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DATE
Monday, June 16, 2025 at 10 a.m. ET
CALL PARTICIPANTS
Chair and CEO — Annmarie Gayle
Interim CFO — Gayle Jardine
President of Technology — Blair Cunningham
Investor Relations — Geoff Turner
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RISKS
The marine technology business saw its gross profit margin decline to 67.7% in Q2 FY2025 from 80.2% in Q2 FY2024, attributed to higher commission costs from increased hardware sales in Asia and underutilization of rental assets, both flagged as exceptional events.
Net income fell to $900,000, or $0.08 per diluted share, in Q2 FY2025, down from $1.4 million, or $0.13 per diluted share, in Q2 FY2024 (GAAP), primarily due to increased operating costs from foreign exchange translation and commission structures.
Operating income decreased by 19.5% to $1.1 million in Q2 FY2025, and the operating margin dropped to 15.5% in Q2 FY2025 from 25.4% in Q2 FY2024 due to higher cost of revenue and operating expenses linked to the addition of Precision Acoustics and foreign currency effects.
TAKEAWAYS
Total Revenue: $7 million, representing a 31.8% increase in Q2 FY2025.
Marine Technology Revenue: $3.9 million in Q2 FY2025, up 10% from Q2 FY2024, with 65.5% of segment revenue from Echoscope and 34.2% from DAVD.
Hardware Sales: $3.3 million, up 65% compared to the prior period; hardware sales to Asia were $2.2 million, up approximately 105%.
Precision Acoustics Contribution: $1.3 million in revenue, comprising 18.5% of consolidated revenue, and gross profit of $800,000 at a 65.4% margin.
Marine Engineering Revenue: $1.84 million, increasing 2.3%, with gross profit margin improving to 55.5% from 50.7% in Q2 FY2024.
Operating Expenses: $3.4 million in Q2 FY2025, up from $2.4 million in Q2 FY2024, with the addition of Precision Acoustics accounting for 29.5% of the increase in total operating expenses and significant impact from exchange rate movements.
SG&A Costs: $2.7 million, rising 47.4% due to the newly integrated business unit and currency translation; 24.7% of SG&A ($670,000) was from noncash items, up from 0.3% previously.
Gross Profit: $4.5 million at a consolidated margin of 64.1%, down from 70.2% in the prior year.
Cash and Cash Equivalents: $24.5 million as of April 2025, up from $22.5 million as of October 31, 2024, with no debt reported.
DAVD System Orders: $1.5 million in orders, broadening distribution within US Navy commands to approximately 12 commands.
First Order for DAVD Untethered Systems: 16 units, contract value approximately $800,000; delivery scheduled for the third quarter.
NanoGen Series Launch: Imminent, pending results from defense trials at the end of June 2025, to address miniaturized underwater vehicle markets and new robotic applications.
Rental Asset Utilization: Rental assets underutilized in the quarter, adversely affecting gross margin, but current trends show longer-term rental commitments (up to one year).
SUMMARY
Coda Octopus Group, Inc. (CODA 4.01%) reported a 31.8% revenue increase in Q2 FY2025 driven by increased hardware sales, particularly in Asia, and significant contributions from the recently acquired Precision Acoustics Limited. Net income and operating margins decreased due to exceptional commission expense and foreign exchange effects, notably from higher sales volumes in Asia and underutilized rental assets. The company emphasized the imminent NanoGen series product launch and the ongoing expansion of its DAVD technology, supported by recent substantial orders and increased engagement with both U.S. and international defense markets. Strategic focus remains on defense adoption, multi-year rental models, and integrating proprietary technologies within global undersea programs.
The marine engineering business experienced renewed momentum through increased defense program inquiries and the potential for direct U.S. Department of Defense contracts.
President of Technology Blair Cunningham said, "Echoscope directly addresses these needs by providing high-resolution, real-time 3D imaging in complex underwater environments." with ongoing evaluations for integration into next-generation defense vehicles.
Management stated future gross margin in the marine technology business is expected to rebound for the remainder of FY2025, with the current quarter cited as an "outlier" due to unique commission structures.
Management's M&A strategy remains on hold amid global policy uncertainty but is not abandoned, with an ongoing focus on executing the group growth strategy and multi-year sales models.
Live and planned DAVD demonstrations with foreign navies, together with integration efforts for new sensors, are expanding the international defense opportunity pipeline.
INDUSTRY GLOSSARY
Echoscope: Coda Octopus's proprietary real-time 3D imaging sonar system used in subsea navigation, mapping, and object detection.
DAVD (Diver Augmented Vision Display): An augmented reality head-up display system providing divers with real-time information and sonar imagery underwater.
NanoGen series: Next-generation, compact 3D sonar product line designed for integration with small underwater vehicles and divers.
SWaP: Size, Weight, and Power requirements—key design constraints for underwater and defense equipment.
ROV (Remotely Operated Vehicle): An underwater robot used in subsea applications and defense sectors.
UUV (Unmanned Underwater Vehicle): A remote or autonomous submersible used for underwater defense and survey operations.
MCM (Mine Countermeasures): Defense activities focused on detecting and removing underwater mines.
ASW (Anti-Submarine Warfare): Military operations to detect and neutralize enemy submarines.
HUD (Head-Up Display): A transparent display for presenting data without requiring users to look away from their usual viewpoints.
UBA (Underwater Breathing Apparatus): Equipment used by divers to breathe underwater, often integrated with DAVD solutions.
Precision Acoustics Limited: Coda Octopus's recently acquired subsidiary focused on acoustic sensors and materials.
Full Conference Call Transcript
Operator: Good morning, and welcome to Coda Octopus Group's Second 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 second quarter ended April 30, 2025, including a press release, a copy of which will be furnished, and a report filed with the SEC and will be available on the investor relations section of the company's website. Joining us today on the call from Coda Octopus are its Chair and CEO, Annmarie Gayle, its Interim CFO, Gayle Jardine, and its President of Technology, Blair Cunningham. Following their remarks, we will open the call for questions.
Before we begin, Geoff Turner from our investor relations team will make a brief introductory statement. Geoff, please go ahead.
Geoff Turner: Thank you, operator. Good morning, everyone, and welcome to Coda Octopus Group's Second 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 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 and second quarters of our 2025 fiscal year. You may get Coda Octopus Group'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 via a link in the Investor Relations section of Coda Octopus Group's website. Finally, as a reminder, this is our second quarter fiscal 2025 reporting, and all comparisons are with our second quarter fiscal 2024. Now I will turn the call over to the company's Chair and CEO, Annmarie Gayle. Annmarie,
Annmarie Gayle: Thanks, Geoff, and good morning, everyone. Thank you for joining us for our second quarter fiscal year 2025 earnings call. Despite the challenging global policy environment, our revenue in the second quarter of 2025 increased by 31.8%. Operating income decreased due to lower gross profit margins from our core business, the marine technology business, due to more units of hardware sales from Asia, which incurred a higher than usual commission cost in conjunction with increased operating costs resulting from the weakening of the U.S. Dollar against the British pound and Danish kroner. In the second quarter, I am very pleased to see revenue increasing by 31.8%.
I would like now to provide some of the key highlights relating to our results of operations in the second quarter. For those who are new to the Coda Octopus Group story, our business is made up of three discrete business operations: the marine technology business, the marine engineering businesses, and our recently added acoustics, sensors, and materials business unit. Within our group, our core business is the marine technology business. This business generates most of our revenue, and in the second quarter, it generated 55.3% of our total consolidated revenue. It is around this business that we 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 underwater by providing a comprehensive real-time information platform, which allows our customers to make real-time decisions and also significantly reduces 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. Saying a little bit more about our imaging sonar, the Echoscope. The Echoscope is a real-time three-dimensional volumetric imaging sonar that can generate a real-time three-dimensional image underwater in zero visibility water conditions. This is widely used in the commercial 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 our shareholders want to see from our company, we have to increase our market share for underwater imaging sensors in the defense space. There are many ongoing defense programs globally where new classes of underwater vehicles are being adopted. Significant budgets are appropriated for this. The Echoscope's uniqueness of being a single sensor for multiple undersea activities presents a significant advantage over other technologies. It allows the consolidation of the sensor on the platform by lowering the power consumption and overall vehicle weight without compromising the various missions to be executed.
We are launching our next generation of three-dimensional sonars imminently, the NanoGen series. The 3D sonars within our NanoGen series are a shade bigger than an iPhone. Once launched, we will be positioned to address the range of opportunities in the imaging sonar space, removing form factor and pricing barriers. The NanoGen series is designed to address the much smaller underwater vehicles, which are now being rapidly adopted for undersea missions in the defense space. Moreover, the NanoGen series, being so small, can now be easily worn or carried down by the diver or attached to a robot underwater.
The development of the NanoGen series is another significant leap forward in the underwater imaging space and a commendable achievement by our R&D team. Taking the technology and reducing it by two-thirds, we never believed we could achieve this. Our second key technology is the DAVD, the Diver Augmented Vision Display system. The DAVD provides real-time information for diving operations, increasing safety and efficiency. The addressable market for the DAVD includes both the defense and commercial diving sectors. The untethered variant addresses the special forces type of divers and we believe constitutes the largest addressable market for the technology. Now turning to second quarter highlights relating to our core business, the marine technology business.
This business sells its products and solutions worldwide and increased revenue in the second quarter by 10%. Key highlights include 65.5% of revenue generated by this business relates to Echoscope and 34.2% relates to DAVD. Hardware sales increased by 65% and were $3.3 million compared to $2 million in the second quarter of 2024. Hardware sales to Asia rose by approximately 105% and were $2.2 million compared to $1.1 million in the second quarter of 2024. This increase resulted in higher commission costs. Rental assets were significantly underutilized in the second quarter, resulting in lower units of rentals and associated services. This also impacted the gross profit margins of this business.
This reflects the change in US policy on funding for offshore renewables, which caused many projects to be shelved as reported by Shell, Orsted, and BP. Looking ahead, however, we are seeing an uptick in the utilization of our rental fleets currently. And we have a number of ongoing rentals which are uniquely for longer rental periods for up to one year. I am very excited about this currently. I want to emphasize that although the gross profit margins of our core business decreased in the second quarter, this is due to an exceptional set of circumstances where a higher commission cost was incurred on sales from Asia. Now turning to highlights relating to the marine engineering business.
In the second quarter, our marine engineering business revenue increased by 2.3% along with gross profit margin from 50.7% in the second quarter to 55.5% in the second quarter of 2025. This business has long-standing relationships with prime defense and has served the defense market for over forty-eight years. It is reliant on receiving funding on the defense programs. During the second quarter, it saw an increase in the level of inquiries on the defense programs and also much more momentum around these inquiries.
We also saw an increase in opportunities for direct contracts with the Department of Defense (DOD), which positions this segment to be able to compete for more work packages directly with the DOD as opposed to exclusively through prime defense contractors. The success of the marine engineering business is dependent on increasing the number of defense programs that they sell proprietary parts into. The momentum that we are seeing, therefore, is exciting. With defense budgets increasing globally and real pace being injected into this area, we are excited about this and feel that the group is well positioned. Now turning to highlights relating to the newly acquired business units, Precision Acoustics Limited.
In the second quarter, this newly added business unit contributed 18.5% to our consolidated revenue and 13.4% to our operating income. This business unit has added some diversification and resilience to our revenue structure. We continue to be very pleased with this acquisition, which we made in October 2024, and reiterate that it positions the group to collectively respond to larger defense requirements, particularly in the underwater acoustics space. We continue to make it our priority to focus on executing against our growth strategy, and in the second quarter, we saw an increase in sales of both the 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.
Blair Cunningham: Annmarie, and good morning, everyone. Today, I want to focus on the addressable markets for our technology and to expand on what we are doing to grow the business as shareholders want us to do. I hope this will be helpful to our shareholders. The Echoscope. The biggest market opportunities for scalable growth for our company around the Echoscope lie in the defense space, which is undergoing a major transformation through the deployment of new classes of underwater vehicles, including manned, unmanned surface, and fully autonomous platforms. These platforms vary dramatically in size, from large vehicles exceeding 85 feet in length and weighing over 85 tons, to compact one-person deployable systems.
Despite this diversity, a common requirement across all platforms is the need for reliable underwater vision. This capability is essential for safe and accurate navigation, situational awareness, environmental understanding, data collection, and mission execution. The Echoscope directly addresses these needs by providing high-resolution, real-time 3D imaging in complex underwater environments. The defense sector deploys these underwater vehicles for a range of mission-critical applications, most notably mine countermeasures (MCM), anti-submarine warfare (ASW), surveillance and reconnaissance, and infrastructure protection. Currently, Echoscope is being evaluated for integration into active future defense programs supporting three of these core mission areas, positioning it as a vital enabler in next-generation underwater operations.
All next-generation defense vehicle programs share a common objective: integrating advanced technologies and enhanced capabilities. Central to this evolution is the development of smarter vehicles equipped with tools like the Echoscope, technology that delivers real-time, three-dimensional data for informed decision-making. Its versatility across a wide range of defense mission applications supports the consolidation of sensor suite requirements on these platforms. A key advantage lies in addressing SWaP, which is size, weight, and power constraints. By reducing the number of sensors required, the Echoscope helps lower power consumption and overall vehicle weight, directly contributing to extended mission durations. This capability represents a unique and valuable benefit the Echoscope brings to the defense technology space.
To address the full spectrum of underwater vehicles, we have been actively investing in the development of our next-generation 3D sonar technology. We are now on the cusp of launching our NanoGen series, a compact, high-performance product line that represents a significant milestone in our growth strategy. Designed with minimal form factor, some models in the series are only slightly larger than an iPhone. This compact size enables seamless integration with the smaller next-generation underwater vehicle programs currently in development. The NanoGen series also extends our capabilities into new mission domains. It aligns well with the DAVD, the Diver Augmented Vision Display program, offering a sonar solution that can be easily hand-carried by a diver.
Additionally, it opens up new opportunities in the robotics market, as the miniaturized Echoscope can now be mounted on a variety of robotic platforms, regardless of size, without compromising performance. Currently, the Echoscope accounts for 80% of our revenue in the marine technology business. The NanoGen series strengthens this core product line, strategically positioning us to capture emerging segments across defense, commercial, and robotic underwater applications. The unmanned underwater vehicles (UUV) market was valued at $4.8 billion in 2024 and is projected to grow to $11.1 billion by 2030. This growth is being driven by the rising complexity of maritime threats and the increasing demands for cost-effective, low-risk technologies.
As a result, remotely operated vehicles (ROVs) and other UUVs are becoming integral to defense strategies around the world. The Echoscope is currently under evaluation in several major defense programs, including those involving next-generation underwater vehicles. Its ability to deliver real-time high-resolution 3D imaging positions it as a critical enabler for enhanced navigation, threat detection, and mission execution across a broad range of maritime operations. I also mentioned on previous calls, we have developed a ship hull scanning solution under a multi-year funded defense program with the Echoscope embedded at the core of the system.
The hull scanning addresses a significant and persistent challenge: the threat posed by unauthorized attachments such as mines or tracking devices on the hulls of high-value naval assets. This is a global concern with critical implications for security, readiness, and asset protection. We believe our solution, which is now undergoing formal evaluation, represents the most advanced capability available for this application. The recent introduction of our NanoGen series further enhances this offering, making it more adaptable to small form factor platforms such as remotely operated vehicles and diver sleds, which are often constrained by payload size and weight. We anticipate receiving initial small volume orders late this year to support broader trials.
These early developments will serve as key steps towards accelerating adoption and demonstrating the value of our solution in real-world defense environments. DAVD, the other significant pillar of growth, is the DAVD. DAVD technology is an advanced augmented reality display technology designed to enhance diver safety, performance, and situational awareness, especially in low visibility and technically challenging environments. It seamlessly integrates real-time data, on-demand information, and Echoscope 3D sonar imagery, projecting these onto the diver's field of vision through the DAVD augmented reality head-up display. DAVD's tethered variant is in adoption with the US Navy, and in the second quarter, we had orders for DAVD systems of over $1.5 million.
These new systems will be distributed to new commands, thereby increasing the user base and the technology to around 12 navy commands. This is an important step in the adoption of the technology. As with the increased use in live missions, this will propel the broader adoption. The DAVD untethered system, which presents the largest opportunity for the technology, is still being evaluated.
Following the completion of the DAVD untethered system development hardening program by us, under which we delivered key items such as the new generation of HUD in a much smaller form factor and higher resolution, in the first quarter of 2025, we received our first order for 16 untethered systems, which is pivotal for the broader adoption of the technology in the defense community. We will be delivering these systems in our third quarter. For context, in the US alone, there are 14,000 divers within the potential of users for the untethered system.
US special forces, EOD, US Army, Marine Corps, US Coast Guard, first responders, and 15% of these users, this would, without modeling for inflation, add approximately $105 million to our revenue over time. This is the US market alone. Recent feedback from several major defense trials on the DAVD confirms the significance and uniqueness of DAVD technology. The feedback also emphasized the benefits and criticality of combining the DAVD with Echoscope in low visibility environments. Again, giving us good insight that the full-scale adoption by user groups is likely to include Echoscope.
In keeping with this, this year alone, we have five DAVD-related development projects where various other sensors are being integrated into the DAVD to ensure that all US defense sensors used by the various missions are available in the DAVD. We believe we have created the DAVD solution ecosystem, which is well-positioned to serve the global defense and commercial diving market. One of our key milestones for this year is the adoption of the DAVD driver augmented vision display technology for foreign navies, expanding its use beyond the US Navy. We are making strong progress towards this goal.
In the second quarter, we showcased the DAVD system at the Special Operations Command (SOCOM) annual conference and exhibition, where it was demonstrated to multiple foreign naval delegations. Importantly, the event also brought us into direct engagement with leading defense diving equipment manufacturers, who play a critical role in the successful integration of DAVD into broader diving systems. These demonstrations and discussions mark a significant step in advancing international awareness, validation, and future adoption of the DAVD technology.
Additionally, in the quarter, I personally led our team in a live demonstration of the DAVD system to a foreign navy, conducted in collaboration with a local law enforcement dive unit, an existing customer of both the Echoscope and our UIS underwater imaging system. This demonstration not only highlighted the operational value of DAVD but also reinforced the benefit of a seamless integration with the Echoscope. A second demonstration with this navy is already scheduled, where DAVD and the Echoscope will be deployed during a live operational mission to showcase their combined capabilities in a real-world environment.
This particular navy holds significant influence within the European defense caucus and manages a centralized procurement budget covering the navy, army, special forces, and coast guard equivalents, making it a strategically important partner in our international expansion. I will turn the call over to Annmarie. I will be available to take your questions during the Q&A session.
Annmarie Gayle: Thank you, Blair. Let me now turn the call over to our Interim CFO, Gayle Jardine, to take you through our financials for the second quarter of 2025 before I provide my closing remarks. Gayle,
Gayle Jardine: Thank you, Annmarie, and good morning, everyone. Let me take you through our second quarter fiscal 2025 financial results. For reference, all income statement comparisons are with the second quarter fiscal 2024, and all figures are in U.S. Dollars. Starting with revenue. In the second quarter of 2025, we recorded total revenue of $7 million compared to $5.3 million in the second quarter of 2024, an increase of 31.8%. Our core business, the Marine Technology business, generated revenue of $3.9 million compared to $3.5 million, a 10% increase for the second quarter of 2024. Our Acoustic Sensors and Materials business, which was added to our group in October 2024, recorded revenue of $1.3 million.
Our marine engineering business services business generated revenue of $1.84 million compared to $1.8 million, representing a 2.3% increase over the second quarter of 2024. Our total consolidated net revenue increased by 31.8%. The newly added business, Precision Acoustics, added 18.5% to our consolidated revenue in the second quarter. Moving on to gross profit and margin. In the second quarter of 2025, we generated gross profit of $4.5 million compared to $3.7 million in the second quarter of 2024. Consolidated gross margin was 64.1%, versus 70.2% in the second quarter of last year.
In our marine technology business, gross margin decreased to 67.7% in the second quarter of 2025, compared to 80.2% in 2024, reflecting higher commission costs attributed to increased sales in Asia for hardware. In conjunction with a lower utilization of our rental assets, therefore reducing rental income and associated services. The Acoustic Sensors and Materials business realized a gross margin of 65.4%. And we expect, on an annualized basis, this to be between 59-63%, depending on the mix of sales. Our Marine Engineering business gross margin increased to 55.5% in the second quarter of 2025 versus 50.7% in the second quarter of 2024, again reflecting the mix of engineering projects during the second quarter of this year.
Now moving on to our operating expenses. Total operating expenses for the second quarter of 2025 increased to $3.4 million compared to $2.4 million in the second quarter of 2024. The main factors for the increase in total operating expenses were the addition of Precision Acoustics into the group, which added 29.5% to these costs, and the weakening of the US dollar against the British pound and Danish kroner, which impacted these costs once translated into U.S. Dollars from the base currencies for reporting purposes.
Our selling, general, and administrative costs in the quarter of 2025 totaled $2.7 million, an increase of 47.4% from $1.8 million in the second quarter of 2024, reflecting the addition of the new business unit into the group and the exchange rate adjustment charges. As a percentage of revenue, our selling, general, and administrative costs for the second quarter of 2025 were 38.8%, compared to 34.7% in the prior year quarter. Operating income in the second quarter of 2025 was $1.1 million compared to $1.4 million in the second quarter of 2024, a decrease of 19.5%.
Operating margin is 15.5%, compared to 25.4% in the second quarter of 2024, which we attribute to the increase in cost of revenue and total operating expenses for the reasons explained earlier. Pretax income in the second quarter of 2025 was $1.3 million compared to $1.6 million in the second quarter of 2024. Net income after tax in the second quarter of 2025 was $900,000 or $0.08 diluted share, compared to $1.4 million or $0.13 per diluted share in the second quarter of 2024. Looking now at our balance sheet. As of April 2025, we had $24.5 million in cash and cash equivalents on hand and no debt.
This represents an increase of $2 million from October 31, 2024, with a comparable figure of $22.5 million. Finally, to summarize the financial impact in the current quarter of the introduction of our new acoustic sensors and materials business into the group, it contributed 18.5% to total revenue in the quarter, and the gross profit margin was $800,000 or 65.4%. That completes my financial summary. So let me turn the call back over to Annmarie for her closing remarks. Thank you.
Annmarie Gayle: Thank you, Gayle. I am very pleased with the increase in the second quarter of 2025. Although the gross profit margins of our core business decreased, I considered this exceptional for the reasons explained earlier. The weakening of the US dollar also resulted in higher operating costs being translated into US dollars by our foreign subsidiaries. These two factors resulted in lower income and earnings per share. We continue to work to create stable long-term shareholder value and execute against our strategy to grow the business, which is our single biggest priority as a group. We are also very pleased with the broader progress that we are making on the DAVD program.
The DAVD is the subject of various ongoing trials and limited use on live missions. As part of this, recent trials were conducted by a major body responsible for assessing the readiness of the technology deployment. This trial concluded that the DAVD technology is significant and unique. It also concluded that combining DAVD with our three-dimensional sonar Echoscope makes it unique for diving operations. As part of this recognition, we see the galvanization of different development programs we are under contract for five developments currently where other sensors that this community uses are now being integrated into the DAVD ecosystem. These are strong indicators that this is the technology of choice for future diving operations in the defense space.
A key milestone which we are focused on achieving is the adoption of the DAVD by foreign navies, and this is progressing well. We will also continue to prosecute our M&A strategy in fiscal year 2025, although we have put on hold the acquisition which we were working on until the global policy environment has stabilized. I want to emphasize that we have not abandoned our M&A strategy. We are simply focusing on navigating the policy environment and ensuring that our decisions are sound for our shareholders. Through our strategy, we aim to pivot the revenue model of the marine technology business to a multi-year multi-sales model as we have started to see with the DAVD product line.
To conclude, we would like to thank our shareholders for their continued support. We are now happy to answer any questions. Operator?
Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your question.
Brian Kinstlinger: During the last earnings call, Annmarie, you said given the uncertainty in global trade, there was a standstill by customers as it relates to your marine products business. And so you thought revenue would be back-end loaded this fiscal year. First, what changed that led to the stronger than expected second quarter demand from Marine Products? Did orders pull forward quicker than expected? Or is it something more broadly that's changed from a demand perspective?
Annmarie Gayle: Hi, Brian. Good morning. Thank you very much for your question. Look. What we are seeing in the marine core business, the marine technology business, is really, really strong inquiries around our Echoscope technology, particularly on the outright purchase side. So I think we saw a really strong level of inquiries from Asia in particular, and that continues on the hardware side. Also, we also saw a strong pickup around the DAVD program, and we had in the quarter $1.2 million worth of DAVD sales.
The one thing that we saw was the real sort of downturn in inquiries from European developers in the second quarter, but we are now seeing that moving forward and more rentals going ahead in the third quarter. So overall, I think what we are seeing is a strong level of inquiries right across the piece in the marine technology business and our engineering businesses.
Brian Kinstlinger: Great. And then did you share the expected timing of the new NanoEchoscope release? I think you talked about back-end trials. And then can you discuss how this new release addressed its customer feedback and could lead to increased adoption in use cases?
Annmarie Gayle: Well, first of all, we are really on the cusp of releasing Nano. Blair Cunningham, our President of Technology, has significant trials with Nano, I think, at the end of this month for a critical defense program. So after those trials are concluded, we would expect to really make an announcement to our customer base. We would like to see how those trials go. But Blair will talk more about this, but what Nano addresses is really the smaller classes of underwater vehicles. So the introduction of this new into the mix allows our business to address the full expanse of the requirements that we see in the market from very large underwater vehicles to very, very small.
So I think this positions the company nicely for addressing the full market. And in addition to that, we have, for example, the diver taking down currently the Echoscope, which is a bit sizable. So this now removes that, and Nano allows because it is a shade bigger than the iPhone, he can easily wear the Echoscope today and also robotic. Really, where you have got these small robotics platforms, again, a new application for our technology given the form factor. So we are pretty excited about this. And as I said, the launch date will be after trials in June, where Blair will be leading our team with the trials with our US Navy customer base.
Brian Kinstlinger: Great. And then as it relates to your five development programs, can you help range or provide a range of sizes for the different opportunities of what these might address and help us with the timeline for these development programs that might be evaluated and turned into a next phase?
Annmarie Gayle: Blair, can you just talk a little bit, please, about the development programs that we are working on just in terms of the broad sense of requirements?
Blair Cunningham: Yeah. Sure. Thank you. Thank you, Brian, again for the question. Yes. The five programs are really taking the DAVD system either to support existing equipment, so integrating that existing equipment in, or in one particular case, it is for a completely new application, which is a kind of saturation, deep saturation dive suit. So all the biggest market opportunity still remains the untethered space. And, really, I would say probably three or four of those programs all relate to integration with untethered additional dive equipment. So it is all for the benefit of that really. The US Navy in particular, along with all the foreign navies, they all use different, what we call, UBAs or underwater breathing apparatus equipment.
So we have to bang one of the key parts of DAVD is providing a hands-free, you know, information on critical lifeline information that they would have from this breathing apparatus. So how do we integrate that, bring that into DAVD, provide the alerts and the real-time information in a hands-free environment? So a lot of the programs around they have seen the interest in DAVD. They now want that to work with the existing equipment they have. And that really largely that is, you know, that actually, that is three or four of the programs that we are actively working on at the moment.
So think about it as a product, you know, adoption necessity as it were to get the equipment in the hands of those divers. That is correct.
Annmarie Gayle: So the one thing to just add on, Brian, there is to remember that all of the sensors that they are using for diving currently is relevant, but what they have to do if they are going to adopt DAVD is to bring that within the DAVD world. So I think that for us, this is very, very positive because what it is really saying is that DAVD is our choice. So we now need to bring all our sensors within that ecosystem.
So and we are really seeing a galvanization around that to ensure that all of the sensors that are being used by all the different community of users are now being brought into the DAVD world, and we are extremely excited about this.
Brian Kinstlinger: Okay. And then you talked about the next generation underwater vehicles. And the progress Coda is making in securing design wins and maybe lay out any milestones or timing we should watch out for. I think we have been, you know, we have talked about this opportunity for a little bit. Maybe size, the range of opportunities in all the different vehicles, what it might look like if you did win a production order.
Annmarie Gayle: Well, it is very difficult for us to really give numbers. What we are seeing really to the market is that we have got various programs of different states of, if you like, maturity for these underwater vehicles. But really, the important thing, Brian, is it is making sure that we continue this journey of getting new programs. The ones that are ongoing and are being evaluated by from directly the US Navy or with prime defense contractors, the technology is already part of that broader program. And so that program is dependent on final evaluation. Where does this program go?
So what we see is a proliferation of programs where the Echoscope is a contender because they are looking to integrate the Echoscope onto those platforms. So whilst I cannot say categorically, I am seeing there is a big market out there, and I think that the Echoscope is just that this final report, which was assessing the readiness of DAVD, talked about the uniqueness of the Echoscope technology for spatial awareness underwater and object detection that this is the most advanced technology for that purpose. So you know, these programs can be slow, but what we are seeing within, for example, the DAVD program, we are seeing pull-through Echoscope sales there.
And for the other programs that we have been following for some years, we are seeing additional units being bought and the program slowly moving forward. So until, like, budgets are appropriated and some of these evaluations are concluded, we are still waiting. But we know that some programs, you know, look very, very promising for the business. But we still have to wait for, first of all, award and still have to wait for the evaluation process to be completed, whether it be direct with the prime defense contractor program or the navy directly. But we have to make sure the key point, that we are not missing opportunities.
And so the job of the team is to make sure that the Echoscope is part of the program that is being considered for adoption, and that is the work that we are doing.
Brian Kinstlinger: Okay. Last question I have, a numbers question. Your business is lumpy for sure at times. But you had previously expected to have a back-end loaded year, especially as it relates to marine products. Do you still expect the third and fourth quarter to be your two strongest quarters of the year? Or did some of that change given the upside in the second quarter?
Annmarie Gayle: Well, I think that overall, we expect the marine technology business to continue to improve in the way that we are seeing this. Look. I am very excited about the rental opportunities that we are seeing. We are seeing a good level of utilization of our rental pool, which is always very exciting for business. We also see lots of opportunities from Asia for hardware sales. So I see very much that the third quarter and our fourth quarter will be within the balance of what our Q2 numbers look like for the marine technology business.
Brian Kinstlinger: Great. Thanks for answering all my questions.
Annmarie Gayle: Thank you very much for the opportunity, Brian.
Brian Kinstlinger: Thank you.
Operator: Our next question comes from the line of John Deysher with Pinnacle Value Fund. Please proceed with your question.
John Deysher: Morning. Thanks for taking my question. Was just curious on the gross margin percentage. It is still very attractive for the company as a whole, 64-65%. Should we model that percentage for the back half of the year? Or how should we think about the overall gross margin for the balance of the year? Is it staying the same, going up, going down, and for what reasons?
Annmarie Gayle: Well, thank you very much. The gross profit margins for our marine technology business are very low. It is very, very unusual. If I am not mistaken, I think, Gayle, I mean, gross profit margins for that business, same time last year was about 76% compared to 65%. Is that right?
Gayle Jardine: It was just over 70%, I mean. Yes. Yes. So that 70% is typically what we would expect the margins to be. So we would expect for the rest of the year, margins to go up. I think this quarter was an exceptional quarter for the reason I explained, which was we had a concentration of sales from Asia. What that means, generally, is that you are selling via your agent's network, and then incurring commission costs. So that was one factor. But that was further compounded by the fact that we had a single sale that triggered a much higher percentage commission because of the multiples on that order. So we expect that to be an outlier.
So we expect margins to be much stronger in the marine technology business.
John Deysher: And how about in the marine technology business?
Annmarie Gayle: Yes. But on well, precision acoustics, this you know, the range is between 57 to 65%. It will be some it depends really there on the mix of sales and the marine engineering business, I think that they are again, we do not expect margins to really change dramatically because then it really depends on their mix of sales generally.
John Deysher: Okay. So those two are going to be steady. That is good to know. And on the SG&A side, is there any reason to think that for the business as a whole, that percentage might come down? I think it is up a little bit from a year ago, the SG&A percentage.
Annmarie Gayle: Gayle, did you want to talk to that?
Gayle Jardine: Yes. I can do. Yes, sir. SG&A percentage this quarter was impacted by a couple of different factors. One of it being the exchange rate variances that we are seeing in the business. And we are about 65% of our revenue and costs or 55% of our revenue, 65% of our costs comes from the entities that are not in the USA. So we have some impact of exchange rate variance in there. And we also have added in the Precision Acoustics business. And we also have some noncash equivalent impact this quarter as well. If you look at the noncash element, that was quite a lot of the ex the sorry. Lost my train of thought there. Apologies.
Blair Cunningham: The noncash So noncash sorry. The noncash charge has increased significantly.
John Deysher: Significantly.
Gayle Jardine: It was the amortization in PAL. And the noncash charges for depreciation for stock-based compensation and exchange rate variances. So in the current quarter, the noncash items were a component of SG&A was 24.7% or about 670k compared to 0.3%, only a 6k gain in the previous quarter. So that swing had an impact in this quarter here.
Annmarie Gayle: As we do not know what the exchange is going to do going forward, we have to be expecting that the US dollar is going to continue to weaken against the pound and the kroner.
John Deysher: Okay. So it sounds like we should model SG&A as a percentage of sales about the same as the first half. Or the back half? Is that fair?
Blair Cunningham: Or just slightly lower. Yes.
John Deysher: Slightly lower. Okay. Fine. That is good. And then I guess my final question is the announcement of in the third quarter, we expect to deliver 16 DAVD untethered systems, which is good. What kind of revenue might that generate?
Annmarie Gayle: Can we talk about that when we get there? I mean, the order, just so we know, last was $800,000. We are hoping that we are going to be delivering all sixteen units in the third quarter. So if we do, it will be around $800,000.
John Deysher: Okay. You have a contract for delivery of 16. It is a question of timing?
Annmarie Gayle: Yes. We are on the contract, but we are keeping our production facility is getting the items ready for delivery in the third quarter. So we already have a firm contract for that. It is just a question of delivering those.
John Deysher: And anything that is not delivered in the
Annmarie Gayle: Yes. Certainly. Certainly. But, of course, we are hoping to deliver all
John Deysher: Q3 would be delivered in Q4?
Annmarie Gayle: 16 units in the third quarter.
John Deysher: Yep. I understand. Okay. Good. Well, thank you very much. Good luck.
Annmarie Gayle: Thank you for your question.
John Deysher: Thank you. Thank you.
Blair Cunningham: Ladies and gentlemen, that concludes our question and answer session. I will turn the floor back to Ms. Gayle for any final comments.
Annmarie Gayle: Thank you for joining our call today and for your interest in our company. Have a great day. Thank you.
Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.