Coda Octopus Group (NASDAQ:CODA) reported higher profit and improved margins for its fiscal second quarter despite a slight decline in revenue, as strength in its defense engineering and acoustic sensors businesses helped offset weakness in its core marine technology segment.
The company said total revenue for the quarter ended April 30, 2026, was $6.9 million, down 1.6% from $7.0 million in the same quarter last year. Net income rose to $1.7 million, or $0.15 per diluted share, compared with $0.9 million, or $0.08 per diluted share, a year earlier.
Marine Technology Revenue Falls, but Margins Improve
Coda Octopus’ Marine Technology business remained its largest segment, accounting for 41.1% of consolidated net revenue in the quarter. Revenue in the segment fell 26.8% to $2.8 million from $3.9 million a year earlier.
Gayle said the business was affected by reduced customer activity in the Middle East and Asia, including disruptions to commercial operations related to the Strait of Hormuz. Hardware sales in the segment declined 46.9% to $1.8 million from $3.3 million in the prior-year period.
However, rental revenue increased sharply, rising 351.1% to about $0.7 million from about $0.2 million. Interim CFO Gayle Jardine said that shift contributed to a higher gross margin in the Marine Technology business, which rose to 77.0% from 67.7% a year earlier. The company also cited a 68.7%, or $0.3 million, reduction in commission expenses because of fewer equipment sales through agents in Asia.
Gayle said the weakness in the affected markets was “not structural” and described it as a timing issue during the question-and-answer portion of the call. She said some offshore projects, including in the UAE, were on hold because of safety concerns and that the company believes they could resume swiftly if regional pressure eases.
Defense Engineering and Acoustic Sensors Grow
The Defense Engineering Services business generated revenue of $2.5 million, up 37.9% from $1.8 million a year earlier. Gayle said the U.K. arm of the business saw increased opportunities and higher revenue during the quarter. In the U.S., she said many defense programs continued to operate under continuing resolutions, which delayed contract awards and the timing of revenue.
The Acoustic Sensors and Materials business recorded revenue of $1.5 million, up 17.5% from $1.3 million in the second quarter of fiscal 2025. Its gross margin declined to 53.7% from 65.4%, which Jardine said reflected a change in sales mix, including increased acoustic test environment product sales.
Consolidated gross profit rose to $4.6 million from $4.5 million. Gross margin improved to 66.3% from 64.1%, which the company said reflected the composition of revenue, higher rental revenue and lower net commission costs.
Operating Expenses Decline
Total operating expenses fell 18.3% to $2.8 million from $3.4 million. Jardine said the primary driver was the movement of the U.S. dollar against the British pound and Danish krone, which reduced reported costs when translated into U.S. dollars.
Selling, general and administrative expenses were $2.1 million, down 21.4% from $2.7 million. Jardine said the decrease reflected a favorable $0.4 million swing from an exchange rate expense in the prior-year quarter to an exchange rate gain in the current quarter, as well as lower employee-related costs from reduced headcount. SG&A represented 30.9% of consolidated revenue, compared with 38.8% a year earlier.
Operating income increased 64.8% to $1.8 million from $1.1 million. Operating margin improved to 26.0% from 15.5%. Pre-tax income was $2.1 million, compared with $1.3 million a year earlier. The company recorded tax expense of $0.44 million, versus $0.36 million in the prior-year period.
As of April 30, 2026, Coda Octopus had $30.6 million in cash and cash equivalents and no debt, up from $28.7 million at Oct. 31, 2025. Total assets rose to $67.3 million.
DAVD and NanoGen Milestones Highlight Technology Strategy
Management emphasized progress in the company’s underwater technologies, including its Echoscope real-time 3D sonar, DAVD diving system and digital audio communication system.
President of Technology and Director Blair Cunningham said the DAVD Untethered System has been approved for Navy use. He described that approval as a meaningful milestone because the product is now available for acquisition by any command and supports full fleet deployment of 20 previously issued systems.
Cunningham said the company is still awaiting final U.S. Navy DAVD procurement budget approval, but currently expects related orders during the fiscal third quarter. In response to an analyst question, Gayle said there is no indefinite delivery/indefinite quantity contract in place for DAVD Untethered and that the company does not anticipate one. She said previous orders were placed directly with Coda Octopus, and the company expects that approach to continue.
Cunningham also said the company completed training for a European navy that recently acquired an initial number of DAVD systems, and that the company continues to engage with that customer.
Coda Octopus also received an initial order for a small number of NanoGen Series sonars, its ultra-miniaturized 3D sonar, for integration into an established vehicle program. Management said the systems will be used for evaluation and could represent a larger opportunity if the technology is written into the vehicle specification.
During the Q&A session, Cunningham said the company is also engaged with several other underwater vehicle companies, with two or three opportunities at “fairly advanced stages.” Gayle said the initial NanoGen order was not material to quarterly revenue, but that the significance lies in the potential opportunity if integration and evaluation proceed as expected.
Company Continues M&A Efforts
Gayle said Coda Octopus remains focused on capital deployment and advancing its merger-and-acquisition strategy in fiscal 2026. She said the company is actively building and progressing a pipeline of opportunities and remains interested in closing a transaction this fiscal year while maintaining discipline around due diligence and strategic fit.
In response to an analyst question, Gayle said the company has two active opportunities currently undergoing due diligence. She said the broader goal is to shift the Marine Technology revenue model toward multi-year, program-based adoption and a recurring multi-sale model over the life of major programs.
About Coda Octopus Group (NASDAQ:CODA)
Coda Octopus Group, Inc is a technology company that develops and sells real-time 3D sonar systems and related solutions for underwater applications. Its flagship Echoscope® real-time 3D sonar system enables clients to visualize subsea structures and seabed conditions in unprecedented detail. The company’s product portfolio also includes BathyCORR® geophysical survey processing software, a range of ROV and USV inspection tools, and advanced subsea positioning and motion reference units. These technologies support tasks such as inspection, maintenance, salvage, survey, and security in challenging marine environments.
The company serves a broad set of industries, including offshore oil and gas, marine mining, defense, civil engineering, telecommunications, and scientific research.
