Coda Octopus Group, Inc.

Good morning and welcome to Coda Octopus Group's Fiscal Year End 2022 Earnings Conference Call. My name is Rob and I'll be your operator today. Before this call, Coda Octopus issued its financial results for the fiscal year ended October 31, 2022, including a press release, a copy of which will be furnished in a report filed with the SEC and will be available in the Investor Relations section of the company's website. Joining us on today's call from Coda Octopus are its Chair and CEO, Anne-Marie Gale, and its CFO, Nathan Parker. Following their remarks, we will open the call for questions. Before we begin, Jeff Gramp from Gateway Group will make a brief introductory statement. Mr. Gramp, please proceed.

Thank you, Rob. Good morning, everyone, and welcome to CURTA Octopus's fiscal year-end 2022 earnings conference call. Before management begins their formal remarks, we would like to remind everyone that some statements we're 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 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 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 under the caption Risk Factors in our 10-K. You may get COTA Octopus's Securities and Exchange Commission filings for 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 Code Octopus's website. Now I will turn the call over to the company's chair and CEO, Anne-Marie Gale. Anne-Marie?

Thanks, Jeff, and good morning, everyone. Thank you for joining us for our fiscal year end 2022 conference call. I'm excited to speak to you today about Code Octopus. I'm very, very excited about the company. Now, before we discuss our recent results and performance, I would first like to provide some background about our company to those listeners who may be newer to Code Octopus Group. Code Octopus Group is an established business with a strong pedigree in underwater technology and defense engineering. We operate two discrete business operations, our underwater technology business in our findings sometimes referred to as our products business and our engineering business. We have a strong culture of intellectual property rights ownership in our technology business and have a number of patents covering our technology. And with the engineering business, we have sold supplier status for a number of proprietary parts sold into mission-critical integrated defense systems. We view these business units as complementary and synergistic to each other as we can jointly bid on projects where the combined skills provide a competitive advantage for such projects. We believe our business units also provide us with significant growth opportunities combined with solid current revenue and profitability, and we'll be talking more about that today. Now, turning to our marine technology business, this business develops and supplies technology solutions to the underwater and diving markets for both commercial and defense customers. We have been operating as a supplier of solutions comprising both hardware and software products for over 25 years, and all design, development, manufacturing of our technology and solutions are performed within Code Octopus. Now, we're a market leader in real-time 3D underwater imaging sonar technology, as we have the world's only real-time 3D imaging sonar capability. This technology is the only one that can generate a real-time 3D image of moving objects underwater in zero visibility conditions. So the only technology in the world that can generate underwater images real-time 3D image of moving objects underwater in zero visibility conditions and that's important because much of subsea operations are plagued by zero visibility conditions and then we are the only solution in the market at that point. We market this technology under the Ecoscope brand. That is the Ecoscope brand. Our other core technology relates to the transformational diving technology, the DAVID, which is Diver Augmented Vision Display System, which is the result of a direct requirement from the US Office of Naval Research under its future naval capabilities. So the DAVID came out of a requirement from the Office of Naval Research for its future naval capabilities program. The DAVID is the only technology that provides a real-time data platform to both the diver and dive supervisor where the data hub for the diver is on a pair of fully transparent glasses embedded in the diver's helmet, face mask, or other diving suits. So in other words, we are providing data to the diver on a pair of transparent glasses, and that becomes this data hub for all types of different real-time information, and this real-time information is also shared by the dive supervisor on the surface. Now, our sonar technology is used in a variety of underwater applications. These include construction, mining, bridge inspection, offshore renewables, oil and gas, treading, port and harbor security, survey and mapping, and more generally for monitoring and inspecting moving objects underwater. It is the only technology that can generate a real-time 3D image of moving objects underwater in zero visibility conditions. This is significant as many underwater operations are stalled due to poor visibility conditions resulting in significant cost overrun. Now turning to our engineering business, our author operating segment, this is conducted through our two engineering subsidiaries, Colmec and Martec, where we act primarily as a subcontractor to prime defense contractors. These engineering subsidiaries supply embedded solution and subassemblies into mission-critical defense programs where we have long-established relationships with U.S. and U.K. prime defense contractors, such as Raytheon, Northrop Grumman, and BAE. We have a number of programs that we've been supplying for proprietary parts for over 30 years, such as the U.S. closing weapons support program for the Phalanx radar-guided cannon used on combat ships. These long-term relationships provide us with long-tail recurring revenues. Now, the engineering businesses seek to leverage these long-standing relationships with Prime to expand the number of programs it supplies into these programs. This is crucial for the growth strategy of the engineering business. That is to grow the number of programs that it supplies proprietary parts. And that's really its business model, to really supply sub-assemblies into larger defense programs where there's the opportunity for long-tail recurring relationships. And because we have these long-standing relationships with crimes, we often get... the opportunity to bid for work on these programs. Now, turning to our growth pillars that we are really postulating our growth on, I'd like to talk about these a little bit more. Our key growth pillars are our Ecoscope and Sonar Series, our Ecoscope Sonar Series technology, and our DAVD. In order to fully understand where the company's growth opportunities lie, let me start with our sonar technology and the evolution we've made over the last several years. If you look back several years ago, we had limitations gaining broad adoption of our technology due to size, weight, power requirements, and price. our technology was very expensive. Until February 2019, our technology was limited to use on work-class vessels. These are very large vessels at sea, which is only a small section of our target market. And at the time, we only had one type of sonar to service the entire market. And because of those form factors we talked about, size, weight, power, and also price, the market was very limited for us. In February 2019, we launched our fourth generation sonar series and expanded our range of sonar offering to cover six base models with various options, These options covering frequency, depth, range, and resolution of the sonar. That is really what gives the type or model that we're selling, frequency, depth, range, and resolution. With this 4G sonar series, we have removed the barriers to adoption and opened the market opportunity for our technology as we have models that are suitable for all types of underwater vehicles, be they large or small. We built on this traction with our 4G sonar series by recently introducing our Ecoscope Pipe, an acronym for Parallel Intelligence Processing Engine. This is the most technologically advanced imaging sonar available in the market. the Ecoscope pipe introduced significant new capabilities to the subsea market by providing a single sensor that can generate multiple 3D images simultaneously in real time using up to 10 different acoustic parameters such as frequency range and many other filters. Now, our previous generation of imaging sonar was capable of generating only one 3D image in real time. Our new generation of imaging sonars, which is the exoscope type, can generate multiple 3D images, and the data is therefore available to different parts of the survey operation. This therefore allows customers to rely on one sensor and not having multiple sensors to do different tasks within this survey operation, thus reducing costs and making operations much more efficient for the subsea market. So we have really not only moved the market onto real-time 3D imaging sonar, but also generating multiple 3D images for the different parts of the survey operation from a single sensor. And that's the promise of the Etiscope pipe, and this is why we are excited about the market. With our company being a first mover in innovating and commercializing real-time 3D sonar technology, as well as shifting market requirements, to real-time 3D imaging in the subsea market. We have positioned CODA to be the market leader in real-time 3D underwater imaging visualization. Real-time 3D data underwater transforms the market because users can make real-time decisions in situ. as opposed to the current competing technology, which uses one mission to collect the data and another mission to process the data. And this is the key difference between our technology and what I describe as the legacy technology. The legacy technology, which is the multi-beam technology, goes out to sea, collects the data, comes away, processes the data. Now, the environment at sea is always fast-moving, so that is stale data. Our technology provides the only solution for real-time decision-making. I can go out on a bridge doing a bridge inspection. I can see all of the impairment in the bridge. I can see the scour right there and then. I can prepare my customer deliverables. immediately there. I don't have to go away and post-process the data. So we are really excited about our technology. Now I'd like to give you an update on our pipe, the EcoSchool pipe progress we have made in fiscal year 2022. Well, the headline here is that we've been successful in getting our EcoSchool pipe sensors into new defense programs. This is really, we have the opportunity before the company is as these prime defense contractors roll out the new generation of underwater vehicles. We have the opportunity to be the sensor of choice on those platforms. And this year, we sold into four different U.S. programs who are working on the new generation of underwater vehicles. We also sold into one new Japanese program, again working on the new generation of underwater vehicles for the Japanese defense market. In addition to that, in the commercial space, we sold four extra pipe sonars, on a new underwater vehicle that is going to be used in that exciting application of offshore renewables where we have the lead in many areas. So we've made really good progress around our ExcoPipe. So this progress made by our technology over the last four years, both in expanding the available models within our sonar series and getting onto some key new underwater vehicle programs in the defense sector paves the way for us to increase our market share of imaging sonar market over the next two to three years. Our goals as a management are to cement our place in the existing programs that we are currently working and also, of course, to identify new programs all the while expanding our share of the commercial market for our sonar in this way we aim to increase our marine business revenue selling selling depending on the model type and configuration between say 60 and 80 sonars per year along with dabd sales and therefore in in in the next two to three years we're targeting approximately 25 million in revenue for our technology business on a standalone basis compared to 14.7 in the fiscal 2022. So we're really hoping that year on year, we're increasing the number of sonars we're selling in the market. And EchoScope Pipe will be that new platform as the demand is more and more for a single sensor with multiple 3D images. And at the same time, we're hoping to add to our revenues by the rollout of DAVD. And we're now going to talk a little bit more about DAVD, which is our second growth pillar. So this DAVD technology, this is transformational as it radically changes diving operations by providing enhanced vision and operational awareness even in zero visibility conditions, and this technology is applicable to both defense and commercial markets globally. For the DAVD, we are the first movers in the market to transform diving operations by providing via the DAV solution real-time media content of all descriptions to the dive operations. Importantly, our technology is scalable and transferable to all types of diving operations. Our main focus currently is in the defense, including the military and commercial, but excluding leisure diving at this stage, thereby providing CODA with a significant market opportunity. So the DAVD, which is transformational for the global diving market, is really we're targeting the defense market and the commercial market. And at the moment, we're leaving the leisure market. The DAVD technology moves the diver from the dark room operations and diving by touch to a real-time information platform environment. shared by the diver and the dive supervisor on the surface, and also moves away from a largely voice-directed dive operation. So really, we are introducing a real-time platform, real-time data platform for the diver and the dive supervisor. This, in turn, significantly enhances efficiency, safety, time limit timeliness cost of operations and guarantees the success of the dive operations we should remember that divers have limited time in the water any one time it's approximately 20 minutes and you have to get the diver in the water to the dive side to do the activity and out of the water so there are six key transformational aspects that davd provides for the market First is location where we provide real-time diver compass information, depth and positioning information on the water. We provide navigation to the dive site and we also identify along the way all hazards and waypoints to the dive site. Second, we provide visibility. Here we enhance the diver experience with real-time video data, our 3D sonar data where required, and augmented reality scene awareness for the diver underwater using our 3D model of the environment. Third, communication. Here we communicate between diver and dive supervisor with rapid text messages, images, detailed instructions where required, and digital speech and audio. Fourth, we provide data. Here, the diver and the dive supervisor can share and access, importantly, all project data and information on demand in real time. This includes engineering information of all forms, drawings, videos, text messages, manuals, 3D models of installation, shapes for whatever they're looking for. So really a rich media content which supports the diver and the dive supervisor in real time. This is safety as we provide navigation and dive time data synchronized in real time to ensure safe diver monitoring, including location, oxygen levels, pathfinding, hazards, and waypoints. And sixth, we've made significant advancement of the audio quality for diving operations underwater. So we have moved away from noisy analog to digital audio link that will serve the entire diving community. The DAVD is an approved Navy use item including the accompanying Ecoscope sonar, and it is currently in use by a number of U.S. Navy teams, such as MUDSU, which is Mobile Diving and Salvage Unit, UCT, Underwater Construction Team, EXWIC, which is Expeditionary Warfare Center, NSWC, which is Naval Surface Warfare Center in Panama City. and SWARMIC, which is Southeast Regional Maintenance Center. During the fiscal 2022, we made significant progress in expanding the market for the DAVD. First, we have in 2022 performed the customization of the DAVD for a U.S. military command which is the most significant opportunity for the DAVD in the U.S. currently. This was done as a pay development, and we expect to deliver the first working prototype by early February. If trials are successful in spring, we expect to supply multiple units in rapid succession for further evaluation. And then we expect a production order from this military command in fiscal 2023. Second, the second important milestone for the DAVD is that the DAVD Gen 3 systems have now been supplied to the U.S. Navy, which have now been supplied to the U.S. Navy, have now moved from R&D to field operational status by the U.S. Navy. They've now moved the DAS project from R&D to field operational status. This is an important milestone for the adoption of the technology in higher quantities. To date, we have supplied 20 of the latest Gen 3 systems, which excludes the earlier generation. And for Gen 3, we have sold approximately $2 million worth of DAS purchases, including some of our imaging sonars. Our first mover advantage and progress with these customers provide a high barrier to entry into this market by competitors. The DAVD is a complex product with hardware and software components. The software development takes many years. In addition, the use of the transparent glasses underwater, where we render the data to the diver, which is the diver's hub, is patented in the U.S., and CODA has the exclusive license for this. Lastly, we at CODA Octopus are leveraging our years of underwater experience and incorporating our own proprietary technologies, such as our real-time 3D sonar and software. Our real-time 3D sonar is the only sonar that can produce real-time images underwater, including 3D models of the underwater environment in all water conditions, including in zero visibility conditions. We're targeting to grow this stream of revenues for the business, adding approximately 2 to 3 million in revenues annually to the business over the next several years, representing about 50 incremental units of growth per year. So let me now turn the call over to our CFO, Nathan Parker, to walk you through our financials before providing my closing remarks. Nathan?