Coda Octopus Group, Inc.

Good morning, and welcome to Cota Octopus Group's second quarter fiscal 2025 earnings conference call. My name is Melissa, and I will be your operator today. Before this call, Cota Octopus issued its financial results for the second quarter and did April 30, 2025, including a press release, a copy of which will be furnished, and a report filed with the SEC and will be available on the Investor Relations section of the company's website. Joining us on the call today from Coda Octopus are its Chair and CEO, Anne-Marie Gale, its Interim CFO, Gail Jarden, and its President of Technology, Blair Cunningham. Following their remarks, we will open the call for questions. Before we begin, Jeff Turner from our Investor Relations team will make a brief introductory statement. Jeff, please go ahead.

Thank you operator. Good morning everyone and welcome to Coder Octopus second quarter fiscal 2025 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 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 the year ended October 31, 2024, and Forms 10-Q for the first and second quarters of our 2025 fiscal year. You may get Coder 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 via a link in the Investor Relations section of the Coder Octopus website. Finally, as a reminder, this is our second quarter fiscal 2025 reporting, and all comparisons are with our second quarter fiscal 2024. 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 second quarter fiscal year 2025 earnings call. Despite the challenging global policy environment, our revenue in the second quarter 2025 increased by 31.8%. operating income decreased due to lower gross profit margins from our core business, the marine technology business, due to more units of hardware sales from Asia, which incurred a higher than usual commission cost in conjunction with increased operating costs resulting from the weakening of the U.S. dollar against the British pound and Danish kroner. In the second quarter, I am very pleased to see revenue increasing by 31.8%. I would like now to provide some of the key highlights relating to our results of operations in the second quarter. For those who are new to the Code Octopus story, our business is made up of three discrete business operations, the marine technology business, the marine engineering businesses, and our recently added acoustics, sensors, and materials business unit. Within our group, our core business is the marine technology business, This business generates most of our revenue, and in the second quarter, it generated 55.3% of our total consolidated revenue. It is around this business that we're building our growth strategy. The marine technology business operates in the subsea market and is home to key disruptive underwater technologies. These technologies are bringing the smartphone revolution underwater by providing a comprehensive real-time information platform which allows our customers to make real-time decisions and also significantly reducing the cost of these operations while increasing safety. The specific addressable markets that we operate in are the imaging sonar market and diving market. It is these market segments that our growth strategy is built around. Saying a little bit more about our imaging sonar, the Etascope. The Etascope is a real-time, three-dimensional volumetric imaging sonar that can generate a real-time three-dimensional image underwater in zero visibility water conditions. This is widely used in the commercial offshore marine market for a range of underwater applications. A significant part of our annual revenue is derived from the commercial offshore marine market. To achieve the growth that our shareholders want to see from our company, we have to increase our market share for underwater imaging sensors in the defense space. There are many ongoing defense programs globally where new classes of underwater vehicles are being adopted. Significant budgets are appropriated for this. The Ecoscope's uniqueness of being a single sensor for multiple undersea activities presents a significant advantage over other technologies. It allows the consolidation of the sensor on the vehicle platform by lowering the power consumption and overall vehicle weight without compromising the various missions to be executed. We are launching our next generation of three-dimensional sonars imminently, the NanoGen series. The 3D sonars within our NanoGen series are a shade bigger than an iPhone. Once launched, we will be positioned to address the range of opportunities in the imaging sonar space, removing form factor, and pricing barriers. The NanoGen series are designed to address the much smaller underwater vehicles which are now being rapidly adopted for undersea missions in the defense space. Moreover, the NanoGen series being so small can now be easily worn or carried down by the diver or attached to a robot underwater. The development of the Nanogen series is another significant leap forward in the underwater imaging space and a commendable achievement by our R&D team. Taking the technology and reducing it by two-thirds, we never believed we could achieve this. Our second key technology is the David. the diver augmented vision display systems. The David provides a real-time information platform for diving operations, increasing safety and efficiency. The addressable market for the David includes both the defense and commercial diving sectors. The untethered variant addresses the special forces type of divers and we believe constitutes the largest addressable market for the technology. Now turning to second quarter highlights relating to our core business, the marine technology business. This business sells its products and solutions worldwide and increased revenue in the second quarter by 10%. Key highlights include 65.5% of revenue generated by this business relates to Ecoscope and 34.2% relates to David. Hardware sales increased by 65% and were 3.3 million compared to 2 million in second quarter 2024. Hardware sales to Asia rose by approximately 105% and were 2.2 million compared to 1.1 million in second quarter 2024. This increase resulted in higher commission costs. Rental assets were significantly underutilized in the second quarter resulting in lower units of rentals and associated services. This also impacted on the gross profit margins of this business This reflects the change in U.S. policy on funding for offshore renewables, which caused many projects to be shelved, as reported by Shell, Orsted and BP. Looking ahead, however, we're seeing an uptick in the utilization of our rental fleets currently, and we have a number of ongoing rentals which are uniquely for longer rental periods for up to one year. I am very excited about this currently. I want to emphasize that although the gross profit margins of our core business decreased in the second quarter, this is due to an exceptional set of circumstances where a higher commission cost was incurred on sales from Asia. Now turning to highlights relating to the marine engineering business. In the second quarter, our marine engineering business revenue increased by 2.3%, along with gross profit margin from 50.7% in the second quarter to 55.5% in the second quarter 2025. This business has long-standing relationships with prime defense contractors and has served the defense market for over 48 years. It is reliant on receiving funding on the defense programs. During the second quarter, it saw an increase in the level of inquiries on the defense programs and also much more momentum around these inquiries. We also saw an increase in opportunities for direct contracts with the Department of Defense, DOD, which positions this segment to be able to compete for more work packages directly with the DoD as opposed to exclusively through prime defense contractors. The success of the marine engineering business is dependent on increasing the number of defense programs that they sell proprietary parts into. The momentum that we're seeing therefore is exciting. With defense budgets increasing globally and real pace being injected into this area, we are excited about this and feel that the group is well positioned. Now turning to highlights relating to the newly acquired business unit, Precision Acoustics Limited. In the second quarter, this newly added business unit contributed 18.5% to our consolidated revenue and 13.4% to our operating income. This business unit has added some diversification and resilience to our revenue structure. We continue to be very pleased with this acquisition, which we made in October 2024 and reiterate that it positions the group to collectively respond to larger defense requirements, particularly in the underwater acoustics space. We continue to make it our priority to focus on executing against our growth strategy, and in the second quarter, we saw an increase in sales of both the Ecoscope and David. Blair Cunningham, our president of technology, who is the market maker for our technologies, will be updating you on progress and various milestones around our core technologies. Blair will also be available to answer any questions you may have about our technologies, so please use the opportunity to raise such questions during the Q&A session if you have any. I will now turn the call over to Blair Cunningham.