Q1 2025 Coda Octopus Group Inc Earnings Call
Good morning. Welcome to Coda Octopus Groups.
Sherri: First Quarter, Cisco 2025 Earnings Conference Call. My name is Sherry and I will be your operator today.
Before this call, Coda Octopus issued its financial results.
Following their remarks, we will be open.
Speaker Change: The call for questions. Before we begin, Geoff Turner from our Investor Relations team will make a brief introductory statement. Geoff, please proceed. Thank you, operator. Good morning, everyone, and welcome to Coda Octopus' first quarter, fiscal 2025 earnings conference call.
Speaker Change: Before management begins their formal remarks, we would like to remind everyone that some statements we are making today may be considered forward-looking statements under securities law and involve a number of risks and uncertainties.
Speaker Change: For more detailed risks, uncertainties and assumptions related to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.
Speaker Change: 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.
as well as uncertainties and other variable circumstances.
Speaker Change: Davis, including but not limited to risks and uncertainties identified in our Form 10K for the year ended October 31, 2024 and Forms 10Q for the first quarter of our fiscal 2025 year.
Speaker Change: I would also like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section of the Coda Octopus website.
Speaker Change: Annmarie? Thanks, Geoff, and good morning everyone. Thank you for joining us for our first course of fiscal year 2025 Earning School.
Speaker Change: For those who are new to the Coda Oxford story, our business is made up of three discrete business operations, the marine technology business, the engineering businesses, and our recently added acoustic census and material business units.
Now turning to highlights relating to the marine technology business.
Speaker Change: In the first quarter, we were confronted with significant headwinds internationally which we believe is related to the uncertainty around the policies of the new US administration as it moves to rebalance its trade relations through the application of tariffs. [inaudible]
Speaker Change: Notwithstanding the change in the U.S. policy on renewables, its new policy on prioritizing domestic energy production of oil and gas, also favors our products and solutions, and we believe that this new policy will in the foreseeable future offset any reduction of revenue from U.S. offshore renewables.
Speaker Change: Furthermore, a key part of our strategy as a group relies on defense spending.
Speaker Change: Although the policy of the new US administration is to reduce defense spending by 8% over a number of years, its foreign policy on defense has also seen Europe including United Kingdom committing to significantly increase spending on defense.
For example,
Speaker Change: Germany is expecting to spend about 428 billion on defense over the common years, in addition to creating a special fund of 535 billion for infrastructure spending over the next 10 years.
Speaker Change: The leaders of the European Union member states have also agreed to allow the member states to exceed the debt ceilings that are in place to allow these countries to borrow for defense investments.
Speaker Change: We therefore believe that despite the short-term disruption caused by uncertainty around critical policies relating to trade defense spending and foreign policy, we believe that these changes will favor our business in the medium-to-long term.
Now turning to highlights relating to the engineering business.
Speaker Change: In the first quarter, our engineering business revenue increased by 77%.
Speaker Change: Now turning to highlights relating to the newly acquired business unit, Precision Acoustics Limited.
Speaker Change: In the first quarter, this newly added business unit contributed 25.2% to our consolidated revenue and 33.3% to our operating income.
Speaker Change: As we navigate the broader headwinds relating to the global policy environment, this new business which is less reliant on defense spending has added to our diversification and resilience of our revenue structure.
Speaker Change: Blair Cunningham, our president of technology, who is the market maker for our technologies, will today be providing a broad overview of some of our activities under these programs during our first quarter.
Speaker Change: Blair will also be available to answer any questions you may have on our technologies, so please use the opportunity to raise such questions during the Q&A session if you have any.
Speaker Change: I will now turn the call over to Blair Cunningham, where he will give a short overview of our core technologies around which we are postulating our group's agenda.
Speaker Change: As Annmarie mentioned, due to uncertainty around critical policies such as trade and defense foreign policy, we saw reduced momentum on several of our defense programs.
Speaker Change: Notwithstanding, we continue to invest in the advancement of our growth pillars.
Speaker Change: Developed under a three-year future naval capabilities contract with ONR and NAVC, the fully developed augmented reality system is commercially available.
Speaker Change: The David Unteverd system presents the largest market opportunity for the technology, and as we have stated previously, this is going through a doctrine evaluation, both by the US Navy and a foreign Navy under the DOS Hardening Program.
These divers are typically military divers, performing special forces operations
Speaker Change: This accomplishment represents a major milestone in the success of the dust harming program. In the first quarter, we also reached another pivotal milestone under the program, receiving our first order for approximately 800,000 for 16 dust systems.
Speaker Change: These systems once delivered will be integrated into the Mark 16 underwater breathing apparatus, the UBA, system for spec war and EOD applications, as well as for the pre-adoption of the dust systems within the untethered diving naval community.
This program delivery will include several key enhancements.
Speaker Change: such as the tight integration of the Mark 16 UBA system, operations and status directly into the Gen 4 David head up display.
Speaker Change: In the current quarter, we also started to work directly with a foreign navy who was participating in the Dust Hardening program and their divers were able to perform a full five day trial, which we believe was very successful and we received positive feedback.
Speaker Change: For example, the US Navy with approximately 4,000 active divers, 75% of these divers use full-face
which aligns with the dust solution.
Speaker Change: Similarly, the majority of public safety and law enforcement divers in the US and estimated to 10,000 divers use the same full face mask dive systems.
Turning to the Eccoscop technology and another of our growth pillars.
Speaker Change: The reminding those who are new to the company, our company is the home of the EGASCO, which is the world's first and highest resolution real-time volumetric 3D imaging sonar for underwater applications.
Speaker Change: We are well-established in the commercial offshore sector, and our ecosystem solutions have revolutionised
Speaker Change: Delivering significant time savings, cost reductions, and enhanced operational efficiency in the most challenging conditions.
Speaker Change: The breakwater market is a good example where we have moved the market from placing only 4 blocks per day up to 260 blocks.
Speaker Change: We hope by this strategy to receive multiple recurring sales under Defence programmes.
Speaker Change: Although there is a shift in global policy on offshore renewables, our technologies are also crucial to oil and gas applications, and more broadly underwater monitoring.
Speaker Change: We also believe that although the US Budget for Defence is reported to be subject to 8% cut, we believe that from the areas specified as the new administration's priorities, these favour our business. Moreover, with Europe's Defence Rearmament Budget, we also believe that in the medium-to-long term, these present significant opportunities for our business.
Speaker Change: In the quarter, as part of the David trials, with the photo Navy, the extra scope was part of these trials.
Speaker Change: Finally, the acquisition of precision acoustics into our group also strengthens the group. And as we said in our last earnings call, the addition of their renowned acoustics expertise positions us to compete for larger defense contracts.
Speaker Change: I will turn the call over to Annmarie and I will be available to take your questions during the Q&A session.
Thank you, Annmarie, and good morning everyone.
All figures are in U.S. dollars.
starting with Raven you.
Speaker Change: In the first quarter of 2025, we recorded a total revenue of $5.2 million compared to $4.5 million in the first quarter of 2024, an increase of 16.8% [inaudible]
Speaker Change: The marine technology business, or products business, generated driving you of 2.3 million compared to 3.5 million, representing a 35.8% decrease over the first quarter of 2024.
Speaker Change: Artistic Sensors and Materials Business, which was added to our group in October 2024, recorded to rating you of 1.3 million.
Speaker Change: Our Marine Engineering Business, or Services Business, generated by a new of 1.6 million, compared to 0.9 million, representing a 7.6% increase over the first quarter of 2024.
Speaker Change: As discussed earlier, our total consolidated revenue increased in the first quarter by 16.8%.
Speaker Change: As Annmarie mentioned in our previous earnings call, we were anticipating a weak quarter for a core business, the marine technology business, where we saw reduced demand, which we believe is due to the uncertain global policy environment.
Speaker Change: Moving on to Gross Profit and Margin. In the first quarter of 2025 we generated a gross profit of $3.4 million compared to $3.1 million in the first quarter of 2024.
Speaker Change: Consolidated Gross Margin was 65.8% versus 69.2% in the first quarter of last year.
Speaker Change: The acoustic sensors and materials business realised gross margin of 61.7% and we expect, on an annualised basis, this to be between 57 and 61% depending on the mix of sales.
Now moving on to all preaching expenses.
Speaker Change: Total operating expenses for the first quarter of 2025 increased to 2.8 million compared to 2.5 million in the first quarter of 2024.
Speaker Change: We expect to remain at this level on an annualised basis.
Speaker Change: Includes and operating expenses are selling, general and administrative costs in the first quarter of 2025, total 2.2 million, an increase of 8.7% from 2 million in the first quarter of 2024, again reflecting the addition of the new business unit into the group.
Speaker Change: As a percentage of revenue are selling general and administrative costs for the first quarter of 20 to 25 were 42.7% reducing from 45.8% in the first quarter of 2024.
Speaker Change: Operating income in the first quarter of 2025, 0.7 million compared to 0.6 million in the first quarter of 2024, an increase of 19.2%.
Speaker Change: operating margin was 12.7% compared to 12.4% in the first quarter of 2024, which we attribute to the increase in revenue, resulting primarily from the addition of the new business unit.
Speaker Change: Income before taxes in the first quarter of 2025 was 0.93 million compared to 0.8 million in the first quarter of 2024 net income after taxes in the first quarter of 2025 was 0.91 million or 8 cents per duality share compared to 0.6 million or 6 cents per duality share in the first quarter of 2024
Speaker Change: Finally, to summarize the financial impact in the current quarter of the introduction of our new acoustic sensors and materials business.
Gross margin, with 0.8 million, margin of 61.7%
Speaker Change: and on a stand-alone basis it generated operating income of 0.5 million and netting them of 0.6 million.
Annmarie: Back in Priet's My Financial Summary, so let me turn the call back over to Annmarie for her closing remarks.
Annmarie: As of today, we're not directly impacted by tariffs, however, to the extent that these may result in a weakening of the global economy, we may be affected.
Annmarie: Furthermore, some of our products are manufactured in the United Kingdom and should the new administration change its policy vis-a-vis the United Kingdom.
We would be impacted.
Annmarie: However, as I said, we are not directly impacted at this moment in time.
Annmarie: Despite the challenges we're seeing in the global economy, I am very pleased with our first quarter to 2025 results.
We continue to work to create [inaudible]
Annmarie: table, long term, shareholder value, and execute against our strategy to increase the number of defense programs that our technologies are embedded in with the goal of securing recurring sales of multiple units under these programs.
Annmarie: We are also very pleased with reaching another pivotal milestone on the David on Cabot System
for $800,000, for $16,000, David on Tethered Systems.
Annmarie: We will also continue to prosecute our M&A strategy and in fiscal year 2025, subject to the satisfactory completion of due diligence and the settling of the global policy environment we anticipate completing another acquisition into the group.
Annmarie: Through our strategy, we aim to pivot the revenue model of the marine technology business to a multi-year multi-fales model as we have started to see with a David product line.
Annmarie: To conclude, we would like to thank our shareholders for their continued support. We are now happy to answer any questions. Operators?
Speaker Change: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation telephone indicator line is in the question queue. You may press star two if you would like to remove your question from the queue. For a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question is from Brian Kinstlinger with Alliance Global Partners. Please proceed.
Brian Kinslinger: Great. Thanks so much for taking my question. My first question is what do you think Annmarie needs to happen from a macro or micro point of view for investors to reasonably expect the marine products to materially recover from the first quarter results?
Speaker Change: I think I would anticipate that Q2 will be quiet for business just because I think until the
Speaker Change: Based on what I see in the pipeline, I think that our revenues will be backended this year. So I think we should see a robust Q3 and Q4 and a softer Q2.
Speaker Change: Okay, but that was in regards to marine products, is that right? I mean, obviously you also talk about defense engineering business until the budgets are more mature. They get past the budget cycle. That's the unknown there as well.
Speaker Change: That's correct. That is overall, I would expect that we'll have a softer Q2, but a more robust Q3 and Q4.
Speaker Change: It's great to see the 16 unit, 800,000 dollar order, and then there was also the test-hardening program. I think you said was completed.
Speaker Change: Can you help frame for investors a timeline going forward for tethered and untethered markets, especially as it relates to revenue or maybe share some targets for the short and medium term?
Blair Cunningham: So I think Blair will talk a little bit more about that, but just to say that let's see.
David.
Speaker Change: This year we're targeting 4.5 million in revenues for David, so a huge jump.
Speaker Change: in David's Revenue, so I would expect, and what I'm excited about on the David Revenue side, on the operating, the kevets system that we have that are operational, we're seeing new commands putting in for acquisition budgets.
Adoption, it's-
Speaker Change: and a large part of that will be made up of the Tethered System, for example, and just to talk a little bit more about that also, Brian , what I'm excited about is we're seeing consistently
Speaker Change: That's the sort of programs we've been targeting and I feel we're seeing that now maturing. So for this year then, as I said, we expect to see for the David system, for the Teddy variant, we expect to see. [inaudible]
Speaker Change: New orders for new commands for the on-tethered system where we've just received 800,000 for 16 systems.
Blair Cunningham: 200% more resolution.
broader adoption following the delivery of the .
Unknown Speaker, the measurements to be done. So,
I assume.
in discussions with an negotiation joint. And then anything changed, again based on global uncertainty, whether it's pricing, there are fundamentals, I guess I'm just wondering again how that might be impacted.
Speaker Change: No, it's not impacted, but I think it is a wise for everyone to wait until...
Speaker Change: The Policy Environment Settles, so I mean one cannot pivot in directions of unknowns.
Speaker Change: At the moment, we're still working on this. We're still very excited and we still see it as an opportunity. But as I said, I definitely think we want to just understand the global policy environment a little bit more before closing the transaction. Thank you very much.
Great, thank you. Thank you, Brian . Thank you
Speaker Change: As a reminder, just start one on your telephone keypad if you would like to ask a question. Our next question is from John Desher with Pinnacle Value Fund, please proceed. Hi, good morning, just to follow up on the...
John Deisher: Acquisition Possibility, mentioned I think that you were doing due diligence. Do you have a definitive agreement and you're doing further due diligence or you're doing due diligence in anticipation of a possible definitive agreement?
that you're working on.
John Deisher: We just need to understand a bit more the global policy environment before we move forward.
Speaker Change: Okay, that makes sense. Is it related to any of the businesses you already own, or would it be a new business like the Acoustics Business?
Speaker Change: It's a new business but also please very well into the defence space also. Our vision is to grow the business to become if you like a mid-tier defence contractor.
Speaker Change: where we are offering, we have bigger defense contracts that we can respond to. I think that the skills and expertise that we would have as a group would really make us a...
form a double supplier into that market.
Speaker Change: Okay, good, that's exciting. When will you know whether it's go or no go for this possible transaction? A couple of months, six months, what do you think is the timing there?
Speaker Change: to moving forward with a transaction. In the meantime, the business but the target is doing very well, so we're keeping very close, if you like, relationship with the target at the moment, but I think it is wise and prudent that we understand the environment that we're working with before closing such a significant transaction for a group.
Okay, we agree. Thank you very much.
Thank you.
Good morning Annmarie.
Good morning, Bill.
Speaker Change: Hey, congratulations on the untimed order, sizable 800,000, 16 being deployed. I'm just curious if this occurred during the quarter, it seems that
It's quite material, either on product development.
Speaker Change: The YA Press release wasn't released during the quarter on such a material event.
Speaker Change: Mican Great, thanks very much for the panel so happy to have you on our equestrian panel. Once again, Lucinda Gates is our European the Pacific Campaign Minister, who has come to us communicating with us on the Coronavirus pandemic and giving us very helpful and kind before timescating guidance on how we can be ready for our next steps. And LTR понять well as time hangs on trying to prepare for that, as we look ahead to the next The code should now be kicking off the annual announcement of the recycling refueling system. Rudie currently member of theical refule thing
Speaker Change: And in fact, most times we're not allowed to release make announcements because we've got to get the customers approval. So this is also a problem for our business because of the sensitivity. So we, for example, can't give you the customer's name.
I understand, okay, thank you very much.
You're welcome.
. . . . . .
Speaker Change: At this time there are no further questions. This will conclude our question in answer session. I would like to turn the call back over to Annmarie Gayle for closing remarks.
Annmarie Gayle: Thank you operator. Thank you for your continued interest in Coda Octopus and thank you for attending to school today. Have a great day. Thank you.
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