Q2 2025 Coda Octopus Group Inc Earnings Call
Operator: Good morning and welcome to Coda Octopus Group's second quarter fiscal 2025 earnings conference call.
Good morning, and welcome Jakarta Octopus group's second quarter fiscal 2025 earnings Conference call. My name is Melissa and I will be your operator today.
Operator: My name is Melissa and I will be your operator today. Before this call, Coda Octopus issued its financial results for the second quarter ended April 30, 2025, including a press release, a copy of which will be furnished, and a report filed with the SEC and will be available on the Investor Relations section of the company's website.
Before this call cut octopus issued its financial results for the second quarter ended April 32025, including a press release, a copy of which will be furnished annual report filed with the SEC and will be available on the Investor Relations section of the company's website.
Operator: Joining us on the call today from Coda Octopus are its Chair and CEO, Annmarie Gayle, its interim CFO, Gayle Jardine, and its President of Technology, Blair Cunningham. Following their remarks, we will open the call for questions.
Murray Gal: Joining us today on the call today from coda octopus or its chair and CEO and Murray Gal, It's interim CFO Gals, Darden and its president of Technology Blair Cunningham.
Speaker Change: Following their remarks, we will open the call for questions before we begin Jeff Turner from our Investor Relations team will make a brief introductory statement Jeff. Please go ahead.
Geoffrey Turner: Before we begin, Geoff Turner from our Investor Relations team will make a brief introductory statement. Geoff, please go ahead.
Geoffrey Turner: Thank you, operator.
Jeff Turner: Thank you operator, good morning, everyone and welcome to taper off in the second quarter fiscal 2025 earnings Conference call before management begins their formal remarks, we would like to remind everyone that some statements. We're making today may be considered forward looking statements under securities law and involve a number of <unk>.
Geoffrey Turner: Good morning, everyone, and welcome to Coda Octopus second quarter fiscal 2025 earnings conference call.
Geoffrey Turner: Before management begins their formal remarks, we would like to remind everyone that some statements we're making today may be considered forward-looking statements under securities law and involve 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 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.
Murray Gal: Risks and uncertainties.
Murray Gal: We caution you that there are a number of factors many of which are beyond our control, which could cause events to differ materially from those described in the forward looking statements.
Murray Gal: A 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.
Geoffrey Turner: 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, 2024, and Forms 10-Q for the first and second quarters of our 2025 fiscal year.
Murray Gal: 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.
Murray Gal: We understand that you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business as well as uncertainties, although variables circumstances, including but not limited to risks and uncertainties identified in our Form 10-K for the year ended October 31 2024.
Murray Gal: And forms 10-Q.
Murray Gal: First and second quarters of 2025 fiscal year.
Geoffrey Turner: You may get Coda Octopus Securities and Exchange Commission filings free by visiting the SEC website at www.sec.gov.
Murray Gal: You may get paid at all with the Securities and Exchange Commission filings Freak by visiting <unk> website at Www SEC Gov.
Geoffrey Turner: 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. Finally, as a reminder, this is our second quarter fiscal 2025 reporting and all comparisons are with our second quarter fiscal 2024.
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 that's kind of dog this website.
Speaker Change: Finally.
Speaker Change: This is our second quarter fiscal 2025 reporting and all comparisons all without second quarter fiscal 2024.
Annmarie Gayle: Now, I will turn the call over to the company's chair and CEO, Annmarie Gayle. Annmarie? Thanks, Geoff, and good morning, everyone. Thank you for joining us for our second quarter fiscal year 2025 earnings call. Despite the challenging global policy environment, our revenue in the second quarter 2025 increased by 31.8%. operating income decreased due to lower gross profit margins from our core business, the marine technology business, due to more units of hardware sales from Asia, which incurred a higher than usual commission cost in conjunction with increased operating costs resulting from the weakening of the U.S. dollar against the British pound and Danish kroner.
Gale: Now I will turn the call over to the company's chair in fee and many gale.
Murray: And Murray.
Murray: Thanks, Jess and good morning, everyone.
Speaker Change: Thanks for joining us for our second quarter fiscal year, 'twenty 25 earnings call.
Speaker Change: Despite the challenging global policy environment, our revenue in the second quarter 'twenty 25 increased by 31.8 to 10.
Speaker Change: Operating income decreased due to lower gross profit margin from our cold based nature than the mean technology basically due to more units of hardware sales from Asia, which incurred a higher than usual commission costs in conjunction with <unk>.
Speaker Change: Increased operating costs, resulting from the weakening of the U S dollar against the British pound and Danish kroner.
Annmarie Gayle: In the second quarter, I am very pleased to see revenue increasing by 31.8 percent.
Speaker Change: In the second quarter, I'm very pleased to see revenue increasing by 31.8%.
Annmarie Gayle: I would like now to provide some of the key highlights relating to our results of operations in the second quarter.
Speaker Change: I would like now to fight some of the key highlights relating to our results of operation in the second quarter.
Annmarie Gayle: For those who are new to the Coda Octopus story, our business is made up of three discrete business operations, the marine technology business, the marine engineering businesses, and our recently added acoustics, sensors, and materials business unit. Within our group, our core business is the marine technology business. This business generates most of our revenue, and in the second quarter, it generated 55.3% of our total consolidated revenue. It is around this business that we're building our growth strategy. The marine technology business operates in the subsea market and is home to key disruptive underwater technologies. These technologies are bringing the smartphone revolution underwater by providing a comprehensive real-time information platform which allows our customers to make real-time decisions and also significantly reducing the cost of these operations while increasing safety.
Speaker Change: But those who are new to the code all the story out.
Speaker Change: This is made up of three discrete business operation the marine technology basically to the Marine engineering basic thesis and our recently added acoustic sensors.
Speaker Change: And materials business unit.
Speaker Change: Within our group our core case me, if the marine technology business.
Speaker Change: This business generates most of our revenue and in the second quarter.
Speaker Change: Naked 55 points, 3% of our total consolidated revenue.
Speaker Change: It's a round at this space nature that we're building our gross strategy.
Speaker Change: The Marine technology basically operates in the subsea market and each hub to key disruptive on the water technologies.
Speaker Change: These technologies are bringing the smartphone revolution on the water by providing a comprehensive real time information platform, which allows our customers to make real time decisions and also significantly reducing the cost of these off.
Speaker Change: The reasons why increasing safety.
Annmarie Gayle: The specific addressable markets that we operate in are the imaging sonar market and diving market. It is these market segments that our growth strategy is built around. Speaking a little bit more about our imaging sonar, the Ecoscope, the Ecoscope is a real-time three-dimensional volumetric imaging sonar that can generate a real-time three-dimensional image underwater in zero visibility water conditions. This 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.
Speaker Change: The specific addressable markets that we operate in are the imaging sonar market and diet market. It is these market segments that our growth strategy is built around it.
Speaker Change: Being a little bit more about our imaging sonar echoes scope.
Speaker Change: The extra scope, it's a real time three dimension no volumetric imaging sonar that can generate a real time three dimension of image.
Speaker Change: The water in zebra visibility water conditions.
Speaker Change: This is widely used in the commercial offshore marine market for a range of all the water application.
Speaker Change: A significant part of our annual revenue is derived from the commercial offshore marine market.
Annmarie Gayle: To achieve the growth that our shareholders want to see from our company, we have to increase our market share for underwater imaging sensors in the defense space. There are many ongoing defense programs globally where new classes of underwater vehicles are being adopted. Significant budgets are appropriated for this. The ECOSCOPE's uniqueness of being a single sensor for multiple on-the-sea activities presents a significant advantage over other technologies. It allows the consolidation of the sensor on the vehicle platform by lowering the power consumption and overall vehicle weight without compromising the various missions to be executed.
Speaker Change: To achieve the growth that our shareholders wanted to see from our company. We have increased our market share for underwater imaging sensors in the defense piece.
Speaker Change: There are many ongoing defense programs globally, where new classes of all need to watch and vehicles are being adult Kid.
Speaker Change: Significant budgets are appropriated for this.
Speaker Change: The episcope uniqueness of being a single stent, so for multiple onto see activities that presents a significant advantage over other technologies.
Speaker Change: It allows the consolidation of the sensor on the vehicle platform by lowering the power consumption and overall vehicle weight without compromising the various missions to be executed.
Annmarie Gayle: We are launching our next generation of three-dimensional sonars imminently, the NanoGen series. The 3D sonars within our NanoGen series are a shade bigger than an iPhone. Once launched, we will be positioned to address the range of opportunities in the imaging sonar space, removing form factor and pricing barriers. The Nanogen series are designed to address the much smaller underwater vehicles which are now being rapidly adopted for undersea missions in the Moreover, the Nanogen series, being so small, can now be easily worn or carried down by the diver or attached to a robot on the water. The development of the Nanogen series is another significant leap forward in the underwater imaging space and a commendable achievement by our R&D team.
Speaker Change: We are launching our next generation of three dimensional soon are imminently.
Speaker Change: No no yeah, and it's serious.
Speaker Change: The three D. So not within our nano Gen Sea rays are a shade baker than an iPhone.
Speaker Change: Once launched we will be positioned to address the range of opportunities in the imaging sonar space.
Speaker Change: Moving form factor and pricing barriers.
Speaker Change: The nano Gen series are designed to address the much smaller underwater vehicles, which are now being rapidly adopted or only to see missions in the tank piece.
Speaker Change: Moreover, the nonrecurrent sea rays being so smaller can now be easily worn or carried down by the dipole or attached to a robot on the water.
Speaker Change: The man of the manager and Sea Ray is there not a significant leap forward in the on the water imaging space.
Speaker Change: A commendable achievement by our R&D team.
Annmarie Gayle: taking the technology and reducing it by two-thirds, we never believed we could achieve this.
Speaker Change: In the technology and reducing it by two starts we never believed we could achieve states.
Annmarie Gayle: Our second key technology is the DVID, the Diver Augmented Vision Display System. The David provides a real-time information platform for diving operations, increasing safety and efficiency. The addressable market for the David includes both the defense and commercial diving sectors. The untethered variant addresses the special forces type of divers and we believe constitutes the largest addressable market for the technology.
Speaker Change: Our second key technology is the David that Dietmar, Oh man kits, they shouldn't get stale fish them.
Speaker Change: But they they provide real time information platform for diving operations, increasing safety and efficiency the addressable market for the deep. It includes both defense and commercial diving sectors.
Speaker Change: Yeah on cabin fare in dressy its the special forces type of diverse and we believe constitutes the largest addressable market for the technology.
Annmarie Gayle: Now turning to second quarter highlights relating to our core business, the marine technology business. This business sells its products and solutions worldwide and increased revenue in the second quarter by 10 percent. Key highlights include 65.5% of revenue generated by this business relates to Ecoscope and 34.2% relates to David. Hardware sales increased by 65% and were $3.3 million compared to $2 million in second quarter 2024. Hardware sales to Asia rose by approximately 105% and were $2.2 million compared to $1.1 million in second quarter 2024. This increase resulted in higher commission costs. Rental assets were significantly underutilized in the second quarter, resulting in lower units of rentals and associated services.
Speaker Change: Now turning to second quarter highlights relating to our core business to the marine technology business.
Speaker Change: They stay there sells its products and solutions worldwide and increased revenue in the second quarter by 10%.
Speaker Change: Key highlights include.
Speaker Change: 65 points, 5% of revenue generated by this business relates to the ACA scoop and 34.2% relates to David.
Speaker Change: Hardware sales increased by 65 cents and worth 3.3 million compared to 2 million in second quarter 'twenty 'twenty four.
Speaker Change: Hardware sales to Asia rose by approximately 105% and were 2.2 million compared to $1 1 million in second quarter 'twenty 'twenty four.
Speaker Change: This increase resulted in higher commission costs.
Speaker Change: Rental assets were significantly under utilized in the second quarter, resulting in lower units of rentals and associated services.
Annmarie Gayle: This also impacted on the gross profit margins of this business. This reflects the change in U.S. policy on funding for offshore renewables, which caused many projects to be shelved, as reported by Shell, Orsted, and BP.
Speaker Change: This also impacted on the gross profit margins of this business.
Speaker Change: This reflects the change in U S policy on funding for offshore renewables, which caused many projects to be shelved it accurately portrayed by shell or stead and B P.
Annmarie Gayle: Looking ahead, however, we're seeing an uptick in the utilization of our rental fleets currently, and we have a number of ongoing rentals which are uniquely for longer rental periods, for up to one year. I'm very excited about this currently. I want to emphasize that although the gross profit margins of our core business decreased in the second quarter, this is due to an exceptional set of circumstances where a higher commission cost was incurred on sales from Asia.
Speaker Change: Looking ahead, how agile we're seeing an uptick in the utilization of our rental fleet currently and we have a number of ongoing rentals, which are uniquely for longer rental periods for up to one year I'm very excited about this.
Speaker Change: Currently.
Speaker Change: I want to emphasize that although the gross profit margins of our core business decreased in the second quarter. This is due to an exceptional set of circumstances, where a higher commission cost was incurred on sales from Asia.
Annmarie Gayle: Now turning to highlights relating to the marine engineering business. In the second quarter, our marine engineering business revenue increased by 2.3 percent along with gross profit margin from 50.7 percent in the second quarter to 55.5 percent in the second quarter 2025. This business has long standing relationships with prime defense contractors and has served the defense market for over 48 years. It is reliant on receiving funding on the defense programs. During the second quarter, it saw an increase in the level of inquiries on the defense programs and also much more momentum around these inquiries. We also saw an increase in opportunities for direct contracts with the Department of Defense, DOD, which positions this segment to be able to compete for more work packages directly with the DOD as opposed to exclusively through prime defense contractors.
Speaker Change: Now turning to highlights relating to the marine engineering business.
Speaker Change: In the second quarter, our Marine engineering business revenue increased by 2.3% along with gross profit margin from 57% in the second quarter at 55, 5% in the second quarter 2025.
Speaker Change: This business has long standing relationships with Prime defense contractors and have served the defense market for over 40 years.
Speaker Change: It is reliant on receiving fun being on the defense group rooms during.
Speaker Change: During the second quarter. It saw an increase in the level of inquiries on the defense programs and also much more momentum around these and inquiries.
Speaker Change: We also saw an increase in opportunities for direct contract with the department of Defense D. O D, which position this segment to be able to compete for more work packages directly with the D O D as opposed to exclusively.
Speaker Change: Through Prime defense contractors.
Annmarie Gayle: The success of the marine engineering business is dependent on increasing the number of defense programs that they sell proprietary parts into. The momentum that we're seeing, therefore, is exciting. With defense budgets increasing globally and real pace being injected into this area, we are excited about this and feel that the group is well positioned.
Speaker Change: The success of the Marine Engineering business is dependent on increasing the number of defense programs that do sell a proprietary parts into.
Speaker Change: The momentum that we're seeing therefore is exciting.
Speaker Change: Defense budgets, increasing globally and rail piece being injected into this area. We are excited about this and feel that the group is well positioned.
Annmarie Gayle: Now turning to highlights relating to the newly acquired business unit, Precision Acoustics Ltd. In the second quarter, this newly added business unit contributed 18.5% to our consolidated revenue and 13.4% to our operating income. This business unit has added some diversification and resilience to our revenue structure.
Speaker Change: Now turning to highlights relating to the newly acquired business unit precision acoustics limited.
Speaker Change: In the second quarter. This newly added business unit contributed 18.5% two our consolidated revenue and 13.4% to our operating income.
Speaker Change: This is a key business unit has added some diversification and resilience to our.
Speaker Change: Our revenue structure.
Annmarie Gayle: We continue to be very pleased with this acquisition, which we made in October 2024, and reiterate that it positions the group to collectively respond to larger defense requirements, particularly in the underwater acoustics space. We continue to make it our priority to focus on executing against our growth strategy. And in the second quarter, we saw an increase in sales of both the Ecoscope and David.
Speaker Change: We continue to be very pleased with this acquisition, which we made in October 'twenty 'twenty, four and reiterate that it positions the group to collectively respond to larger defense requirements, particularly in the on the water acoustics space.
Speaker Change: We continue to make it our priority to focus on executing against our growth strategy and in the second quarter. We saw an increase in sales of both the echo Scoop and David.
Annmarie Gayle: 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. Blair will also be available to answer any questions you may have about our technologies. So please use the opportunity to raise such questions during the Q&A session if you have any.
Speaker Change: Claire Cunningham, our president of technology, who is the market maker for our technologies.
Speaker Change: We'll be updating you on progress and various milestones around our core technologies.
Speaker Change: There will also be available to answer any questions. You may have about our technologies to please use the opportunity to raise such questions. During the Q&A session. If you have any.
Blair Cunningham: I will now turn the call over to Blair Cunningham. Thank you, Annmarie, and good morning, everyone. Today I want to focus on the addressable markets for our technology and to expand on what we're doing to grow the business as shareholders want us to do. I hope this will be helpful to our shareholders.
Blair Cunningham: I will now turn the call over to Blair Cunningham.
Speaker Change: Thank you Anne Marie.
Blair Cunningham: And good morning, everyone today, I want to focus on the addressable market for our technology and to expand in what we're doing to grow the business of shareholders want us to do.
Speaker Change: This will be helpful to our shareholders.
Blair Cunningham: The Ecoscope. The biggest market opportunities for scalable growth for our company around the Ecoscope lie in the defense space, which is undergoing a major transformation through the deployment of new classes of underwater vehicles, including manned, unmanned surface and fully autonomous platforms. These platforms vary dramatically in size, from large vehicles exceeding 85 feet in length and weighing over 85 tons, to compact one-person deployable systems. Despite this diversity, a common requirement across all platforms is the need for reliable underwater vision. This capability is essential for safe and accurate navigation, situational awareness, environmental understanding, data collection, and mission execution.
Speaker Change: The scope the biggest market opportunities for scalable growth for our company around the ACA scoped lie in the defense space, which is undergoing a major transformation through the deployment of new classes of underwater vehicles, including manned unmanned surface and is fully autonomous platforms.
Speaker Change: These platforms are daily dramatically in size from large vehicles exceeding 85 feet and life's unwavering over 85 tons compact one person deployable systems.
Speaker Change: Despite this diversity a common requirement across all platforms is the need for reliable underwater vision.
Speaker Change: This capability is essential for safe and accurate navigation situational awareness environmental understanding.
Speaker Change: Data collection and mission execution.
Blair Cunningham: The ECOSCOPE directly addresses these needs by providing high-resolution, real-time 3D imaging in complex underwater environments. The defence sector deploys these underwater vehicles for a range of mission critical applications, most notably mine countermeasures or MCM, anti-submarine warfare or ASW, surveillance and reconnaissance and infrastructure protection. Currently, the ECOSCOPE is being evaluated for integration into active future defence programmes supporting three of these core mission areas, positioning it as a vital enabler in next generation underwater operations. All next generation defense vehicle programs share a common objective. Integrating advanced technologies and enhanced capabilities central to this evolution is the development of smarter vehicles equipped with tools like the ECOSCOPE.
Speaker Change: Cook directly addresses these needs by providing high resolution real time, three D imaging and complex under water environments.
Speaker Change: The defense sector deploys these underwater vehicles for a range of mission critical applications, most notably mine countermeasures for MCM anti.
Speaker Change: Anti submarine warfare or ASW.
Speaker Change: Some of the chromosomes and infrastructure protection.
Speaker Change: Only the scope is being evaluated for integration into active future defense programs supporting three of these core mission areas positioning it as a vital enabler a next generation underwater operations.
Speaker Change: All next generation defense vehicle programs share a common objective.
Speaker Change: Integrating advanced technologies and enhance capabilities central to this evolution is the development of smarter vehicles equipped with tools like the <unk> scope.
Blair Cunningham: Technology that delivers real-time, three-dimensional data for informed decision-making. Its versatility across a wide range of defence mission applications supports the consolidation of sensor suite requirements on these platforms. A key advantage lies in addressing SWOP, which is size, weight and power constraints. By reducing the number of sensors required, the ECOSCOPE helps lower power consumption and overall vehicle weight, directly contributing to extended mission duration. This capability represents a unique and valuable benefit the X-Scope brings to the defence technology space.
Speaker Change: Technology that delivers real time, three dimensional data or inform decision making.
Speaker Change: Its versatility across a wide range as defense mission applications supports the consolidation of sensor suite requirements on these platforms.
Speaker Change: A key advantage lies in aggression swap, which is size weight and power constraints.
Speaker Change: By reducing the number of sensors required.
Speaker Change: Scope helps lower power consumption and overall vehicle weight directly contributing to extended mission durations.
Speaker Change: This capability represents a unique and valuable benefit the exco brings to the defense technology space.
Blair Cunningham: To address the full spectrum of underwater vehicles, we have been actively investing in the development of our next generation 3D sonar technology. We're now on the cusp of launching our Nano GEM series, a compact, high performance product line that represents a significant milestone in our growth strategy. Designed with minimal form factor, some models in this series are only slightly larger than an iPhone. This compact size enables seamless integration with the smaller next generation underwater vehicle programs currently in development. The NanoGen series also extends our capabilities into new mission domains. It aligns well with the DAVID, the Diver Augmented Vision Display Program, offering a sonar solution that can be easily hand carried by a diver.
Speaker Change: To address the full spectrum of underwater vehicles, we have been actively investing in the development of our next generation screening sooner technology. We're now on the cusp of launching our nano Jam series.
Speaker Change: Packed high performance product line that represents a significant milestone in our growth strategy.
Speaker Change: Designed with minimal form factor some models on the Cds are only slightly larger than an iPhone.
Speaker Change: This compact size enables seamless integration with the smaller next generation underwater vehicle programs currently in development.
Speaker Change: The novel James Cds also extends our capabilities into new mission domains. It aligns well with the David Guybrow augmented vision display program offering a sooner solution that can be easily carried by a diver.
Blair Cunningham: Additionally, it opens up new opportunities in the robotics market, as the miniaturized Ecoscope can now be mounted on a variety of robotic platforms, regardless of size, without compromising performance. Currently, the ECOSCOPE accounts for approximately 80% of our revenue in the marine technology business. The NanoGen series strengthens this core product line, while strategically positioning us to capture emerging segments across defence, commercial and robotic underwater applications. The unmanned underwater vehicles or UUV market was valued at $4.8 billion in 2024 and is projected to grow to $11.1 billion by 2030. This growth is being driven by the rising complexity of maritime threats and the increasing demands for cost-effective, low-risk technology.
Speaker Change: Additionally, it opens up new opportunities in the robotics market as the miniaturize back to school to 90 mounted on a variety of robotic platforms, regardless of size without compromising performance.
Speaker Change: Suddenly the scope of tanks for approximately 80% of our revenue in the marine technology business. The nano Jang CD strengthens this core product lines, while strategically positioning us to capture emerging segments across defense commercial and robotics on the water applications.
Speaker Change: The unmanned underwater vehicles are you UV market was volumes at $4 $8 billion in 2024 and is projected to grow to $11.1 billion by 'twenty therapy.
Speaker Change: This growth is being driven by the rising complexity of maritime threats and the increasing demand for cost effective low risk technologies.
Blair Cunningham: As a result, remotely operated vehicles, or ROVs, and other UUVs are becoming integral to defence strategies around the world. The ECOSCOPE is currently under evaluation in several major defense programs, including those involving next generation underwater vehicles. Its ability to deliver real time, high resolution 3D imaging positions it as a critical enabler for enhanced navigation, threat detection and mission execution across a broad range of maritime operations.
Speaker Change: A result remotely operated vehicles or Rovs and other you use these are becoming integral to defense strategies around the world.
Speaker Change: The Echo scope is currently under evaluation in several major defense programs, including those involving next generation underwater vehicles.
Speaker Change: Its ability to deliver real time high resolution three be imaging positions yet.
Speaker Change: Critical enabler for enhanced navigation, but detection and mission execution across a broad range of maritime operations.
Blair Cunningham: I also mentioned on previous calls, we have developed a ship hull scanning solution under a multi-year funded defense program with the ECOSCOPE embedded at the core of the system. Sir Paul Stanning addresses a significant and persistent challenge, the threat posed by unauthorised attachments such as mines or tracking devices on the hulls of high-value naval assets. This is a global concern with critical implications for security, readiness and asset protection. We believe our solution, which is now undergoing formal evaluation, represents the most advanced capability available for this application. The recent introduction of our NanoGen series further enhances this offering, making it more adaptable to small form factor platforms such as remotely operated vehicles and diver sleds, but are often constrained by payload size and weight.
Speaker Change: I also mentioned on previous calls we have developed a ship hold standing solution under a multiyear funded defense program with the echo scope embedded at the core of the system.
Speaker Change: Pulse styling addresses a significant and persistent challenge the threat posed by unauthorized attachments such as mines are tracking devices on the halls of high volume naval assets.
Speaker Change: This is a global concern with political implications for security readiness and asset protection.
Speaker Change: We believe our solution, which is now undergoing formal evaluation represents the most advanced capability available for this application.
Speaker Change: The recent introduction of our new James Cds polar enhancing this offering.
Speaker Change: Get more adaptable to small form factor platforms, such as remotely operated vehicles and diverse slides, but are often constrained by payload size and weight.
Blair Cunningham: We anticipate receiving initial small-volume orders late this year to support broader trials. These early developments will serve as key steps towards accelerating adoption and demonstrating the value of our solution in real-world defence environments.
Speaker Change: We anticipate receiving initial small volume orders late this year to support broader trials. These early developments will serve as chief steps towards accelerating adoption and demonstrating the value of our solution and real world defense environments.
Blair Cunningham: David. The other significant pillar of growth is the David. David technology is an advanced augmented reality display technology designed to enhance diverse safety, performance, and situational awareness, especially in low visibility and technically challenging environments. It seamlessly integrates real-time data, on-demand information, and Echoscope 3D sonar imagery, projecting these onto the diver's field of vision through the David Augmented Reality Head-Up Display. David's tethered variant is in adoption with the U.S. Navy, and in the second quarter we had orders for David's systems of over $1.5 million. These new systems will be distributed to new commands, and thereby increasing the user base of the technology to around 12 Navy commands.
Speaker Change: David.
David: Although a significant pillar of growth is to David.
David: David Technology as an advanced augmented reality display technology designed to enhance diversity.
David: Safety performance and situational awareness, especially in low visibility and technically challenging environments.
Speaker Change: It seamlessly integrates real time data on demand information and echo scope three the sonar imagery projecting these onto the divers field division, David augmented reality head up display.
Speaker Change: David Tethered variant is an adoption with the U S. Navy and then the second quarter, we had orders from David systems of over $1 $5 million. These new systems will be distributed to new commands and thereby increasing the user base and the technology to around 12, maybe commands.
Blair Cunningham: This is an important step in the adoption of the technology. As with the increased use in live missions, this will propel the broader adoption. The David Untether system, which presents the largest opportunity for the technology, is still being evaluated.
Speaker Change: This is an important step in the adoption of the technology.
Speaker Change: As with the increased use in like emissions this will propel the broader adoption.
Speaker Change: David Untether system, which presents the largest opportunity for the technology is still being evaluated.
Blair Cunningham: and following the completion of the David untethered system development hardening program by us, under which we delivered key items, such as the new generation of HUD in a much smaller form factor and higher resolution in the first quarter of 2025 received our first order for 16 untethered systems, which is pivotal for the broader adoption of the technology in the defense community. We will be delivering these systems in our third quarter. For context, in the U.S. alone, there are 14,000 divers within the potential community of users for the untethered system, U.S. Special Forces, EOD, U.S. Army, Marine Corps, U.S.
Speaker Change: And following the completion of David Untethered system development hard thing program by Us under which we delivered key items such as the new generation of hub and a much smaller form factor and higher resolution in the first quarter of 2025, we received our first order for <unk>.
Speaker Change: 16, Untethered systems, which is pivotal for the broader adoption of the technology and the defense community.
Speaker Change: We will be delivering these systems and our third quarter.
Speaker Change: For context in the U S alone there are 14000 diverse within the potential community of users for the <unk> system.
Speaker Change: U S special forces you'd be U S Army Marine Corps U S Coast Guard first responders law enforcement.
Blair Cunningham: Coast Guard, first responders, and law enforcement. If we were to achieve 15% of these users, this would, without modeling for inflation, add approximately $105 million to our revenue over time. This is the U.S. market alone. Recent feedback from several major defense trials on the David confirms the significance and uniqueness of David technology. The feedback also emphasised the benefits and criticality of combining the David With Ecoscope in low-visibility environments. again giving us good insight that the full-scale adoption by user groups is likely to include ECOSCOPE. In keeping with this, in this year alone, we have five David related development projects where various other sensors are being integrated in the David.
Speaker Change: If we were to achieve 15% of these users. This route with that modeling for inflation at approximately 105 million to our revenue over time. This is the U S market alone.
Speaker Change: Recent feedback from several major defense trials on David confirms the significance and uniqueness of data technology.
Speaker Change: The feedback also emphasize the benefits and criticality of combining the David with Exco move visibility environments of gang, giving us good insight the full scale adoption by user groups is likely to include Echo scope.
Speaker Change: In keeping with this and this year alone we have five David related development projects.
Speaker Change: Various other sensors are being integrated in the David.
Blair Cunningham: to ensure that all U.S. defense sensors used by the various missions are available in the David. We believe we have created the David Solution ecosystem, which is well positioned to serve the global defense and commercial diving market.
Speaker Change: To ensure that all U S defense sensors used by the various missions are available in the David.
Speaker Change: We believe we have created the David solution ecosystem, which is well positioned to serve the global defense and commercial diving market.
Blair Cunningham: One of our key milestones for this year is the adoption of the David Diver Augmented Vision Display technology for foreign navies, expanding its use beyond the U.S. Navy. We are making strong progress towards this goal. In the second quarter, we showcased the David system at the Special Operations Command SOCOM annual conference and exhibition, where it was demonstrated to multiple foreign naval delegations. Importantly, the event also brought us into direct engagement with leading defense diving equipment manufacturers who play a critical role in the successful integration of David into broader diving systems. These demonstrations and discussions mark a significant step in advancing international awareness, validation, and future adoption of the David technology.
Speaker Change: One of our key milestones for this year is the adoption of the David diver augmented vision display technology for foreign navies.
Speaker Change: Expanding its use beyond the U S. Navy, we are making strong progress towards this goal in the second quarter, we showcase the David system at the special operations Command, So calm annual conference and exhibition, where it was demonstrated to multiple foreign legal delegations.
Speaker Change: Fortunately the event also brought us into direct engagement with leading defense diving equipment manufacturers, who play a critical role in the successful integration of David into broader diving systems.
Speaker Change: These demonstrations and discussions Mark a significant step in advancing international awareness validation by future adoption of the data technology.
Blair Cunningham: Additionally, in the quarter, I personally led our team in a live demonstration of the David system to a foreign Navy conducted in collaboration with a local law enforcement dive unit. an existing customer of both the ECOSCOPE and our UIS underwater imaging system. This demonstration not only highlighted the operational value of David, but also reinforced the benefit of its seamless integration with the ECOSCOPE. Second demonstration with his Navy is already scheduled, where David and the ECOSCOPE will be deployed during a live operational mission to showcase their combined capabilities in a real-world environment. This particular Navy holds significant influence within the European Defence Caucus and manages a centralised procurement budget covering the Navy, Army, Special Forces and Coast Guard equivalents, making it a strategically important partner in our international expansion.
Speaker Change: Additionally, in the quarter I personally lidar team in a live demonstration of the David system to a foreign Navy conducted in collaboration with a local law enforcement dive units.
Speaker Change: An existing customer of both the Echo school and are you I guess underwater imaging system. This demonstration not only highlighted the operational vol. You wish David but also reinforced the benefit of our seamless integration with the ACA scope.
Speaker Change: Second demonstration with US Navy is already scheduled with David and the <unk> will be deployed during a live operational mission to showcase their combined capabilities in a real world environment.
Speaker Change: This particular navy hold significant influence within the European Defense Caucus and manages a centralized procurement budget covering the Navy Army Special forces and coast Guard equivalents, making it a strategically important partner in our international expansion.
Annmarie Gayle: I will turn the call over to Annmarie and I will be available to take your questions during the Q&A session. Thank you, Blair.
Speaker Change: I will turn the call over to Anne Marie and I will be available to take your questions during the Q&A session.
Speaker Change: Thank you Blair.
Gayle Jardine: Let me now turn the call over to our interim CFO, Gayle Jardine, to take you through our financials for the second quarter 2025, before I provide my closing remarks. Gayle? Thank you Annmarie and good morning everyone. Let me take you through our second quarter Fiscal 2025 financial results. For reference, all income statement comparisons are with second quarter fiscal 2024 and all figures are in US dollars.
Speaker Change: Let me now turn the call over to our interim CFO Gayle C or D to take you through our financials for the second quarter 'twenty 25, before I provide my closing remarks Gabe.
Speaker Change: Thank you Anne Marie and good morning, everyone.
Speaker Change: Let me take you through our second quarter fiscal 2025 financial results.
Speaker Change: Reference all income statement comparisons of a second quarter of fiscal 2024, and all figures are in U S dollars.
Gayle Jardine: starting with Reading You. In the second quarter of 2025, we recorded total revenue $7.0 million, compared to $5.3 million in the second quarter of 2024, an increase of 31.8%. Our core business, the marine technology business, generated revenue of $3.9 million compared to $3.5 million, a 10% increase with the second quarter 2024. Our Acoustic Sensors and Materials business, which was added to our group in October 2024, recorded revenue of £1.3 million. Our Marine Engineering business or Services business generated revenue of £1.84 million compared to £1.80 million, representing a 2.3% increase over the second quarter of 2024.
Speaker Change: Gotcha.
Speaker Change: In the second quarter of 2025, there's recorded total revenue of 7.0 million compared to $5 3 million in the second quarter of 'twenty 'twenty four.
Speaker Change: An increase of 31, 8%.
Speaker Change: Core business emerging technology business generated revenue of $3 9 million compared to 3.5 million.
Speaker Change: 10% increase, but the second quarter 'twenty to 'twenty four.
Speaker Change: Our acoustic sensors and materials business.
Speaker Change: Was that the Turkish connector for 'twenty 'twenty four car train you have one 3 million.
Speaker Change: In Marine engineering business surfaces business generates 1.84 million compared to one point is even a million representing 2.8% increase over the second quarter of 2024.
Gayle Jardine: Our total consolidated net revenue increased by 31.8%. The newly added business, Position Acoustics, added 18.5% to our consolidated revenue in the second quarter.
Speaker Change: Our total consolidated net revenue increased by 31, 8% and newly added business position acoustics added $18, 5% to a consolidated way here in the second quarter.
Gayle Jardine: Moving on to gross profit and margin. In the second quarter of 2025, we generated gross profit of $4.5 million, compared to $3.7 million in the second quarter of 2024. Consolidated gross margin was 64.1% versus 70.2% in the second quarter of last year. In our marine technology business, gross margin decreased to 67.7% in the second quarter of 2025, compared to 80.2% in 2024. reflecting higher commission costs attributed to increased sales in Asia for hardware in conjunction with a lower utilisation of our rental assets, therefore reducing rental income and associated services. The acoustic sensors and materials business realise gross margin of 65.4% and we expect on an annualised basis this to be between 59 and 63% depending on the mix of sales.
Speaker Change: Moving onto gross profit and margin.
Speaker Change: The second quarter of 2025, we generated gross profit of $4 5 million compared to 3.7 million in the second quarter of 2024.
Speaker Change: Consolidated gross margin was 64.1%, especially 72% in the second quarter of last year.
Speaker Change: And our marine technology business gross margin decreased to 67, 7% in the second quarter of 2025 compared to 82% in 2024.
Speaker Change: The slightly higher commission costs attributed to increased sales in Asia for.
Speaker Change: For hardware in conjunction with a lower utilization of our rental assets. Therefore Richardson rental income.
Speaker Change: Associated services.
Speaker Change: We have to stick sensors and materials business realized gross margin, 65.4% and we expect on an annualized basis. This should be between 50 960, 60% depending on the mix of sales.
Gayle Jardine: Our marine engineering business gross margin increased to 55.5% in the second quarter of 2025 versus 50.7% in the second quarter of 2024, again reflecting the mix of engineering projects during the second quarter of this year.
Speaker Change: Marine Engineering business gross margin increased to 55.5% in the second quarter of 2025.
Speaker Change: She's 50.7% in the second quarter of 2024 again, the slight change in mix of engineering projects during the second quarter of this year.
Gayle Jardine: Now moving on to our operating expenses, total operating expenses for the second quarter of 2025 increased to $3.4 million compared to $2.4 million in the second quarter of 2024. The main factors for the increase in total operating expenses were the addition of precision acoustics into the group, which added 29.5% to these costs, and the weakening of the US dollar against British Pound and Danish Kroner, which impacted on these costs when translated into US dollars from the base currencies for reporting purposes. Our selling, general and administrative costs in the second quarter of 2025 totaled $2.7 million, an increase of 47.4% from $1.8 million in the second quarter of 2024, reflecting the addition of the new business unit into the group and the exchange rate adjustment charges.
Speaker Change: Now moving onto operating expenses total operating expenses for the second quarter of 2025 increased to 6.4 million compared to $2.4 million in the second quarter of 2024.
Speaker Change: The main factors for the increase in total operating expenses with the addition of physician acoustics into the grid, which led to 29.5% these costs.
Speaker Change: And the weakening of the U S dollar against pitch paint and Danish kroner, which impact it on these calls when translated into U S dollars from debased currencies for reporting purposes.
Speaker Change: Our selling general and administrative costs in the second quarter. Thanks to entice totaled $2 7 million, an increase of 47.4% from 1.8 million second quarter of 2024.
Speaker Change: Alex and the addition of the new business unit into the grid and.
Speaker Change: The exchange rate adjustment charges.
Gayle Jardine: As a percentage of revenue, our selling general and administrative costs for the second quarter of 2025 were 38.8%, compared to 34.7% in the prior year quarter. Operating income in the second quarter of 2025 was $1.1 million, compared to $1.4 million in the second quarter of 2024, a decrease of 19.5%. Operating margin is 15.5% compared to 25.4% in the second quarter of 2024, which we attribute to the increase in cost of revenue and total operating expenses for the reasons explained earlier. Pre-tax income in the second quarter of 2025 was £1.3 million, compared to £1.6 million in the second quarter of 2024.
Speaker Change: As a percentage of revenue selling general and administrative costs for the second quarter of 2025, 58, 8% compared to 34, 7% in the prior year quarter.
Speaker Change: Operating income in the second quarter of 2025, with $1 1 million compared to $1.4 million in the second quarter of 2024, a decrease of 19.5%.
Speaker Change: Operating margin was 15, 5% compared to 25.4% in the second quarter of 2024.
Speaker Change: But she tip it to the increase in cost of revenue and total operating expenses for the reasons explained earlier.
Speaker Change: Pre tax income in the second quarter of 2025, with one <unk> million compared to 1.6 million in the second quarter of 2024.
Gayle Jardine: Net income after tax in the second quarter of 2025 was 0.9 million or 8 cents per diluted share. compared to 1.4 million or 13 cents per deleted share in the second quarter of 2024.
Speaker Change: Net income after taxes, the second quarter of 2000 25.9 million or eight cents per diluted share.
Speaker Change: Compared to one 4 million affecting same spiritualist church second quarter F 'twenty to 'twenty four.
Gayle Jardine: Looking now at our balance sheet, as of April 30, 2025, we had $24.5 million in cash and cash equivalents on hand and no debt. This represents an increase of $2 million from October 31, 2024, with a comparable figure of $22.5 million.
Speaker Change: Looking at our balance sheet as of April <unk> 2025, we had $24 5 million in cash and cash equivalents on hand and no debt. This.
Speaker Change: This represents an increase of 2 million on October 31st Tranches 94 visit.
Speaker Change: Powerful thicker $22.5 million.
Gayle Jardine: Finally, to summarise the financial impact in the current quarter of the introduction of our new Acoustic Sensors and Materials business into the group They contributed 18.5% total revenue in the quarter and the gross profit margin was $0.8 million or 65.4%.
Speaker Change: Finally to summarize financial impact in the current quarter of the introduction of acoustic sensors and materials business into the grid.
Speaker Change: They contributed 18.5% total revenue in the quarter and the gross profit margin was 0.8 million or 65.4%.
Annmarie Gayle: That completes my financial summary, so let me turn the call back over to Annmarie for her closing remarks. Thank you. Thank you, Gayle.
Speaker Change: That completes my financial summary, now let me turn the call back over time Mary for her closing remarks. Thank you.
Mary: Thank you Gail.
Annmarie Gayle: I am very pleased with the increase in revenue in the second quarter 2025. Although the gross profit margins of our core business decreased, I considered this exceptional for the reasons explained earlier. The weakening of the U.S. dollar also resulted in higher operating costs being translated into U.S. dollars by our foreign subsidiaries. These two factors resulted in lower income and earnings per share.
Mary: I am very pleased with the increase in revenue in the second quarter 'twenty 'twenty five.
Mary: Although the gross profit margins of our core business. The Creek I considered this exceptional for the reasons explained earlier.
Mary: The weakening of the U S. Dollar also resulted in higher.
Mary: Operating costs being translated into U S dollars by our foreign subsidiaries.
Mary: These two factors resulted in lower income and earnings per share.
Annmarie Gayle: We continue to work to create stable long-term shareholder value and execute against our strategy to grow the business, which is our single biggest priority as a group. We're also very pleased with the broader progress that we're making on the DAVID program. The DAVID is the subject of various ongoing trials and limited use on live missions. As part of this, recent trials were conducted by a major body responsible for assessing the readiness of the technology for deployment. This trial concluded that the DAVID technology is significant and unique. It also concluded that combining DAVID with our three-dimensional sonar ethoscope makes it unique for diving operations.
Mary: We continue to work to create stable long term shareholder value and execute against our strategy to grow the business, which is our single biggest priority as a group.
Mary: We're also very pleased with the broader progress that we're making on the deep it program.
Mary: David is the subject of various ongoing trials and limited use on life missions as parts of space. Recent trials were conducted by a major body responsible for assessing the readiness of the technology for deployment.
Mary: This trial concluded that the data technology is significant and unique.
Mary: It also concluded that combining David without three dimension of sonar echoes scope makes it unique for diving operations.
Annmarie Gayle: As part of this recognition, we see the galvanization of different development programs. We are under contract for five developments currently, where other sensors that this community use is now being integrated in the DAVID ecosystem. These are strong indicators that this is the technology of choice for future diving operations in the defense space.
Mary: Part of this recognition, we see the galvanized nation of different development programs.
Mary: We are under contract for site development currently where other senses that this community use is now being integrated in the deep it ecosystem.
Mary: These are strong in the indicators that this is the technology of choice for future diving operations in the defense space.
Annmarie Gayle: A key milestone which we are focused on achieving this fiscal year is adoption of the David by foreign navies and this is progressing well.
Mary: A key milestone, which we're focused on achieving this fiscal year is the adoption of the deep they'd buy foreign navies and this is progressing well.
Annmarie Gayle: We will also continue to prosecute our M&A strategy in fiscal year 2025, although we have put on hold the acquisition which we were working on until the global policy environment has stabilized. I want to emphasize that we have not abandoned our M&A strategy. We're simply focusing on navigating the policy environment and ensuring that our decisions are sound for our shareholders. Through our strategy, we aim to pivot the revenue model of the marine technology business to a multi-year, multi-sales model, as we have started to see with the David product line.
Mary: We will also continue to prosecute our M&A strategy in fiscal year 'twenty 25, although we have put on hold the acquisition, which we were working on until the global policy environment has stabilized.
Mary: I want to emphasize that we have not abandoned our M&A strategy, we're simply focusing on navigating the policy environment and ensuring that our decisions are sound or our shareholders.
Mary: Through our strategy, we aim to pay for the revenue model of the Marine technology business to a multi year multi sales model as we have started to see with a David product line.
Annmarie Gayle: To conclude, we would like to thank our shareholders for their continued support.
Mary: To conclude we would like to thank our shareholders for their continued support.
Operator: We're now happy to answer any questions. Operator.
Mary: We're now happy to answer any questions operator.
Operator: Thank you.
Speaker Change: Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd 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.
Operator: If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question...
Operator: You may press star 2 if you'd like to remove your question from the For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Brian Kinstlinger: Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners, please proceed with your question. Hi, guys. Thanks for taking my questions.
Speaker Change: Our first question comes from the line of Brian Kinsinger with Alliance Global Partners. Please proceed with your question.
Brian Kinsinger: Hi, guys. Thanks for taking my questions.
Annmarie Gayle: During the last earnings call, Annmarie, you said, given the uncertainty in global trade, there was a standstill by customers as it relates to your marine products business, and so you thought revenue would be back unloaded this fiscal year. First, what changed that led to the stronger-than-expected second quarter demand for marine products? Did orders pull forward quicker than expected, or is it something more broadly that's changed from a demand-to-demand basis?
Mary: During the last earnings call and re you said given the uncertainty in global trade there was a standstill by customers as it relates to your marine products' business in <unk>.
Mary: So you thought revenue would be backend loaded this fiscal year.
Mary: First what changed that led to the stronger than expected second quarter demand for marine products did orders pulpboard quicker than expected.
Mary: Or is it something more broadly broadly sorry, that's changed from a demand perspective.
Brian Kinsinger: Okay.
Annmarie Gayle: Hi, Brian. Good morning. Thank you very much for your question. Look, what we're seeing in the marine, our core business, the marine technology business is really, really strong inquiries around our ex-scope technology, particularly on the outright purchase side. So I think we saw a really strong level of inquiries from Asia in particular, and that continues on the hardware side. Also, we also saw a strong pickup around the David program, and we had in the quarter $1.2 million worth of David sales. The one thing that we saw which was the real sort of downturn in inquiries from European developers in the second quarter but we're now seeing that moving forward and more rentals going ahead in the third quarter.
Brian Kinsinger: Hi, Brian Good morning, Thank you very much for your question.
Brian Kinsinger: Look what we're seeing in the marine our core business. The Marine technology business is really really strong inquiries around our ex school technology, particularly on the outright purchase side.
Brian Kinsinger: So I think we saw really strong level of inquiries from Asia in particular and that continues on the hardware side or stool. We also saw a strong pick up around the David program.
Brian Kinsinger: We had in the quarter $1 2 million dollars' worth of deep at CS.
Brian Kinsinger: The one thing that we saw which what's the real sawtooth downturn in inquiries from European developed it is in the second quarter, but we're now seeing that moving forward and more rentals going ahead in.
Brian Kinsinger: In the third quarter. So overall I think what we're seeing strong level of inquiries right across the piece, that's the marine technology business and our engineering businesses.
Annmarie Gayle: So overall I think what we're seeing strong level of inquiries right the piece that the marine technology business and our engineering businesses. Great.
Speaker Change: Great and then did you share the expected, claiming the new nano at the scope release I think you talked about backend trials and then can you discuss how this new release, you'll dressed as customer feedback and could lead to increased adoption and use cases.
Annmarie Gayle: And then did you share the expected timing, the new nano ethoscope release? I think you talked about back-end trials. And then can you discuss how this new release addressed is customer feedback and could lead to increased adoption and use cases? Well, first of all, we're really on the cusp of our release in Nano. Blair Cunningham, our president of technology, has significant trials with Nano, I think, the end of this month for a critical defense program. So after those trials are concluded, we would expect to really make an announcement to our customer base. We'd like to see how those trials go.
Speaker Change: Well first of all we're really on the cusp of a release in nano Claire Cunningham President of technology has significant trials with nano I think are the and just this month for a critical defense program. So.
Speaker Change: After those trials are concluded we would expect to really make an announcements to our customer base, we'd like to see how those trials go but Blair will talk more about this but what were what what nano addresses it's really the smaller classes of underwater vehicles.
Annmarie Gayle: But Blair will talk more about this, but what Nano addresses is really the smaller classes of underwater vehicles. So the introduction of this new generation into the mix allows our business to address the full expanse of the requirements that we see in the market from very large underwater vehicles to very, very small. So I think this positions the company nicely for, you know, addressing the full market. And in addition to that, we have, for example, the diver taking down currently the Ecoscope, which is, you know, it's a bit sizable. So this now removes that, and Nano allows, because it's a shape bigger than the iPhone, he can easily wear the Ecoscope today.
Speaker Change: So the introduction of this new generation into the mix and allows our business to address the full expanse of the the the requirements that we see in the market from very large underwater vehicles, the very very small.
Speaker Change: This positions the company nicely for.
Speaker Change: Addressing the fall market and in addition to that we have for example, the diaper taking down currently the ACA School, which is you know it's it's a bit sizable. So this now remove stat and nano allows because its a sheet bigger than the I phone he can easily where the after school.
Speaker Change: Year to date, and also robotics really where you've got these small robotics platform again, a new application for our technology given the form factor. So we're pretty excited about this and as I said the launch dates will be asked to trials.
Annmarie Gayle: And also robotics, really, where you've got these small robotics platforms, again, a new application for our technology, given the form factor. So we're pretty excited about this. And as I said, the launch date will be after trials in June, the end of June, where Blair will be leading our team with the trials with our U.S. Navy customer base. Great.
Speaker Change: In.
Speaker Change: June to end of June web player will be leading our team with their trials without U S Navy customer base.
Speaker Change: Great.
Blair Cunningham: And then as it relates to your five development programs, can you help range or provide a range of sizes for the different opportunities of what these might address and help us with timeline for these development programs that might be evaluated and turn into a next phase? Blair, can you just talk a little bit, please, about the development programs that we're working on, just in terms of the broad sense of requirements? Yeah, yeah, sure. Thank you. Thank you, Brian, again for the question. Yes, the five programs are really taking the David system either to support existing equipment, so integrating that existing equipment in, or in one particular case, it's for a completely new application, which is a kind of saturation, deep saturation dive suit.
Speaker Change: And then.
Speaker Change: As it relates to your five development programs can you.
Speaker Change: Range or provide a range of sizes for the different opportunities of what these might address and help us with timeline for these development programs that might be evaluated it and turned into a next phase.
Speaker Change: There can you just talk a little bit please about the development programs that we're working on just in terms of the broad sensor requirements. Yeah. Yeah sure. Thank you. Thank you Brian again for the question.
Speaker Change: The five programs are really taking the David system, either to support existing equipment, so integrating that existing equipment and or in one particular case, it's for a completely new application, which is a kind of saturation deep saturation dive suit.
Blair Cunningham: So, the biggest market opportunity still remains the untethered space. And really, I would say probably three or four of those programs all relate to integration with untethered additional dive equipment. So, it's all for the benefit of that, really. The US Navy, in particular, along with all the foreign navies, they all use different what we call UBAs or underwater breathing apparatus equipment. So, we have today, one of the key parts of David is providing a hands free, you know, information on critical lifeline information that they would have from this breathing apparatus. So, how do we integrate that, bring that into David, provide the alerts and the real time information in a hands free environment?
Speaker Change: So all the biggest market opportunity still remains the untethering space and really I would say, probably three or four of those programs all relate to integration with tethered additional dive equipment. So it's all for the benefit of that really the U S. Navy in particular.
Speaker Change: Along with all the foreign navies the old use.
Speaker Change: What we call you be as or underwater breathing apparatus equipment. So we have to bang one of the key parts of Daiwa days, providing a hands free.
Speaker Change: Information on Clos to critical Lifeline information that we would have from this breathing a process or how do we integrate that bring that into David provide the alerts and real time information in the hands screen environment. So a lot of the programs around the excuse me interest and David they want that to work with the existing equipment. They have.
Blair Cunningham: So, a lot of the programs around, they've seen the interest in David, they now want that to work with the existing equipment they have. And really largely, that's, you know, I'd say that's three or four of the programs that we're actively working on at the moment. So, think about it as a product, you know, adoption necessity, as it were, to get the equipment in the hands of those divers. So the one thing to just add on, Brian, there is to remember that all of the sensors that they're using for diving currently is relevant, but what they have to do if they're going to adopt David is to bring that within the David world.
Speaker Change: We largely see that.
Speaker Change: Three or four of the programs that we're actively working on at the moment, So think about it as a.
Speaker Change: It's a product you know adoption messes necessity as it were.
Speaker Change: Work to get the equipment in the hands of those be in the hundreds of diverse that's correct.
Speaker Change: So the one thing to just add one Brian there is to remember that all of the sense that they're using for diving currently is relevant but what they have to do if they're gonna adult David is to bring back within the David World. So I think that for US. This is very very positive because what it is.
Blair Cunningham: So I think that for us, this is very, very positive, because what it's really saying is that David is our choice. So we now need to bring all our sensors within that ecosystem. So, and we're really seeing a galvanization around that to ensure that all of the sensors that are being used by all the different community of users are now being brought into the David world. And we're extremely excited about this.
Speaker Change: Really saying it's that David is our choice. So we now need to bring all our census within that ecosystem. So and we're really seeing a galvanized nation around back to ensure that all of the sensors that are being used by all the different community abuses are now being brought.
Speaker Change: Into that David World and we are extremely excited about this.
Blair Cunningham: Okay, and then, um, you talked about the next generation underwater vehicles and the progress Coda's making in securing. Can you talk about the progress Coda is making in securing design wins and maybe lay out any milestones or timing we should watch out for? I think we've been, you know, we've talked about this opportunity for a little bit. Maybe size the range of opportunities in all the different vehicles, what it might look like if you did win a production. Well, it's very difficult for us to really give numbers. What we are seeing really to the market is that we've got various programs of different states of, if you like, maturity for these underwater vehicles.
Speaker Change: Okay, and then Utah.
Speaker Change: You talked about the next generation underwater vehicles and the progress code is making in securing.
Speaker Change: Sorry can you talk about the progress <unk> is making in securing design wins and maybe lay out any milestones or timing, we should watch out for I think we've been we've talked about this opportunity for a little bit maybe shot size the range of opportunities in all the different vehicles, what it might look like if you didn't go into production.
Speaker Change: Order.
Speaker Change: Well, it's very difficult for us to really give numbers. What we are seeing really to the market is that we've got various programs of different state of if he liked maturity for these underwater vehicles, but really the important thing Brian is that.
Blair Cunningham: But really, the important thing, Brian, is it's making sure that we continue this journey of getting new programs. The ones that are ongoing and are being evaluated directly by the U.S. Navy or with prime defense contractors, the technology is already part of that broader program. And so that program is dependent on final evaluation. Where does this program go? So what we see is a proliferation of programs where the ECOSCOPE is a contender because they are looking to integrate the ECOSCOPE onto those platforms. So whilst I can't say categorically, I'm saying there's a big market out there.
Speaker Change: It's it's it's making sure that we continue this journey of getting new programs. The ones that are ongoing and are being evaluated by from directly by the the the U S Navy or with Prime defense contractors.
Speaker Change: She's already part of that broader program. So that program is dependent on final evaluation. We're just this program go so what we see is a proliferation of programs where the echo is a contango because they are looking to integrate the epic.
Speaker Change: Onto those platforms, so whilst I can't see categorically I'm, saying, there's a big market out there and I think that the exit scoop is just that the spinal reports, which its assessing the readiness of David talks about the uniqueness of the air.
Blair Cunningham: And I think that the ECOSCOPE is just that this final report, which was assessing the readiness of David, talks about the uniqueness of the ECOSCOPE technology for spatial awareness on the water and object detection, that this is the most advanced technology for that purpose. So, you know, these programs can be slow. But what we're seeing within, for example, the David program, we're seeing pull through ECOSCOPE sales there. And for the other programs that we've been following for some years, we're seeing additional units being bought and the program slowly moving forward. So until budgets are appropriated and some of these evaluations are concluded, we're still waiting.
Speaker Change: School technology for.
Speaker Change: Spatial awareness on the water and object detection that this is the most advanced technology for that purpose. So you know that these programs can be slow, but what we're seeing within for example, the David program, we're seeing pull through Episcope seats there.
Speaker Change: And for the other programs that we've been following for some years, we're seeing additional units being bought in the programs slowly moving forward. So until like budgets are appropriated and the some of these evaluations are concluded we're still waiting but we knew.
Blair Cunningham: But we know that some programs look very, very promising for the business, but we still have to wait for, first of all, award and still have to wait for the evaluation process to be completed, whether it be directly with the prime defense contractor program or the Navy directly. But we have to make sure, the key point, that we're not missing opportunities. And so the job of the team is to make sure that the ECOSCOPE is part of the program that's being considered for adoption. And that's the work that we're doing.
Speaker Change: No. That's some programs you know look very very promising for the business, but we still have to wait for first of all award and still have to wait for the valuation process to be completed where they'd be directly with the the prime defense contractor program.
Speaker Change: Or the the navy directly but we have to make sure. The key point that we're not missing opportunities and so the job of the team is to make sure that the acre scoop is part of the program that's being considered for adoption and that's the work that we're doing.
Speaker Change: Okay last question I have a numbers question your business is lumpy for sure at times.
Annmarie Gayle: Last question I have a numbers question. Your business is lumpy for sure at times, but you'd previously expected to have a back end loaded year, especially as it relates to marine products. Do you still expect the third and fourth quarter to be your two strongest quarters of the year? Or did some of that change given the upside in the second Well, I think that overall we expect the marine technology business to continue to improve in the way that we're seeing this. Look, I'm very excited about the rental opportunities that we're seeing. We're seeing a good level of utilisation of our rental pool, which is always very exciting for business.
Speaker Change: But you had previous previously expected to have a backend loaded year, especially as it relates to.
Speaker Change: Marine products do you still expect the third and fourth quarter to be your two strongest quarters of the year or did some of that change given the upside in the second quarter.
Speaker Change: Well I think that overall, we expect the marine technology business to continue to improve in the wheat that receive this look I'm very excited about the rental opportunities that we're seeing we're seeing a good level of utilization of our rental pool, which is always very exciting for us.
Speaker Change: Business, we also see lots of opportunities for the from Asia for hardware seen so I see it very much that the third quarter and our fourth quarter will be within the bounds of what our Q2 none.
Brian Kinstlinger: We also see lots of opportunities from Asia for hardware sales. So I feel very much that the third quarter and our fourth quarter will be within the bounds of what our Q2 numbers look like for the marine technology. Great. Thanks for all. Thanks for answering all my questions.
Speaker Change: Looks like for the Marine technology business.
Speaker Change: Great. Thanks, Rob Thanks for answering all my questions.
Brian Kinstlinger: Thank you very much for the opportunity, Brian. Thank you.
Speaker Change: Thank you very much for the opportunity Brian.
Speaker Change: Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Operator: As a reminder, if you'd like to join the question queue, please press star 1 on your telephone.
Operator: Our next question comes from the line of John Deysher with Pinnacle Value Fund. Thanks for taking my question. I was just curious on the gross margin percentage It's still very attractive for the company as a whole, 64%, 65%. Should we model that percentage for the back half of the year, or how should we think about the overall gross margin for the balance of the year? staying the same, going up, going down, and forever. Well, thank you very much. The gross profit margins for a marine technology business is very low. It's very, very unusual. If I'm not mistaken, I think, Gayle, I mean, gross profit margins for that business, same time last year was about 76% compared to 65%.
Speaker Change: Our next question comes from the line of John Dasher with Pinnacle value Fund. Please proceed with your question.
John Dasher: Good morning, Thanks for taking my question.
Speaker Change: I was just curious on the gross margin percentage.
Speaker Change: Oh, it's still very attractive for the company as a whole 64, 65%.
Speaker Change: Should we model that.
Speaker Change: The percentage.
Speaker Change: For the back half of the year or how should we think about.
Speaker Change: The overall gross margin for the balance of the year or is it.
Speaker Change: Staying the same going up going down and for what reasons.
Speaker Change: Well. Thank you very much the the gross profit margin for our Marine technology business is very low it's very very unusual if I'm not mistaken.
Speaker Change: I think our Gila mean gross profit margins for that business I'm sitting at same time last year was about 76% compared to 65% gains is that right.
John Deysher: Is that right? It was just over 70 percent. Yes, so that 70% is typically what we would expect the margins to be. So we would expect for the rest of the year margins to go up. I think this quarter was an exceptional quarter for the reason I explained, which was we had a concentration of sales from Asia. What that means generally is that you're selling via your agent's network and then incurring commission costs. So that was one factor. But that was further compounded by the fact that we had a single sale that triggered a much higher percentage commission because of the multiples on that order.
Speaker Change: It was just over 70% of them again, yes, so that 70% is typically what we would expect the margins to be so we would expect.
Speaker Change: For the rest of the year of margins to go up I think this this quarter was an exceptional quarter for the reason I explain which was we had a concentration of sales from Asia. What that means generally is that you're selling via your agent network and then.
Speaker Change: Incurring commission costs. So that was one factor, but that was further compounded by the fact that we had a single theater that shrink at a much higher.
Speaker Change: Percentage commission because of the multiples on that order. So we expect that to be an outlier. So we expect margins to be much stronger.
Gayle Jardine: So we expect that to be an outlier. So we expect margins to be much stronger. in the marine technology and then how about in the marine technology business yes But on, well, precision acoustics, this, you know, the range is between 57 to 65 percent. It will be some, it depends really there on the mix of sales and the marine engineering business. I think that there, again, we don't expect margins to really change dramatically because then it really depends on their mix of sales generally. Those two are going to be steady. That's good to know.
Speaker Change: In the Marine technology.
Speaker Change: In the memory technology business yet.
Speaker Change: But on well proficient in acoustics. This you know the range is between 57% to 65% it will be some it depends really there on the mix of sales and the Marine engineering business I think that there again, we don't expect margins to really.
Speaker Change: <unk> change dramatically because then it really depends on their mix of seems generally.
Speaker Change: Okay. So those two are going to be studying.
Speaker Change: Yeah, good to know.
Gayle Jardine: And on the SG&A side, is there any reason to think that for the business as a whole, that percentage might come down? I think it's up a little bit from a year ago, the SG&A. Gayle, did you want to talk to that? Yes, I can do. Yes, our SG&E percentage this quarter was impacted by a couple of different factors, one of it being the exchange rate variances that we're seeing in the business. We are about 65% of our revenue in costs, or 55% of our revenue. comes from the entities that are not in the USA, so we have some impact of exchange rate variance in there.
Speaker Change: And on the SG&A side is there any reason to think that.
Speaker Change: But oh for the business as a whole that percentage might come down I think it's up a little bit from a year ago yesterday in a percentage.
Speaker Change: Gail do you want to talk to that.
Gail: Yes, I can do them, yes, or SG&A percentage this quarter. It was impacted by a couple of different factors one of it being to the exchange rate gains that we're seeing in the business and we are about 65% of our revenue and costs are five separate revenue 65% of of course.
Gail: Comes from the entities that are now in the U S. C. So we are we have some impact till the exchange of things in there and we also have added in the position to basics business.
Gayle Jardine: We also have added in the position acoustics business. and we also have some non-cash. The non-cash equivalent impact this quarter as well. If you look at the non-cash element that was and quite a lot of the, sorry. I lost my train of thought there, apologies. The non-cash charges increased significantly, so the amortization in PAL and the non-cash charges for depreciation for stock-based compensation and exchange rate. So in the current quarter, the non-cash items as a component of SG&E was 24.7% or about 670K compared to 0.3% or only a 6K gain in the previous quarter. So that swing had an impact Quarter here.
Speaker Change: I'll start from noncash and.
Gail: Noncash equivalent and impacts this quarter as well if you look at the noncash element that that was.
Speaker Change: And quite a lot the.
Speaker Change: Sorry.
Speaker Change: I lost my train of thought here I apologies.
Speaker Change: They don't come soon donuts sadly the noncash charges increased significantly so does the amortization and power and the noncash charges, which appreciated and for stock based compensation and exchange it fancies.
Speaker Change: In the current quarter, the noncash items as a component of S. G. NIE was 24, 7% or about 670 key compared to 0.3% only a 6K gain in previous quarters, So that swing and had an impact in this quarter here.
Gayle Jardine: As we don't know what the exchange is going to do going forward but we have to be expecting that the U.S. dollar is going to continue to weaken against the pound and the U.S. dollar. So it sounds like we should model SG&A as a percentage of sales about the same as the Or just slightly lower. slightly lower That's good.
Speaker Change: We don't know what they've seen just going to do going forward.
Speaker Change: Have to be I'm expecting that the U S dollars are going to continue to weaken against the patent on the corner.
Speaker Change: Okay. So it sounds like we should model SG&A as a percentage of sales about the same as the first half for the back half.
Speaker Change: Sure.
Speaker Change: It was just slightly lower yes.
Speaker Change: Slide.
Speaker Change: Lower Okay fine that's good and then I guess my final question is the announcement of our third quarter, we expect to deliver 16.
Gayle Jardine: And then I guess my final question is the announcement of in third quarter we expect to deliver 16 Davdi, Untethered Systems, which is good. What kind of revenue contribution might that generate?
Speaker Change: That'd be an unfettered systems, which is good what kind of revenue contribution might that generated.
Gayle Jardine: Can we talk about that when we get there? I mean, the order, just so we know, last was $800,000. We're hoping that we are going to be delivering all 16 units in the third quarter. So if we do, it will be around $800,000. You have a contract for delivery of 16, it's just a question of timing or... Yes, we are on the contract, but our production facility is getting the items ready for delivery in the third quarter. So we already have a firm contract for that. It's just a question of delivering those. and anything that's not delivered in Q3 would be delivered in Q4.
Speaker Change: Can we talk about that when people can't get there I mean, the order just so we know loss with the $800000. We're hoping that we will we are going to be delivering all 16 units in the third quarter.
Speaker Change: So if we do it will be around $800000.
Speaker Change: Mhm.
Speaker Change: Okay, you have a contract for delivery of 16, it's just a question of timing or.
Speaker Change: Yes, we already we are under contract, but we are keeping our production facilities getting the items ready for delivery in the third quarter. So we already have a firm contract for back. It's just the question of delivering those.
Speaker Change: And anything Thats not delivered in Q3 would be delivered in Q4.
Gayle Jardine: Yes, certainly, certainly. But of course, we're hoping to deliver all 16 units in the third quarter.
Speaker Change: Yes, certainly certainly but of course Greg.
Speaker Change: Hoping to deliver all 16 units in the third quarter.
Speaker Change: Alright.
Gayle Jardine: Okay, good.
John Deysher: Well, thank you very much.
Speaker Change: Okay. Good well, thank you very much.
John Deysher: Good luck.
Speaker Change: Good luck.
Operator: Thank you for your questions.
Speaker Change: Thank you for your question.
Operator: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to MS. Gill for any final comments.
Annmarie Gayle: Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Gayle for any Thank you for joining our call today and for your interest in our company. Have a great day. Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thank you for joining our call today and for your interest in our company have a great day. Thank you.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.