, and we are very pleased to have him as part of the executive team as we continue to execute our growth strategy. Mark will now take you through our third quarter 2026 financial results. Following his remarks, I will return with some closing observations before we open the lines for questions. Mark Kelly, Chief Financial Officer Thank you, Anne Marie, and good morning, everyone.

As this is my first earnings call since joining the company, I am pleased to have the opportunity to introduce myself to our shareholders and investors. I have enjoyed meeting the team and becoming familiar with the business, and I look forward to supporting the company's continued growth and execution of its long-term strategy. Let me now take you through our third quarter fiscal 2026 financial results. 2%.

As Anne Marie highlighted earlier, our results reflect the benefits of our diversified business model. While revenue in our marine technology business was impacted by reduced customer activity in certain international markets, this was more than offset by strong performance in our defense engineering services business and continued growth in our acoustic sensors and materials business. 2%. 4%.

3%. 8 million in the third quarter 2025. 3% in the prior-year period. The movement in gross margin primarily reflects changes in revenue composition during the quarter, including the contribution from higher-margin rental activity within our marine technology business, changes in sales geography, and the mix of projects and products delivered across the group.

5% compared with 77% in the prior-year period. 8% in the prior-year period, reflecting product mix during the quarter. 9% in the prior-year period, reflecting the mix of contracts and program activity during the reporting period. 4 million in the third quarter 2025.

9 million in the prior-year period. The movement in SG&A was primarily driven by lower payroll-related costs and favorable foreign exchange movements, partially offset by higher contingent consideration expenses associated with the PAL earnout. 6% in the third quarter 2025. 5% in the prior-year period.

5 million in the third quarter 2025.