Coda Octopus Group, Inc., a leader in marine technology and engineering solutions, has released its annual Form 10-K report, detailing significant financial growth, strategic acquisitions, and operational highlights for the fiscal year. The report underscores the company’s commitment to innovation in underwater imaging technology and its strategic focus on expanding market presence through acquisitions and technological advancements.

Financial Highlights

• Net Revenues: $20.3 million, representing an increase of 5.0% from the previous fiscal year.
• Gross Profit: $14.2 million, with a gross profit margin of 69.8%, up from 67.3% in the previous fiscal year.
• Income from Operations: $3.6 million, an increase of 30.8% compared to the previous fiscal year.
• Net Income: $3.6 million, reflecting a 16.7% increase from the previous fiscal year.
• Net Income Per Share: Basic $0.33, Diluted $0.32, showing an improvement over the previous fiscal year.

Business Highlights

• Marine Technology Business Overview: Operates through wholly owned subsidiaries in the USA, UK, Denmark, and India, providing technology solutions to the underwater market. Focuses on proprietary technologies like Echoscope® and DAVD, used in commercial offshore and defense sectors.
• Marine Engineering Business Overview: Supplies embedded solutions and sub-assemblies for mission-critical defense systems. Maintains long-term relationships with prime defense contractors and operates through subsidiaries in the USA and UK.
• New Acquisition: Acquired Precision Acoustics Limited (PAL) on October 29, 2024, enhancing capabilities in medical imaging and Non-Destructive Testing (NDT). PAL will be reported within the Products Segment.
• Product Segments: The Products Segment now includes the Marine Technology Business and PAL, focusing on real-time volumetric imaging sonar and diving technology, as well as acoustic measurement solutions.
• Geographical Performance: The Marine Technology Business saw a decrease in revenue from the Americas by 33.4% due to reduced orders under Defense Programs. However, rental revenue increased by 84.1%, offsetting some of the decline in product sales.
• Sales Units and Rentals: Significant increase in rental revenue, which rose by 84.1% in the 2024 fiscal year, indicating a shift in customer preference towards renting equipment.
• New Product Launches: Introduced the new generation of the DAVD Augmented Reality HUD, featuring a more compact design and increased resolution, enhancing compatibility with specialized dive helmets and masks.
• Future Outlook: Anticipates continued impact from reduced funding under US Defense Programs until a new Federal Budget is adopted. The DAVD untethered system is being developed under a joint program with the US Navy and a Foreign Navy, with positive feedback received.
• Technological Advancements: Echoscope PIPE® technology offers real-time 3D/4D/5D/6D imaging capabilities, which are unmatched in the market. The company continues to focus on maintaining its lead in underwater imaging technology.
• Operational Challenges: Faces challenges from geopolitical tensions affecting sales in China, inflation impacting raw material costs, and skill shortages in key areas. These factors are influencing operational performance and strategic planning.

Strategic Initiatives

• Strategic Initiatives: Acquired Precision Acoustics Limited (PAL) to enhance product offerings and leverage expertise across the group, particularly in advancing the Echoscope technology. This acquisition is part of the company’s strategy to qualify for larger defense contracts and expand its market presence.
• Capital Management: Maintained a strong cash position with $22,479,072 in cash and cash equivalents, representing approximately 33 months of Selling, General and Administrative Expenses. Access to a $4 million revolving line of credit from HSBC NA for short-term working capital needs remains unused. The company did not declare or pay any cash dividends and has no authorized share repurchase programs.
• Future Outlook: Plans to continue focusing on strategic acquisitions and investments in research and development to maintain its competitive edge in the real-time volumetric imaging sonar sector. Anticipates that interest income from certified deposit accounts will remain material if interest rates stay the same or rise. Expects to be impacted by ongoing geopolitical and economic factors, such as inflation and defense funding allocations, which may affect financial results in the near term.

Challenges and Risks

• Geopolitical Tensions: Significant challenges due to geopolitical tensions, particularly with China, affecting the sale of products requiring export licenses. The ongoing war in Ukraine shifts defense spending priorities, impacting the Services Business.
• Brexit Impact: The UK’s withdrawal from the EU (Brexit) has reduced demand for products in EU member states and increased operational costs due to customs processes.
• Currency Risks: Affected by currency risks due to significant operations in the UK and Denmark, with fluctuations impacting financial results.
• Inflation: Inflation remains a concern, affecting raw material costs and wages, which the company has struggled to pass on to customers.
• Defense Funding: Use of continuing resolutions in the US for defense funding has led to reduced revenues from defense programs, impacting both the Products and Services Segments.
• Technological Advancements: Faces challenges from technological advancements, with the need to maintain its lead in sonar technology amidst fast-paced innovations.
• Market Risks: Exposed to market risks from foreign currency fluctuations, particularly the British Pound and Danish Kroner against the US Dollar, which can affect revenue and asset values. The geopolitical landscape, including trade restrictions with China and the war in Ukraine, poses risks to revenue streams and market access. Inflation and interest rate changes also impact operational costs and demand for products, particularly in sectors like offshore renewables and underwater construction.

SEC Filing: Coda Octopus Group, Inc. [ CODA ] – 10-K – Jan. 29, 2025