Company's Q3 2025: Contradictions Emerge in Echoscope Nano Market Impact and DAVD Revenue Targets

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

Date of Call: September 15, 2025

Financials Results

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

Guidance:

• FY2025 DAVD revenue expected at $3.5M–$4.0M; management aims for ~$4.0M (vs $1.2M in FY2024).
• Q4: Three additional NANO GEN SERIES trials with U.S. and international navies.
• October: Final Phase 3 evaluation of the ship-hull scanning solution with a U.S. defense customer.
• Awaiting outcomes of four DoD proposals expected to move to execution upon award.
• Continuing FY2025 M&A strategy; building a pipeline of complementary technologies.

Business Commentary:

* Revenue Growth and Strategic Focus: - Coda Octopus reported an increase of 29% in revenue for Q3 2025, reaching $7.1 million. - This growth was driven by the Marine Technology segment, which saw 30.7% revenue increase, while the newly added Precision Acoustics Limited contributed 20.6% to net revenue.

• Innovation and Product Launches:
• The company launched the Echoscope PIPE NANO GEN SERIES, a compact 3D sonar, and delivered 16 DAVD systems to the U.S. Special Forces.

• These developments reflect the company's strategic focus on expanding into new markets, such as underwater robotics and defense sectors.

• Challenges in Marine Engineering Business:

• The Marine Engineering business saw a 33.2% decrease in revenue, with a gross margin of 58.9% in Q3 2025 compared to 62.6% in Q3 2024.

• This decline was attributed to delays in receiving contract awards and the impact of U.S. funding policies on defense programs.

• Financial Impact of New Acquisitions:

• The addition of Precision Acoustics Limited to the group contributed 20.6% to revenue and 18% to operating income in Q3 2025.
• This acquisition is expected to enhance the company's capacity to respond to larger defense requirements and expand its underwater acoustics capabilities.

Sentiment Analysis:

• “Net revenue increased by 29%” to $7.1M and 16 DAVD untethered systems were delivered; NANO GEN SERIES launched. However, gross margin fell to 68.3% vs 73.9% YOY, Marine Engineering revenue declined 33.2% on contract delays, and rentals were “significantly underutilized” due to U.S. offshore renewables policy changes.

Q&A:

• Question from Kevin for Brian Kinstlinger (Alliance Global Partners): With the launch of the Echoscope PIPE NANO GEN SERIES and trials, what feedback have you received?
  Response: Customers highlight the drastically smaller form factor delivering the same Echoscope performance, enabling integrations previously blocked by size/weight.

• Question from Kevin for Brian Kinstlinger (Alliance Global Partners): You had targeted $4.5M in DAVD revenue; the press release now guides $3.5M–$4.0M—what changed?
  Response: Management expects to reach about $4M in FY2025 DAVD revenue (vs $1.2M last year).

• Question from Richard Deutsch (Private Investor): What is your exposure to China for sales and supply chain?
  Response: Minimal supply-chain exposure to China; sales to China have been limited for years due to export-license barriers.

• Question from Richard Deutsch (Private Investor): Is Echoscope still the main near-term driver, and why hasn’t revenue grown faster?
  Response: Marine Technology grew 30.7% with hardware up 103.6% (Echoscope/DAVD), but rentals fell on offshore renewables slowdown; scaling depends on defense program adoption now progressing.

• Question from Richard Deutsch (Private Investor): Will you pursue a stock buyback?
  Response: Buybacks are a Board decision; current priority is value-accretive M&A of complementary technologies.