Coda Octopus Group's Q3 2025: Contradictions Emerge on Marine Tech Sales Growth, DAVD Revenue, M&A Strategy, and Tariffs Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $7.1M, up 29.0% YOY (vs $5.5M prior year)
• EPS: $0.11 per diluted share, flat YOY (vs $0.11 prior year)
• Gross Margin: 68.3%, compared to 73.9% in the prior year
• Operating Margin: 19.5%, compared to 25.4% in the prior year

Guidance:

• Expect FY25 DAVD revenue around $4M (vs $1.2M in FY24).
• Q4: additional NanoGen sonar trials with U.S. and international naval forces; special forces/diver system integrations ongoing.
• October: final Phase 3 evaluation of ship hull scanning solution with U.S. defense customer.
• Awaiting outcomes of four DoD proposals expected to move into execution upon award.
• Continue executing FY25 M&A strategy; building pipeline to complement DAVD and underwater acoustics.

Business Commentary:

• Revenue Growth and Product Innovation:
• Coda Octopus Group reported total revenue of $7.1 million for Q3 2025, an increase of 29% compared to Q3 2024.

• Growth was driven by the success and launch of new products like the Echoscope Type Nano Gen series and the DAVD untethered system, contributing to revenue increases in both the marine technology and newly added acoustic sensors and materials business.

• Hardware Sales and DAVD Program Milestones:

• Hardware sales increased by 103.6% to $2.7 million in Q3 2025 compared to Q3 2024.

• This growth was bolstered by the successful delivery of 16 DAVD untethered systems to the U.S. Navy and the completion of system component deliveries to a foreign navy sponsor, marking key milestones in the DAVD untethered system development program.

• Impact of U.S. Policy Changes on Offshore Renewables:

• The marine engineering business experienced a 33.2% decrease in revenue, with a gross profit margin drop from 62.6% to 58.9% in Q3 2025.

• This was attributed to delays in receiving contract awards due to changes in U.S. policy on funding for offshore renewables, which caused project shelving by companies like Shell, Orsted, and BP.

• Interim Financial Performance:

• Operating income in Q3 2025 was $1.38 million, a 0.8% decrease compared to Q3 2024.
• The decline in operating margin to 19.5% from 25.4% in the previous year was due to an increase in cost of revenue and operating expenses, primarily from the addition of Precision Acoustics Ltd. and exchange rate adjustments.

Sentiment Analysis:

• Management highlighted: “revenue… increased by 29%,” delivery of 16 DAVD untethered systems, and launch of NanoGen sonars. Offsetting factors: “Consolidated gross margin was 68.3% versus 73.9%,” operating margin fell to 19.5% from 25.4%, rentals were “significantly underutilized,” and marine engineering revenue declined 33.2% due to delayed awards.

Q&A:

• Question from Brian Kinstlinger (Alliance Global Partners): What feedback have you received on the Echoscope Type Nano Gen series from trials?
  Response: Customers are very positive on the dramatically reduced size/weight delivering full Echoscope performance, enabling integrations on small vehicles and even diver suits (e.g., DCEND).

• Question from Brian Kinstlinger (Alliance Global Partners): You’d targeted ~$4.5M DAVD revenue earlier; why is the press release target now $3.5–$4M?
  Response: Management expects to achieve about $4M DAVD revenue in FY25, a strong increase from $1.2M last year.

• Question from Richard Deitch (Private Investor): What is your exposure to China for sales and supply chain risk?
  Response: Supply chain exposure to China is minimal (components mainly from Europe); exports to China are constrained by licensing, so China isn’t a major target market.

• Question from Richard Deitch (Private Investor): With superior tech, why haven’t sales scaled faster; is Echoscope the main near-term driver?
  Response: Echoscope/DAVD drove strong hardware growth (+103.6%), but rentals declined with offshore renewables; scalable growth depends on defense integrations, which are progressing but long-cycle.

• Question from Richard Deitch (Private Investor): Will you pursue a stock buyback?
  Response: Buybacks are a board decision; management is prioritizing an M&A pipeline complementary to DAVD and underwater acoustics.