Coda Octopus Group, Inc.

Good morning. Welcome to Coda Octopus's Group's Fiscal Year 2023 Earnings Conference Call. My name is Sherry and I will be your operator today. Before this call, Coda Octopus issued its financial results for Fiscal Year 2023 ended October 31, 2023, 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, John Price. Following their remarks, we will open the call for questions. Before we begin, I would like to hand it over to Jackie Kirshner from Gateway Group. we'll make a brief introductory statement. Thank you, you may begin.

Thank you, operator. Good morning, everyone, and welcome to COTA Octopus's fiscal year 2023 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 statement. 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 in our Form 10-K and Forms 10-Q for the first, second, and third quarters of this fiscal year. You may get Coda Octopus's 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 via a link in the investor relations section of Coda Octopus's website. Now, I will turn the call over to the company's chair and CEO, Emery Gale. Emery?

Thanks, Jackie, and good morning, everyone. Thank you for joining us for our fiscal 2023 earnings call. Our results in fiscal 2023 continue to reflect the impact of various macroeconomic and marine industry headwinds. These have negatively impacted our revenue and therefore overall financial performance in the fiscal 2023. Notwithstanding, I believe in fiscal 2023, we continue to make progress in our overall goals of investing in our growth acceleration strategy. A quick rundown of factors affecting the marine industry and thus our business. Fiscal 2023 saw the cancellation and shelving of several major offshore renewable projects that many of our industry peers and we ourselves had anticipated. These projects are reported to be unviable due to inflation, higher interest rates, and supply chain problems. It is reported that some of these contracts oblige the developers to sell electricity at $108 per megawatt hour, but developers require this price to be $178 per megawatt hour for the development to be viable. Many of these projects were therefore either canceled or postponed while the contract majors negotiate price reset. Some of the contract majors include Orsted, Vattenfall, Siemens, and BP Econor. This means that many offshore developments did not go forward in fiscal year 2023, resulting in low demand for our Ecoscope solution. This has impacted our rental revenues. Rentals are an important sector of our business and revenues in this sector fell by 31.4% contrary to our business plan goals. In addition, the unleashing of the pent-up demand following the removal of COVID restrictions in China, which we and many industry peers had anticipated, did not occur in the fiscal year 2023. This has impacted on our sales from Asia, a strategic market for us. Sales from Asia fell by 19.5% as our customers in that region were also affected by the combination of weak demand from China and higher interest rates, inflation, and supply chain issues. These macro factors resulted in many underwater construction projects slowing down or being postponed. Due to the combination of these factors, revenue in fiscal 2023 in the marine technology business fell by 17.7% and was approximately $12.1 million compared to $14.7 in the previous fiscal year. Our engineering services business also did not meet its business plan goals in fiscal year 2023 because order take was impacted by the war in Ukraine. The conflict has caused our defense customers' priorities to shift to land-based applications with less focus on naval-based solutions, the area of relevance for our business. Despite these broader headwinds, we made good progress in advancing the David Untethered System Customization Program and also had strong business development and marketing campaigns throughout fiscal year 2023 around our growth pillars. We therefore believe we are well positioned once these macroeconomic factors are removed. For those who are new to CODA, at this time, I would like to provide an overview of our business. We have two discrete business operations. Our marine technology business, sometimes referred to as product business, and our engineering services business. Our marine technology business supplies proprietary hardware and software solutions to the underwater market. We have a global base of commercial and defense customers, including offshore majors, underwater construction companies, Navy and defense bodies, port research bodies, and diving companies. We have three key technologies that we consider critical for the acceleration of our growth and which we designate as our growth pillars. I will summarize these briefly. Ecoscope Imaging Sonar. Our series of real-time 3D imaging sonar, the Ecoscope, is a single sensor for multiple underwater applications. This is the only imaging sonar that can generate a real-time 3D image of moving objects in zero visibility conditions underwater. This sensor is protected by patents and is the tool of choice for a wide range of underwater applications relating to underwater inspection and monitoring of infrastructure, salvage, dredging, placement and landing on the seabed, and ROV navigation in zero visibility conditions. In 2021, we launched our new generation of imaging sonar, EchoScope Pipe. The Pipe series is far superior to our previous generation of sonar as it brings much more capability to the subsea market, including the ability to image multiple using different acoustic parameters such as frequency, field of view, range, and filters. This allows customers to consolidate their sensor requirements and reduce costs. Completing technologies such as the multi-beam is designed as a seabed mapping tool and not for real-time inspection, monitoring, and placement of objects underwater, including in zero visibility conditions. Our technology allows customers to make real-time decisions on the spot, thus reducing overhead associated with their underwater projects. Our next key technology is the Diver Augmented Vision Display System, or DAVID. The DAVID was developed by us in conjunction with the U.S. Navy and Naval Warfare Center, Panama City, who remain active in the program of certification of the DAVID, the roadmap for the evolution of the DAVID technology and the future requirements. But David has the potential to radically change how diving is performed globally, both in the defense and commercial space. Conventional diving operations are run by voice instructions from the top side to the diver underwater without the ability to provide the diver with real-time information for the execution of his diving task. But that brings a new level of capability to the diving market by providing a real-time information platform which is fully available to the diver on the water. The DAVID allows the diver and the dive supervisor to visualize the same underwater scene and provide the diver on demand with a range of real-time information such as drawings, photographs, imaging, information on remaining bottom time and depth. Furthermore, By pairing the DAVIS system with our EcoSchool technology, it enables diving to be performed in zero visibility water conditions, a condition which prevents many diving operations from taking place. Based on the requirements of the US Navy, in the fiscal year 2023, we have completed the development of a digital audio communication system, Voice Hub 4, which offers the market a digital audio communication system incorporating AI features such as pitch correction, voice signatures, and noise removal. This technology moves the market from analog audio communication to a much higher quality digital audio solution. We believe the addressable market for this digital audio communication solution is sizable and we are excited to be the first movers in this space. Within our group, we also have our engineering business segment. This business operates as subcontractor to prime defense contractors and designs and supplies subassemblies for integration into broader mission-critical programs which are led by these primes. This gives the engineering services business the opportunity to have repeat sole source orders from these subassemblies for the life of these programs. The engineering business is important for our group as it has a strong pedigree in defense engineering with stellar relationships with prime defense contractors spanning decades. And it is a critical partner for the group's underwater innovation. Despite the disappointing fiscal 2023 caused by macroeconomic factors which affected key strategic factors for our business, we continue to believe in our strategy for accelerating growth. We also believe we made key operational progress around our growth pillars in fiscal year 2023. To succinctly recap some of these, We had good mission results from a number of underwater vehicle programs which are ongoing with prime defense contractors. These customers are evaluating the ecosystem type for inclusion in their new generation of underwater vehicles. This is a key part of our strategy to grow our revenue and realize a multiple recurring sales profile from these programs. Moreover, based on the success with the Ethosco Pipe, a number of these customers are expanding its use into other adjacent programs. This type of cross-selling is another important access point into multiple programs for our technology. We also had good mission results from two successive trials with Naval Information Warfare Center, NIWIC, on the Viteri Defender as they seek to finalize their sensor package for this class of vehicle. We're continuing to work with NIWIC as they progress the selection of their sensor package. We continued to showcase the DAVID and made progress towards adoption of the tethered variant outside of the U.S. Navy into both the commercial diving sector and foreign navies. In fiscal 2023, we had a number of trials and evaluation of the DABIT solution, which advanced to discussions on adoption with a number of customers, including offshore service providers and two foreign navies. We continue to anticipate decisions on these in fiscal year 2024. We continued to advance the DAVID untethered customization program with our customers and have delivered eight evaluation modified untethered DAVID systems, which our end customers are currently evaluating. This evaluation includes a number of stages, which extend to certification, web testing, suitability assessment for defense applications. During fiscal 2023, we received $750,000 under this program and expect a further $1.25 million in fiscal year 2024. This variant, which addresses the defense and military market, such as special forces, is the biggest market opportunity for the DAVID, and we continue to support the evaluation efforts. We completed the development of a new digital audio communication system, Voice Hub 4, which moves the market from analog to audio communication system to a higher quality digital audio capability this is now in evaluation by the u.s navy and a number of other customers furthermore although the marine industry continued to be affected by macroeconomic factors discussed earlier In our first quarter of fiscal 2024, we're seeing signs of increased demand for our rental solution. Finally, before we discuss our fiscal year 2023 financial performance in greater detail, I want to welcome our new CFO, John Price, who joined Coda on November 27th. John, who recently served as CFO of NASDAQ-listed Assure Holdings Corporation, brings a seasoned background in corporate finance and accounting, M&A skills, and technology experience. Let me now turn the call over to John to take you through our financials before I provide my closing remarks.