Coda Octopus (CODA) Fiscal Q3 2026 Earnings Call: Revenue Rises 9.2%

Coda Octopus Group (NASDAQ: CODA) reported higher fiscal third-quarter 2026 revenue and earnings as growth in Defense Engineering Services offset weaker Marine Technology sales in the Middle East and parts of Asia.

Key Takeaways

• Revenue increased 9.2% year over year to $7.7 million, while pretax income rose 16% to $1.8 million.
• Defense Engineering Services revenue surged 68.3% to $2.7 million, supported by higher activity and funding across established defense programs.
• Marine Technology revenue fell 15.2% to $3.4 million due to reduced international customer activity. Rental revenue, however, increased 131.1% to approximately $0.7 million.
• Net income reached $1.4 million, or $0.12 per diluted share, compared with $1.3 million, or $0.11 per diluted share, a year earlier.
• Coda Octopus ended the quarter with $31.7 million in cash and no debt. The company also moved from an accumulated deficit to positive retained earnings for the first time in its history.
• The U.S. Navy’s Authorization for Navy Use approval advanced DAVD Untethered toward operational evaluation, while recent DAVD tethered-system and peripheral orders totaled approximately $1.4 million.

Key Financial Data

Business and Operating Performance

Defense Engineering Services

Defense Engineering Services was the quarter’s main growth driver. Revenue increased 68.3% to $2.7 million, while gross margin declined to 56.9% from 58.9% because of contract and program mix.

The U.S. business recorded stronger demand for repairs and spare parts under long-running sustainment programs. Year-to-date spare-parts orders exceeded $2.4 million. Increased repair activity followed a multiyear U.S. government sustainment contract awarded to one of Coda Octopus’ prime-contractor customers.

The company is also supporting prime contractors developing rugged RF electronic-warfare systems for unmanned systems, helicopters, airborne pods and ground vehicles. Management said the business is working with at least four prime defense contractors on evolving requirements.

Marine Technology

Marine Technology revenue declined 15.2% to $3.4 million and represented 43.8% of consolidated revenue. Hardware revenue fell 17.8% to $2.3 million as geopolitical instability reduced activity in the Middle East and parts of Asia.

Rental revenue partly offset the decline, rising 131.1% to approximately $0.7 million. Improved rental utilization, lower commission costs and changes in sales geography helped Marine Technology gross margin increase to 78.5% from 77.0%.

Coda Octopus has delivered 24 DAVD Untethered Systems to the U.S. Navy, including 16 delivered earlier in fiscal 2026. Following Authorization for Navy Use approval, operational commands can fully evaluate and use the systems.

The company also received approximately $1.4 million in recent U.S. Navy orders for DAVD tethered systems and related peripherals. These included four DAVD FLEX systems and Echoscope Sonar equipment for training.

NANO GEN Series Sonar is being integrated and tested with subsea robotics OEMs, research organizations and direct customers. Management highlighted interest from U.S. and European defense markets for diving systems, delivery vehicles and autonomous or unmanned underwater platforms.

Acoustic Sensors and Materials

Revenue increased 10.4% to $1.6 million, driven by demand for acoustic materials and test-stand solutions across international markets. Gross margin decreased to 52.4% from 54.8% because of product mix.

Risks and Key Watchpoints

• Middle East and Asian geopolitical instability is delaying Marine Technology projects through personnel-safety concerns, operational disruption and customer supply-chain issues. Management characterized these effects as timing-related rather than structural.
• Defense procurement, deployment and user-acceptance processes remain lengthy. Management emphasized that broader adoption of DAVD and NANO represents a longer-term opportunity.
• Defense Engineering Services revenue is expected to remain uneven because sustainment purchases and program activity depend on procurement timing and inventory replenishment.
• Consolidated and segment margins may fluctuate with sales geography, rental contributions, contract mix and product mix.
• Wider procurement of NANO systems remains conditional on successful system acceptance testing and customer evaluation.

Analyst Q&A Highlights

• NANO testing: Management said system acceptance trials with an underwater-vehicle customer were imminent and that testing was progressing well. The initial integration involves three systems. Successful trials could move the program toward procurement and potentially support adoption by additional customers.
• DAVD adoption: Authorization for Navy Use removed a major hurdle, but deployment, field evaluation and user-acceptance testing must precede larger procurement decisions. Management described customer feedback as positive and pointed to potential use in naval diving schools and academies.
• European Navy opportunity: Coda Octopus expects better visibility into an influential European Navy customer’s procurement roadmap later in the year. Management believes broader adoption by that customer could support interest from other European navies, although each customer follows its own defense procurement process.
• Marine Technology demand: The company continues to see customer opportunities in Asia and the Middle East, but ongoing instability is causing project deferrals and limiting offshore activity.
• Investment priorities: Management intends to continue investing in R&D and business development to expand participation in defense programs. Current priorities include DAVD, Echoscope, NANO and the next-generation Voice HUB-4 underwater digital audio communication system.
• Capital allocation: With $31.7 million in cash and no debt, the company continues to evaluate acquisition opportunities aligned with its strategic objectives while maintaining a disciplined approach.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Greetings, and welcome to the Coda Octopus Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dillon King, Investor Relations. Dillon, please go ahead.

Dillon King

Thank you, operator. Good morning, everyone, and welcome to Coda Octopus' Third Quarter Fiscal 2026 Earnings Conference Call.

Before management begins their formal remarks, we would like to remind everyone that some statements made today may be considered forward-looking statements under U.S. securities laws. These statements are subject to 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 actual results and 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 year ended October 31, 2025, and Form 10-Q for the first, second and third quarters of our fiscal year 2026.

You may get Coda Octopus' 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 through the Investor Relations section of Coda Octopus' website. Finally, as a reminder, this is our third quarter fiscal 2026 reporting and all comparisons, unless explicitly stated otherwise, are with our third quarter fiscal 2025.

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

Annmarie Gayle

Thanks, Dillon, and good morning, everyone. Thank you for joining us for our third quarter fiscal 2026 earnings call. I believe we delivered a solid set of results during the quarter with consolidated revenue increasing 9.2% and pretax income increasing 16%. While geopolitical instability in the Middle East adversely affected customer activity in certain international markets and resulted in lower revenue within our Marine Technology Business, the strength of our Defense Engineering Services and Acoustic Sensors and Materials businesses enabled us to deliver growth in both revenue and pretax income.

Our performance this quarter highlights the resilience of our diversified business model and the strength of our financial fundamentals. I am pleased with how the business has continued to perform despite challenging market conditions in some regions. Our company comprises 3 operating businesses: Marine Technology, Defense Engineering Services and Acoustic Sensors and Materials. Our Marine Technology business remains the strategic centerpiece of the company and generated 43.8% of consolidated revenue during the quarter. Our long-term growth strategy remains focused on expanding adoption of our proprietary underwater technologies, including Echoscope, DAVD and the recently introduced NANO Series, particularly within defense and autonomous underwater vehicle applications, where we continue to see significant long-term opportunities.

Turning to our third quarter business highlights. Marine Technology Business. Revenue in our Marine Technology Business decreased 15.2% during the quarter. The decline primarily reflected reduced customer activity in the Middle East and parts of Asia following geopolitical instability in the region. Hardware revenue decreased 17.8% to $2.3 million compared to $2.7 million in the prior year period. Partially offsetting this decline was significantly improved rental asset utilization with increased rental revenue by 131.1% to approximately $0.7 million compared with approximately $0.3 million in the prior year period. The higher contributions from rentals, together with lower commission costs resulting from changes in sales geography, contributed positively to gross margins within this business.

Turning to Defense Engineering Services Business. Our Defense Engineering Services business delivered a strong quarter with revenue increasing 68.3% compared with the prior year period. The business benefited from increased activity and funding across several long-standing defense programs, resulting in both higher order intake and higher execution levels during the quarter. Our U.K. defense operations experienced increased customer activity and contributed higher revenues compared with the prior year period.

Within our U.S. defense engineering business, we continue to see strengthening demand for repairs and spares under some of the sustainment defense programs that we have supported for decades. During the quarter, one of our prime contractor customers was awarded a multiyear repair and sustainment contract by the U.S. government. Following that award, we experienced increased repair-related activity and additional subcontract opportunities associated with the program. We continue to see encouraging demand trends in this area. Demand for spares supporting the sustainment defense system also remains strong with spares orders exceeding $2.4 million year-to-date.

We also continue to make progress in electronic warfare, which remains an important area of defense investment. Our U.S. Defense Engineering Services segment is currently supporting several prime contractors in the development of rugged deployable RF electronic warfare systems for a range of platforms, including unmanned systems, helicopters, airborne pods and ground vehicles. We believe these programs represent a meaningful future opportunity, enabling us to build upon our long-standing positions on legacy defense systems while expanding into next-generation defense programs as technologies and operational requirements continue to evolve.

Turning to our Acoustic Sensors & Materials business. Our Acoustic Sensors and Materials business increased revenue by 10.4% during the quarter. While gross margins were lower due to product mix, we continue to see encouraging demand for our acoustic materials and acoustic test stand solutions across international markets. While market conditions in certain international regions remain challenging, our diversified business model enabled us to deliver growth in both revenue and pretax income during the quarter. We remain focused on executing our long-term growth strategy, strengthening our position across defense, marine and acoustic markets and expanding adoption of our proprietary technologies.

With that, I will hand the call over to Blair Cunningham, our President of Technology, who will provide an update on our technology initiatives, recent milestones and market activities.

Blair Cunningham

Thank you, Annmarie, and good morning, everyone. As Annmarie noted, our strategic focus remains on expanding adoption of our proprietary underwater technologies, including DAVD, Echoscope, NANO and our next-generation underwater communication system, Voice HUB-4. I will briefly highlight several notable developments during the quarter. A significant milestone during the year was the successful completion of the U.S. Navy's Authorization for Navy Use assessment for the DAVD Untethered System, incorporating the DAVD Gen 4 HUD. As you know, we delivered 16 DAVD Untethered Systems to the U.S. Navy earlier this year, bringing total deliveries to 24 systems. With ANU approval now in place, these systems can be fully evaluated and utilized by operational commands. We continue to provide training and support for the untethered system and believe the military market represents a significant long-term opportunity for DAVD.

Since our last earnings call, we have received approximately $1.4 million of orders from the U.S. Navy for DAVD tethered systems under related peripherals, supporting deployment to additional commands and adoption of the latest DAVD FLEX technology. We are also encouraged by indications that DAVD may be incorporated into diving school and academy training curricula. The recent orders included 4 DAVD Flex systems and Echoscope Sonar specifically for training purposes, which we believe reflects growing institutional acceptance of the technology within the naval diving community. Internationally, we continue to work closely with the European Navy that recently acquired DAVD Systems. We remain encouraged by customer feedback and believe this deployment provides a strong foundation for further expansion within international military diving markets.

We expect to gain greater visibility into that customer's procurement road map later this year. In addition, we continue to make progress on a number of funded defense programs awarded during the year under separate contractual arrangements where our DAVD and NANO technologies are being integrated as key vision and mission enabling components. These programs spanning diver-machine teaming, critical diver health state monitoring and advanced deep saturation diving provides further opportunities to demonstrate our technologies in operationally relevant environments and support their growing adoption across a broader range of defense applications.

We are also pleased with the early market response to our NANO GEN Series Sonar, our ultracompact real-time 3D imaging sonar designed specifically for small subsea robotics and AI-enabled autonomous underwater platforms. We are actively working with a number of subsea robotic OEMs, research groups and direct customers globally to integrate NANO into next-generation underwater platforms, enabling advanced real-time 3D perception, navigation and autonomy capabilities that were previously impractical on vehicles of this size.

Beyond our active programs, we continue to see growing interest in NANO across both the U.S. and European defense markets, particularly for diving systems and delivery vehicles, autonomous and unmanned underwater systems. We believe NANO's combination of ultracompact form factor, low power consumption and real-time 3D imaging capability positions it well to address the rapidly evolving requirements of this emerging sector.

This growing interest is further supported by the innovative software and hardware ecosystem we have developed around NANO, providing OEMs and integrators with multiple levels of engagement from straightforward sensor integration through to a more comprehensive solution incorporating NANO's real-time data and processing capabilities, providing the high-quality real-time 3D data critical to delivering true AI-enabled 3D perception and autonomy solutions.

As Annmarie commented with respect to our defense engineering businesses, we are seeing renewed demand across the U.S. defense market, driven both by increased spending on spares, repairs and sustainment of established defense systems as well as investment in next-generation capabilities including electronic warfare, unmanned systems and increasingly autonomous platforms. We believe this broader increase in defense spending, combined with the growing demand for more capable and autonomous systems create additional opportunities for our NANO technology. Our established defense relationships and engineering capabilities provide a strong pathway for introducing NANO into these programs and expanding this long-term growth potential.

Overall, I believe we are making steady progress in expanding adoption of our technologies and advancing opportunities that support long-term growth. With that, I will turn the call back to Annmarie Gayle and look forward to answering your questions during the Q&A session.

Annmarie Gayle

Thank you, Blair. Before turning to the financial results, I would like to formally welcome Mark Kelly, who recently joined the company as our Chief Financial Officer. Mark brings extensive financial and operational leadership experience and we are very pleased to have him as part of the executive team as we continue to execute our growth strategy. Mark will now take you through our third quarter 2026 financial results. Following his remarks, I will return with some closing observations before we open the lines for questions.

Mark Kelly

Thank you, Annmarie, and good morning, everyone. As this is my first earnings call since joining the company, I'm pleased to have the opportunity to introduce myself to our shareholders and investors. I've enjoyed meeting the team and becoming familiar with the business, and I look forward to supporting the company's continued growth and execution of its long-term strategy.

Let me now take you through our third quarter fiscal 2026 financial results. Total revenue for the third quarter 2026 was $7.7 million compared with $7.1 million in the third quarter of 2025, representing an increase of 9.2%. As Annmarie highlighted earlier, our results reflect the benefits of our diversified business model. While revenue in our Marine Technology Business was impacted by reduced customer activity in certain international markets, this was more than offset by strong performance in our Defense Engineering Services Business and continued growth in our Acoustic Sensors and Materials business.

Marine Technology revenue was $3.4 million compared with $4 million in the prior year period, representing a decrease of 15.2%. Acoustic Sensors and Materials revenue was $1.6 million compared with $1.5 million in the prior year period, representing an increase of 10.4%. Defense Engineering Services revenue was $2.7 million compared with $1.6 million in the prior year period, representing an increase of 68.3%. Gross profit for the third quarter 2026 was $5.1 million compared with $4.8 million in the third quarter 2025. Consolidated gross margin was 65.4% compared with 68.3% in the prior year period. The movement in gross margin primarily reflects changes in revenue composition during the quarter, including the contribution from higher-margin rental activity within our Marine Technology Business, changes in sales geography and the mix of projects and products delivered across the group.

Marine Technology gross margin was 78.5% compared with 77% in the prior year period. Acoustic Sensors and Materials gross margin was 52.4% compared with 54.8% in the prior year period, reflecting product mix during the quarter. Defense Engineering Services gross margin was 56.9% compared with 58.9% in the prior year period, reflecting the mix of contracts and program activity during the reporting period.

Turning now to operating expenses. Total operating expenses for the third quarter 2026 were $3.5 million compared with $3.4 million in the third quarter 2025. Selling, general and administrative expenses were $2.8 million compared with $2.9 million in the prior year period. The movement in SG&A was primarily driven by lower payroll-related costs and favorable foreign exchange movements, partially offset by higher contingent consideration expense associated with the PAL earn-out.

SG&A represented 36.1% of consolidated revenue during the quarter compared with 40.6% in the third quarter 2025. Operating income for the third quarter 2026 was $1.5 million compared with $1.4 million in the third quarter 2025. Operating margin was 19.9% compared with 19.5% in the prior year period. Pretax income for the third quarter 2026 was $1.8 million compared with $1.5 million in the third quarter of 2025. Net income after tax was $1.4 million or $0.12 per diluted share compared with $1.3 million or $0.11 per diluted share in the third quarter 2025. The provision for income taxes during the quarter was $0.4 million compared with $0.3 million in the prior year period.

Turning now to the balance sheet. As of July 31, 2026, the company had cash and cash equivalents of $31.7 million and remained debt-free. The company continues to maintain a strong balance sheet and healthy liquidity position, providing financial flexibility to support both organic growth initiatives and potential strategic opportunities. Total assets at quarter end were $68.9 million compared with $64.5 million at October 31, 2025.

Overall, we believe the company remains well positioned financially with a strong balance sheet, positive earnings and substantial cash resources. That concludes my financial review. I will now turn the call back to Annmarie for her closing remarks.

Annmarie Gayle

Thank you, Mark. I am pleased with our third quarter performance. Despite a challenging geopolitical environment that affected customer activity in certain international markets, we delivered growth in both revenue and pretax income while maintaining our strong balance sheet and debt-free position. The quarter once again demonstrated the benefits of our diversified business model. While our Marine Technology Business experienced lower revenue due to the conditions in the Middle East and parts of Asia, the strength of our Defense Engineering Business and Acoustic Sensors and Materials business enabled us to deliver overall growth and strong profitability. I am also encouraged by the progress we continue to make in advancing adoption of our core technologies.

During the quarter and subsequent period, we achieved a number of important milestones across DAVD, Echoscope and NANO that we believe strengthen our position in key defense and underwater technology markets and support our long-term growth objectives. We're particularly encouraged by the continued traction we're seeing within defense-related applications where increasing investments in underwater capabilities, autonomous systems and force modernization programs continues to create significant long-term opportunities for our technologies.

I am also pleased with the opportunities our U.S. Defense Engineering Business is seeing in supporting sustainment programs through repair and spare parts for long-standing defense systems. At the same time, the business is expanding its work with prime defense contractors on next-generation defense technologies, positioning it to participate in evolving defense requirements and future programs.

From a financial perspective, I am also pleased that the company achieved an important milestone during the quarter, transitioning from an accumulated deficit to positive retained earnings for the first time in its history. While primarily an accounting milestone, it reflects the sustained profitability, financial discipline and progress the company has achieved over recent years. In parallel, we continue to advance our M&A strategy and remain actively engaged in evaluating and progressing acquisition opportunities that align with our strategic objectives.

While we remain disciplined in our approach, we continue to pursue opportunities that could strengthen our business and support our long-term growth strategy. Overall, we remain confident in our strategy, encouraged by the progress we are making across the business and well positioned to capitalize on opportunities in our core markets.

Operator, we are now ready to open the line for questions.

Operator

[Operator Instructions]

Our first question today is coming from Brian Kinstlinger from Alliance Global Partners.

Question-and-Answer Session

Brian Kinstlinger

Great. Annmarie, last quarter, you highlighted there was an underwater curl vehicle OEM that purchased several Echoscope, the NANO Gen Series for testing. Can you talk about any feedback from testing? And then do you have -- with that time that's passed, do you have any more clear picture yet on how long test and evaluation may last for this or similar programs?

Annmarie Gayle

Thank you very much for this question. So yes, we're making really good progress on that particular program. The key thing for us to understand with these programs, their development programs through -- what that really means is that there is some amount of integration efforts for all participants within the program. I'm pleased to see that we've reached really a very good point under that particular program. And Blair, I think that program is going for SAT trials soon. Is that correct?

Blair Cunningham

Yes, that's correct, Annmarie. Brian, yes, the SAT trials will be imminent. And actually with the customer as we speak at the moment. So yes, we're in the water active with the vehicles and things are going very, very well. So we hope to conclude that. I will be able to report that in the fourth quarter, I would hope.

Brian Kinstlinger

And given it's in a development phase, is the next big catalyst for this type of program a design win? And would you announce that in a PR?

Annmarie Gayle

Well, the main thing I would say, Brian, is being on the vehicle, clearly that's very important. That's the starting point for us to really sort of see we can go into a procurement phase. We think this will be a big win for us because then whilst the initial orders were 3 systems on the vehicle, there are opportunities for that vehicle that we have some amount of visibility. Clearly, the precondition for that is that the SAT trials go well, but if they go well, we can see in rapid succession a number of other customers coming on board for that particular solution.

Brian Kinstlinger

Great. And then thanks for the update on the DAVD, including the uses of training and some of the orders post quarter. As it relates to ANU approval for the DAVD, you've had that for a couple of months. I'm curious how business development and particularly the sales cycle has changed as a result?

Annmarie Gayle

So thanks again, Brian. So we should really understand again that the ANU is one of the hurdles that takes us closer to a procurement cycle. The first thing for any defense technologies really is to put the technology in the field, so deployment is important and user acceptance test, then we can move forward to, if you like, larger scale procurement. So I'm pleased to say that we've removed the most important hurdle of getting the technology first of all, in the customers' hands and then moving forward to, if you like, deployment and user acceptance testing. These are all critical activities for the broader adoption of any defense technology, including DAVD.

Brian Kinstlinger

And can you share us the feedback because these customers that it's in the hands of that are new in training, and it sounds like we've got a bunch of new potential customers that are in trials.

Annmarie Gayle

Yes. So Really, really positive feedback on the DAVD program. As we reported in this quarter, which I see as a confirmation of the maturity of the technology, there's the potential that DAVD technology will be used in various institutions for training, diving academies, for example. So we're very, very heartened by that, and that is really endorsement that the technology is moving forward. In addition to that, as Blair mentioned previously, we have several discrete contracts where DAVD and NANO are really being integrated in different programs where we're doing some integration work for adding DAVD and NANO as mission-critical vision components in these different programs.

So I feel very much that the signaling that we have is wholly positive. And what I see is the technology moving forward, I think we should really understand, however, that these are longer-term opportunities for our business.

Brian Kinstlinger

Great. I have a couple more, mostly now from the financial perspective. With the war in Iran, not seeing an end in sight and taking that into account, how should we think about Marine Technologies' quarterly revenue? Is there anything that could substantially increase or decrease from the last few orders? I guess what are the puts and takes that could cause any volatility from where we were recently in the last few quarters.

Annmarie Gayle

Well, so as we've always reported Asia and the Middle East are strategically important markets for our business. Of course, the geopolitical situation has been very disruptive for our business. However, we think that this is not really structural. These are timing issues. So, we continue to see opportunities, we continue to have visibility of what customers are doing, but the fact still remains that it's very challenging offshore to really run a project really because of the disruption in the market. There are security issues, safety for personnel, some of them are supply chain issues for end customers. So I think that we're not seeing any structural changes in the market.

But what we're certainly seeing is deferral of opportunities because of the ongoing uncertainty.

Brian Kinstlinger

Great. Two more. The Marine Engineering Business has historically enjoyed stronger demand in the second half of the year compared to the first half looking back at the last few years and maybe that's seasonal, maybe it's just timing. I'm curious with this contract award from your prime do you see maybe the company sustaining the types of revenue seen in the last 2 quarters? Or do you expect it will be -- continue to be lumpy as we've seen in the last few years?

Annmarie Gayle

Well, certainly, it will be lumpy, but what I can say on the sustainment program. Again, you should remember the way these procurement activities occur. So annually, for many of these programs, there's a fixed amount of spending for, if you like, parts to these programs. But as these parts are now -- and most times, they are sitting in a warehouse. But what we're actually seeing now is that these parts are now actively being used and there has been the -- they are now, if you like, replenishing their warehouses. And this is really where we see this opportunity for spares and repairs coming through.

Of course, I can't project the scale of the opportunity. But I can see as warehouses change and reduce what they have, we can see increased demand for spares and repairs.

Brian Kinstlinger

Great. That's helpful. My last question is just high-level P&L strategy. How are you thinking about incremental investments, either in R&D or in SG&A that positions the company for stronger revenue growth versus controlling expenses to drive incremental margin and profit? How do you think about that as a strategy right now from where the company is?

Annmarie Gayle

Well, as you have already said, really organically from an organic place. I see that company has the fundamentals to grow significantly. The company has well-established revenue in the commercial offshore market. But there is a finite number of units we can sell quarter-on-quarter into that market. And therefore, our strategy, as you know, Brian, is to increase the number of defense programs that we -- that is adopting our technology. Part of that will involve increased R&D efforts, increase SG&A spend. And we see we're doing more -- especially now with the acquisition of PAL in our group, is one of the most foremost authorities on acoustics in the field. We are now leveraging their capability across the group and then really looking at the next generation of different technologies that we can advance and bring to the market in addition to the disruptive technologies that we currently have.

Let me remind you, Echoscope. Echoscope is the world's only real-time 3D imaging sonar that can generate a real-time 3D image in zero visibility water conditions. What have we done with that technology: we have future-proofed that technology to make sure that we can get on a broader underwater vehicle platform. NANO is a good example of that. And that is not just a win. That would have been an R&D planning for a good 4 or 5 years before we could realize such a feat. So we have several programs, internal programs, where we are looking to really leverage what we have. And Blair, one of the significant things that Blair mentioned and this is the Voice HUB-4 technology where the digital audio communication system. That is still a very, very strong technology where our program sponsor is significantly interested in this technology.

We had to revisit the technology to reduce bill of material costs. What we feel now we are really at that point with, for example, Voice HUB-4, where our -- that program sponsor could be seriously interested in the technology. So I don't believe we are just, if you like, then watching costs. We are actually investing across our group in R&D. And as I said, we are spending a lot of business development efforts on being contenders on different programs. And we measure our success by whether or not the programs are advancing and we continue to be part of that process. And we feel that we are really making good strides, but I also want to emphasize that defense programs are naturally longer-term programs.

Operator

[Operator Instructions]

Our next question is coming from [indiscernible] from Freedom Capital Markets.

Unknown Analyst

First question is you previously discussed on initial day deployment with European Navy. So what determines whether that customer moves to broader rollout? And can other Navy use that qualification work to shorten their own procurement process?

Annmarie Gayle

Good. So thank you very much for that question. So Blair reported on that, we're making really, really good progress with that very influential European Navy. Later this year, we will have better visibility into their procurement cycle. But what I can see is that they continue to be engaged on technology and really also the visibility that we see with this particular customer. This is not just about DAVD, but really pull through sales on the Echoscope and our underwater inspection system, which is actually in use in over 30 ports in the U.S. as a security system.

So we're making really good progress with that European customer. There's a high level of engagement with that customer. And we're hopeful that closer to the end of the fiscal year, we will have better visibility into the procurement process. But again, I see this is a defense customer. They've got their own processes, and it will take time. But what I can see is that I think this is moving forward. And yes, they are also very influential. And therefore, if they move forward to broader adoption, which we expect we would see also other European Navies follow suit because they are really the trendsetter here in diving.

Unknown Analyst

Okay. That's helpful. And the quick next one with a lower vessel procurement spending proposed in U.S. [ Coast Guards ] for 2027 budget. So how exposed it is in your Defense Engineering Business? And what could this mean for your next year?

Annmarie Gayle

Yes. So I'm quite heartened and excited by our Defense Engineering Business in the U.S. because really, as customers' requirements evolve and there's a new generation of, if you like, warfare technology, I'm pleased to see that we are working and getting a lot of opportunities to look at for some of the new evolving requirements. We are working with no less than 4 prime defense contractors on different opportunities around the same theme. So I see it very much -- budgets may be reallocated, but it doesn't change the fact that these new technologies will have to move forward because it's the new, if you like, arena for fighting the next generation of warfare.

So we are heartened to see that we're not just on the legacy programs, but we're evolving with our customers into the new technologies.

Operator

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Annmarie Gayle

Thank you very much for your interest in Coda Octopus. Have a great day. Thank you.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Annmarie Gayle

Thank you.