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Coda Octopus Group: Diversifying Revenue Streams and Delivering Solid Profitability
Published on September 24, 2024 | Ticker: CODA

Coda Octopus Group, Inc. (NASDAQ:CODA) is an established supplier of underwater technologies and solutions, operating two distinct business segments - the Marine Technology Business and the Marine Engineering Business. The company demonstrated resilience in the face of various challenges, delivering a solid set of financial results in the second quarter of fiscal 2024.

Financials

In the second quarter of fiscal 2024, Coda Octopus reported total revenue of $5.32 million, compared to $5.30 million in the same period of the previous year, representing a modest increase of 0.4%. The company's annual revenue for fiscal 2023 was $19.35 million. While the Marine Technology Business saw a 1.6% decrease in revenue compared to the prior-year quarter, the Marine Engineering Business experienced a 4.7% increase. This divergence in performance highlighted the diversification of Coda Octopus' revenue streams.

The company's gross profit margin improved to 70.2% in the second quarter of fiscal 2024, up from 68.3% in the same period of the previous year. This was primarily driven by an increase in rental and associated services revenue within the Marine Technology Business, which yielded higher gross margins. For the full fiscal year 2023, Coda Octopus reported a gross profit margin of 69.8%.

Operating income for the second quarter of fiscal 2024 was $1.4 million, a significant increase of 57.9% compared to the prior-year quarter. This improvement was largely attributable to the increase in gross profit margin and a reduction in total operating expenses, which fell by 13.7% year-over-year. For the full fiscal year 2023, Coda Octopus reported operating income of $3.12 million.

Net income for the second quarter of fiscal 2024 was $1.4 million, or $0.13 per diluted share, compared to $1.0 million, or $0.09 per diluted share, in the same period of the previous year. This represented a 40.3% increase in net income. For the full fiscal year 2023, Coda Octopus reported net income of $3.12 million.

Liquidity

The company's cash and cash equivalents stood at $23.7 million as of April 30, 2024, down from $24.4 million as of October 31, 2023. This decrease was primarily due to the company's investment in inventory to secure long lead-time items. Coda Octopus' working capital increased to $41.0 million as of April 30, 2024, up from $37.6 million as of October 31, 2023.

Geographical Performance

Geographically, Coda Octopus saw a significant decrease in revenue from the Americas region in the second quarter of fiscal 2024, falling from $2.9 million in the prior-year quarter to $1.4 million. This was primarily due to funding gaps caused by the use of continuing resolutions to fund U.S. defense programs, rather than a fully appropriated federal budget. However, the company was able to offset this decline with increased revenue from other regions, particularly Asia, where sales grew by 15.9% year-over-year.

Revenue Breakdown

In terms of revenue breakdown, the Marine Technology Business saw a 19.8% decrease in equipment sales, but a 34.7% increase in equipment rentals. Software sales also declined by 19.5%, while services revenue increased by 86.7%. This shift in the sales mix, with a greater emphasis on rentals and services, contributed to the improved gross profit margin.

Recent Developments

Coda Octopus continued to make progress on its key growth initiatives, including the adoption of its Echoscope real-time 3D imaging sonar technology and the development of its Diver Augmented Vision Display (DAVD) system. The company saw increased traction for its Echoscope rental services, which led to higher gross profit margins. Additionally, the company made advancements in the DAVD tethered system, with new commands within the U.S. Navy expressing interest in the technology, and the DAVD untethered system, which was undergoing a hardening program.

The company's newly launched AI-based digital audio underwater communication system also received positive feedback from the U.S. Navy, with 100% of the divers involved in the evaluation believing the product increased their diving capability and safety.

Coda Octopus' Marine Engineering Business also made progress, receiving a partial award of $771,000 for production units for an existing program of record, as well as a new order for Thermite mission computers related to a new Navy program.

Outlook

Looking ahead, Coda Octopus remained focused on executing its growth strategy, which included continuing to seek to increase the number of programs that its Echoscope technology is embedded in, further prioritizing the DAVD untethered system customization and hardening program, supporting the rollout and adoption of the DAVD tethered system and the digital audio communication solutions, and rebuilding the Engineering Business to its pre-COVID $10 million revenue profile.

Conclusion

Despite the temporary challenges posed by the funding gaps in U.S. defense programs, Coda Octopus demonstrated its ability to diversify its revenue streams and maintain solid profitability. The company's focus on innovation, diversification, and operational efficiency positioned it well to navigate the current market environment and capitalize on future growth opportunities.

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