管理層發言
Good morning, and welcome to Coda Octopus Group's Second Quarter Fiscal 26 Earnings Conference Call. My name is Robert, and I will be your operator today. Earlier this morning, Coda Octopus issued its financial results for the second quarter ended April 30, 2026, including a press release, a copy of which will be furnished in the report filed with the SEC and will be available in the Investor Relations section of the company's website. Joining us on today's call from Coda Octopus are its Chair and CEO, Annmarie Gayle; its Interim CFO, Gayle Jardine; its President of Technology and Director, Blair Cunningham; and Dillon King from their investor relations team. Following their remarks, we will open the call for questions. Before we begin, Dillon King from the company's internal Investor Relations team will make a brief statement. Dillon, please proceed.
Thank you, operator. Good morning, everyone, and welcome to Coda Octopus's Second Quarter Fiscal 26 Earnings Conference Call. Before management begins their formal remarks, we would like to remind everyone that some statements made today may be considered forward-looking statements under U.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 and second quarters of our fiscal year 2026. You may obtain Coda Octopus' SEC filings free by visiting the SEC website at www.sec.gov. 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' website. Finally, as a reminder, this is our second quarter fiscal 26 reporting. All comparisons, unless explicitly stated otherwise, are with our second quarter fiscal 25. With that, I will now turn the call over to the company's Chair and CEO, Annmarie Gayle. Annmarie?
Thanks, Dillon, and good morning, everyone. Thank you for joining us for our second quarter fiscal 26 earnings call. I believe we have delivered a solid set of results with improvements in gross profit margins, net income and earnings per share even though our consolidated net revenue decreased slightly by 1.6%. The geopolitical situation in Iran and the resulting instability across the Middle East have softened demand from customers in the region and parts of Asia. Despite this, our performance highlights the resilience of our revenue base and the strength of our financial fundamentals. I am very pleased with how the business has continued to perform in a challenging environment. Our business is made up of three discrete business operations: the marine technology business, the defense engineering services business, and our acoustics, sensors, and materials business units. Our marine technology business remains the core of our company, generating the majority of our revenue and accounting for 41.1% of our consolidated net revenue in the second quarter 26. It remains the strategic centerpiece of our long-term growth ambitions. The specific addressable markets that we operate in are the imaging sonar market and the diving market, where the opportunity for technological advancement is significant. With our disruptive underwater technologies, we are positioning ourselves to be at the forefront. At the heart of this business are technologies that are redefining what is possible on the water. We are effectively bringing the real-time, data-rich experience of the smartphone era to the water, delivering instant visibility, intelligence, and real-time decision-making capability to our users. Our Echoscope, DAVID, and our digital audio communication system are not just products; they are building blocks of a new underwater operating paradigm. For example, the DAVID enables divers, operators, and mission-critical teams to work with unprecedented clarity, safety, and efficiency. As these technologies evolve, they are opening new markets, expanding our addressable opportunities, and setting the stage for the next chapter of growth for the company. Growth is a process, not an event, and we are executing the strategies that position our company to deliver it consistently over time. Our Echoscope technology is widely used in the commercial offshore marine market for a range of underwater applications. A significant part of our annual revenue is derived from the commercial offshore marine market. To deliver the level of growth that shareholders expect, we must continue expanding our market share in underwater imaging sensors within the defense sector, and we are directing efforts and resources toward that objective. Around the world, multiple defense programs have allocated budgets for the new classes of underwater vehicles, creating a significant long-term opportunity. Our Echoscope is well positioned for adoption in these programs. As a single sensor capable of supporting multiple undersea activities, it offers a clear advantage over traditional technologies by providing a multi-application sensor in one power-efficient unit without compromising mission performance. We recently introduced the NanoGen series, our next generation of ultra-miniaturized 3D sonars, which expands the family of imaging sonars within our portfolio. NanoGen provides a purpose-built solution for highly compact platforms, opening new opportunities in the emerging light and autonomous systems. We mentioned in our first quarter earnings calls that we anticipated a small number of NanoGen sonars to be included in a new vehicle program. We are very excited to report that during the quarter, we received an initial order for a small number of NanoGen series sonars for integration into an established vehicle program. These systems provide a significant upgrade to this vehicle program, which will undergo extensive evaluation. If successful, we believe this opportunity could scale rapidly. For additional detail on our underwater technologies that sit at the center of our growth strategy, I would refer you to our previous earnings calls where we provided a comprehensive overview of these technologies and our approach to expanding market share. Now turning to second quarter 26 highlights relating to our core business, the marine technology business. This business sells its products and solutions globally, with the Middle East and Asia representing strategically important markets for our technology. The ongoing conflict in Iran and the resulting instability across the Middle East have reduced customer activity in the region and Asia. In addition, the effective closure of the Strait of Hormuz, through which a significant share of global maritime shipping passes, has disrupted commercial operations, further softening demand for our goods and services. This is the main factor which has resulted in this business segment's reported revenue decreasing by 26.8% in our second quarter. Notable features of our core business revenue structure in the second quarter 26 include: hardware sales decreased by 46.9% and were $1.8 million in the second quarter 26 compared to $3.3 million in the 2025 period. Rental assets utilization in the second quarter 26 improved, increasing rental revenue by 351.1% to approximately $700 thousand compared to approximately $200 thousand in the comparable 2025 period. This is a factor in the increase in gross profit margin in the second quarter for this business unit. Now turning to highlights relating to the defense engineering services business. In the second quarter 26, our defense engineering services business revenue increased by 37.9%. This business has long-standing relationships with prime defense contractors and has served the defense market for over 48 years. Its performance is closely tied to funding on defense programs. The UK arm of this business saw an increase in opportunities and delivered higher revenue during the quarter. In the United States, however, many programs continue to be funded under continuing resolutions, which has delayed contract awards and consequently the timing of revenue. Now turning to highlights related to our acoustics, sensors, and materials business. This business sells its products and solutions worldwide and increased revenue in the second quarter 26 by 17.5%. Blair Cunningham, our President of Technology, who is the market maker for our technologies, will be updating you on progress and various milestones around our core technologies. He will also be available to answer any questions you have about our technologies. I will now turn the call over to Blair Cunningham.
Thank you, Annmarie, and good morning, everyone. Our core focus as a business is to increase our market share for our disruptive technologies: our real-time 3D sonars and our DAVID technology. I will be brief today and will focus on our key milestones to achieve these goals. For those who would like more information on our underwater technologies, I would refer you to our previous earnings call where we provided a comprehensive overview of these technologies and our approach to expanding market share. DAVID progress: A key milestone for the broader adoption of the DAVID in the military diving sector is the completion of the Approved for Navy Use assessment. I am pleased to confirm that the DAVID untethered system has been Approved for Navy Use. This is a meaningful inflection point since the product is now available for acquisition by any command and supports full-fleet deployment of the 20 systems previously issued. The approval validates the system's operational suitability and paves the way for wider adoption across the naval diving community. Another important milestone has been the expansion of DAVID adoption beyond the United States. In support of this objective, we have successfully delivered training to a European navy that recently acquired an initial number of systems. With training now complete, we continue to engage closely with this influential naval customer and are encouraged by the positive feedback received to date. We remain optimistic about the opportunity to further expand the deployment and operational use of the DAVID within this navy, establishing a strong foundation for future growth in the international military diving market. The DAVID program continues to expand, and we continue to work on several awards for defense programs that are seeking to leverage DAVID as a critical life support and visualization component. We believe these are strong indicators that DAVID is now considered a mature technology. While the approval and associated procurement activity has been delayed beyond this quarter, we currently anticipate receiving corresponding orders during the third quarter. We also received an initial order for a small number of NanoGen series sonar, our ultra-miniaturized 3D sonar for an established vehicle program. These initial systems offer a significant upgrade to the vehicle with full 3D perception, visualization, and vehicle control with 3D obstacle avoidance, and will be used for extensive evaluation. If successful, we believe the opportunity for NanoGen on this vehicle program could grow quickly. We are pleased to see continued interest in our latest NanoGen series sonar, with a growing number of credible vehicle integration opportunities emerging across both the U.S. and European defense markets. These opportunities reflect increasing recognition of the unique capabilities offered by NanoGen, including its ultra-compact form factor, real-time 3D perception, and advanced autonomous navigation support. We remain encouraged by the level of engagement with prospective customers and partners and believe these opportunities have the potential to drive meaningful growth in the defense sector. For our fiscal year 26, our main goal is to reach new milestones with our disruptive technologies such as broader adoption of DAVID by a foreign navy and the Echoscope technology being adopted on some of the new autonomous AI-enabled platforms as a core perception sensor for navigation, obstacle avoidance, and target guidance. I will turn the call over to Annmarie and I will be available to take your questions during the Q&A session of this call.
Thank you, Blair. Let me now turn the call over to our Interim CFO, Gayle Jardine, to take you through our financials for our second quarter 26 before I provide my closing remarks. Gayle?
Thank you, Annmarie. Good morning, everyone. Let me take you through our second quarter 26 financial results. Starting with revenue: In the second quarter of 26, we recorded total revenue of $6.9 million compared to $7.0 million in second quarter 25, a slight decrease of 1.6%. Our core business, the Marine Technology business, generated revenue of $2.8 million compared to $3.9 million, representing a 26.8% decrease over second quarter 25. Our Acoustics, Sensors, and Materials business recorded revenue of $1.5 million in second quarter 26 compared to $1.3 million in second quarter 25, an increase of 17.5%. Our defense engineering services business generated revenue of $2.5 million compared to $1.8 million, representing a 37.9% increase over second quarter 25. Moving on to gross profit and margin: In the second quarter of 26, we generated gross profit of $4.6 million compared to $4.5 million in the second quarter of 25. Consolidated gross margin was 66.3% versus 64.1% in the same quarter last year. This increase reflects the composition of our revenue. Notable factors include the increase in our rental revenue and reduction in net commission costs. In our Marine Technology business, gross margin increased to 77.0% in second quarter 26 compared to 67.7% in second quarter 25, largely reflecting the increase in rental sales which grew by 351.1% over the second quarter of 25, concurrent with the reduction in commission expenses by 68.7% or $300 thousand due to fewer equipment sales via agents in Asia. The Acoustic Sensors and Materials business gross margin decreased to 53.7% in second quarter fiscal 26 compared to 65.4% in second quarter 25, reflecting the mix of types of sales with an increase in our acoustic test environment product sales compared to second quarter 25. Our Defense Engineering Services business gross margin increased to 57.2% in the second quarter 26 versus 55.5% in the second quarter of 25, reflecting a mix of engineering projects in the period presented. Now looking at our operating expenses: Total operating expenses for the second quarter 26 decreased by 18.3% to $2.8 million compared to $3.4 million in the second quarter 25. The primary driver of this reduction was the movement of the U.S. dollar against the British pound and Danish kroner, which lowered reported costs when translated into U.S. dollars for financial reporting. Selling, general, and administrative expenses totaled $2.1 million, a 21.4% decrease from $2.7 million in the prior-year quarter. This improvement reflects a favorable $400 thousand swing from an exchange rate expense in the second quarter 2025 to an exchange rate gain in the second quarter of 2026, as well as lower employee-related costs due to reduced headcount. SG&A represented 30.9% of consolidated net revenue in the second quarter of 2026 compared to 38.8% in second quarter 25. Operating income in second quarter 26 was $1.8 million compared to $1.1 million in second quarter 25, an increase of 64.8%. Operating margin was 26.0% compared to 15.5% in second quarter 25, reflecting the decrease in our SG&A and operating expenses in the second quarter. Pretax income in second quarter 26 was $2.1 million compared to $1.3 million in second quarter 25. Net income after taxes in second quarter 26 was $1.7 million or $0.15 per diluted share compared to $900 thousand or $0.08 per diluted share in second quarter 25. In the second quarter of 2026, we provided for a tax expense of $440 thousand compared to $360 thousand in second quarter 25. Moving now to our balance sheet: As of April 30, 2026, we had $30.6 million in cash and cash equivalents on hand and no debt. This represents an increase of $1.9 million from October 31, 2025, when the comparable figure was $28.7 million. Total assets increased by $2.8 million to $67.3 million in the second quarter of 26. That completes my financial summary. So let me turn the call back over to Annmarie for her closing remarks. Thank you.
Thank you, Gayle. Despite the challenging geopolitical environment, which has affected parts of our customer base, particularly in the Middle East and Asia, I am very pleased with our second quarter financial performance and, importantly, the resilience and diversification reflected in our revenue structure. I am also encouraged by the progress we are making against our key aims for expanding the business, especially around our DAVID and Echoscope technologies. Most notably, the Navy's approval of the DAVID untethered system as an Approved for Navy Use item marks a pivotal milestone for DAVID, one of our core technology offerings that anchor our long-term growth vision. The recent orders for our NanoGen sonars, which will upgrade an existing vehicle program, are another positive indicator of our technology traction. If post-purchase integration and evaluations proceed as expected, this opportunity has the potential to scale quickly. We believe meaningful progress is being made toward broader adoption of these technologies within the defense sector. On capital deployment, we will continue to advance our M&A strategy in fiscal year 26 and are actively building and progressing a pipeline of opportunities. We remain keen to close a transaction this fiscal year while maintaining a disciplined approach to due diligence and strategic fit. Through this strategy, we aim to pivot the revenue model of the marine technology business toward multi-year, program-based adoption supporting a recurring, multi-sale model over the life of major programs as we are beginning to see with the DAVID product line. We remain focused on creating stable, long-term shareholder value and executing against our growth strategy, which continues to be our highest priority as a group. To conclude, we thank our shareholders for their continued support. We are now ready to take your questions. Operator?
分析師問答
At this time, we will be conducting a question-and-answer session. On your telephone keypad, you may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Brian Kinstlinger with Alliance Global Partners. Your line is now live.
Hi, Annmarie. Thanks for taking my questions. I have a bunch. The first one: with the authorization for Navy use, how do you see demand for the untethered DAVID ramping in the second half of the year and into fiscal 2027? Maybe some kind of range of units or revenue. And is there a contract in place like a BPA or an IDIQ where the Navy can purchase? If not, what is needed for the procurement process now that the authorization's in place?
Morning, Brian. Thanks for that question. The approval of the untethered system for use as an Approved for Navy Use item is a meaningful inflection point for the DAVID technology because, as you know, without this approval in place, procurement could not go ahead for the untethered variant. It is difficult to predict the exact timing, but we do know that DAVID funding is included in this fiscal year's budget, and we expect to see some orders in our third quarter. What we do not know yet is the mix of configurations where the commands will procure tethered or untethered variants. Importantly, the 20 untethered systems previously purchased can now be allocated and fielded following Navy Use approval, which is a very important step. Once divers begin using the system operationally, we expect real-world deployment will help to drive further demand for the DAVID untethered system in this very important market sector for our technology. We do not have an IDIQ in place at the moment, and we do not anticipate one for the DAVID untethered system. These orders were placed directly with our company, and we believe it will be the same going forward. That is helpful. Now you described slower demand due to the Iran conflict in certain regions. Has that pressure continued into the current quarter? And once a resolution is in place, how quickly do you expect demand in these regions might recover?
Right. Now you highlighted the initial orders for the NanoGen Echoscope, which sounds like a retrofit or a retrofit fit to a current underwater vehicle type. How long do you think that evaluation process might be? And then once the evaluation is complete, are there other steps necessary for full integration or full retrofit? How many of these underwater vehicles are sold a year? Sorry, what was your last question? Well, I am curious how many vehicles are in production already right now, and how many maybe are sold annually?
So in terms of the NanoGen sonars, it is really too early to size the annual volume because the customer is still defining the final configuration of the platform. What we can see is that if the evaluation is successful and the system is designed into the vehicle specification, for us it becomes a recurring production opportunity aligned with the platform's development cycle. More importantly, this dovetails with our broader strategy to grow the number of underwater vehicle programs which include our real-time 3D volumetric imaging sonar. This program is exciting because it is already an established program and this is an upgrade of the existing technology on the platform. But I really cannot say yet how many of these actual underwater vehicles are potential retrofit candidates or how many are sold annually. At this stage, I cannot say. But we would expect this to be meaningful on a year-on-year basis if we pass the evaluation phase. Regarding progress in other next-generation underwater vehicles, we have talked about this for a while. Blair, how many OEMs are you in discussions with? It sounded like you hope to get something announced by the end of the year. What stages are you in discussions with these OEMs? Blair, can you talk a little bit about some of the programs and the process involved, please?
Yeah, sure. Thanks again, Brian, for the question. I think the opportunities really fall into two camps. One is generally customer-instigated, such as the one we just announced the initial sale for, where the customer we have been working with for some time really wanted to embed the Echoscope technology into their vehicle. These are new vehicles being procured for an existing program, and this is really at the start. We are providing basic perception, obstacle avoidance, and navigation control, and they already know the capabilities of the Echoscope since they have been involved with us for years and understand where they can take the vehicle capabilities. The other camp is where there are another three or four examples of NanoGen opportunities where the technology provides different capabilities to each vehicle. One of the unique things is that we do not just do mapping or just forward-looking obstacle avoidance; we can perform all of these tasks. There are another three vehicle companies looking to integrate our sensor and they are at various stages of maturity. Two or three of those are at fairly advanced stages, which is positive. However, customers have their own priorities and schedules, so sometimes things take time to get in the water and conduct the necessary sea trials to understand how well the technology fits. The second camp of opportunities are ones where we have had collaborative discussions with manufacturers because they can see the benefit of joining the two technologies together. Those cases are often internally funded opportunities for us to move forward and provide our capability on their platforms. So, some are customer-driven and some are manufacturer-driven.
That was really helpful, Blair. And are you going to generate revenue this current quarter from those NanoGen series deliveries? I think there are a couple $100 thousand apiece. Is that a this-quarter event?
So, can I just answer? For the initial order that we received, these are clearly not material in terms of revenue contribution in this quarter. The significance here is not the initial volume; it is the opportunity ahead if the post-integration and evaluation proceed as planned. We did deliver the initial systems to the customer during the quarter, so that revenue is included in our quarter's revenue.
I see. Thank you. Two more quick ones. You highlighted SG&A is the lowest it's been since April 2024. Can you break it down, maybe compare it to the first quarter? How much was lower employee cost that you mentioned? How much was foreign exchange? And did you say there was a one-time gain as well?
Gayle, did you want to take that question? Gayle? I don't know if she's—yeah. We will come back to that one in one second. Gayle is muted. Sorry about that.
Sorry, yes. Hello. Can you hear me now? Thank you. Hi, Brian. Apologies, I was muted. Regarding the SG&A reduction: there are three main elements. We have an exchange rate swing of about $400 thousand between Q2 last year and Q2 this year, which is due to exchange rate movements. We have less spend on stock-based compensation. We have lower spend on wages and salaries because of slightly lower headcount, which is roughly in the region of $100 thousand. Other than that, everything else is fairly similar. Regarding the gain you asked about, that gain is recorded through other income: we had a sale of a vessel and realized a significant gain in the quarter, but that is reported in other income, not through the SG&A line.
Okay. Great. Thank you guys so much for taking all my questions.
Thank you, Brian.
At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Annmarie Gayle.
Thank you for your participation today, and have a great day.
Thank you for joining today's Coda Octopus conference call. You may now disconnect. Thank you.