Coda Octopus Group delivered higher fiscal third-quarter revenue and earnings as accelerating U.S. defense activity more than compensated for a downturn in its core Marine Technology operations, illustrating how the company’s increasingly diversified portfolio is changing the composition of its growth.

The Orlando, Florida-based underwater technology and defense supplier reported revenue of $7.72 million for the three months ended July 31, 2026, compared with $7.06 million in the year-earlier quarter, an increase of 9.2%. The improvement came despite a sharp decline in Marine Technology, historically the company’s largest operating business. Defense Engineering Services instead emerged as the quarter’s main growth engine.

Marine Technology revenue fell 15.2% to approximately $3.4 million from $4.0 million a year earlier. Coda said geopolitical instability associated with the continuing conflict involving Iran has created uncertainty in procurement across portions of the Middle East and Asia, markets that have historically generated meaningful opportunities for the company’s underwater imaging and subsea technology products.

The decline reduced Marine Technology’s contribution to consolidated revenue to roughly 44% during the quarter, compared with more than half of revenue in the comparable period. That shift matters because the unit includes Coda’s proprietary Echoscope real-time underwater imaging products and its Diver Augmented Vision Display, or DAVD, technologies, which are central to the company’s long-term product strategy.

Defense Engineering Services moved in the opposite direction. Segment revenue rose 68.3% to approximately $2.7 million from $1.6 million, making the business a substantially larger contributor to quarterly sales. Coda said demand strengthened for repairs, sustainment and spare parts supporting long-established U.S. defense programs. One of the company’s prime-contractor customers received a multi-year repair and sustainment contract from the U.S. government, generating additional repair activity and subcontract opportunities for Coda.

Management said year-to-date demand for spare parts related to those sustainment programs exceeded $2.4 million. The company views that activity as a source of recurring demand because its engineering operations participate in programs extending well beyond initial development and manufacturing into maintenance and lifecycle support.

The defense operation is also participating in electronic-warfare development. Coda said its U.S. Defense Engineering Services unit is supporting several prime contractors developing ruggedized, deployable radio-frequency electronic-warfare systems. Applications include unmanned systems, helicopters, airborne pods and ground vehicles. That work gives the company exposure both to legacy defense platforms requiring continuing sustainment and to newer programs built around changing electronic-warfare and autonomous-system requirements.

Coda’s third operating segment, Acoustics Sensors and Materials, also expanded. Revenue rose 10.4% to roughly $1.6 million from $1.5 million. The business includes Precision Acoustics, which supplies hydrophones, acoustic materials and related technologies used in areas including medical ultrasound and nondestructive testing. Its growth provided an additional buffer against the decline in Marine Technology.

The changing revenue mix had consequences for profitability. Gross profit increased to $5.05 million from $4.82 million, but cost of revenue rose faster, to $2.67 million from $2.24 million. As a result, consolidated gross margin narrowed to about 65.4% from 68.3% a year earlier. Coda attributed the movement to the mix of sales types and geographic markets during the period.

The decline in gross margin did not prevent improvement further down the income statement. Selling, general and administrative expense declined 2.9% to approximately $2.79 million from $2.87 million. Research and development spending, by contrast, increased 27.4% to about $729,000 from $572,000, reflecting continued investment even as management controlled general overhead.

Total operating expenses were $3.52 million, only modestly above $3.44 million a year earlier. With gross profit rising and SG&A declining, operating income increased 11.1% to $1.53 million from $1.38 million. Operating margin edged up to approximately 19.9% from 19.5%, an important counterpoint to the weaker gross margin because it indicates that operating leverage below the gross-profit line remained favorable during the quarter.

Other income also contributed to the increase in pre-tax earnings. Interest income rose to about $234,000 from $155,000, while total other income increased to approximately $258,000 from $164,000. Pre-tax income reached $1.79 million, up 16.0% from $1.54 million, and represented approximately 23.2% of revenue compared with 21.9% in the prior-year period.

After income taxes, net income was $1.39 million compared with $1.28 million, an 8.3% increase. Basic and diluted earnings per share were both $0.12. In the year-earlier quarter, basic and diluted EPS were $0.11. The earnings improvement therefore remained positive despite the unfavorable gross-margin movement and higher research spending.

The nine-month figures show a stronger earnings trajectory than the quarterly top-line growth alone suggests. Revenue for the first nine months of fiscal 2026 reached $21.33 million, up about 10.6% from $19.29 million in the corresponding period of fiscal 2025. Gross profit increased to $14.00 million from $12.75 million.

Nine-month operating income climbed to $4.34 million from $3.13 million, an increase of roughly 39%, while pre-tax income rose to $5.11 million from $3.74 million. Net income advanced to $4.02 million from $3.10 million, and diluted EPS increased to $0.36 from $0.27. Those figures indicate that earnings have grown considerably faster than revenue through the first three quarters of the fiscal year.

Coda also exited the quarter with a substantial cash position relative to its operating scale. Cash and cash equivalents were $31.71 million at July 31, up approximately $3.0 million from $28.68 million at the October 31, 2025 fiscal year-end. Total current assets increased to $54.60 million from $50.01 million, while total liabilities declined modestly to $6.12 million from $6.38 million.

Accounts receivable increased to $5.62 million from $3.73 million at the fiscal year-end, while unbilled receivables rose to $3.26 million from $2.99 million. Inventory was broadly stable at $13.49 million compared with $13.64 million. The combination of rising cash and comparatively limited liabilities leaves Coda with financial capacity to continue product development and pursue expansion initiatives without the balance-sheet pressure facing more leveraged small-cap industrial companies.

Management is continuing to invest in Marine Technology despite its near-term revenue weakness. Coda said it received approximately $1.4 million of orders during the quarter for tethered DAVD systems and related peripherals. DAVD is designed to provide divers with a heads-up display connected to topside systems, allowing operational data and underwater imagery to be incorporated into diving activities.

Coda considers the untethered version of DAVD a potentially larger long-term opportunity. The company said Approved Navy Use authorization is now in place and that its customer has begun training discrete user groups on the untethered system. Coda is also supporting integration programs in which DAVD serves as the vision and situational-awareness component of broader operational platforms.

Progress is also continuing with the Echoscope PIPE NANO Gen Series, a smaller version of the company’s real-time three-dimensional sonar technology intended for underwater vehicles and other platforms with tighter size and power requirements. Management said Coda is working with at least five customers on integrating NANO systems into underwater vehicle platforms.

The significance of that product development is amplified by the role Echoscope already plays in the segment. Coda said Echoscope products represent approximately 80% of Marine Technology revenue. Expanding the technology to smaller autonomous and robotic systems could therefore broaden the addressable market of a product family that already accounts for most of the unit’s sales. Potential applications include underwater robotics, autonomous vehicles, defense systems, diving platforms and subsea situational awareness.

The product pipeline also illustrates the distinction between the Marine Technology segment’s current revenue performance and management’s longer-term expectations. The business is facing near-term procurement disruption in geographic markets affected by geopolitical instability, but Coda continues to describe autonomous maritime systems, unmanned capabilities and advanced underwater sensing as durable areas of defense investment.

That creates two separate earnings variables for investors. The first is the durability of the Defense Engineering Services acceleration. Repair and sustainment work can provide recurring activity on mature programs, while electronic-warfare projects provide a pathway into newer platforms. Continued strength there would give Coda a more diversified earnings base and reduce its dependence on quarterly Marine Technology equipment orders.

The second variable is whether Marine Technology can convert product development and customer engagement into renewed revenue growth. The segment’s 15.2% quarterly decline remains the clearest weakness in the results. Continued disruption in the Middle East and Asia could restrain procurement, while the timing of defense and subsea technology orders can make results uneven from quarter to quarter.

At the same time, the company’s $1.4 million of DAVD tethered-system orders, Navy-related untethered-system activity and NANO integrations create potential future revenue channels that are distinct from the markets currently experiencing the greatest disruption. Successful adoption in autonomous underwater vehicles and defense diving programs would also strengthen the overlap between Coda’s proprietary Marine Technology products and the broader increase in defense demand supporting its engineering businesses.

Coda did not use the earnings release to establish a new numerical full-year revenue or EPS target. Instead, management emphasized execution, technology adoption and long-term growth opportunities associated with defense priorities, autonomous maritime systems and underwater situational awareness. That leaves near-term forecasts sensitive to individual order timing and segment mix.

For the third quarter, however, the financial result was unambiguous: diversification worked. A significant contraction in Coda’s historically important Marine Technology operation did not prevent the company from producing higher consolidated revenue, operating income, pre-tax profit or net income. Defense Engineering Services absorbed the pressure, while the acoustics business added incremental growth and expense control protected operating margin.

The next phase of the earnings story will depend on whether that mix can become more balanced. Sustained defense engineering growth would provide a stronger recurring base, while a recovery in Marine Technology or greater contribution from DAVD and Echoscope NANO could restore growth in the company’s higher-profile proprietary technology portfolio. With more than $31 million of cash and year-to-date earnings expanding faster than revenue, Coda enters the final quarter of fiscal 2026 with a stronger financial position even as geopolitical uncertainty remains a material operational risk.