CODA - Earnings call transcript Q2 2024 | Coda Octopus Group, Inc.

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Operator

Good morning. Welcome to Coda Octopus Group's Second Quarter 2024 Earnings Call. My name is Sherry, and I will be your operator today.

Before this call, Coda Octopus issued its financial results for the second quarter 2024 ended April 30, 2024, including a press release, a copy of which will be furnished in a report filed with the SEC. It will be available in the Investor Relations section of the company's website.

call Gayle; Octopus Jardine. its today's and its on Annmarie CEO, interim us from are Coda Chair Joining CFO, Gayle

their open will remarks, call Following questions. for up the we

a begin, brief proceed. Turner we Before will introductory Mr. Turner, Jeff statement. please make

Unknown Attendee

morning, operator. to Welcome XXXX Good Quarter Coda Conference Call. Thank Second Fiscal everyone. you, Octopus Earnings

of forward-looking that we're making number today management formal we and remarks, involve statements Before risks securities would like and be some considered statements begins the to under law remind everyone uncertainties. may a

As we number you our there of forward-looking actual differ that factors, could the beyond in to results statements. which a are materially caution result, described are from and events many a of control, those cause which

forward-looking quarter and see earnings required refer are descriptions update reflect Commission. undertaking more law. We as Forms our as our events to for by in not our forward-looking but filings disclosures public as We Exchange statements this statements, and XX-Q Securities risks circumstances or XX-K year. to uncertainties of limited, except second please Form well the date the Securities uncertainties fiscal the detailed variable and including, of uncertainties disclaim other to business For October for XXXX, risks, and be release disclosures the XX, detailed the to may our Commission for in first ended and and you forward-looking statements made, with and and filings, that identified and year the made the assumptions obligation Exchange occur after or any our circumstances relating

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

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

Annmarie Gayle

for us XXXX call. for good Thank earnings and everyone. morning, our Thanks, second you joining Jeff, quarter

Our Despite with increasing was quarter the solid earnings quarter, in XXXX quarter net our revenue. challenges revenue -- serious the results, a income, second share. operating second line and in income including of delivered per XXXX in set our second we

programs quarter our of in we to stream. The orders therefore, second placing shows quarter, the XXXX U.S. budget. caused This gross utilization generation were broadly in outside increased am XX.X% and Technology quarter in the second observed of during defense the with defense is programs unusual compared of funded XXXX XXXX. instead constraints, these presidential upcoming pleased second Notwithstanding revenue alignment second the of second by in revenue. in the of to to USA, am margins our resilience improved profit we I our a pleased funding I fully quarter particularly by and in gap slowdown federal revenue is the XXXX there continuing increase quarter where assets Marine the fund election. second diversity sector not rental quarter pace During relating the the of the which was the use with to revenue that resolutions very XX.X% created a an the temporary able

programs for of these defense resolutions means gaps the continuing is limited are to currently million to result XX.X% federal and very also partially as the are programs. see created traction sales to Asia, U.S.A. this quarter. funding were without use these a million pleased funding from Sales from emanating fell a segment $X.X better We budget, only of many by there in in which funded. for This higher that $X.X of fund the from

ongoing due defense in $X.X This from the an and also reduction impacted programs is order areas. key to $X.X sales in to and fell U.S.A. business This making saw business is by million. programs in earlier. their revenue million from to progress segment a on Engineering gaps Our for was touched funding increase intake Defense good this relating I

overview. our to quarter Moving second XXXX

of quarter key our to make we against the drivers. growth XXXX, continued During progress second

mentioned, for an our gross resulted we Echoscope traction margins. in I increased rental As This saw profit in services. increase

high-profile small these a way. reinforced customers the America. The sales including the for has Although has importance, are Echoscope's of importance we primary we particularly could Scott sales significantly inspection. ongoing choose our assisted the the group geographies. in imaging great and salvage engagement applications for relating high-profile was our project down of were we due resilience to were in importance revenue disaster and real-time to technology, U.S.A. has in the of sensor defense recover have tragic, I'm the the support gaps Key to been including in marketed team collapse as operations capability able this for This sensor around applications, Francis we programs. used to with extensive the circumstances recovery, technology programs, pleased collapse. surrounding also that within world, North the sorts technology the streams. Of other the Echoscope Bridge pleased real-time This relating to multiple highlighted and releasing activities recovery provided to XD broad and funding our The single the other Echoscope of of diversification some again some a in by

evaluation We has their VideoRay in been years, progress defender with Warfare including technology Echoscope Information Korea, agreement, the NIWC, used a Center, supplied of Europe. and and the Naval South globally platform. Over lease Compact our in sonars our many disaster made programs, two further of onto for for Japan the ongoing recovery Echoscope's

provide personnel. is to foreign Echoscope and good This on the vehicles platform Echoscope the our sensor with on an Echoscope to indication to selection a the also their which included VideoRay allied integrating in continue that program. their is have Navy, technology on has we begun We work their selected training

$X is we we successful same This trials. which hull solution delivered in this program, are scanning to interested program, important solution could have the ship which and not X-year an of of the different we hull in Furthermore, significant in made XXXX navy this for third ship forward business. have are as And funding we our also this which been [indiscernible]. We're with by if in capabilities. a for accepted And we period meeting requirements any platform, the under forward. the progress customers. commands been scanning. We million received Navy DAVD many scanning step market pursuing completed quarter, developed quarter over ship which hull aware Navy both navy has This our for Echoscope that includes executed on effective in the our program and put of the the solutions company's the be is the

believe these in a project we investment the system the progress particularly customers We of were the in second applications, solution Echoscope. of the superior DAVD the solution. using Systems, Echoscope We quarter, as the DAVD return was resounding this on also show complete adoption the with DAVD for a we achievable partnered the success with and able to this effectiveness tunnel for deliverables continue and to and provider make Tethered and service inspection a to U.S. our

commercial adoption We technology service are with U.S. discussing provider. this of the

program million and customization We the doing Untethered move we also limit mentioned funding to and budgetary is its the We removed. everything shareholders. DAVD are will conclusion for a system our this, DAVD this hardening, within released untethered Despite System earlier $XXX,XXX. program made hardening advancing constrains the remaining the good a be and anticipate to of proceeding of received program partial and in successful $X as the are progress company the

biggest the for that We the is continue to believe DAVD Technology. opportunity this

Our system launched has audio HUB evaluation. Navy newly undergoing underwater digital communication been

all capability We crisper overridingly in providing and on have they use those mission, the this safety conducted and it systems. to involved evaluation. thought product communication of superior XXX% and positive product that the their They existing available on a feedback divers that by analog a Navy diving survey involved clearer if now its would technology said believe received level of was communications. this by increase from the of

we of conditions need of defense creating proprietary returning into. increase the We are continue good pre-COVID the for with this, programs engineering our the $XX revenue number supplying progress to business new achieve subassemblies will to we make that its To million profile. to goal

about million production units for now which the obsolescence programs partial anticipated an new and of under have this some an award quarter, to $XXX,XXX We is earlier, materializing for a record, expect existing gaps subassembly the due funding seen received a second the we of excited new this. In due becomes $X.X being mentioned available. of But I'm We funding for when partial award a of program. upgraded remainder the award program to received of some and we initial components. had

exiting generate many revenue are there as have part, with need that which upgrade of program in this new about meaningful be this excited to field time. are and upgraded designed We the this over will program a systems we on will

also order termite program. a for This to value a relates $XXX,XXX. is a We new which initial received X Navy mission systems new quantity for computers, contract preproduction of an for of

this orders expect We for program in the production XXXX. larger early

development to also in We perform including appointed of engagement. the of we focus Finally, working can see business U.S. continue the group success already quality promise development the this our newly with business activities,

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

Gayle Jardine

everyone. Thank you, Annmarie, morning, and good

with you recorded revenue. million take to the X.X%. we the million XXXX. second second XXXX, of quarter Marine me revenue our the quarter in The $X.XX revenue decrease $X.XX starting of quarter to second In second $X.XX XXXX X.X% quarter products $X.XX an a increase business XXXX, million, total financial Technology results of of Let from business of million compared generated of through compared

to Our of million from of increase the Marine business generated an $X.X $X.X or second million, quarter revenue XXXX. Services compared X.X% of business Engineering

total our in X.X%. increased consolidated second by earlier, discussed As quarter the revenue

North the the second product for to revenue defense the by rentals, and the down in area market earlier. Asia, sales in America where due saw the U.S. Annmarie funding and increase reasons the quarter Our strategic services an Engineering in from reduction of in sales rental-related including outright in explained segment increase were our increased increased of XX.X%. Sales outside support an region, program segment

the gross million Marine Technology changes XXXX, second in the In to versus second last have profit gross our quarter XX.X% the support increased due was primarily in of in service margin. margin. the XX.X% to million of XX.X% gross compared $X.X and we of in increase mix in a the year. In profit generated to second quarter sales XXXX. on business, which to of of the higher $X.X quarter margin XX.X% compared quarter gross of Moving and margin second XXXX rental gross Consolidated sales, XXXX, in reflecting to associated

reflecting again margin business to XXXX, gross quarter projects versus XX.X% XX.X% the second the the of XXXX in Engineering engineering of mix the XXXX. quarter Marine second of quarter Our decreased during second in of

moving in period. expense. to Now in our which million expenses quarter operating our is of $X.X of to to compensation in the stock operating second the due Total compared the million largely to the XXXX, XXXX decreased reduction quarter $X.X charges second for

selling, of quarter $X.X XX.X% and costs XXXX from million second decrease general in a the XXXX. the of quarter in totaled $X.X Our of administrative million, second

quarter the of stock general As a continue XXXX compared compensation of by quarter of our approximately is our we income the Accordingly, the assist mainly recalibrate to the with $X.X quarter $X.X in increased development to taxes million after selling, our or Operating was an XXXX. of of accordance to compared second $X profit The per of marketing hired in relating $X.X to the combined our XX%. compared the compared the XXXX to quarter XXXX second we to primarily increase XX.X% marketing quarter operating to in XXXX. development $X.XX margin in in strategy, revenue, fees business XX.X%. second second were administrative expenses. Income due of with second $X.X and in or before second the a to of quarter in of of diluted was XXXX. quarter taxes million second XXXX, $X.XX Net per margin to in the focus in the due working second total XXXX percentage quarter business gross second million in share decrease quarter XX.X% $X.X of million compared the the charges. In was activities. diluted in costs increase to reduction reduction income for and in group million towards second XX.X% capital included share appointment XXXX, the the U.S. in XX.X% million was area. Operating expenses This a in this quarter,

balance Moving now to our sheet.

and million $XX.X of equivalents due items debt. decrease $XX.X to mostly no on cash XXXX, of October had in time was XX, hand where the million As comparable we XXXX, figure of million. into This and April the $X.X cash This XX, long lead is represents inventory. a from purchase

that accordingly. see increased item has So you will line

Our $XX.X working XX, capital million increased to $XX.X XXXX. October million at from

turn for Now back closing over Thank to will remarks. call you. I the Annmarie

Annmarie Gayle

that Thank long-term stable, not you, by close growth Gayle. putting remind profitable everyone like we want value. we're meantime, the it event. to process shareholder together. In I a we're of continue Think a I and to pieces emphasizing the to want create to business. a work puzzle, is and that running an

is profitable without superior our and time track compromising our business. shareholders grow margins tightly the team of outstanding seeking for Our doing while maintaining profits in sustainably an job a run record to all

our business growth. achieve XXXX fiscal are the a year, on key a for In number goals focus to with of management there

business on in prestigious applications. activities of defense calendar development a compelling a the with have focus XXXX We

the continuing of adoption further the programs the capabilities, our technology to rollout and our of hardening engineering in the we're solutions, assist the Tethered DAVD in, of prioritize rebuild technology's goal programs, in on and of both this M&A our audio commercial business goals and Some in to Echoscope acquiring Systems revenue market defense securing and which number to Supporting the portfolio. ongoing. our by community strategy customization System complementary new the traction to value-accretive include: will with group's embedded and management our program Continuing develop candidates with adoption the in DAVD peak increase XXXX. of its this early space, special the adoption engage Untethered the goal. Expanding forces $XX seeing of to with and rollout supporting achieving that the of is the seek communication the of the pipeline technologies million profile, into goal and team digital is

business continued we happy strategy to and line. built believe multiyear models several will best to believe is we prospects. like thank disruptive programs mature, Marine and this to We're a our DAVD incremental could to to as of with continue our sale we multiple but Therefore, believe business's Operator? started for solid. To it for the product growth this growth adopting around to answer in model support. our strategy, the these We pivots would continue our Technology revenue growth it prospects take technologies. By your strategy for the have we conclude, be that years a see now to the near-term their shareholders questions. Though

Operator

Global [Operator Instructions] Our first question is from Brian Kinstlinger with Partners. Alliance

Brian Kinstlinger

offshore markets quarters two challenges delays. ago, renewables in leading was Annmarie, both and underwater construction that you discussed to the

Some of state update the these the same is Can us markets due it inflation. actually was the pricing today? and different environment you to challenges how of or

Annmarie Gayle

very Brian, for you, much that question. Thank

and being utilization So really as programs actually projects assets. we underwater the in construction renewables saw also quarter, saw activities. the rental we in that's and increase of And largely second by our on offshore driven

of rental solutions for increased demand So renewables. for what which our underwater offshore seeing is includes we're construction, some

Brian Kinstlinger

Key drive increased Francis and that to with the been of then all, work And adoption the technology? able or did Great. you Bridge at awareness if Scott disaster. you headlines How, of that use have to your the

Annmarie Gayle

drove Well, Also, uniqueness I Brian. of technology good reinforcement was and it can that it a also what of our mean, deliver. and technology the of awareness, our capability

globally. business tractions And had. from a was for exposure coming that that we've that we've really marketing campaign the good awareness So seen

to things what orders, I'd Brian, these is certainly emphasize new had that all what that is working they're the percolate from some to including on into defense including So This some really U.S. to outcomes also contracts will the some event. And reinforce and finding that doing programs. galvanize also, firm we've programs, helping their in of we have but time the just been on take programs these like and of

good So all business. piece in really really, our marketing of for all,

Brian Kinstlinger

inflection you And systems point DAVD see XX news progress Great. XX if to the making? great of you're terms the an I'm for you tethered untethered then that some in curious the either discussed. on based orders this or next in in months program on tunnel

Annmarie Gayle

Yes.

you system, in this. to items. seeing know several or We is are requisitions new in what tethered do as the technology. requests navy for acquiring the to there, certainly, market. the It's is know, we're take on putting trying use get So commands the And proved which, let's commands budget

the we initial but interest strong rollout could in next more -- DAVD did when we But technology. And we moment. and barrier of the of So the this certainly, possibly we the quarter the in buy be started, definitely things limited casing. echoscope also? see would the the budgets quarter where say defense the really programs it is DAVD buy Brian, when really importantly, sure DAVD weren't they see at Would how with of along to we just pleased the I'm DAVD And key to that find or the one would they game they technology? the was the echoscope Navy, are

will by that be or pair. So them as a sold purchased

now. So business item. very is the it's Navy our an that because within because large providing Navy now commands, working established with tethered in use And feel sell group a DAVD for do is think thereafter, its with passive a what it continue is I has is for the the U.S. to capability. And the different approved extent, community to heighten an itself. system business to exciting navy that DAVD the this awareness working to will training,

that that ongoing. about Tethered there work So untethered I'm Systems the excited the for is DAVD for system, really

moment. The and fielded you system. actually evaluate program work continues X they're with and affected even we to though the As both at working the Navy limited have And been have the systems funding U.S. the together know, pace. Navy we at by to foreign

turning the Navy. to the and product in with to over continue hardening We revisions

the at we're is gap all there affecting that is under these making although progress a funding, in So programs. not it

inflection back, that that and seeing think and will I that adopt coming the we therefore, think So U.S. it market take program DAVD we're all we the the to And technology really around. are seeing in people close traction did for good getting tunnel the I the important. really to for solid point, technology, the but in really, time

the quarter in in South also, Korea. our DAVD sold first We last system

pleased. they profile used high Also that the are on they've very, very road on. were very think technology project adoption. to the I another And they themselves that

going process providers have internal through We still own the service offshore are who DAVD. in their several major Europe, for

So recognition technology is closer is about -- that's I to it's of, their the capable that And people the technology. of there start getting feel we're in the putting for the what now much getting line very growing. really, over budgets

well, that am So think system with much think really the that. of hands is get want the with that, we'll the program excited excited we I probably the for and once constraints coming in foreign it. demand because see very And forces removed. have, U.S. going budgetary joint and about the from navy also, U.S. special the certainly I that we're then very, we They the the both to the budgets more increased about and are I big have that system Navy using

Brian Kinstlinger

Great.

and/or end recovery Now services, if through there on not budget I to see us since happened side? begun take the marine the yet recovery mistaken, I what's a maybe CR at the all yet engineering one slow, ended Just to the on the of the side. not think a CR I'm budget But mention you more you quarter natural ended? maybe the that, follow-up June, have at heard on

Annmarie Gayle

been appropriations have to I program. is made think I on seeing And the we're it's No, now. really that programs not that think appropriations what the

programs budget. getting So are only still partial many

any be there's release fundings I July my in That's because programs funding for on where critical we to understanding think working is to is point new are various of going in a next the event tranche July. see will we programs.

election think, this -- So surprise big an environment for I so this not all not this year. and that's is is is Brian, -- it's it a unusual really There's fraught business. political in

DAVD, this be orders. However, the as funding have that of, we're some a programs business programs there extent for funding of like the round will certainly don't expect like in for being for is What I waiting I said, July, number engineering I visibility key of released.

So as I is don't have visibility. partial have to funding But funding. opposed seen a what full consistently we

Brian Kinstlinger

back question then Last for it. Got me I'll queue. the and in get

the I see. thermite for You mentioned start program, pick great to the that which up. been preproduction know thermite would demand order to is you've hoping

could quarter program? Can production the think. the XXXX, first the mentioned in of you production size of You you I for estimate opportunity that begin the on

Annmarie Gayle

Well, program the will is small we've where order, under got XXX evaluation there initial for one our that be system purchase units understanding that, my -- orders. the potentially, a we

to But working towards. So we see. the that's we wait number are

Brian Kinstlinger

as the accurate? units And can an in delivered I X is that Or ARPU? not $XXX,XXX look at

Annmarie Gayle

It's -- no, that's accurate. That's accurate.

Operator

next Our with Instructions] Canto question is Investor. [Operator Fernando from Private

Unknown Attendee

good just quarter. they I a to $XXX,XXX, Annmarie, quarter million. on congratulations $X.XXX receivables for see went were quarter on a Is explanation first the the up have question. very and please? unbilled any that I that, this there

Annmarie Gayle

you Did receivables? say

Unknown Attendee

unbilled receivables.

Annmarie Gayle

can us, take that Gayle, question you receivables. for please? unbilled

Gayle Jardine

$X.X Sure. -- accumulative million expenses million, increase the reflects our in Yes, to from basically, that $X.X contracts. on $X.X incurred uncompleted from projects million it and went $X.X up million

-- materials So that some that have we haven't time built. projects a in and it's we've yet lot of invested work done

unbilled in they sheet contracts So receivables. the on that's balance why progress are as or

Unknown Attendee

for quarter? positive third That's Right. the

Annmarie Gayle

Yes.

lot earnings seeing on what of just through. coming quarter, was that And in and back in really revenues an the that as projects And We it plan. Engineering saw first I our increase be the we're off quarter. mentioned that back Engineering said. we plan. the a we to really, in call, business think expect We're quarter seeing I businesses my second loaded first coming in

Operator

Our next question Scott with is Andrew from [indiscernible].

Unknown Analyst

I just chance in you peer to ROE, guys But at challenge top same else ROA, to job the And a shareholder everybody your to to I quarter. companies, you're and I'd I return your run of with bit equity. like group. you're your a are calculate wanted your on numbers the Annmarie, a with great everybody managing marine-related other your probably that little frustrated business. great doing know remind growth. had

job in before. the business. I great of questions running a heard a some So

I have balance comments the of have answered. great been lot a But So that a sheet. had you

ingredients markets company the exciting. You've again, grow you're looking running great a to the that job But very Are efficiency any verticals, just there got in any through at? business, specifically acquisitions.

Annmarie Gayle

much, very you Andrew. Thank

very, I is you quarter was it is for And We It -- it was correct. very able defense that positive think challenging programs, really key also really very, about mean, but are in excited that I a very, geographies. And also thank and us. that. environment the we because excited business. challenges. is about and pivot very I'm jurisdictions -- was for me, market very the is make really I'm the team saw what to Asia for by up revenues XX.X%. other from up the that is for

because Also, point it's with revenues, good a now launched market diversification our base that that's audio know and forward technology. product is customer digital DAVD. that that item, our the for a entry whilst Navy same So is also for communication I'm also considerable not because And ticket it moving then big the we of And system. excited is this the further we've

audio So to DAVD. really talking get customers entry the at I when and to the think mean, that they cheap technology, digital into bottom to the that and them is we're careful buy end, point about about our

business programs, frustrated for about where I about forward. of prospects And really, all the I'm still they're we that really with excited business. slowdown So the course, And the defense government in we're funding, the the moving excited have, we really but deeply the the in long term. about am are programs

Unknown Analyst

deal. That countries Yes. diversified revenue away That's you're in and your from you're a model, shifting group. different the diversifying big revenue traditional

think I that's really a overlooked fact.

be going to profits XX your event. job the Yes, growth think business exciting I struggling really while are before, up, know not And next running Coda. Again, you're that's it's great for you get the I going up. Again, went say months in the to going. think an I for heard went the to us, business. going I help forward. very margins your

I'm a driving and to line. numbers but great doing bottom team are bigger I you're the think job. right, your you

So as a really appreciate we shareholder, that.

Operator

question next William with Bremer Our Capital from Vanquish Partners. is

William Bremer

-- many budgets. variables can't really really control the Fantastic quarter, that given that are you

to equate thermite. is Going If back would to $XXX commentary $X math about million order. Is that that million, my the Brian's on the correct, correct? a

Annmarie Gayle

Over Over time. time.

William Bremer

give Also, you -- that's to Fantastic. fantastic that's I just to us little Well, hear. wanted history. a

how AI been you've AI quite an for early time. embedded more a going such mistaken, this may of that utilizing technology I be years. your in of in or Can us products, back, many too, adopter at some you've and have been little Is if correct? granularity X X terms give You you technology probably

Annmarie Gayle

Well, we where was the now in first product I AI think XXXX.

our we've scan are data, absolutely changed predevelopment geophysicist And a the will an XXXX actually we've gas was automate AI will instillation spend and around what's sea boulder we site you're field. there. Geophysicists have product in you're on that oil seabed, really does, a what first have what that go I probably that. bottom, geophysical for on pre-stage boulders really think boulder done, actually product take looking was our we just And -- the software the used actually. to what is do called AI quite have duct. detection we've something long the time -- the sea saying, X X What done really where product and down the collecting hours. stage, at how that boulders many it to that days And tagging we can and I range our on mean, there market really you when and really

the correction And mainly in also speech environment for on product market that's to -- the So our where have the diver's actually. the using pivoted sort in AI then leading now the technology we speech. digital of helium we're audio solution of

helium So voice when a old you're environment, your sort in gets of squeaky.

clean using really able technology, up AI we're completely. being So that to

William Bremer

maybe know busy addressing, Would hear. the all commentary to I Day to Day, like One having it that you in -- markets, you are open have how your be your subsidiary fantastic I'd and down to Fantastic, team Management a really just be Portfolio team end underlying and markets capital an you to to the Analyst with the made. is Investor different and consider, your showcase technology. you thing a where would I Florida you Day and appreciate

that the think word been it come this fruition a to to would X see a may better to in have invested years be some over out nice offering. even get for help finally I of company that us for that

in... Just something to be you

Annmarie Gayle

Great, And at -- idea. great we look certainly that, idea, Great great but idea.

William Bremer

Thank you, appreciate it. is but I this William.

Operator

call now remarks. for concludes would At the back this time, to Gayle session. this like closing to turn our I question-and-answer over Annmarie

Annmarie Gayle

in your much Coda our you thank you interest today. for great Octopus. day Have Thank and very joining call for a

Operator

for will you. us Thank Octopus' today's Thank you conclude conference This call. Coda for conference. joining

You may now disconnect.

Coda Octopus (CODA) 12 Jun 242024 Q2 Earnings call transcript