Coda Octopus Group, Inc. Stock

Greetings, and welcome to the Coda Octopus Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dillon King, Investor Relations. Dillon, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Coda Octopus' Third Quarter Fiscal 2026 Earnings Conference Call.

Before management begins their formal remarks, we would like to remind everyone that some statements made today may be considered forward-looking statements under U.S. securities laws. These statements are subject to a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.

We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as may be required by law. We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified in our Form 10-K for year ended October 31, 2025, and Form 10-Q for the first, second and third quarters of our fiscal year 2026.

You may get Coda Octopus' Securities and Exchange Commission filings free by visiting the SEC website at www.sec.gov. I would also like to remind everyone that this call is being recorded and will be made available for replay through the Investor Relations section of Coda Octopus' website. Finally, as a reminder, this is our third quarter fiscal 2026 reporting and all comparisons, unless explicitly stated otherwise, are with our third quarter fiscal 2025.

With that, I will now turn the call over to the company's Chair and CEO, Annmarie Gayle. Annmarie?

Thanks, Dillon, and good morning, everyone. Thank you for joining us for our third quarter fiscal 2026 earnings call. I believe we delivered a solid set of results during the quarter with consolidated revenue increasing 9.2% and pretax income increasing 16%. While geopolitical instability in the Middle East adversely affected customer activity in certain international markets and resulted in lower revenue within our Marine Technology Business, the strength of our Defense Engineering Services and Acoustic Sensors and Materials businesses enabled us to deliver growth in both revenue and pretax income.

Our performance this quarter highlights the resilience of our diversified business model and the strength of our financial fundamentals. I am pleased with how the business has continued to perform despite challenging market conditions in some regions. Our company comprises 3 operating businesses: Marine Technology, Defense Engineering Services and Acoustic Sensors and Materials. Our Marine Technology business remains the strategic centerpiece of the company and generated 43.8% of consolidated revenue during the quarter. Our long-term growth strategy remains focused on expanding adoption of our proprietary underwater technologies, including Echoscope, DAVD and the recently introduced NANO Series, particularly within defense and autonomous underwater vehicle applications, where we continue to see significant long-term opportunities.

Turning to our third quarter business highlights. Marine Technology Business. Revenue in our Marine Technology Business decreased 15.2% during the quarter. The decline primarily reflected reduced customer activity in the Middle East and parts of Asia following geopolitical instability in the region. Hardware revenue decreased 17.8% to $2.3 million compared to $2.7 million in the prior year period. Partially offsetting this decline was significantly improved rental asset utilization with increased rental revenue by 131.1% to approximately $0.7 million compared with approximately $0.3 million in the prior year period. The higher contributions from rentals, together with lower commission costs resulting from changes in sales geography, contributed positively to gross margins within this business.

Turning to Defense Engineering Services Business. Our Defense Engineering Services business delivered a strong quarter with revenue increasing 68.3% compared with the prior year period. The business benefited from increased activity and funding across several long-standing defense programs, resulting in both higher order intake and higher execution levels during the quarter. Our U.K. defense operations experienced increased customer activity and contributed higher revenues compared with the prior year period.

Within our U.S. defense engineering business, we continue to see strengthening demand for repairs and spares under some of the sustainment defense programs that we have supported for decades. During the quarter, one of our prime contractor customers was awarded a multiyear repair and sustainment contract by the U.S. government. Following that award, we experienced increased repair-related activity and additional subcontract opportunities associated with the program. We continue to see encouraging demand trends in this area. Demand for spares supporting the sustainment defense system also remains strong with spares orders exceeding $2.4 million year-to-date.

We also continue to make progress in electronic warfare, which remains an important area of defense investment. Our U.S. Defense Engineering Services segment is currently supporting several prime contractors in the development of rugged deployable RF electronic warfare systems for a range of platforms, including unmanned systems, helicopters, airborne pods and ground vehicles. We believe these programs represent a meaningful future opportunity, enabling us to build upon our long-standing positions on legacy defense systems while expanding into next-generation defense programs as technologies and operational requirements continue to evolve.

Turning to our Acoustic Sensors & Materials business. Our Acoustic Sensors and Materials business increased revenue by 10.4% during the quarter. While gross margins were lower due to product mix, we continue to see encouraging demand for our acoustic materials and acoustic test stand solutions across international markets. While market conditions in certain international regions remain challenging, our diversified business model enabled us to deliver growth in both revenue and pretax income during the quarter. We remain focused on executing our long-term growth strategy, strengthening our position across defense, marine and acoustic markets and expanding adoption of our proprietary technologies.

With that, I will hand the call over to Blair Cunningham, our President of Technology, who will provide an update on our technology initiatives, recent milestones and market activities.

Thank you, Annmarie, and good morning, everyone. As Annmarie noted, our strategic focus remains on expanding adoption of our proprietary underwater technologies, including DAVD, Echoscope, NANO and our next-generation underwater communication system, Voice HUB-4. I will briefly highlight several notable developments during the quarter. A significant milestone during the year was the successful completion of the U.S. Navy's Authorization for Navy Use assessment for the DAVD Untethered System, incorporating the DAVD Gen 4 HUD. As you know, we delivered 16 DAVD Untethered Systems to the U.S. Navy earlier this year, bringing total deliveries to 24 systems. With ANU approval now in place, these systems can be fully evaluated and utilized by operational commands. We continue to provide training and support for the untethered system and believe the military market represents a significant long-term opportunity for DAVD.

Since our last earnings call, we have received approximately $1.4 million of orders from the U.S. Navy for DAVD tethered systems under related peripherals, supporting deployment to additional commands and adoption of the latest DAVD FLEX technology. We are also encouraged by indications that DAVD may be incorporated into diving school and academy training curricula. The recent orders included 4 DAVD Flex systems and Echoscope Sonar specifically for training purposes, which we believe reflects growing institutional acceptance of the technology within the naval diving community. Internationally, we continue to work closely with the European Navy that recently acquired DAVD Systems. We remain encouraged by customer feedback and believe this deployment provides a strong foundation for further expansion within international military diving markets.

We expect to gain greater visibility into that customer's procurement road map later this year. In addition, we continue to make progress on a number of funded defense programs awarded during the year under separate contractual arrangements where our DAVD and NANO technologies are being integrated as key vision and mission enabling components. These programs spanning diver-machine teaming, critical diver health state monitoring and advanced deep saturation diving provides further opportunities to demonstrate our technologies in operationally relevant environments and support their growing adoption across a broader range of defense applications.

We are also pleased with the early market response to our NANO GEN Series Sonar, our ultracompact real-time 3D imaging sonar designed specifically for small subsea robotics and AI-enabled autonomous underwater platforms. We are actively working with a number of subsea robotic OEMs, research groups and direct customers globally to integrate NANO into next-generation underwater platforms, enabling advanced real-time 3D perception, navigation and autonomy capabilities that were previously impractical on vehicles of this size.

Beyond our active programs, we continue to see growing interest in NANO across both the U.S. and European defense markets, particularly for diving systems and delivery vehicles, autonomous and unmanned underwater systems. We believe NANO's combination of ultracompact form factor, low power consumption and real-time 3D imaging capability positions it well to address the rapidly evolving requirements of this emerging sector.

This growing interest is further supported by the innovative software and hardware ecosystem we have developed around NANO, providing OEMs and integrators with multiple levels of engagement from straightforward sensor integration through to a more comprehensive solution incorporating NANO's real-time data and processing capabilities, providing the high-quality real-time 3D data critical to delivering true AI-enabled 3D perception and autonomy solutions.

As Annmarie commented with respect to our defense engineering businesses, we are seeing renewed demand across the U.S. defense market, driven both by increased spending on spares, repairs and sustainment of established defense systems as well as investment in next-generation capabilities including electronic warfare, unmanned systems and increasingly autonomous platforms. We believe this broader increase in defense spending, combined with the growing demand for more capable and autonomous systems create additional opportunities for our NANO technology. Our established defense relationships and engineering capabilities provide a strong pathway for introducing NANO into these programs and expanding this long-term growth potential.

Overall, I believe we are making steady progress in expanding adoption of our technologies and advancing opportunities that support long-term growth. With that, I will turn the call back to Annmarie Gayle and look forward to answering your questions during the Q&A session.

Thank you, Blair. Before turning to the financial results, I would like to formally welcome Mark Kelly, who recently joined the company as our Chief Financial Officer. Mark brings extensive financial and operational leadership experience and we are very pleased to have him as part of the executive team as we continue to execute our growth strategy. Mark will now take you through our third quarter 2026 financial results. Following his remarks, I will return with some closing observations before we open the lines for questions.

Thank you, Annmarie, and good morning, everyone. As this is my first earnings call since joining the company, I'm pleased to have the opportunity to introduce myself to our shareholders and investors. I've enjoyed meeting the team and becoming familiar with the business, and I look forward to supporting the company's continued growth and execution of its long-term strategy.

Let me now take you through our third quarter fiscal 2026 financial results. Total revenue for the third quarter 2026 was $7.7 million compared with $7.1 million in the third quarter of 2025, representing an increase of 9.2%. As Annmarie highlighted earlier, our results reflect the benefits of our diversified business model. While revenue in our Marine Technology Business was impacted by reduced customer activity in certain international markets, this was more than offset by strong performance in our Defense Engineering Services Business and continued growth in our Acoustic Sensors and Materials business.

Marine Technology revenue was $3.4 million compared with $4 million in the prior year period, representing a decrease of 15.2%. Acoustic Sensors and Materials revenue was $1.6 million compared with $1.5 million in the prior year period, representing an increase of 10.4%. Defense Engineering Services revenue was $2.7 million compared with $1.6 million in the prior year period, representing an increase of 68.3%. Gross profit for the third quarter 2026 was $5.1 million compared with $4.8 million in the third quarter 2025. Consolidated gross margin was 65.4% compared with 68.3% in the prior year period. The movement in gross margin primarily reflects changes in revenue composition during the quarter, including the contribution from higher-margin rental activity within our Marine Technology Business, changes in sales geography and the mix of projects and products delivered across the group.

Marine Technology gross margin was 78.5% compared with 77% in the prior year period. Acoustic Sensors and Materials gross margin was 52.4% compared with 54.8% in the prior year period, reflecting product mix during the quarter. Defense Engineering Services gross margin was 56.9% compared with 58.9% in the prior year period, reflecting the mix of contracts and program activity during the reporting period.

Turning now to operating expenses. Total operating expenses for the third quarter 2026 were $3.5 million compared with $3.4 million in the third quarter 2025. Selling, general and administrative expenses were $2.8 million compared with $2.9 million in the prior year period. The movement in SG&A was primarily driven by lower payroll-related costs and favorable foreign exchange movements, partially offset by higher contingent consideration expense associated with the PAL earn-out.

SG&A represented 36.1% of consolidated revenue during the quarter compared with 40.6% in the third quarter 2025. Operating income for the third quarter 2026 was $1.5 million compared with $1.4 million in the third quarter 2025. Operating margin was 19.9% compared with 19.5% in the prior year period. Pretax income for the third quarter 2026 was $1.8 million compared with $1.5 million in the third quarter of 2025. Net income after tax was $1.4 million or $0.12 per diluted share compared with $1.3 million or $0.11 per diluted share in the third quarter 2025. The provision for income taxes during the quarter was $0.4 million compared with $0.3 million in the prior year period.

Turning now to the balance sheet. As of July 31, 2026, the company had cash and cash equivalents of $31.7 million and remained debt-free. The company continues to maintain a strong balance sheet and healthy liquidity position, providing financial flexibility to support both organic growth initiatives and potential strategic opportunities. Total assets at quarter end were $68.9 million compared with $64.5 million at October 31, 2025.

Overall, we believe the company remains well positioned financially with a strong balance sheet, positive earnings and substantial cash resources. That concludes my financial review. I will now turn the call back to Annmarie for her closing remarks.

Thank you, Mark. I am pleased with our third quarter performance. Despite a challenging geopolitical environment that affected customer activity in certain international markets, we delivered growth in both revenue and pretax income while maintaining our strong balance sheet and debt-free position. The quarter once again demonstrated the benefits of our diversified business model. While our Marine Technology Business experienced lower revenue due to the conditions in the Middle East and parts of Asia, the strength of our Defense Engineering Business and Acoustic Sensors and Materials business enabled us to deliver overall growth and strong profitability. I am also encouraged by the progress we continue to make in advancing adoption of our core technologies.

During the quarter and subsequent period, we achieved a number of important milestones across DAVD, Echoscope and NANO that we believe strengthen our position in key defense and underwater technology markets and support our long-term growth objectives. We're particularly encouraged by the continued traction we're seeing within defense-related applications where increasing investments in underwater capabilities, autonomous systems and force modernization programs continues to create significant long-term opportunities for our technologies.

I am also pleased with the opportunities our U.S. Defense Engineering Business is seeing in supporting sustainment programs through repair and spare parts for long-standing defense systems. At the same time, the business is expanding its work with prime defense contractors on next-generation defense technologies, positioning it to participate in evolving defense requirements and future programs.

From a financial perspective, I am also pleased that the company achieved an important milestone during the quarter, transitioning from an accumulated deficit to positive retained earnings for the first time in its history. While primarily an accounting milestone, it reflects the sustained profitability, financial discipline and progress the company has achieved over recent years. In parallel, we continue to advance our M&A strategy and remain actively engaged in evaluating and progressing acquisition opportunities that align with our strategic objectives.

While we remain disciplined in our approach, we continue to pursue opportunities that could strengthen our business and support our long-term growth strategy. Overall, we remain confident in our strategy, encouraged by the progress we are making across the business and well positioned to capitalize on opportunities in our core markets.

Operator, we are now ready to open the line for questions.

[Operator Instructions]

Our first question today is coming from Brian Kinstlinger from Alliance Global Partners.

Great. Annmarie, last quarter, you highlighted there was an underwater curl vehicle OEM that purchased several Echoscope, the NANO Gen Series for testing. Can you talk about any feedback from testing? And then do you have -- with that time that's passed, do you have any more clear picture yet on how long test and evaluation may last for this or similar programs?

Thank you very much for this question. So yes, we're making really good progress on that particular program. The key thing for us to understand with these programs, their development programs through -- what that really means is that there is some amount of integration efforts for all participants within the program. I'm pleased to see that we've reached really a very good point under that particular program. And Blair, I think that program is going for SAT trials soon. Is that correct?

Yes, that's correct, Annmarie. Brian, yes, the SAT trials will be imminent. And actually with the customer as we speak at the moment. So yes, we're in the water active with the vehicles and things are going very, very well. So we hope to conclude that. I will be able to report that in the fourth quarter, I would hope.

And given it's in a development phase, is the next big catalyst for this type of program a design win? And would you announce that in a PR?

Well, the main thing I would say, Brian, is being on the vehicle, clearly that's very important. That's the starting point for us to really sort of see we can go into a procurement phase. We think this will be a big win for us because then whilst the initial orders were 3 systems on the vehicle, there are opportunities for that vehicle that we have some amount of visibility. Clearly, the precondition for that is that the SAT trials go well, but if they go well, we can see in rapid succession a number of other customers coming on board for that particular solution.

Great. And then thanks for the update on the DAVD, including the uses of training and some of the orders post quarter. As it relates to ANU approval for the DAVD, you've had that for a couple of months. I'm curious how business development and particularly the sales cycle has changed as a result?

So thanks again, Brian. So we should really understand again that the ANU is one of the hurdles that takes us closer to a procurement cycle. The first thing for any defense technologies really is to put the technology in the field, so deployment is important and user acceptance test, then we can move forward to, if you like, larger scale procurement. So I'm pleased to say that we've removed the most important hurdle of getting the technology first of all, in the customers' hands and then moving forward to, if you like, deployment and user acceptance testing. These are all critical activities for the broader adoption of any defense technology, including DAVD.

And can you share us the feedback because these customers that it's in the hands of that are new in training, and it sounds like we've got a bunch of new potential customers that are in trials.

Yes. So Really, really positive feedback on the DAVD program. As we reported in this quarter, which I see as a confirmation of the maturity of the technology, there's the potential that DAVD technology will be used in various institutions for training, diving academies, for example. So we're very, very heartened by that, and that is really endorsement that the technology is moving forward. In addition to that, as Blair mentioned previously, we have several discrete contracts where DAVD and NANO are really being integrated in different programs where we're doing some integration work for adding DAVD and NANO as mission-critical vision components in these different programs.

So I feel very much that the signaling that we have is wholly positive. And what I see is the technology moving forward, I think we should really understand, however, that these are longer-term opportunities for our business.

Great. I have a couple more, mostly now from the financial perspective. With the war in Iran, not seeing an end in sight and taking that into account, how should we think about Marine Technologies' quarterly revenue? Is there anything that could substantially increase or decrease from the last few orders? I guess what are the puts and takes that could cause any volatility from where we were recently in the last few quarters.

Well, so as we've always reported Asia and the Middle East are strategically important markets for our business. Of course, the geopolitical situation has been very disruptive for our business. However, we think that this is not really structural. These are timing issues. So, we continue to see opportunities, we continue to have visibility of what customers are doing, but the fact still remains that it's very challenging offshore to really run a project really because of the disruption in the market. There are security issues, safety for personnel, some of them are supply chain issues for end customers. So I think that we're not seeing any structural changes in the market.

But what we're certainly seeing is deferral of opportunities because of the ongoing uncertainty.

Great. Two more. The Marine Engineering Business has historically enjoyed stronger demand in the second half of the year compared to the first half looking back at the last few years and maybe that's seasonal, maybe it's just timing. I'm curious with this contract award from your prime do you see maybe the company sustaining the types of revenue seen in the last 2 quarters? Or do you expect it will be -- continue to be lumpy as we've seen in the last few years?

Well, certainly, it will be lumpy, but what I can say on the sustainment program. Again, you should remember the way these procurement activities occur. So annually, for many of these programs, there's a fixed amount of spending for, if you like, parts to these programs. But as these parts are now -- and most times, they are sitting in a warehouse. But what we're actually seeing now is that these parts are now actively being used and there has been the -- they are now, if you like, replenishing their warehouses. And this is really where we see this opportunity for spares and repairs coming through.

Of course, I can't project the scale of the opportunity. But I can see as warehouses change and reduce what they have, we can see increased demand for spares and repairs.

Great. That's helpful. My last question is just high-level P&L strategy. How are you thinking about incremental investments, either in R&D or in SG&A that positions the company for stronger revenue growth versus controlling expenses to drive incremental margin and profit? How do you think about that as a strategy right now from where the company is?

Well, as you have already said, really organically from an organic place. I see that company has the fundamentals to grow significantly. The company has well-established revenue in the commercial offshore market. But there is a finite number of units we can sell quarter-on-quarter into that market. And therefore, our strategy, as you know, Brian, is to increase the number of defense programs that we -- that is adopting our technology. Part of that will involve increased R&D efforts, increase SG&A spend. And we see we're doing more -- especially now with the acquisition of PAL in our group, is one of the most foremost authorities on acoustics in the field. We are now leveraging their capability across the group and then really looking at the next generation of different technologies that we can advance and bring to the market in addition to the disruptive technologies that we currently have.

Let me remind you, Echoscope. Echoscope is the world's only real-time 3D imaging sonar that can generate a real-time 3D image in zero visibility water conditions. What have we done with that technology: we have future-proofed that technology to make sure that we can get on a broader underwater vehicle platform. NANO is a good example of that. And that is not just a win. That would have been an R&D planning for a good 4 or 5 years before we could realize such a feat. So we have several programs, internal programs, where we are looking to really leverage what we have. And Blair, one of the significant things that Blair mentioned and this is the Voice HUB-4 technology where the digital audio communication system. That is still a very, very strong technology where our program sponsor is significantly interested in this technology.

We had to revisit the technology to reduce bill of material costs. What we feel now we are really at that point with, for example, Voice HUB-4, where our -- that program sponsor could be seriously interested in the technology. So I don't believe we are just, if you like, then watching costs. We are actually investing across our group in R&D. And as I said, we are spending a lot of business development efforts on being contenders on different programs. And we measure our success by whether or not the programs are advancing and we continue to be part of that process. And we feel that we are really making good strides, but I also want to emphasize that defense programs are naturally longer-term programs.

[Operator Instructions]

Our next question is coming from [indiscernible] from Freedom Capital Markets.

First question is you previously discussed on initial day deployment with European Navy. So what determines whether that customer moves to broader rollout? And can other Navy use that qualification work to shorten their own procurement process?

Good. So thank you very much for that question. So Blair reported on that, we're making really, really good progress with that very influential European Navy. Later this year, we will have better visibility into their procurement cycle. But what I can see is that they continue to be engaged on technology and really also the visibility that we see with this particular customer. This is not just about DAVD, but really pull through sales on the Echoscope and our underwater inspection system, which is actually in use in over 30 ports in the U.S. as a security system.

So we're making really good progress with that European customer. There's a high level of engagement with that customer. And we're hopeful that closer to the end of the fiscal year, we will have better visibility into the procurement process. But again, I see this is a defense customer. They've got their own processes, and it will take time. But what I can see is that I think this is moving forward. And yes, they are also very influential. And therefore, if they move forward to broader adoption, which we expect we would see also other European Navies follow suit because they are really the trendsetter here in diving.

Okay. That's helpful. And the quick next one with a lower vessel procurement spending proposed in U.S. [ Coast Guards ] for 2027 budget. So how exposed it is in your Defense Engineering Business? And what could this mean for your next year?

Yes. So I'm quite heartened and excited by our Defense Engineering Business in the U.S. because really, as customers' requirements evolve and there's a new generation of, if you like, warfare technology, I'm pleased to see that we are working and getting a lot of opportunities to look at for some of the new evolving requirements. We are working with no less than 4 prime defense contractors on different opportunities around the same theme. So I see it very much -- budgets may be reallocated, but it doesn't change the fact that these new technologies will have to move forward because it's the new, if you like, arena for fighting the next generation of warfare.

So we are heartened to see that we're not just on the legacy programs, but we're evolving with our customers into the new technologies.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Thank you very much for your interest in Coda Octopus. Have a great day. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Thank you.

Good morning, and welcome to Coda Octopus Group's Second Quarter Fiscal 2026 Earnings Conference Call. My name is Robert, and I'll be your operator today. Earlier this morning, Coda Octopus issued its financial results for the second quarter ended April 30, 2026, including a press release and a copy of which will be furnished in the report filed with the SEC and will be available in the Investor Relations section of the company's website.

Joining us on today's call from Coda Octopus are its Chair and CEO, Annmarie Gayle; its interim CFO, Gayle Jardine, its President of Technology and Director; Blair Cunningham; and Dillon King from their Investor Relations team. Following the remarks, we will open the call for questions.

Before we begin, Dillon King from the company's internal Investor Relations team will make a brief introductory statement. Dillon, please proceed.

Thank you, operator. Good morning, everyone, and welcome to Coda Octopus's Second Quarter Fiscal 2026 Earnings Conference Call.

Before management begins their formal remarks, we would like to remind everyone that some statements made today may be considered forward-looking statements under U.S. securities laws. These statements are subject to a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as may be required by law.

We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified in our Form 10-K for year ended October 31, 2025, and Form 10-Q for the first and second quarters of our fiscal year 2026. You may get Coda Octopus's Securities and Exchange Commission filings free by visiting the SEC website at www.sec.gov.

I would also like to remind everyone that this call is being recorded and will be made available for replay through the Investor Relations section of Coda Octopus's website. Finally, as a reminder, this is our second quarter fiscal 2026 reporting and all comparisons, unless explicitly stated otherwise, are with our second quarter fiscal 2025. With that, I will now turn the call over to the company's Chair and CEO, Annmarie Gayle. Annmarie?

Thanks, Dillon, and good morning, everyone. Thank you for joining us for our second quarter fiscal year 2026 Earnings Call. I believe we have delivered a solid set of results with improvements in gross profit margins net income and earnings per share, even though our consolidated net revenue decreased slightly by 1.6%. The geopolitical situation in Iran and the resulting instability across the Middle East have softened demand from customers in the region and parts of Asia.

Despite this, our performance highlights the resilience of our revenue base and the strength of our financial fundamentals. I am very pleased with how the business has continued to perform in a challenging environment. Our business is made up of 3 discrete business operations: the Marine Technology Business, the Defense Engineering Services Businesses and our Acoustics Sensors and Materials Business units.

Our Marine Technology business remains the core of our company, generating the majority of our revenue and accounting for 41.1% of our consolidated net revenue in the second quarter 2026, and it remains the strategic center piece of our long-term growth ambitions. The specific addressable markets that we operate in are the imaging sonar market and diving markets where the opportunity for technological disruption is significant.

With our disruptive underwater technologies, we are positioning ourselves to be at the forefront. At the heart of this business are technologies that are redefining what is possible on the water we are effectively bringing the real-time data-rich experience of the smartphone era on the water, delivering instant visibility, intelligence and real-time decision-making capability to our users.

Our Echoscope, DAVD and our digital audio communication system are not just products. They are building blocks of a new underwater operating paradigm. For example, the DAVD enables divers operators and mission-critical teams to work with unprecedented clarity, safety and efficiency. As these technologies evolve, they are opening new markets, expanding our addressable opportunities and setting the stage for the next chapter of our growth for our company.

Growth is a process, not an event, and we are executing the strategies that position our company to deliver it consistently over time. Our Echoscope technology is widely used in the commercial offshore marine market for a range of underwater applications. A significant part of our annual revenue is derived from the commercial offshore marine markets. To deliver the level of growth that shareholders expect, we must continue expanding our market share in underwater imaging sensors within the defense sector, and we are directing efforts and resources toward that objective.

Around the world, multiple defense programs have allocated budgets for the new classes of underwater vehicles, creating a significant long-term opportunity. Our Echoscope is well positioned for adoption in these programs. As a single sensor capable of supporting multiple undersea activities, it offers a clear advantage over traditional technologies by providing a multi application sensor in 1 power-efficient units without compromising mission performance.

We recently introduced the NANO GEN series, our next generation of ultra miniaturized 3D sonar which expands the family of imaging sonar within our portfolio. NANO provides a purpose-built solution for highly compact platforms, opening new opportunities in the emerging light and autonomous systems.

We mentioned in our first quarter earnings call that we anticipated a small number of NANO GEN solar to be included in a new vehicle program. We're very excited to report that during the quarter, we received an initial order for a small number of NANO GEN [ solar ] for integration into an established vehicle program. These systems provide a significant upgrade to this vehicle program, which will undergo extensive evaluation. If successful, we believe this opportunity could scale rapidly.

For additional detail on our underwater technologies that at the center of our growth strategy, I would refer you to our previous earnings calls where we provided a comprehensive overview of these technologies and our approach to expanding market share.

Now turning to second quarter 2026 highlights relating to our core business, the Marine Technology Business. This business sells its products and solutions globally with the Middle East and Asia, representing strategically important markets for our technology. The ongoing conflict in Iran and the resulting instability across the Middle East have reduced customer activity in the region and Asia.

In addition, the effective closure of the Strait of Hormuz moves through which a significant share of global maritime shipping passes has disrupted commercial operations, further softening demand for our goods and services. This is the main factor which has resulted in this business segment reported revenue decreasing by 26.8% in our second quarter.

Notable features of our core business revenue structure in second quarter '26 include hardware sales decreased by 46.9% and were $1.8 million in the second quarter 2026 compared to $3.3 million in the 2025 period. Rental assets utilization in the second quarter 2026 improved, increase in rental revenue by 351.1% to approximately $0.7 million compared to approximately $0.2 million in the previous quarter. This is a factor in the increase in gross profit margin in the second quarter for this business unit.

Now turning to highlights relating to the Defense Engineering Services Business. In the second quarter 2026, our Defense Engineering Services Business revenue increased by 37.9%. This business has long-standing relationships with prime defense contractors and has served the defense market for over 48 years. Its performance is closely tied to funding on the defense programs. The U.K. arm of this business saw an increase in opportunities and delivered higher revenue during the quarter. In the United States, however, many defense programs continue to be funded on the continuing resolutions, which has delayed contract awards and consequently, the timing of revenue.

Now turning to highlights related to our Acoustics Sensors and Materials Business. This business sells its products and solutions worldwide and increased revenue in the second quarter 2026 by 17.5%. Blair Cunningham, our President of Technology, who is the market maker for our technologies will be updating you on progress and various milestones around our core technologies. [ There ] will also be available to answer any questions you have about our technologies. I will now turn the call over to Blair Cunningham.

Thank you, Annmarie, and good morning, everyone. Our core focus as a business is to increase our market share for our disruptive technologies. Our real-time 3D sonar and our DAVD technology. I will be brief today and focus on our key milestones to achieve these goals. For those who would like more information on our underwater technologies, I would refer you to our previous earnings call where we provided a comprehensive overview of these technologies and our approach to expanding market share.

DAVD progress. A key milestone for the broader adoption of the DAVD in the military diving sector is the completion of the Approved Navy Use assessment. I'm pleased to confirm that the DAVD uncovered system has been approved for Navy use. This is a meaningful inflection point since the product is now available for acquisition by any command and supporting full fleet deployment of the 20 systems previously issued. The approval validates the system's operational suitability and paves the way for wider adoption across the naval diving community.

Another important milestone has been the expansion of DAVD adoption beyond the United States. In support of this objective, we have successfully delivered training to our European Navy that recently acquired an initial number of systems with training now complete, we continue to engage closely with this influential naval customer and are encouraged by the positive feedback received to date. We remain optimistic about the opportunities to further expand the deployment and operational use of the DAVD within this Navy, establishing a strong foundation for future growth in the international military diving market.

The DAVD program continues to expand, and we continue to work on several awards for defense programs, which are seeking to leverage DAVD as a critical life support and visualization component and which we believe are strong indicators that DAVD is now considered a mature technology. We are still awaiting final U.S. Navy DAVD procurement budget approval, while the approval and associated procurement activity has been delayed beyond this quarter, we currently anticipate receiving the corresponding orders during the third quarter.

We also received an initial order for a small number of NANO GEN Series sonar, our ultra miniaturized 3D sonar for an established vehicle program delivery. These initial systems offer a significant upgrade to the vehicle with full 3D perception visualization and vehicle control, 3D obstacle avoidance and will be used for extensive evaluation. If successful, we believe the opportunity for NANO on this vehicle program could grow quite quickly.

We're pleased to see continued interest in our latest NANO GEN [ CV ] sonar with a growing number of credible vehicle integration opportunities emerging across both the U.S. and European defense market. These opportunities reflect increasing recognition of the unique capabilities offered by NANO, including its ultra compact form factor, real-time 3D perception and advanced autonomous navigation support. We remain encouraged by the level of engagement with prospective customers and partners and believe these opportunities have the potential to drive meaningful growth in the defense sector.

For our fiscal year 2026, our main goal is to reach new milestones with our disruptive technologies, such as broader adoption of DAVD by foreign Navy and the Echoscope technology being adopted on some of the new autonomous AI-enabled platforms as a core perception sensor for navigation, obstacle avoidance and target guidance. I will turn the call over to Annmarie and I will be available to take your questions during the Q&A session of this call.

Thank you, Blair. Let me now turn the call over to our interim CFO, Gayle Jardine, to take you through our financials for our second quarter 2026 before I provide my closing remarks. Gayle?

Thank you, Annmarie, and good morning, everyone. Let me take you through our second quarter 2026 financial results. Starting with revenue, in the second quarter 2026, we recorded total revenue of $6.9 million compared to $7.0 million in second quarter of 2025, a slight decrease of 1.6%.

Our core business, the Marine Technology Business, generated revenue of $2.8 million compared to $3.9 million, representing a 26.8% decrease over second quarter 2025. Our Acoustic Sensors and Materials Business recorded revenue of $1.5 million in second quarter 2026 compared to $1.3 million in second quarter 2025, an increase of 17.5%. Our Defense Engineering Services Business generated revenue of $2.5 million compared to $1.8 million, representing a 37.9% increase over second quarter 2025.

Moving on to gross profit and margin. In the second quarter of 2026, we generated gross profit of $4.6 million compared to $4.5 million in the second quarter of 2025. Consolidated gross margin was 66.3%, [indiscernible] 64.1% in the same quarter last year. This increase reflects the composition of our revenue. Notable factors include the increase in our rental revenue and reduction in net commission costs.

In our Marine Technology Business, gross margin increased to 77.0% in second quarter 2026, compared to 67.7% in second quarter 2025, largely reflecting the increase in rental sales, which grew by 351.1% over the second quarter 2025. Concurrent with the reduction in commission expenses by 68.7% or $0.3 million due to less equipment sales via agents in Asia.

Acoustics Sensors and Materials Business gross margin decreased to 53.7% in second quarter fiscal 2026 compared to 65.4% in the second quarter 2025, reflecting the mix of type of sales with an increase in our [ acoustic test ] environment product sales compared to second quarter 2025.

Our Defense Engineering Services business gross margin increased to 62.0% in the second quarter 2026 versus 55.5% in the second quarter of 2025, reflecting a mix of engineering projects in the period presented.

Now looking at our operating expenses. Total operating expenses for the second quarter 2026 increased by 18.3% to $2.8 million compared to $2.4 million in the second quarter 2025. The primary driver of this reduction was the movement of the U.S. dollar against the British pound and Danish krone, which lowered reported costs when translated into U.S. dollars for financial reporting.

Selling, general and administrative expenses totaled $2.1 million, a 21.4% decrease from $2.7 million in the prior quarter. This improvement reflects a favorable $0.4 million swing from an exchange rate expense in the second quarter 2025 to exchange rate gain in second quarter 2026, as well as lower employee-related costs due to reduced headcount. SG&A represented 30.9% of consolidated net revenue in the second quarter of 2026 compared to 38.8% in second quarter 2025.

Operating income in second quarter 2026 was $1.8 million compared to $1.1 million in second quarter 2025, an increase of 64.8%. Operating margin was 26.0% compared to 15.5% in second quarter 2025, reflecting the decrease in our SG&A and operating expenses in the second quarter.

Pretax income in second quarter 2026 was $2.1 million compared to $1.3 million in second quarter 2025. Net income after taxes in second quarter 2026 was $1.7 million or $0.15 per diluted share compared to $0.9 million or $0.08 per diluted share in second quarter 2025. In second quarter 2026, we provided for a tax expense of $0.44 million compared to $0.36 million in second quarter of 2025.

Moving now to our balance sheet. As of April 30, 2026, with $30.6 million in cash and cash equivalents on hand and no debt. This represents an increase of $1.9 million from October 31, 2025, with a comparable figure was $28.7 million. Total assets increased by $2.8 million to $67.3 million in the second quarter of 2026. That completes my financial summary. So let me turn the call back over to Annmarie for her closing remarks. Thank you.

Thank you, Gayle. Despite the challenge in geopolitical environment, which has affected parts of our customer base, particularly in the Middle East and Asia, I am very pleased with our second quarter financial performance and importantly, the resilience and diversification reflected in our revenue structure.

I'm also encouraged by the progress we're making against our key milestones for expanding the business, especially around our DAVD and Echoscope technologies. Most notably, the Navy's approval of the DAVD [ on tape ] system as an Approved for Navy Use item marks a pivotal milestone for the DAVD, one 1 of our core technology offerings that anchor our long-term growth ambition.

The recent orders for our NANO GEN sonars, which will upgrade an existing vehicle programs are another positive indicator of our technology traction. If post-purchase integration and evaluations proceed as expected, this opportunity has the potential to scale quickly. We believe meaningful progress is being made towards broader adoption of these technologies within the defense sector.

On capital deployment, we will continue to advance our M&A strategy in fiscal year 2026 and are actively building and progressing a pipeline of opportunities. We remain keen to close a transaction this fiscal year while maintaining a disciplined approach to due diligence and strategic fit. Through this strategy, we aim to pipe the revenue model of the marine technology business toward multiyear program-based adoption, supporting a recurring multisale model over the life of major programs as we are beginning to see with the DAVD product line.

We remain focused on creating stable long-term shareholder value and executing against our growth strategy, which continues to be our highest priority as a group. To conclude, we thank our shareholders for their continued support. We are now ready to take your questions. Operator?

[Operator Instructions] First question comes from Brian Kinstlinger with Alliance Global Partners.

I have a bunch. The first one with the authorization for Navy Use. How do you see demand for the [indiscernible] DAVD ramping in the second half of the year and fiscal '27 maybe some kind of range of units or revenue? And is there a contract in place like a BPA or an IDIQ, where the Navy can purchase? And if not, what is needed for the procurement process, now that the authorizations in place.

Look, the approval of the [indiscernible] system for use as a Navy Use item is really a meaningful inflection point for the DAVID technology because, as you know, without this approval in place, procurement could not go ahead for the [indiscernible] variant. It's difficult to predict the exact timing, but we do know that David funding is included in this fiscal year's budget, and we expect to see some orders in our third quarter.

What we don't know yet is the mix of configurations where the commands will procure [indiscernible] or on [indiscernible] variance. Importantly, also, the 20 on [indiscernible] systems previously purchased can now be allocated and fielded following Navy Use approval, which is a very important step. Once divers begin using the system operationally, we expect the real-world deployment will help to drive further demand for the DAVD on [indiscernible] system in this very, very important market sector for our technology.

We do not have an IDIQ in place at the moment, and we do not anticipate on for the DAVD on [indiscernible] system, these orders were placed directly with our company, and we believe it will be the same going forward.

That's helpful. Now you described slower demand due to the Iran conflict in certain regions, has that pressure continued into the current quarter? And once a resolution is in place, maybe we have one today, maybe we don't, how quickly do you expect demand in these regions might recover?

First of all, it's difficult for anyone to predict the duration of the geopolitical instability in the region. What we can see is that we're staying very, very close to our customers. And one thing is clear about this, Brian, it's not structural. It's a timing issue. What we see the fundamentals are there for the projects. It's just timing and security. For example, in the UAE, a lot of offshore projects are on hold because of the safety aspect. So we believe as soon as the pressure is alleviated, these projects are live projects and we would hope that they would resume swiftly.

Great. And you highlighted the initial orders for the NANO GEN, Echoscope, which sounds like a retrofit to a current underwater [indiscernible] vehicle type. How long do you think that a valuation process might be? And then once the evaluation is complete, are there other steps necessary for full integration or full retrofit? How many underwater vehicles of these are sold a year also?

How -- sorry, what was your last question? I'm curious.

What -- how many vehicles are in production already right now? And how many maybe are sold annually?

So in terms of the NANO GEN sonars that we see it's really too early to say the annual volume because the customer is still defining the final configuration of the platform, what we can see is that if the valuation is successful and the system is written into the vehicle specification. For us, it becomes a recurring production opportunity aligned with the platform's development cycle. And more importantly, for us, why we're excited.

It [indiscernible] with our broader strategy to grow the number of underwater vehicle programs which include our real-time 3D volumetric imaging sonar. Now why this program is exciting, it is because it's already an established program. And what this is an upgrade of the existing technology on the platform.

Right. But can you tell us how many of these actual underwater vehicles are potential to be retrofit and/or how many are sold annually new?

Well, at this stage, I really -- cannot say really. I really cannot say. But needless to say that we would think this would be meaningful for us on a year-on-year basis. This is a long-term opportunity of fitting out these vehicles and we believe year-on-year, it would be meaningful for us if we pass the valuation phase.

Okay. And then can you talk about progress in other next-generation underwater [ core ] vehicles? We've talked about this for a while. Maybe how many OEMs you're in discussions with. It sounds like Blair said you hope to get something announced by the end of the year. What stages are you in, in discussions with these OEMs?

Well, Blair can talk a little bit more about the evaluation process. But as you know, as soon as there is an active ongoing conflict that affects the world, so spending priorities and pace always shift when those dynamics are ongoing. What was yesterday's priority is not today's priority.

So really, what we've seen is a slowing of pace somewhat because the current priorities would be to deal with the ongoing conflicts, and we see less pace on procurement. But as soon as we believe that as soon as the issue is resolved with the conflict then we could see some more pace ongoing. Blair, can you talk about a little bit about some of the programs and the process involved please?

Yes, sure. Yes, sure. Absolutely. Thanks again, Brian, for the question.

So I think they really fall into 2 camps, really is one -- one is generally customer instigated such as the one we just announced the sale of the initial orders for where the customer who we've been working with for some time as really wanted to embed the Echoscope technology into their vehicles. So these are new vehicles that are being procured for an existing program, as Annmarie stated. And this is really at the start, this is why it's exciting for us. This is really at the start, we're providing basic perception, obstacle avoidance and navigation control, but they're already knowing the capabilities of the Echoscope as they been involved with us for some years now, understand where they can take the capabilities of their vehicle. So that's one example.

The other -- I would say there's another 3 or 4 examples where the NANO technology is providing different capabilities to each vehicle. And I think that's one of the unique things is we're not just do mapping. We don't just do forward-looking obstacle or [indiscernible] we can perform all of these tasks. So there's another 3 vehicle companies who are looking to integrate our sensor. And they are at various stages of maturity. But as Annmarie noted, we can plan the best.

We're generally quite aggressive when we get involved with these types of opportunities. We want to try and see these move quickly and try and support the end customer as much as we can. However, again, they have their own priorities as well. So sometimes, things could take a little while to be able to, a, get in the water and have the necessary technical trials that are required to be able to understand how well the technology fits between the 2.

But I would say -- 2 or 3 of those are fairly advanced stages, which is positive. And then I think the second camp for underwater vehicles are ones where we have had a collaborative discussion with a manufacturer not because they're necessarily involved in direct programs, but where we can see and they can see the benefit of joining the 2 technologies together.

So that's almost like an internally funded opportunity for us to take those forward and to be able to provide our capability on their platform to some extent. So some are customer-driven and some are technology manufacturer driven.

That was really helpful, Blair. And are you going to generate the revenue this current quarter from those NANO GEN series deliveries? I think there are a couple of hundred thousand dollars a pop. Is that a this quarter event?

So can I just answer so for the initial order that we received, these are clearly not material in terms of our revenue contribution in this quarter. The significance here isn't the initial volume. It's the opportunity ahead if the post-integration and evaluation proceed as planned. So in the quarter, we did deliver the initial systems to the customer. So that revenue is included in our quarter's revenue.

I see. Two more quick ones. You highlighted SG&A, it's the lowest it's been since April '24. Can you break down maybe compared to the first quarter? How much was lower employee cost that you mentioned? How much was foreign exchange? And did you say there was a onetime gain as well?

Gayle did you want to take that question? Gayle?

We'll come back to that one in a second, maybe she's muted we'll get that.

My last question is on M&A, which you spoke pretty clearly about. My one question would be -- are there a couple of companies you're evaluating in these discussions? Do you have identified a target? I just want to kind of understand where you are in this process?

Right. Yes. We do have 2 active opportunities that we're going through [indiscernible] at the moment -- sorry, sorry. So we do have 2 active opportunities that we are going through due diligence at the moment, Brian. So yes, we're quite close in terms of our process, but it's still ongoing.

Can you hear me now?

I can.

Sorry. [indiscernible], apologies for that slight delay. Yes, I can deal with the question for you, Brian, do you want us to understand the SG&A reduction? Correct?

That's right.

So there's 3 main elements in SG&A. We have an exchange rate swing of about $400,000 between Q2 last year and Q2 this year which is basically due to the exchange rate markets. We have less spend on our stock-based compensation, and we have lower spend on wages and salaries because we've a slightly lower head count of in the region of, I think, it's about 100,000, something like that.

So other than that, everything else is fairly similar that's the main drivers. You also asked about the gain that's through other income. We had a sale of a vessel that we made a significant gain on in the quarter as well, but that's through the other income line, not through the SG&A line.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Annmarie Gayle.

Thank you, operator. Thank you for your participation today, and have a great day. Thank you.

Thank you for joining today for Coda Octopus conference call. You may now disconnect. Thank you.

Good morning, and welcome to Coda Octopus Group's First Quarter Fiscal 2026 Earnings Conference Call. My name is Melissa, and I will be your operator today.

Before this call, Coda Octopus issued its financial results for its first quarter ended January 31, 2026, including a press release, a copy of which will be furnished in a report filed with the SEC and will be available in the Investor Relations section of the company's website.

Joining us on today's call from Coda Octopus are its Chair and CEO, Annmarie Gayle; its Interim CFO, Gayle Jardine; its President of Technology, Blair Cunningham; and Dillon King from their Investor Relations team. Following their remarks, we will open the call for questions.

Before we begin, Dillon King from the company's internal Investor Relations team will make a brief introductory statement. Dillon, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Coda Octopus' First Quarter Fiscal 2026 Earnings Conference Call.

Before management begins their formal remarks, we'd 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, that could cause actual results or events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.

We disclaim any obligation are undertaken to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as may be required by law. We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified in our Form 10-K for the year ended October 31, 2025, and Form 10-Q for the first quarter of our fiscal year 2026. You may get Coda Octopus' Securities and Exchange Commission filings free by visiting the SEC website, www.sec.gov.

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 Coda Octopus' website.

Finally, as a reminder, this is our first quarter fiscal 2026 reporting, and all comparisons, unless explicitly stated otherwise, are with our first quarter fiscal 2025.

Now I will turn the call over to the company's Chair and CEO, Annmarie Gayle. Annmarie?

Thanks, Dillon, and good morning, everyone. Thank you for joining us for our first quarter fiscal year 2026 earnings call.

Despite the challenging global policy environment, our revenue in the first quarter 2026 increased by 28.8% and I believe that we have delivered a solid set of results. For those who are new to the Coda Octopus story, our business is made up of 3 discrete business operations: the Marine Technology Business, the Defense Engineering Services Business and our Acoustics Sensors and Materials Business units.

Within our group, our core business is the Marine Technology Business. This business generates most of our revenue. And in the first quarter 2026, it generated 50% of our consolidated net 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 provides vision underwater and allows our customers to make real-time decisions. This technology is a key enabler for the AI-enabled autonomous capability required by the subsea market as it provides real-time 3D perception, enabling these autonomous systems to perceive, navigate and make decisions independently underwater. This technology reduces the cost of these operations and increases safety.

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.

Turning to our imaging sonar, the Echoscope. The Echoscope is a real-time, 3-dimensional volumetric imaging sonar that can generate real-time 3-dimensional images on the water 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.

To achieve the growth that 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 Echoscope's uniqueness of being a single sensor for multiple undersea activities presents a significant advantage over other technologies. It allows the consolidation of multiple sensors into a single power-efficient unit without compromising the various missions to be executed.

We recently launched our next generation of ultra-small form 3-dimensional sonars, the NANO Gen Series, which expands the swift of the imaging sonar market we can address, large and small payloads.

Our second key technology is for DAVD, the Diver Augmented Vision Display system. The DAVD provides a real-time information platform for diving operations, increasing safety and efficiency. The addressable market for the DAVD technology includes both the defense and commercial diving sectors. The untethered DAVD variant addresses the special forces type of divers, and we believe constitutes the largest addressable market for the technology.

This variant is now going through approved Navy Use Assessment and we are hopeful that this will be concluded in our second quarter 2026. Once approved, this paves the way for broader adoption of the DAVD technology by the military diving market.

Now turning to first quarter 2026 highlights relating to our core business, the Marine Technology Business. This business sells its products and solutions worldwide, and increased revenue in the first quarter 2026 by 47.4%. Key highlights include hardware sales increased by 31% and were $2.3 million, compared to $1.7 million in the first quarter 2025, with a strong focus on Echoscope sales from the Asia region. Rental assets utilization improved, increasing rental revenue by 232.8% to approximately $0.7 million, compared to approximately $0.2 million in the previous quarter and was a factor in the increase in gross profit margin for this business unit.

Now turning to highlights relating to the Defense Engineering Services Business. In the first quarter 2026 [ revenue increased ] by 9.2%. 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. Many defense programs are currently being funded through the use of continuing resolutions. In practical terms, this reduces the funding available for many programs, and as such, this business has experienced delays in receiving contract awards. Although a federal budget is in place, line items appropriations are still pending, and this continues to impact our Defense Engineering Services Business.

Now turning to highlights relating to our Acoustics Sensors and Materials Business. This business sells its products and solutions worldwide and increased revenue in the quarter 2026 by 20.7%. Gross profit margin was higher at 66.8%, compared to 61.7%. We continue to be very pleased with the performance of this unit.

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 have about our technologies.

I will now turn the call over to Blair Cunningham.

Thank you, Annmarie, and good morning, everyone. Our core business focus is expanding market share for our disruptive underwater technologies, specifically our real-time 3D sonar systems and our DAVD technology. Today I will keep my remarks brief and concentrate on the key milestones that will help us achieve this objective.

As we have noted on previous earnings calls, the DAVD untethered variant represents the largest market opportunity for this technology. In the U.S. alone, there are approximately 14,000 divers across the government and defense community who are potential users of this DAVD untethered system. We successfully completed the [ hardening ] program for the DAVD untethered variant in fiscal year 2025. Based on this, we delivered the first batch of the new generation of DAVD untethered system to our Navy customer. This delivery has now placed the U.S. Navy in a position to commence the safety qualification for the product. We are, therefore, currently awaiting the Authorization for Navy Use, or ANU, assessment to be completed. We are hopeful that this will be in place in our second quarter.

ANU approval is an important milestone as it's a requisite for the broader adoption within the military untethered diving community. We are on schedule to perform DAVD site acceptance testing with a key European navy in the second quarter, which we expect will serve as a precursor to broader technology adoption discussions. This naval diving group represents an influential European defense customer, and we are encouraged that they have already made an initial investment in DAVD tethered systems and are evaluating the data technology platforms for wider fleet adoption.

We continue to work on several defense programs which are seeking to leverage DAVD as a critical life support and visualization component, and which we believe are strong indicators that DAVD is now considered a mature technology. We continue to see strong global momentum around our NANO Gen Series. And we believe that in the third quarter, we will begin to see initial adoption of NANO through several defense funded product improvement programs. The initial quantities will be a small batch for continued fleet assessment.

NANO represents an important step forward for our business. This ultracompact form factor built on the proven Echoscope technology lineage is capable of supporting multiple mission profiles with a single system. This positions it well for a market increasingly seeking to consolidate imaging sonar capabilities whilst also addressing the growing demand from foreign navies for multi-utility sensors capable of performing multiple independent tasks rather than relying on the traditional one-sensor-per-task approach.

The NANO technology further advances our business through its inherent AI readiness, an ability to deliver deployable 3D data for AI workflows. This aligns well with the new generation of subsea AI platforms, which are smaller, lower-powered and often operating in swarms to cover large areas quickly and efficiently.

NANO's AI readiness goes beyond simply providing 3D perception data. It generates multiple real-time 3D data sets and imaging that can be tailored to specific AI tasks, enabling more efficient and accurate analysis of real-time decision-making.

For example, an autonomous platform inspecting a seabed pipeline may need to detect structural damage, identify unsupported stands or burial and locate leaks. NANO can provide 3 separate AI-ready real-time data sets and 3D images optimized for each task, without additional sensors or processing, rather than relying on a single image that must first be processed and segmented to extract the required information. At the same time, NANO continues to provide a standard real-time imaging and 3D forward-looking obstacle avoidance.

Another strong area of customer engagement for us is the protection of undersea cables and subsea infrastructure, which are increasingly at risk and are paramount for national connectivity and security. The Echoscope technology is uniquely positioned to support continuous monitoring of these critical assets through real-time 3D visualization while also enabling rapid damage assessment, repair support and protection, further reinforcing the multi-mission capability of our technology.

By way of example, Japan relies on subsea cables for approximately 99% of international communications, underscoring both the importance of these assets and the challenge of monitoring, protecting and rapidly [ repairing ] them. Sabotage, increased heavy shipping traffic and natural disasters all present [ great risks ] to this critical infrastructure.

For fiscal year 2026, our goal is to achieve key milestones with our disruptive technologies, including expanded DAVD adoption in the global commercial market and by foreign navies and the deployment of our Echoscope technology, including NANO, on next-generation autonomous, AI-enabled platforms as a primary perception sensor for navigation, obstacle avoidance and target guidance.

I will turn the call over to Annmarie and I will be available to take your questions during the Q&A session of this call.

Thank you, Blair. Let me now turn the call over to our Interim CFO, Gayle Jardine, to take you through our financials for our first quarter 2026, before I provide my closing remarks. Gayle?

Thank you, Annmarie, and good morning, everyone. Let me take you through our first quarter 2026 financial results.

Starting with revenue. In the first quarter 2026, we recorded total revenue of $6.7 million, compared to $5.2 million in first quarter 2025, an increase of 28.8%. Our core business, the Marine Technology Business, generated revenue of $3.4 million, compared to $2.3 million, representing a 47.4% increase over first quarter 2025.

Our Acoustics Sensors and Materials Business recorded revenue of $1.6 million this period, compared to $1.3 million in first quarter 2025, an increase of 20.7%. Our Defense Engineering Services Business generated revenue of $1.8 million, compared to $1.6 million, representing a 9.2% increase over first quarter 2025.

Moving on to gross profit and margin. In the first quarter 2026, we generated gross profit of $4.4 million, compared to $3.4 million in the first quarter 2025. Consolidated gross margin was 65.1%, versus 65.8% in the first quarter 2025. This reduction reflects the composition of revenue derived from the Defense Engineering Services Business.

In our Marine Technology Business, gross margin increased to 75.3% in first quarter 2026, compared to 73.1% in the prior period, largely reflecting the increase in rental sales, which grew by 232.8% over the first quarter of 2025. The Acoustics Sensors and Materials Business increased gross margin to 66.8% in the first quarter 2026, compared to 61.7% in first quarter 2025, reflecting the mixed type of sales. In our Defense Engineering Services Business, gross margin decreased to 44.1% in the first quarter 2026, versus 58.9% in the prior period, reflecting the change in the mix of engineering projects during first quarter of 2026.

Now looking at our operating expenses. Total operating expenses for the first quarter 2026 increased by 21.3% to $2.4 million, compared to $2.8 million in the first quarter of 2025. The main factor for the increase in total operating expenses was the weakening of the U.S. dollar against both the British pound and Danish krone. This impacted on our costs when translated into dollars from the base currencies for reporting purposes.

Our selling, general and administrative costs in the first quarter of 2026 totaled $2.8 million, an increase of 23.7% from $2.2 million in first quarter of 2025. This is reflecting a swing of $0.5 million from an exchange rate gain in the first quarter 2025 to an exchange rate expense in the first quarter 2026. SG&A as a percentage of consolidated net revenue in first quarter 2026 was 41.0%, compared to 42.7% in first quarter 2025.

Operating income in first quarter this year was $1.0 million, compared to $0.6 million in first quarter 2025, an increase of 52.6%. Operating margin was 15.1%, compared to 12.7% in first quarter 2025, reflecting the increase in our consolidated net revenue in the first quarter.

Pretax income in first quarter 2026 was $1.2 million, compared to $0.9 million in first quarter 2025. Net income after taxes this period was $0.93 million or $0.08 per diluted share, compared to $0.91 million, also $0.08 per diluted share in first quarter 2025.

In this period, we provided for a tax expense of $0.3 million, compared to $0.05 million in first quarter of 2025.

Moving now to our balance sheet. As of January 31, 2026, we had $30.5 million in cash and cash equivalents on hand, and no debt. This represents an increase of $1.8 million from October 31, 2025, where the comparable figure was $28.7 million. Total assets increased by $1.1 million to $65.6 million in the first quarter of 2026.

Now let me turn the call back over to Annmarie for her closing remarks.

Thank you, Gayle. I am very pleased with the increase in revenue in the first quarter 2026 and our overall financial results. I'm also pleased with the progress we're making against our key milestones for growing our business, both around our DAVD and Echoscope technologies. We believe real progress is being made in getting broader adoption of these technologies in the defense space.

In terms of cash deployment, we will also continue to prosecute our M&A strategy in fiscal year 2026 and are continuing to build our M&A pipeline of opportunities. We're very keen to close another acquisition in fiscal year 2026.

Through our strategy, we aim to pivot the revenue model of the marine technology business towards a multiyear program-based adoption, supporting a multiple sale model over the life of major programs as we have started to see with our DAVD product line. 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.

To conclude, we would like to thank our shareholders for their continued support. We are now happy to answer any questions. Operator?

[Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners.

You've highlighted there are 14,000 divers in the United States. So with that said, can you size the total addressable market in dollar terms in the U.S. for the DAVD?

Brian, thank you very much for that question. Look, that's a difficult question actually, Brian, because then that is predicated on our [ sale ] price, what the Navy [ accepts ] as the purchase price for the item. So this is still being negotiated, so it's very difficult for us to provide a number at this stage. Although in the past for the military diving system, we have been providing this at a price at USD 50,000 per unit. But as I said, we're always looking at how to sharpen our pencil on that and it really depends on the customer accepting that price.

Got it. And then you highlighted, and you've been for a bit, the unmanned underwater vehicle market is going through some exciting changes. What is the timing as to when this could be an opportunity for Coda from a revenue perspective? Are there any design wins to speak of for Coda? And when do you see production for UUVs possibly beginning?

Well, as Blair reported to the market in first -- in our last earnings call and today, really, for the NANO Gen Series, we're seeing some very near-term opportunities on the product improvement program, the so-called PIP. So we would expect in third and fourth quarter to see small batches of NANO being acquired under some of these programs.

So those are replacements under existing vehicles, is that what you're saying?

I wouldn't say replacement, but they're certainly going on some of these existing vehicles that are looking for more capabilities. And Blair can expand on that a little bit more.

Brian. I'll completely [ emphasize ] that point actually. So there's going to be a combination of new platforms that are coming online that are looking for 3D perception, which is where we really fulfill a significant gap in the market, as well as, as Annmarie said, these existing platforms through this PIP program where they're looking to enhance the fleet they have, and when they're adding new vehicles to that same fleet, then they're going to be adding this with this new capability. And that's what we are seeing, as Annmarie noted, in the kind of third and fourth quarters, that's what we see starting to come in.

Maybe you could help us understand, do you need to be part of a design win for the new generation of vehicles? Are those conversations ongoing? And when is the targeted date for some of the vehicles? Are we a year out? Are we 2 years out?

It's an interesting question. I think, obviously, as people are designing new vehicles and platforms, generally, we'll be in the discussion realm in terms of what sensors they need upfront. And we're seeing that increasing and increasing at the moment. So that's encouraging that people are looking, We're not being added to the vehicle after all the decisions are made, as an afterthought. We're now being built into the outfront of the vehicles. And I think there's probably 2 or 3 platforms I can think of right now that are in design phase where that is going to be a consideration.

In terms of the time line, I think the defense community, especially in Europe, is pivoting from a long-duration design phase where perhaps they go through a cycle of 2, 3 years. And they're looking to try and to say, "Well, let's buy smaller quantities and then we can develop those on in further years." So I believe that's going to benefit us from having some initial sales in the shorter period. So certainly, I expect to see that picking up beyond the fourth quarter.

Yes. And I guess just as a quick note, Brian, just to say, the programs we are most excited about currently are those under the so-called PIPs because they are more nearer-term opportunities. When there's a program at the design phase, that can be multiyear program, right? So we're particularly excited about the PIP opportunities because they are already established programs looking to improve their capability.

Great. How does rising oil prices impact demand for your products? And are you seeing any changes this quickly on demand right now?

Well, not really because then it is really just think about development cycle is not that responsive, it saying we're going to start with new development on the price of oil. So not really. It's not as fluid as that. So we're not seeing any increased demand because of what's happening to date.

Great. And then kind of a more difficult question, sorry. If I look in fiscal 2021, Marine Technology peaked at almost $16 million. Here we are 5 years later, Echoscope sales haven't gotten back to that level, and maybe haven't even got back to fiscal '22 contribution. We know the impact of COVID, but the technology seems so differentiated and so value-add, I'm curious your thoughts what's holding back the product from scaling today? And how do you think about the long-term growth potential of this product?

Yes. So as I've said over and over, Brian, so the bread and butter for the business currently is in the commercial marine market. And that we do very well and we are well known in the commercial offshore marine market. But as I've always said, for the business to grow, because if you really want multiple recurring fees, we need to get on to these programs.

Now these programs can take a very long time to mature. And I think that this is mainly a reflection of the gestation period for a lot of these programs. So again, I come back and I say, well, yes, but if I think of this quarter sales within the mix, there was a very, very strong bias towards Echoscope sales. So heartened and I continue to see the progress we're making on some of these defense programs. Some of these are closer than others, but again, our focus then is on the near-term opportunity for the PIP where we can start seeing a little bit of volume.

In addition to that, really where we see with like the DAVD product line where we're seeing pull-through sales of Echoscope from the DAVD. So the long and short is that I feel that the overriding barrier has been the time that it takes for some of these programs to mature. And we still have lots of opportunities that we are pursuing for the [indiscernible] newly designed programs, but they get -- they can be quite long-winded. But we also have now within the mix closer-term or nearer-term opportunities on the some of these PIP programs.

[Operator Instructions] Ladies and gentlemen, at this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Annmarie Gayle.

Thank you, operator. Thank you, everyone, for your attendance. Have a great day. Thank you.

Thank you. This concludes today's call. You may now disconnect your lines. Thank you for your participation.

Good morning, and welcome to Coda Octopus Group's Fiscal Year 2025 Earnings Conference Call. My name is Shamali, and I will be your operator today.

Before this call, Coda Octopus issued its financial results for the fiscal year ended October 31, 2025, including a press release, a copy of which will be furnished in a report filed with the SEC and will be available in the Investor Relations section of the company's website.

Joining us on today's call from Coda Octopus are its Chair and CEO; Annmarie Gayle; its Interim CFO, Gayle Jardine; its President of Technology and Director, Blair Cunningham; and [ Dylan King ] from their Investor Relations team. Following their remarks, we will open the call for questions. Before we begin, [ Dylan King ] from the company's internal Investor Relations team will make a brief introductory statement. Dylan, please proceed.

Thank you, operator. Good morning, everyone, and welcome to Cod Octopus' Fiscal Year 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 risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.

We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as may be required by law.

We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances. Including, but not limited to, risks and uncertainties identified in our Form 10-K for year ended October 31, 2025, and Forms 10-Q for the first, second and third quarters of our fiscal year 2025.

You may get Coda Octopus' Securities and Exchange Commission filings free by visiting the SEC website at www.sec.gov. I would also like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section of Coda Octopus' website.

Finally, as a reminder, this is our fiscal year 2025 reporting and all comparisons, unless explicitly stated otherwise, or with our fiscal year 2024. Now I will turn the call over to the company's Chair and CEO Annmarie Gayle, Annmarie?

Thanks, Dylan, and good morning, everyone. Thank you for joining us for our fiscal year 2025 earnings call. Despite a challenging global policy environment, our consolidated net revenue in fiscal year 2025 increased by 30.7% and I believe that we have delivered a solid set of results.

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 Defense Engineering Services businesses and our recently added Acoustics, Sensors and Materials business units.

Within our group, our core business is the Marine Technology business, this business generates most of our revenue. And in the fiscal year 2025, it generated 49.8% of our consolidated net revenue. It is around this business that we are 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 on the water by providing a comprehensive real-time information platform, which provides vision on the water and allows our customers to make real-time decisions.

This technology is a key enabler for the rapidly emerging AI-enabled autonomous capability required by the subsea market as it provides real-time 3D perception on the water.

The specific addressable markets, which are of relevant or the imaging sonar market and diving market. It is these market segments that our growth strategy is built around.

Turning to our flagship imaging sonar, the Echoscope. The Echoscope is a real-time 3-dimensional volumetric imaging sonar that can generate a real-time 3-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.

To achieve the growth that 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 to this. The Echoscope's uniqueness of being a single sensor for multiple undersea activities, presents a significant advantage over other technologies. It allows the consolidation of multiple sensors into a single power efficient unit without compromising the various missions to be executed.

We recently launched our next generation of ultra small form factor, 3-dimensional sonars, the nanogen series. The 3-dimensional sonars within our nanogen series are shape bigger than a smartphone and have been specifically designed for the emerging small class underwater platforms, encompassing manned-unmanned surface, subsurface and fully autonomous robotic vehicles. The addition of the nanogen series allows us to address a larger way of the imaging sonar market.

Our second key technology is the DAVD, the Diver Augmented Vision Display system, the DAVD provides a real-time information platform for diving operations, increasing safety and efficiency the addressable market for the DAVD technology includes both the defense and commercial diving sector. The Untethered DAVD variant addresses the special forces type of diverse and we believe constitutes the largest addressable market for the technology. The DAVD Taber system is already operational and is now the subject of focused business development effort to get broader adoption.

The Untethered variant of David, which we believe constitutes the largest addressable market for the DAVD technology has been the subject of a multiyear hardening program, which we successfully concluded in fiscal year 2025. Following the successful conclusion of this hardening program, we delivered a small batch of 16 new generation on Tethered DAVD systems. This variant is now going through approved navy use assessment, which we believe will be the catalyst for broader adoption of the technology.

We're also pleased with the acquisition of Precision Acoustics Limited, which is a recognized leader of acoustics and measurement sensors widely used in the medical sector. The addition of this company expands our expertise in underwater acoustics, which is critical for maintaining and extending our lead in real-time 3D-imaging underwater. It also positions the group to compete for larger defense contracts.

Now turning to fiscal year 2025 highlights relating to our core business the Marine Technology business. This business sells its products and solutions worldwide. Key highlights in the period include -- this business increased revenue by 3.2%. In respect of its revenue structure in the 2025 period, 46% of revenue was generated from the defense sector with 54% from the Commercial Marine sector. 71.9% of revenue generated by this business relates to Echoscope and 28.1% relates to DAVD.

Hardware sales increased by 30.5% and were $9.5 million compared to $7.2 million in the previous fiscal year. Hardware sales to Asia, a strategically important market for this business increased by approximately 7.7% and were $5.9 million compared to $5.5 million in the previous fiscal year.

Rental assets were significantly underutilized in fiscal year 2025, resulting in lower units of rentals and associated services. This also impacted on the gross profit margin 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 BP and others.

Now turning to highlights relating to the Defense Engineering Services business in the fiscal year 2025 our defense engineering services business revenue increased by 5.6%. This business has long-standing relationships with prime defense contractors and have served the defense market for close to 50 years. It is reliant on receiving funding on the defense programs.

During the fourth quarter, it experienced belief in receiving contract awards due to the U.S. government shutdown, followed by the use of continuing resolution to fund these programs. The success of the Defense Engineering business is dependent on increasing the number of defense programs that they sell proprietary parts into.

Now turning to highlights relating to the newly acquired Precision Acoustics Limited in the fiscal year 2025. This business unit contributed 20.4% to our net consolidated revenue. We continue to be very pleased with this acquisition and reiterate that it positions the group to collectively respond to larger defense requirements, particularly in the underwater acoustic space.

We continue to lease our priority to focus on executing our growth strategy. Blair Cunningham, our President of Technology, will be updating you on our progress and various milestones around our core technologies, which underpin our growth strategy. I will now turn the call over to Blair Cunningham.

Thank you, Annmarie, and good morning, everyone. Today, I will focus on progress that we have made around our core technologies, Echoscope and DAVD. In fiscal year 2025, we saw increase in sales of both Echoscope and DAVD we also saw strong interest from the defense community.

The Echoscope, our flagship technology, the Echoscope, continues to represent the largest opportunity for scalable growth particularly within the defense and security market. This sector is being fundamentally reshaped by the widespread adoption of next-generation underwater platforms, encompassing manned, unmanned, surface, subsurface and fully autonomous robotic vehicles.

The Defense subsea market is moving away from large bespoke platforms towards smaller network and increasingly autonomous vehicles that can be deployed at scale. This transition favors technologies that maximize performance per unit cost and enable rapid production, modular upgrades and multi-mission flexibility. A significant portion of these new programs is focused on reducing reliance on human in the loop supervision and control for mission-critical decisions.

The launch of the Echoscope nanogen series, our ultracompact real-time 3D-imaging sonar marks a critical step in enabling next-generation subsea AI-enabled economy. As the subsea industry moves away from vessel intensive human-in-the-loop workflows, nanogen series provides the real-time 3D perception required to unlock scalable software-driven autonomy across a growing range of platforms.

nanogen series delivers crew real-time 3D-imaging and an ultracompact form factor, enabling autonomous systems to perceive, navigate and make decisions independently under water. Unlike traditional sonars designed primarily for data collection, nanogen series functions as a core perception sensor for AI-enabled platforms, supporting navigation, obstacle avoidance, target guidance and adaptive mission execution without reliance on bandwidth limited communications or post-processing.

A single nanogen [ CV ] sensor supports multiple high-volume use cases, including subsea navigation, inspection, 3D modeling, subsea imaging, change detection and gas and oil leak detection, allowing operators and platform developers to consolidate hardware, reduce integration complexity and lower total system cost.

This multi-mission flexibility positions nanogen series as a platform agnostic technology, accelerating adoption across AUV, ROVs, hybrid vehicles, resident subsea systems and future autonomous fleets. nanogen series lease is aligned with the strongest growth drivers in the subsea market. Autonomy, Edge AI, reduced operational costs and scalable deployment by enabling higher levels of autonomy and mission efficiency with a single compact sensor nanogen Series strengthens Echoscope role as a critical technology provider to the next generation of intelligent subsea platforms.

We're seeing strong and accelerating interest supported by highly successful trials with a number of key defense customers, including the U.S. Navy and several allied foreign navies across their respective subsea vehicle programs. These engagements span next-generation platforms designed for multi-mission operations, combining manned and autonomous capabilities within a single operational framework.

By working closely with naval special operations forces, program sponsors and platform and control system manufacturers, we ensure our technology is aligned with real operational requirements and emerging concepts of use. This collaborative approach enables us to demonstrate best-in-class performance and rapid integration across diverse subsea platforms.

As the market continues to transition away from traditional single-purpose sonar systems towards intelligent, AI-enabled perception, our solutions are increasingly viewed as a core enabling technology for future subsea autonomy, situational awareness and mission flexibility.

We anticipate the procurement and program decisions for the active opportunities in which we have already completed end customer demonstrations and operational trials will be made in early 2026. These programs are currently progressing through the final stages of technical evaluation, operational validation and internal budget approval within the respective defense organizations.

Subject to successful contract awards, we expect initial deliveries to commence within the 2026 fiscal year, aligned with customer deployment schedules and platform integration timelines. These programs are structured to support multi-mission subsea vehicles with both manned and autonomous operating modes, providing a strong foundation for follow-on orders platform expansion and long-term fleet adoption.

Given the strategic importance of these programs and the shift toward AI-enabled next-generation subsea capabilities we've used these near-term decisions as a meaningful inflection point with the potential to convert demonstrated technical leadership into recurring production contracts and sustained growth.

All these active programs are presently focused on 3D perception, navigation and obstacle avoidance enabled by the nanogen series, they represent longer-term growth opportunities for our DAVD augmented vision display solutions. Many of these subsea vehicle programs support diver operations or involved manned subsea platforms. Both of which align directly with the target applications and markets for DAVD.

Turning to the other significant pillar of our growth strategy, DAVD, our Diver Augmented Vision Display. This system is a cutting-edge augmented reality technology, purpose-built to enhance diver safety, performance and situational awareness and low visibility and technically demanding underwater environments.

In fiscal year 2025, we experienced real momentum around DAVD with increased domestic interest from non-Navy defense organizations and government agencies. As well as from several foreign navies and commercial diving entities. We were contracted under several programs and successfully delivered multiple next-generation DAVD systems to this expanded user base, and we'll continue to support, educate and drive further adoption of these systems within this community.

DAVD is being leveraged as a critical life support and visualization component, enhancing diver safety and mission effectiveness by delivering real-time life support data via the DAVD head-up display and 3D situational awareness through the compact Echoscope type nanogen series sonar. These initiatives exemplify the growing recognition of DAVD and Echoscope technologies as mission-critical tools in the evolving landscape of advanced military diving and underwater operations.

During the fiscal year 2025, we completed the funded DUS Hardening Program under which the DAVD Technology was jointly funded for adoption for the special forces market by the U.S. and the leading Ford Navy. Following the successful completion and delivery of the DUS Hardening Program, we were awarded the initial order of 16 new generation Untethered DAVD systems in fiscal year 2025 for fleet evaluation by U.S. special forces. These systems are the combination of extensive field testing and direct feedback from operational drivers funded under the DUS Hardening Program.

Following the delivery of the initial production run of 16 DAVD untethered systems for the U.S. Navy March 16 [indiscernible] system in fiscal year 2025 and the Untethered DAVD variant is undergoing final approval of the U.S. Navy's authorization for Navy use or annual approval process.

Following completion of this process, is expected to support ongoing broader operational use and adoption of the untethered system. The DAVD untethered system continues to be fielded across an expanding community of [ EUD ] and special forces diver units for fleet evaluation and mission-specific tasking. The DAVD untethered system remains the largest growth opportunity for this transformative technology. For context, in the United States alone, there are approximately 4,000 divers within the potential government and defense user community for the DAVD untethered system.

Fiscal year 2026 is an important year for the company in terms of reaching new milestones such as broader adoption of DAVD by foreign navies and Echoscope technology being adopted in some of the new autonomous AI-enabled platforms as a core perception sensor for navigation, obstacle avoidance and target guidance. I will now turn the call over to Annmarie and will be available to take your questions.

Thank you, Blair. Let me now turn the call over to our interim CFO, Gayle Jardine to take you through our financials for fiscal year 2025 before I provide my closing remarks.

Thank you, Annmarie, and good morning, everyone. Let me take you through our fiscal year 2025 financial results. Starting with revenue. In fiscal year 2025, we recorded total revenue of $26.6 million compared to $20.3 million in fiscal year 2024, an increase of 30.7%. Our core business, the Marine Technology business generated revenue of $13.2 million compared to $12.8 million, representing a 3.2% increase over fiscal year 2024.

Our Acoustic Sensors and Materials business, which was added to our group in October 2024, a recorded revenue of $5.4 million in fiscal year 2025 and added 20.4% to our consolidated net revenue. Our Defense Engineering business generated revenue of $7.9 million compared to $7.5 million, representing a 5.6% increase over fiscal year 2024.

Moving on to gross profit and margin. In the fiscal year 2025, we generated gross profit of $17.7 million compared to $14.2 million in the fiscal year 2024. Consolidated gross margin was 66.5% versus 69.8% in fiscal year 2024. This 3.3 percentage points decrease is mainly due to the impact of the lower-margin acoustic sensors and material business being added, which accounts for 2 percentage points as well as mix of type and geography of sales in our core business.

In our Marine Technology business, gross margin decreased to 74.5% in fiscal year 2025, compared to 77.9% in fiscal year 2024, reflecting the mix of type and geography sales with 30.5% more units of hardware sale compared to a reduction of 36.6% in the higher-margin rental sales.

The acoustic sensors and Materials business realized gross margin of 58.6%. Our Defense Engineering business gross margin increased to 58.6% in fiscal year 2025 versus 55.8% in the fiscal year 2024. Again, reflecting the mix of engineering projects during fiscal '25.

Now looking at our operating expenses. Total operating expenses for the fiscal year 2025 increased by 24.0% to $13.1 million compared to $10.6 million in the fiscal year 2024. The main factors for the increase in total operating expenses with the addition of Precision Acoustics Limited into the group, which added 22.1% to these costs. as well as the weakening of the U.S. dollar against the British pound and Danish krona, which impacted on these costs when translated into U.S. dollars from the base currencies for reporting purposes.

Our selling, general and administrative costs in the fiscal year 2025 totaled $10.7 million, an increase of 27.9% from $8.3 million in fiscal year 2024. The reflecting the addition of the new business unit into the group and the inclusion of the earn-out provision as per the Precision Acoustic Limited acquisition agreement.

SG&A as a percentage of consolidated net revenue in fiscal year 2025 was 40.2% compared to 41.1% in the fiscal year 2024. Operating income in fiscal year 2025 was $4.5 million compared to $3.6 million in fiscal year 2024, an increase of 26.6%. Operating margin was 17.1% compared to 17.6% in fiscal year 2024, which we attribute to the impact of the overall increase in our total operating expenses by 24.6%. In conjunction with an increase in consolidated net revenue of 30.7%.

Pretax income in fiscal year 2025 was $5.5 million compared to $4.6 million in fiscal year 2024. Net income after taxes in fiscal year 2025 was $4.1 million or $0.37 per diluted share compared to $3.6 million or $0.32 per diluted share in fiscal year 2024. In fiscal year 2025, we provided for a current tax expense of $1.1 million compared to $0.7 million in the fiscal year 2024.

Switching now to our balance sheet. As of October 31, 2025, with $28.7 million in cash and cash equivalents on hand and no debt. This represents an increase of $6.2 million from October 31, 2024, where the comparable figure was $22.5 million. Total assets increased by $6.9 million to $64.5 million in fiscal year 2025.

Finally, to summarize the financial impact in the fiscal year 2025 of the introduction of Acoustic Sensors and Materials business into the group. It contributed 20.4% of net consolidated revenue and 18.0% to gross profit. Gross profit margin for this business was $3.2 million or 58.6%. Thank you, that completes my summary. So let me turn the call back over to Annmarie for her closing remarks.

Thank you, Gayle. I am very pleased with the increase in revenue in the fiscal year 2025 and our overall financial results, including earnings per share. I'm also pleased with the progress we're making against our key milestones for growing our business. Some of these include in respect of our revenue structure, we increased sales in the defense sector, where 46% of our core business revenue emanated from the defense sector and 54% from the Commercial Marine Offshore sector.

Realizing sales of $3.7 million relating to DAVD in the fiscal year 2025. Successfully completing the DAVD hardening program, which paves the way for broader adoption of the DAVD technology by the military diving market, subject to receiving approved Navy use status.

The launch of our nanogen series, sonar which we believe is well positioned as a core real-time perception sensor in the rapidly emerging AI-enabled autonomous and semiautonomous platforms in the subsea market.

And finally, receiving our first order from a highly influential European foreign Navy for the DAVD untethered system. We certainly believe that fiscal year 2025 was critical for completing key development activities under the David program, which were a prerequisite for broader adoption as well as for launching the nanogen series which positions us to support a growing range of AI-enabled subsea robotic and autonomous systems.

In terms of cash deployment, we will continue to prosecute our M&A strategy in fiscal year 2026, and we are continuing to build our M&A pipeline. We are very keen to close another acquisition in fiscal year 2026. Through our strategy, we aim to pipe the revenue model of the marine technology business towards a multiyear program-based adoption model, which supports recurring multiple sales on the programs of records and long field revenue as we have started to see with the DAVD product line.

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.

To conclude, we would like to thank our shareholders for their continued support. We're now happy to answer any questions, operator?

[Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners.

This is Kevin for Brian. First, we were hearing about certain deliveries to the Indian Navy through International Prime. What code of products were shipped to the Indian Navy? And is this a brand-new customer? Or have you worked with the Indian Navy in the past? And then broadly speaking, do you see any significant opportunities within India in the near medium term?

Sorry. Thanks very much for that question. I'm not clear the Indian Navy, I'm not sure where that has come from.

Okay. Maybe I must be mistaken. I can move on to a different one. Can you update us on the progress in Europe, I believe you delivered two untethered systems to a European Navy? How is the satisfaction? And do you expect larger orders ahead from the Navy?

Right. Thank you very much for that question. So I'm really, really excited about that development. As we mentioned earlier, we've completed the data on tethered hardening program. That's really the precursor to broader adoption. So what we really feel at this stage on the DAVD technology, which is one of our key pillars for our growth. We feel that we've spent last year focused on completing the hardening program and delivering systems to the U.S. Navy really, now we are really waiting for that to complete the approved Navy use status which then means the product will be operational and will be the catalyst for broader adoption.

Then pivoting from outside of the U.S., really this year, what is really key for Coda Octopus is broader adoption of the technology outside of the U.S. And in our fourth quarter, we delivered two systems to a very, very influential European Navy and we will be providing training to that Navy in our Q2. And then we believe that will be the catalyst for further adoption of the DAVD untethered system. So we're really, really excited about that. And we're waiting to support that customer. And we would expect Q3, Q4 would be where we start understanding opportunities for that customer.

And then can you quantify cumulative deliveries of the untethered DAVD system. And last quarter, I believe you said...

Sorry. Could you repeat that?

Could you quantify the cumulative deliveries of the DAVD untethered system and I think last quarter, you said your target was $3.5 million to $4 million of dividend in fiscal 2025. Did you achieve that? And then given the progress you're making, what kind of range do you expect for DAVD contribution to revenue in fiscal '26?

So in fiscal 2025, we did $3.7 million for DAVD. And the 2026 really, of course, we -- our internal business plan presupposes that we beat this. However, it's really difficult to see as we're waiting for completion of the assessment of the approval the approved net use status for the product, which is the prerequisite for the product being operational.

So we expect really to have that close to the end of Q2. And really Q3 and Q4 is really where we can really start understanding what revenues will be for the untethered variant in 2026. So DAVD revenue will be lumpy and back-ended to third quarter and fourth quarter for the simple reason that until it goes through, we've delivered the evaluation systems and until it gets on the annual list, which is the approved by Navy use case. It's very difficult for us to quantify what the budget is going to be.

In addition to that, though, we're really focused on, as I said, this year, getting broader adoption for the DAVD technology outside of the U.S. So we feel we've done all of the development programs. We've got good understanding of where the trajectory of the product in the U.S. We're pretty much waiting for budgets and we in to understand the budget line appropriation programs are now being funded by continuing resolution. So we really don't know what 2026 U.S. budget is going to be. There will be budget, but we don't have visibility of that right now. But that aside, we take that as a given, and we presuppose that we're going to beat our $3.7 million but we really lead the focus now on the broader adoption now that we finish the development program, broader adoption outside of the U.S.

And this delivery to this European Navy is really a pivotal moment for the technology because this is really a trendsetter maybe in Europe. So we're very excited about that. So can't say what our target is, really don't know because we're waiting for budget allocation in the U.S. But I think what we're saying is that we did 3.7% in fiscal 2025, and we anticipate beating that.

Great. And then can you quantify how many foreign navies have tested or are testing, DAVD? And once you get in the door, can you discuss the sales cycle? How long might that occur and then time frame for deliveries and then what would be a reasonable assumption for large quantity sales? .

Blair, did you want to talk about just broadly the business development activities with the broader Navy communities?

Absolutely, yes. I think it's been critical in both 2025 and prior to that, that having a very close relationship with the U.S. Navy is critical for the product because as I restated having the annual authorization for naval use is critical for the rest of the navies to understand that this is equipment that they can put through to budget lines and move forward.

In terms of the number of physical navies where we presented this product to physically and diving we've been involved in a number of what I would call worldwide Navy collective emissions, including RIMPAC, for example, which is in Hawaii, at which point, even at that single event, I think we had 10 different country navies driving the system.

That's obviously not a statement in all 10 of those navies, a hub budget and can move forward with that, but it gives an idea of the number of entities that we're working with. I think I'm probably easier to focus on the European sector because that's much more predefined. And of the never we deliver the system, I've personally been working with them for the last 2 years, just to give you an idea of the gestation cycle. And now that the product is coming close to being a deliverable, they are making their early investments into the program. But they are very, very committed.

I think the influential also such that particular Navy has a very strong investment in Navy diving of all factors, so that special forces are driving salvage for example, which we cover all bases. But they are incredibly well connected to all of the neighboring navies such that we may place an order. It's fairly well read that the adjacent never will also follow suit and they will adopt the same level of equipment. And that's exactly what we are seeing to date.

So I think as Annmarie said, were delivering out the first of those systems to that maybe that will ensure the invite of the other Navy [indiscernible] to that training event brand, I'll be conducting and then Q3, Q4 is when we really understand how that progression moves forward.

Yes. And just to add there, the key benchmark for us in 2026 is to secure meaningful adoption of DAVD outside of the U.S. That is our key benchmark. We feel in terms of the product, its acceptance on the U.S. side, we take that as a given. As Blair says, we've got very good relationship. The customer is very excited about the technology. I think the team did a great job with really understanding the requirements of the navy, the feedback delivering the 16th systems based on feedback, and I feel all of that is settled.

In addition to that, also last year, what we saw, we saw real momentum on broadening the scope of the DUS technology actually. So we had funding from several programs where they want to integrate the DAVD in their infrastructure as a critical tool for their applications. So we feel that DAVD technology is really now mature and really all the development that we've been talking about, we feel we've invested in that, that's behind us. And now we are really focused this year on adoption outside of the U.S., and that's what we are focused on.

And in terms of your question was quantities, I'm really that pure conjecture. I really can't see what quantities. But what I really want to emphasize last year, we did 3.7 million in DAVD, our internal business plan assumes that we will beat this number. And one CapEx I won't say is that DAVD revenue will be lumpy for a number of reasons. We're waiting for the annual process. We expect our European customers, it's the third and fourth quarter before really any form of procurement will take, please. And so I think that that's really where I'll leave it on DAVD and its trajectory. Thanks.

And then last question is for the next-generation Echoscope, could you give us an update on what customer feedback is like?

Blair, did you want to take that?

Yes. Yes, I can take that one. Thank you very much for that question. Yes, I think we are kind of exceptionally excited to launch our nanogen series. It really is a game changer for us in terms of really a wide program we can actually fit our technology on. And I think that would be incredibly swiftly noticed by both the defense and oil and gas and other markets around the nano technology.

I feel very much so that we have really strong interest from a lot of those programs, and especially on the Navy side, where we are already seeing considerable interest for existing funded programs. So they would typically execute what we would call a pit or a product or platform improvement program. And that really is a formal engineering and funding pathway for upgrading already fielded systems, either adding new capability, addressing, say, system deficiencies, improving reliability and in certain new technology into existing platforms.

So the interest to date from the community has been largely focused on the capability growth enabled by nano. So we're adding brand new capability to those existing platforms. But the introduction of nano does actually address multiple of those justification categories. So as a result, I see the opportunities are much closer to program execution. They're adding lower acquisition risk, and they're definitely much more shorter term with predictable volume profile. In other words, we can integrate onto existing platforms that are in the field, and this isn't waiting on perhaps a new funding program for an entire new vehicle.

That said, we are also being approached by multiple defense companies for integration of the nano technology at a ground-up level which is also very exciting. But we understand that those programs have a longer gestation period. So we're very much a gain laser focused on the [ PIP ] approach where we can integrate our technology onto already well-established programs and products.

And I do see also that we will have sort of closer relationships with some of those kind of people involved in those programs as we integrate the nano into that program. But really, it's taking the existing well proven for 20-odd years our 3D real-time volume metrics, which we still really sound almost alone in that capability. I'm bringing that to these new AI and enabled vehicles, be they autonomous, semiautonomous or manned platforms. And we're really excited to see the growth on that.

[Operator Instructions] Our next question comes from the line of Nick Walters, [indiscernible].

I just had a quick one and a quick follow-up. So as you look into calendar 2026, how would you characterize the offshore commercial demand environment? Do you see it improving out of 2025? And what indicators do you look for?

Well, look, the commercial market is really our the commercial marine market were well established, and it's less a fight about what the technology can and can't do. So I think year-on-year, we see good opportunities for the Echoscope within the commercial market.

I think what the rental side has been really sort of slow. But Q4, we saw quite an uptick in rentals. And rentals are important for the business in so far as they are the big offshore companies who don't really buy equipment, but run these very long projects where you can have multiple Echoscope and engineering services on those programs. So they're really, really important to us.

For the first 3 quarters, the rental side was down. But in the fourth quarter, we saw a significant uptick in rental opportunities and rental fees. So looking out for us, the important part for our revenue growth is the defense market. It's always -- and the reason for that is because the defense market has opportunities for multiple sales and long-term revenue. So that pretty much really where our effort is as a business to grow.

And Blair talked very much about -- we've got a number of programs where the Echoscope is contender for being embedded into those programs that will yield this long-term recurring revenue that we talk about, but also excitingly for us, we have broken into some nearer-term catalysts on these tip programs.

So I feel really for us, for the business to really grow. It is the sales market that really we are allocating most of our resources and business development effort because, as I said, in the commercial market there, we're well established. We've been in this scheme for over 30 years. We're well known as a small community. But besides that we really have to grow is the defense space.

And I'm also very pleased with our core business revenue structure this fiscal year because previous fiscal year, we did around 40% in the defense space. This year, we did 46%. So I feel we're making progress. And that's what we have to do to see significant growth for our business. And these [ PIP ] programs that are nearer term catalysts, particularly with the focus on nano is really, really where we're spending a lot of our time this year.

And then looking forward, now that you have $28 million in cash on hand, a pretty hefty amount. How do you think about capital allocation priorities going from here?

Well, as I said, actually in my closing remarks, recognizing we do have quite a lot of cash. We feel the best way to give returns to investors and also to grow the business is by through accretive value-added acquisitions. So we're really actively seeking to complete an acquisition this year. We're still looking at targets. But of course, we really want to make sure we make the right decision for the group. So we're putting a lot of work into screening what makes sense for our business.

Thank you. And at this time, this concludes our question-and-answer session. I would now like to turn the call back over to Annmarie Gayle.

Thank you, operator. Thank you for attending today's earnings call. Have a great day. Thank you, everyone.

Thank you for joining us today for our quota actives conference call. You may now disconnect.

Good morning, and welcome to the Coda Octopus Group's Third Quarter Fiscal 2025 Earnings Conference Call. My name is Melissa, and I will be your operator today. Before this call, Coda Octopus issued its financial results for the third quarter ended July 31, 2025, including a press release a copy of which will be furnished in a report filed with the SEC and will be available in the Investor Relations section of the company's website.

Joining us on today's call from Coda Octopus are its Chair and CEO, Annmarie Gayle; its interim CFO, Gayle Jardine; it's President of Technology and Director, Blair Cunningham. Following their remarks, we will open the call for questions. Before we begin, Jeff Turner from, Investor Relations team will make a brief introductory statement. Geoff, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Coda Octopu's Third Quarter Fiscal 2025 Earnings Conference Call. 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. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.

We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as may be required by law. We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified in our Form 10-K for the year ended October 31, 2024, and Forms 10-Q for the first, second and third quarters of our fiscal 2025 year.

You may get Coda Octopus Securities and Exchange Commission filings free by visiting the SEC website at www.sec.gov. I would 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 third quarter fiscal 2025 reporting and all comparisons, unless explicitly stated otherwise, are with our third quarter fiscal 2024. 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 third quarter fiscal year 2025 Earnings Call. Despite the challenging global policy environment, our revenue in the third quarter 2025 increased by 29% and I believe that we have delivered a solid set of results. For those who are new to the Coda Octopus story, our business is made up of 3 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 third quarter, it generated 56.4% of our net 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 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 operations while increasing safety.

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. Turning to our Imaging sonar the Echoscope. The Echoscope is a real-time 3-dimensional volumetric imaging sonar that can generate real-time dimensional images 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.

To achieve the growth that 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 Echoscope'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 multiple sensors into a single power efficient unit without compromising the various missions to be executed by the customer.

We recently launched our next generation of ultra small form factor, 3 dimensional sonars, the NANO GEN SERIES. The 3 dimensional sonars within our NANO GEN SERIES are a shade bigger than a smartphone and have been specifically designed for the small class of underwater vehicles, drones and diver wearable applications. Our second key technology is the data, the diver augmented vision display system, the DAVD provides the real-time information platform for diving operations, increasing safety and efficiency. The addressable market for DAVD includes both the defense and commercial driving sectors.

The untethered variant addresses the special forces type of divers and we believe constitutes the largest addressable market for the DAVD technology. Following the successful conclusion of the funded DUS hardening program, in the third quarter, we delivered the 16 DAVD untethered system to the Navy for use by the special forces. This now allows select group of special forces personnel to start evaluating the DAVD technology on live missions.

We are providing all support required to ensure the success of this program and the rollout of the technology to the special forces market. We also delivered the final deliverables under the funded DAVD untethered system hardening program to the foreign Navy sponsor. This now puts this foreign navy in a position to start using the technology in live missions.

Now turning to third quarter highlights. Relating to our core business, the Marine Technology business. This business sells its products and solutions worldwide and increased revenue in the third quarter by 30.7%. Key highlights include 57.7% of revenue generated by this business relates to Echoscope and 42.3% relates to DAVD. Hardware increased by 103.6% and were $2.7 million compared to $1.3 million in the third quarter 2024. Hardware sales to Asia decreased by approximately 27.9% and were $1.1 million compared to $1.5 million in the third quarter 2024.

This resulted in lower commission costs. Rental assets were significantly underutilized in the third quarter resulting in lower units of rentals and associated services. 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.

Now turning to highlights relating to the Marine Engineering business. In the third quarter, our Marine Engineering Business revenue decreased by 33.2% caused by delays in receiving contract awards. Gross profit margin in the third quarter 2025 was 58.9% compared to 62.6% in in third quarter 2024, which reflects the mix of engineering projects in the period. 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 third quarter, it continued to see an increase in the level of inquiries on the defense programs. However, many programs are still waiting for funds to be appropriated under the federal budget, and therefore, this affected contract awards to the engineering business in the period. The success of the marine engineering business is predicated on increasing the number of programs to which it supplies proprietary parts.

Now turning to highlights relating to the newly acquired business unit, Precision Acoustics Limited. In the third quarter, this newly added business unit contributed 20.6% to our net revenue and 18% to our operating income. This business unit has added some diversification and resilience to our revenue structure.

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 third quarter, we saw an increase in sales of both Echoscope and DAVD. 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. I will now turn the call over to Blair Cunningham.

Thank you, Annmarie, and good morning, everyone. Today, I will focus on progress that we have made around our core technologies, Echoscope and DAVD. The Echoscope, our flagship technology, the Echoscope continues to represent the largest opportunity for scalable growth, particularly within the defense and security market. This sector is undergoing a transformational shift driven by the increasing deployment of next-generation underwater vehicles and platforms, including manned, unmanned, surface, subsurface and fully autonomous robotic systems.

The latest generation of underwater vehicles, including drones, is trending towards smaller form factors, creating newer opportunities in the subsea market. To meet this demand, we've spent the last 2 years developing a new series of compact real-time 3D imaging sonars, supported by a significant investment in our next-generation custom technology chipset. This breakthrough IP investment has enabled us to miniaturize our advanced imaging technology for key defense and commercial applications.

The first products in this line are now on the market, and I commend our R&D team for their exceptional work in making this possible. Designed to meet the evolving needs of underwater vehicles and platforms in the defense sector, we are excited to report that we have now launched our ultra compact real-time 3D imaging sonars, the Echoscope PIPE NANO GEN SERIES. These next-generation sonars enable small platforms to enhance situational awareness and consolidate multiple sensors into a single power efficient unit, delivering both 3D spatial awareness and forward-looking obstacle avoidance.

Beyond subsea vehicles, the NANO GEN SERIES is also ideal for diver wearable systems diving platforms and a wide range of underwater robotics. We've already concluded several successful trials in the quarter with our NANO GEN SERIES sonars, with key defense customers who are excited about the technology and have started to look at this integration into programs.

Looking ahead, I will personally be involved in 3 additional trials in Q4 with both the U.S. and international naval forces, including integration into subsea vehicle platforms and special forces diver systems. This level of engagement reflects the strong market interest we anticipated and validates the strategic importance of this product line. Our Ship Hull scanning solution developed under a multiyear funded defense program received additional funding this quarter, marking a key milestone in the continued validation and deployment of this technology.

This expanded investment includes the integration of another variant of our real-time 3D imaging sonar, Echoscope PIPE [indiscernible], which is used for close-in inspection missions. The original SLIDE platform has been significantly enhanced to support a wider range of diver missions. In addition to its core applications for ship hull scanning, the platform now includes capabilities for infrastructure inspection and sea dive mapping, enabled by forward and downward-looking imaging functionality. This expansion follows successful trials and continued confidence from the defense customers.

The integration of CIVS [indiscernible] visualization sonar has demonstrated exceptional performance in delivering real-time close range imaging, critical for detailed target detection and conducting complex inspection tasks in confined or challenging under water environments. A final Phase 3 evaluation is scheduled for October with the original U.S. defense customer, focused on validating the ship hull scanning solution in operational conditions. A second SLIDE system was delivered during the quarter to a foreign Navy as part of a larger DAVD special forces development program.

This international deployment utilizes the same technology platform, including our DAVD Diver augmented vision display software and support seabed and infrastructure mapping applications. These 2 deployments [indiscernible] defense customers mark a critical transition of our technology from R&D to real-world operational use. We believe our integrated diver SLIDE solution offers the most advanced capability available today for diver-based underwater inspection and mapping. The unmanned underwater vehicle market valued at $4.8 billion in 2024 is projected to reach $11.1 billion by 2030, driven by the growing complexity of maritime threats and the demand for cost-effective, low-risk technologies.

As a result, RUVs, UUVs and underwater drones are becoming critical components of modern defense strategies worldwide. In general, the Echoscope currently accounts for approximately 80% of Marine Technology business revenues with the launch of the NANO GEN SERIES and strong ongoing customer engagement, we are well positioned to capture significant value in the expanding defense and underwater robotics markets. DAVD, the other significant pillar of our growth strategy is the DAVD, diver augmented vision display, a cutting edge of mounted reality technology, purpose built to enhance divers safety, performance and situational awareness and low visibility and technically demanding underwater environments. The DAVD Untethered System, which represents the largest growth opportunity for this transformative technology achieved 2 critical milestones during the quarter.

For context, in the U.S. alone, there are 14,000 divers within the potential community of government and defense users for the untethered system. Firstly, the initial order of 16 complete DAVD Untethered Systems received in Q1 was successfully delivered in Q3 and is now ready for fleet evaluation by U.S. special forces. These systems are the combination of extensive field testing and direct feedback from operational divers, funded under the DUS Hardening program. The advancement in this specific deployment is the system's seamless integration with the U.S. Navy's Mark 16 underwater breathing apparatus. This integration allows real-time life support data, including system status and [indiscernible] to be projected directly into the DAVD augmented reality head-up display.

The second key milestone achieved during the quarter was the completion of all remaining system component deliveries to the foreign Navy sponsor of the DUS hardening program. This marks a significant step forward in demonstrating international alignment and growing global interest in our data technology. Together, these milestones validate the technological maturity of both the David tethered and untethered systems and marks a critical inflection point in our trajectory from development and field testing to active fleet evaluation and operational deployment.

Importantly, both U.S. and international program partners remain committed to comprehensive fleet evaluations and live mission evaluations throughout the year, underscoring sorting the strategic relevance and near-term potential of our data technology in next-generation underwater operations. In Q3, we received an initial order for DAVD systems from a major European Navy with extensive diving operations and regional influence, an organization we've been actively supporting. In Q4, I would personally lead our team in supporting this navy during real-world dive missions in operational waters, deploying our latest DAVD tethered systems alongside the Echoscope underwater inspection system, a rapid response, mobile inspection and mapping platform designed for seamless DAVD integration.

Notably, this is the same UIS configuration used by the U.S. Navy supervisor of salvage and the U.S Army Corps of Engineers during the Francis Scott Key Bridge collapse response. This upcoming deployment further underscores the operational maturity and versatility of both the DAVD and Echoscope technologies as well as our continued support for frontline military and infrastructure response missions worldwide. Finally, we are pleased to report a significant increase in active development programs centered around our DAVD technology, reflecting strong momentum in expanding DAVD Systems capabilities integrating DAVD with additional platforms and broadening support, of course, a wider range of operational environments.

Among the most notable new programs, DAVD, along with the newly launched Echoscope PIPE NANO GEN SERIES is being integrated into the U.S. Navy's Deepsea expeditionary with no decompression or DSEND system. The DSEND system features a lightweight, hardened atmospheric dive suite designed for extreme underwater missions, the suite incorporates rotating detachable joints to provide divers with increased dexterity flexibility and maneuverability in challenging environment. This program is sponsored by the Office of Naval Research in collaboration with 3 U.S. Department of Defense entities, NAVC, [ NUIC ] and NSWC. DAVD is being leveraged as a critical life support and visualization component of the DSEND system, enhancing diver safety and mission effectiveness by delivering real-time life support data via the DAVD Head of Display and 3D situational awareness through the compact Echoscope PIPE NANO GEN SERIES mounted directly to the DSEND suit.

This initiative exemplifies the growing recognition of DAVD and Echoscope technology as mission-critical tools in the evolving landscape of advanced military diving and underwater operations. We are currently awaiting the outcome of 4 additional U.S. Department of Defense proposals, all of which are in the final evaluation stages or anticipated to move forward into immediate execution upon award. Each of these proposed programs focuses on the integration of our DAVD system and Echoscope sonar technologies with robotics platforms, further other expanding our role in the evolution of autonomous and semi-autonomous underwater systems.

The timing of these opportunities aligns perfectly with 2 major recent milestones. The finalization of the DAVD untethered system and the launch of our new Echoscope PIPE NANO GEN SERIES, a suite of compact real-time 3D imaging sonars optimized for small and robotic platforms.

These pending awards reflect the growing demand for underwater, vision and augmented reality technologies in next-generation defense systems, and we are well positioned to support this strategic shift. 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. Let me now turn the call over to our interim CFO, Gayle Jardine, to take you through our financials for the third quarter 2025 before I provide my closing remarks. Gayle?

Thank you, Annmarie, and good morning, everyone. I will now take you through our third quarter fiscal 2025 financial results. For reference, all income statement comparisons are with third quarter fiscal 2024, and all figures are in U.S. dollars. Starting with revenue. In the third quarter of 2025, we recorded total revenue of $7.1 million compared to $5.5 million in the third quarter of 2024, an increase of 29.0%.

Our core business, the Marine Technology business generated revenue of $4.0 million compared to $3.0 million, representing a 30.7% increase over the third quarter of last year. Our Acoustic Sensors and Materials business, which was added to our group in October 2024, recorded revenue of $1.5 million. Our Marine Engineering business or Services business generated revenue of $1.6 million compared to $2.4 million, representing a 33.2% decrease over the third quarter of 2024.

In summary, our net revenue increased by 29%, and the newly added business, Precision Acoustics added 20.6% to our consolidated revenue in the third quarter of 2025. Moving on to gross profit and margin. In the third quarter of 2025, we generated gross profit of $4.8 million compared to $4.0 million in the third quarter of 2024. Consolidated gross margin was 68.3% versus 73.9% in the third quarter of last year.

In our Marine Technology business, gross margin decreased to 77.0% in the third quarter of 2025 compared to 82.9% in 2024, reflecting the mix of sales with more units of hardware sales compared to rental sales. The Acoustic Sensors and Materials business realized gross margin of 54.8%, a little lower than the previous 2 quarters, reflecting increased commission costs and mix of sales. Our marine engineering business gross margin decreased to 58.9% in the third quarter of 2025 versus 62.6% in the third quarter of 2024, again, reflecting the mix of engineering projects during the third quarter 2025.

Now looking at our operating expenses. Total operating expenses for the third quarter of 2025 increased to $3.4 million compared to $2.7 million in the third quarter of 2024. The main factors for the increase in total operating expenses with the addition of Precision Acoustics Limited into the group, which added 16.0% to these costs as well as the weakening of the U.S. dollar against the British pound and Danish krona, which impacts costs when translated into U.S. dollars from the base currencies for reporting purposes.

Our selling, general and administrative costs in the third quarter of 2025 totaled $2.9 million, an increase of 32.8% from $2.2 million in the third quarter of 2024, reflecting the addition of the new business unit to the group as well as the contingent liability accrual for year 1 earn-out related to the acquisition of Precision Acoustics Limited and exchange rate adjustment charges.

As a percentage of revenue, our selling, general and administrative costs for the third quarter of 2025 were 40.6% compared to 39.5% in the third quarter of 2024. The Operating income in the third quarter of 2025 was $1.38 million compared to $1.39 million in the third quarter of 2024, a decrease of 0.8%. Operating margin was 19.5% compared to 25.4% in the third quarter of 2024, which we attribute to the increase in cost of revenue and operating expenses for the reasons explained earlier.

Pretax income in the third quarter of 2025 was $1.5 million compared to $1.6 million in the third quarter of 2024. Net income after taxes in the third quarter of 2025 was $1.28 million or $0.11 per diluted share compared to $1.27 million also $0.11 per diluted share in the third quarter of 2024. Focusing now to our balance sheet. As of July 31, 2025, with $26.2 million in cash and cash equivalents on hand and no debt. This represents an increase of $3.7 million from October 31, 2024, with the comparable figure was $92.5 million.

Finally, to summarize the financial impact in the current quarter of the introduction of the Acoustic Sensors and Materials business into the group. It contributed 20.6% of revenue and gross profit margin was $0.8 million or 54.8%. That completes my financial summary. So let me turn the call back over to Annmarie for her closing remarks.

Thank you, Gayle. I'm very pleased with the increase in revenue in the third quarter 2025 and our overall financial results. I'm also pleased with the progress we're making against our key milestones for growing our business. Some of these include the delivery of the 16 DAVD systems for the U.S. Special Forces evaluation. The delivery of the final DAVD deliverables to the foreign navy sponsor under the funded DUS hardening program. We believe the hardening program has been a success, and we are starting to see the positive results of this. The launch of our NANO GEN SERIES sonars which together with our existing sonar range puts us in a position to address the sizable portion of the imaging sonar market, the receipt of our first order from a foreign navy for the DAVD untethered system. This order, which is for 2 systems is from a very influential European navy. We are very pleased with this as we believe this will be the precursor to broader adoption by this influential European Navy.

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. In terms of cash deployment, we will continue to prosecute our M&A strategy in fiscal year 2025 and are continuing to build our M&A pipeline. Through our strategy, we aim to pivot the revenue model of the Marine Technology business to a multiyear multiple sales model as we've started to see with David product line. To conclude, we would like to thank our shareholders for their continued support -- we're now happy to answer any questions. Operator?

[Operator Instructions] Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners.

This is Kevin for Brian. With the launch of the Echoscope PIPE NANO GEN SERIES and its trials during the quarter, what type of feedback have you guys received so far?

Blair, would you like to take that, please?

Certainly, Annmarie. Thank you very much, and thank you again for the question. I think the most striking feedback from all of the customers that have seen the system is the remarkable reduction in form factor, size and weight, which is critical as we can outline for the new vehicles that are coming into the market. So really, that's been transformational. Many of these customers are familiar with the Echoscope performance so that you were delivering the same again, but in a much, much, much smaller form factor. So I think everyone is very excited to look for new opportunities of where they can now integrate the Echoscope into their platforms where perhaps size or weight perhaps that prevented them from doing so in previous development organizations.

And just to like to add to that, the DSEND program, which Blair cited earlier that's a very, very good example of the sonar actually being in a diving suit with our previous generation of sonars that wasn't possible because of the form factors. So really being able to reduce the sonar the size of almost a smartphone really opens the aperture for our business and the potential for opportunities to expand opportunities based. So we're very, very excited about this because our previous generation of sonars a bit bigger, would be locked out of applications like the DSEND. So opening the aperture and getting more -- reducing the form factor of sonar and therefore, having the opportunity to broaden the scope of what we can do on smaller vehicles is a seismic move forward for our business.

Great. And then congrats on all the progress on DAVD -- the untethered DAVD program. During the March conference call, you commented the company is targeting $4.5 million in DAVD related revenue. Can you talk about what transpired since then that target in the press release today is $3.5 million to $4 million?

Well, we're still -- I mean we think we're going to hit $4 million in DAVD revenues for this fiscal year, which we think it's really, really significant given that last year, we did $1.2 million. So still seeing really significant move forward with the DAVD product line, and I feel very, very happy with this year potentially hitting $4 million in revenue being $1.2 million last year at the same time. So really happy about that.

[Operator Instructions] Our next question comes from the line of Richard Deutsch with Private Investor.

Yes. And congratulations to your R&D team over the past few years, I followed the progress, and it's vast. In fact, that's one of the hard parts of understanding your company is how many opportunities you have with the technology that you've produced. So I have a few questions, but I'll start off with one. In terms of your exposure to China or countries that we're not looking to do business with -- what should we be thinking about in terms of sales opportunities or loss opportunities? And also the supply chain in terms of getting critical components, parts and supplies. That's my first question.

Well, thank you very much, Richard, for that question. In terms of supply chain, we're really not exposed to China at all. So most of our products components are originating mainly from Europe to we don't really have any exposure in terms of supply chain in China, not significant at all. In terms of selling to China, really, that was an issue from more than 5 years now that because for the U.K. government, for example, has made it really difficult to get export licenses to China. So for a long time, that market is rather [ tame ] for this business due to the barriers to import products into China.

So although we have a strong presence in Asia, China is not our biggest target market, although there are lots of opportunities in China, it's not the biggest target market for our business.

Okay. And 1 more here on your technology. I've been impressed at how superior it appears to be over many years and the developments you keep making just keep pushing that envelope forward. But I've been surprised we've had quarter after quarter of sales that have not really expanded very much. So I want to know, is Echoscope still your main short-term revenue driver in terms of overall revenues? And why has it taken so long? And what are the impediments or the opportunities short term in the market considering your technological advances. I don't understand why the sales have been not going up faster.

Okay. So just to remind you, in this quarter, the Marine Technology business sales went up by 30.7%, I believe, and hardware sale component also went up significantly. And I think [indiscernible], by 103.6% and within that mix, it's mainly Echoscope and DAVD. So that's the first thing to see that we do believe that we're making good progress.

In the quarter, the disappointing part of our quarter is really about rentals where rentals have decreased largely because of the shift in funding opportunities for offshore renewables. And while we believe that in the longer run, that will be offset by more projects for oil and gas, it still takes time to spin up a development. So overall, I think that we're making good progress.

But really, as I've emphasized over and over for the business to grow, we do, I mean, a sizable part of our revenue comes from the commercial offshore marine market. The model for that market is different because then often a sale is a single sale or rental, really, the opportunity for sizable or scalable growth lies in the defense space. And that's the process. It's not an event.

I believe we're making all the right progress to get the technology into programs where the technology is being looked at for integration into these broader programs. And last quarter, I did report on some significant findings for some of the defense programs that have evaluated the Echoscope technology and concluded the Echoscope is superior in terms of its performance and capabilities.

So I do believe we're making progress in really, where it matters is the defense market because there [indiscernible] this project, and then there's opportunity for multiple sales, recurring sales. And that's what we're targeting. And we're starting to see some of that from the DAVD product line where we're seeing year-on-year budget now being appropriated for that line of products with pull-through Echoscope sales.

So overall, I feel it's pace is a bit slow, but that is not unusual for programs that they take a longer time in evaluating the technology and once it really then adopted, that's when we start seeing the sales that we would like to see. And a critical juncture we've reached in this quarter also is the successful conclusion of the hardening program for the DAVD where I think that program is 2 years ago, it started where the whole purpose of that was to deliver prototypes for evaluation by operational divers in the special forces and really getting feedback and refining the technology, we have now delivered what we believe is the refined product for this key market.

So I do believe that we're making really good progress against the key milestones that are important for the growth of the business.

And just 1 final question. Your M&A program is interesting, but I wonder why -- we'd like to hear what your thoughts are on the stock buyback program as your company is extremely attractive itself as an M&A target. I'd like to hear what thoughts are about reducing the shares through a stock buyback program.

Sorry, I'm not sure what the question is.

The question is, what status and thoughts do you have about a stock buyback program for Coda shares?

Well, that's something for our Board to think about. And I'll [ restart ] with our Board, but really that really a board decision on stock buybacks. So right now, I feel very much in terms of our M&A program. We're building a pipeline of opportunities for the business and looking for value-accretive technologies that may be highly complementary to the data product line. That's our thinking on our M&A strategy for the time being.

Really stunningly great work that you guys are doing. Looking forward to continuing to follow you.

There are no other questions at this time. I'll turn the floor back to Ms. Gayle for any final comments.

Okay. Thank you, operator. Thank you for attending today's call.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.