Coda Octopus Group Inc (CODA)

Coda Octopus Group Inc 10-Q Financial Analysis

Report Date: 2025-06-30
Period Covered: Quarter ended April 30, 2025 (Q2 2025)

Profit & Loss Overview

• Net Revenue: $7.017 million vs $5.323 million year-ago (+31.8%)
• Gross Profit: $4.497 million (64.1% margin) vs $3.738 million (70.2% margin)
• Operating Expenses: $3.409 million vs $2.388 million prior year (+42.8%)
• Operating Income: $1.088 million vs $1.350 million (–19.4%)
• Other Income (Interest): $0.146 million vs $0.293 million (–50.2%)
• Pre-tax Income: $1.266 million vs $1.641 million (–22.9%)
• Net Income: $0.909 million vs $1.415 million (–35.8%)
• EPS (Basic/Diluted): $0.008 vs $0.013

Key Drivers:
• Revenue growth driven by marine technology product sales, notably hardware shipments to Asia.
• Gross margin compression from higher commission expense (39.0% of revenue vs 24.9% LY) and mix shift away from rental/service.
• Operating expense surge from acquisition-related amortization and currency translation effects.
• Lower interest income as money-market yields stabilized.

Pros and Cons

Pros

• Diversified three-segment model: Marine Technology, Acoustic Sensor Materials (PAL), Marine Engineering.
• Strong free cash flow: $2.104 million generated in six-month operating activities.
• Strategic acquisition of PAL adds high-margin sensor materials and calibration service.
• Positioned to benefit from increased defense spending and undersea technology demand.

Cons

• Commission costs rose sharply on large volume hardware orders, pressuring margins.
• Currency headwinds: USD weakness vs GBP/DKK inflated COGS and SG&A.
• Rental revenue decline due to European offshore wind slowdown.
• No traditional debt but lease liabilities of $0.42 million augment obligations.

Revenue by Segment (Q2 2025)

• Marine Technology: $3.878 million (55.3% of total)
• Acoustic Sensor Materials (PAL): $1.299 million (18.5%)
• Marine Engineering: $1.840 million (26.2%)

Revenue by Geography (Q2 2025)

• Americas: $2.744 million (39.1%)
• Europe: $1.502 million (21.4%)
• Asia-Pacific & Other: $2.718 million (38.7%)

Six-Month Cash Flow (Apr 2025)

• Net cash from operations: $2.104 million
• CapEx & intangibles: $0.208 million
• Free Cash Flow: ~$1.896 million

Growth Trajectory & Outlook
Coda Octopus’s core marine technology products, especially real-time volumetric imaging sonar and the new DAVD diver display, are gaining traction in defense and offshore markets. Acquisition of Precision Acoustic broadens sensor offerings and bolt-on calibration services. Free cash flow generation remains strong, supported by rising interest income on deposits.

Risks & Challenges
Continued margin pressure from agent commissions on high-volume hardware orders and currency translation losses must be managed. Rental revenue volatility persists tied to offshore renewables cycles. The long lead times in defense procurement inject uneven quarterly performance.

Opportunities
• Expansion into next-gen unmanned underwater systems requiring compact 3D sonar.
• Scalable DAVD deployments across military and commercial diving operations.
• Cross-sell PAL sensor materials into subsea and automotive sectors.
• Defense budget increases in EU/NATO allied nations to drive new contracts.

Conclusion
Coda Octopus delivered solid top-line growth but saw margin contraction this quarter driven by mix and commission costs. The company remains cash-positive, debt-free, and strategically positioned in undersea imaging, with catalysts from the PAL acquisition and rising defense spend. Margin improvement will hinge on recouping commission leverage and operational efficiencies amid currency headwinds.