Good morning. Welcome to Coda Octopus Group's First Quarter Fiscal 2025 Earnings Conference Call. My name is Sherry, and I will be your operator today. Before this call, Coda Octopus issued its financial results for the first quarter ended January 31, 2024, 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, Annmarie Gayle; its Interim CFO, Gayle Jardine; and its President of Technology, Blair Cunningham. Following their remarks, we will open the call for questions. Before we begin, Geoff Turner from our Investor Relations team will make a brief introductory statement. Geoff, please proceed.

Thank you, operator. Good morning, everyone, and welcome to Coda Octopus's first 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 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 statement, 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 October 31, 2024, and Forms 10-Q for the first quarter of 2025. 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 via a link in the Investor Relations section of the Coda Octopus website. Now I will turn the call over to the company's Chair and CEO, Annmarie Gayle. Annemarie?

Thanks, Geoff, and good morning, everyone. Thank you for joining us for our first quarter fiscal year 2025 earnings call. Despite the challenging global policy environment, our revenue in the first quarter 2025 increased by 16.8%, and I believe that, we've delivered a solid set of results, including increasing our operating income, net income and earnings per share. I would like to now provide some of the key highlights relating to our financial results for the first quarter fiscal 2025. For those who are new to the Coda Octopus story, our business is made up of three discrete business operations, the Marine Technology business, the Engineering businesses, and our recently added Acoustic Sensors & Material business units. Now turning to highlights relating to the Marine technology business. This business sells its products and solutions worldwide. In the first quarter, we were confronted with significant headwinds internationally, which we believe is related to the uncertainty around the policies of the new U.S. administration as it moves to rebalance its trade relations through the application of tariffs and re-think major policies, such as energy transition and more broadly geopolitical alignment and its foreign policy. As part of this, the new administration has suspended offshore renewable permits and many leading U.S. developers such as Shell, Orsted, BP and Total Energy have either reduced or halted their U.S. offshore renewables programs. We believe that, these factors have resulted in a weak demand for our solutions across all sectors, which caused a decrease in revenue from our Marine Technology business. Notwithstanding the change in the U.S. policy on renewables, its new policy on prioritizing domestic energy production of oil and gas also favors our products and solutions, and we believe that, this new policy will in the foreseeable future offset any reduction of revenue from…

Thank you, Annmarie, and good morning, everyone. I'll keep my remarks very concise on this call to allow for questions. As Annmarie mentioned, due to uncertainty around critical policies, such as trade and defense foreign policy, we saw reduced momentum on several of our defense programs. Notwithstanding, we continue to invest in the advancement of our growth pillars. We continue to believe that our most promising opportunities for growing our business are around our defined growth pillars, the Echoscope technology and the DAVD Technology. We also believe the addition of Precision Acoustics positions us nicely to compete for larger defense contracts. For those who are new to the Coda Octopus story, our data technology is an advanced augmented reality display technology, designed to enhance diverse safety, performance, and situational awareness, especially in low visibility and technically challenging environments. It seamlessly integrates real-time data, on-demand information and Echoscope 3D sonar imagery projecting these onto the diver’s field of vision through the DAVD augmented reality head-up display. Developed under a three-year future naval capabilities contract with ONR and NAVSEA, this fully developed augmented reality system is commercially available. The DAVD Tethered system is currently operational across nine naval commands within the U.S. navy. The DAVD untethered system presents the largest market opportunity for the technology and as we have stated previously, this is going through adoption evaluation both by the U.S. navy and a foreign navy under the DUS Hardening Program. This variant employs the same augmented reality display technology, but is used by divers wearing dive masks, operating at shallower depths and not physically tethered to a surface mothership for air supply. These divers are typically military divers performing special forces operations. As I reported on our last earnings call, in our fiscal year 2024, we made significant progress under this…

Thank you, Blair. Let me now turn the call over to our Interim CFO, Gayle Jardine, to take you through our financials for the first quarter 2025 before I provide my closing remarks. Gayle?

Thank you, Annmarie, and good morning, everyone. Let me take you through our first quarter fiscal 2025 financial results. All figures are in U.S. dollars. Starting with revenue. In the first quarter of 2025, we recorded total revenue of $5.2 million, compared to $4.5 million in the first quarter of 2024, an increase of 16.8%. The Marine Technology business, or products business, generated revenue of $2.3 million, compared to $3.5 million representing a 35.8% decrease over the first quarter of 2024. Our Acoustic Sensors & Materials business, which was added to our Group in October 2024, recorded revenue of $1.3 million. Our Marine Engineering business or Services business generated revenue of $1.6 million, compared to $0.9 million representing a 7.6% increase over the first quarter of 2024. As discussed earlier, our total consolidated revenue increased in the first quarter by 16.8%. The increase is due to the addition of our Acoustic Sensors & Materials business in our revenue mix. As Annmarie mentioned in our previous earnings call, we were anticipating a weak quarter for our core business, the Marine Technology business, where we saw reduced demand, which we believe is due to the uncertain global policy environment. Moving on to gross profit and margin. In the first quarter of 2025, we generated gross profit of $3.4 million compared to $3.1 million in the first quarter of 2024. Consolidated gross margin was 65.8% versus 69.2% in the first quarter of last year. In our Marine Technology business, gross margin increased to 73.1% in the first quarter of 2025 compared to 72.5% in 2024, reflecting changes in the mix of sales and a reduction in commission costs in the period. The Acoustic Sensors & Materials business realized gross margin of 61.7%, and we expect, on an annualized basis, this to be between…

Thank you, Gayle. I first want to touch on tariffs. As of today, we are not directly impacted by tariffs. However, to the extent that these may result in a weakening of the global economy, we may be affected. Furthermore, some of our products are manufactured in The United Kingdom and should the new administration change its policy vis-a-vis The United Kingdom, if our products are within the items that are subject to tariffs and these are imported into the U.S., we would be impacted. However, as I said, we are not directly impacted at this moment in time. Despite the challenges we're seeing in the global economy, I am very pleased with our first quarter 2025 results. We continue to work to create stable long-term shareholder value and execute against our strategy to increase the number of defense programs, that our technologies are embedded in with the goal of securing recurring sales of multiple units under these programs. We believe that, many of the new global policies favor our business, such as increased defense spending in Europe. We are also very pleased with reaching another pivotal milestone under the DAVD on Cabot System Hardening Program, where we have received our first order for $800,000 for 16 DAVD untethered systems. We will also continue to prosecute our M&A strategy and in fiscal year 2025, subject to the satisfactory completion of due diligence and the settling of the global policy environment, we anticipate completing another acquisition into the Group. Through our strategy, we aim to pivot the revenue model of the Marine Technology business to a multi-year, multi-sales model as we have started to see with the DAVD product line. To conclude, we would like to thank our shareholders for their continued support. We are now happy to answer any questions. Operator?

Thank you. [Operator Instructions]. Our first question is from Brian Kinstlinger with Alliance Global Partners. Please proceed.

Great. Thanks so much for taking my questions. My first question is, what do you think Annmarie needs to happen from a macro or micro point of view for investors to reasonably expect the marine products to materially recover from the first quarter results, or should we expect demand could remain depressed for a few quarters until there's more global certainty?

Thank you, Brian, for that. So, what we are seeing in -- we've got a good pipeline of opportunities, but what we are really seeing is that, customers are on standstill. And I think that's generally the principle of standing still until I know what's going to happen. So, I think, I would anticipate that, Q2 will be quiet for business, just because I think, until the policy environment is a little bit more settled, customers are holding out. But I think, based on what I see in the pipeline, I think that our revenues will be back-ended this year. So, I think we should see a robust, Q3 and Q4 and a softer Q2.

Okay. By the way, that was in regards to Marine products. Is that right? I mean, obviously, we also talk about defense engineering business until the budgets are more mature. They get past the budget cycle. That's the unknown there as well.

That's correct. Yes. Overall, I would expect that, we'll have a softer Q2 but, a more robust Q3 and Q4.

Then it's great to see the 16-unit $800,000 order, and then there was also the DUS hardening program, I think you said was completed. Can you help frame for investors a timeline going forward for tethered and untethered markets, especially as it relates to revenue or maybe share some targets, for the short and medium-term?

I think Blair will talk a little bit more about that. But just to say that, let's see, DAVD tethered system is, as you know, operational. So, I think if last year, in terms of DAVD, we did around $1.5 million in revenues. This year, we're targeting $4.5 million in revenues for DAVD, so a huge jump in DAVD revenues. So, I would expect and what I'm excited about on the DAVD revenue side on the tethered systems, that we have that are operational, we're seeing new commands putting in for acquisition budgets, and therefore, the product is moving forward. The biggest barrier to, adoption at scale is really when the technology falls into disuse. But what we're really seeing is an expanding footprint for the tethered system. And as I said, last year, we did $1.5 million in DAVD sales. This year, we're targeting and feel pretty good about $4 million to $4.5 million for DAVD sales. And a large part of that will be made up of the tethered system, for example. And just to talk a little bit more about that also, Brian, what I'm excited about is, we're seeing consistently pull-through sales for the Echoscope, so when we get a requisition for DAVD, we're seeing automatically a bundle of Echoscope sales. So that's the sort of programs we've been targeting, and I feel we're seeing that now maturing. So, for this year then, as I said, we expect to see for the DAVD system, for the tethered variant, we expect to see new orders, for new commands. For the untethered system where we've just received $800,000 for 16 systems, that's a pre-adoption that is really crucial for the full-scale adoption. So, I think, really, these systems will be fielded, and it will be performance-related. But I feel we've reached an critical milestones within that program. As Blair mentioned, delivering, the new generation of head-up display, which has 200% more resolution and a smaller form factor, which means for us, it opens the technology significantly. And on the back of that excitement with the user community, we've seen the first orders for these 16 systems free adoption. And I think in terms of Blair, can you talk a little bit about the road map for broader adoption following the delivery of the 16 systems?

The 16 systems, yes. Thank you, Annmarie. Yes, so thank you, Brian, for the question. And yes, I think as Annmarie pointed out, it was disappointing for us internally to not see more of the momentum continuing on the programs financially, I should say. It's certainly not for demand from the operational context. I should absolutely point that out. So, as I may mentioned, the UBA or the untethered variant of DAVD, it's very closely aligned to the tethered system, but that taking on with the EOD and the special warfare community, that's a whole new group of users, who work in close ally with the tethered divers, but are themselves a separate unit. So, the tethered system, as Annmarie pointed out, is already operationally fielded, but there's been demand from the fleet for more systems, upgrades to systems, et cetera. And critically, I think of all of the core teams, they're now either all using Echoscope, as part of their day-to-day operations or have requested Echoscope, as part of the day-to-day operation. So, this feels like we're settling into the new norm there. In addition, that's within the U.S. context, but within the foreign navies, that's been a significant advancement, I would say, in Q1 for sure, for us and the engagement with the foreign navies and several foreign navies and they themselves are now looking at their investment plans, as we move forward. So, I think as Annmarie said, we feel very comfortable with the growth level that we've set and there's certainly operational demand within the community. The untethered system that we delivered, hopefully going through kind of Q2, Q3, that will be a complete product in its own right. So that will have the legs to be able to take into other operational use cases. And also, as Annmarie mentioned, this is really not quite a pilot program, but this is basically like a pre-fleet deployment, but it's a large-scale investment. The prior investment we had on the DUS hardening program was for eight systems split between the U.S. and the foreign navy. This is now a further 16 systems, but specifically targeted for the EOD and the SEC WAR community.

And just one follow-up on that $4.5 million. Is that largely U.S. and U.S. Navy or maybe, is there a big component outside of the U.S.?

No. It is within the U.S. And, so 20% of that number is foreign and the remainder in The U.S.

Great. And then, I guess I'm wondering if the market conditions and uncertainty impacts demand at acoustic solutions, if in any way.

It's very difficult to I mean, the most we can go by is the pipeline and level of inquiries that we see. I think it's not immune to what's going on, but, look, their sensors are used, for example, I mean, for ultrasounds for pregnant women. So, I think that women will continue to be pregnant and continue to, need their ultrasounds and the measurements to be done. So, not to be trite, but I think that, that market like the medical sector is less exposed than the other sectors that we work in. So, we're not seeing any kind of slowdown for Precision Acoustics. That feels very stable at the moment. So, I feel that will also operate as some diversification of our revenues in the short run.

Great. My last question is related to M&A. You commented and the Annmarie about a potential target that you've been, I assume, in discussions with the negotiations with. Has anything changed, again, based on global uncertainty, whether it's pricing, their fundamentals? I guess I'm just wondering, again, how that might be impacted.

No. It's not impacted, but I think it is wise for everyone to wait until the policy environment settles. So, I mean, one cannot pivot in a direction of unknowns. So, I think as a significant investment for our business, we've deliberately slowed down the acquisition only to see where the global policy environment, which direction of travel that is going. So, at the moment, we're still working on this. We're still very excited, and we still see it as an opportunity. But as I said, I definitely think, we want to just understand the global policy environment a little bit more before closing the transaction.

[Operator Instructions]. Our next question is from John Deysher with Pinnacle Value Fund. Please proceed.

Hi, good morning. Just to follow-up on the acquisition possibility. You mentioned, I think, that you were doing due diligence. Do you have a definitive agreement and you're doing further due diligence, or you're doing due diligence in anticipation of a possible definitive agreement?

The latter.

Okay. So, you're doing -- okay. Good. And you that's one target. Are there other targets that you're working on?

For this year, within our pipeline, we're focused on one target this year. We are very, very much in close contact with the sellers of that business, and we have a good relationship. I think it's not going away, but as I said and we're still doing low level work short of signing any agreement at this point. We just need to understand a bit more the global policy environment before we move forward.

Okay. That makes sense. Is it related to any of the businesses you already own? Or would it be a new business like the Acoustics business?

It's a new business, but also plays very well into the defense space also. So, I mean, our vision is to grow the business, to become, if you like, amid tier defense contractor, where we are offering, we have bigger defense contracts that we can respond to. I think that, the skills and expertise that we would have as a Group would really make us a formidable supplier into that market.

Okay, good. That's exciting. When will you know, whether it's go or no go for this possible transaction? A couple of months, six months? What do you think is the timing there?

It's a global policy dive environment. Until that's settled, we're not going to really move forward. So, I think we need to see the market settling a little bit more, clear policies. Are these tariffs going to stick? There are lots and lots that we need to sort of unpack to make this decision for our business. Until that happens, that's the precursor to moving forward with the transaction. In the meantime, the business, the target is doing very well. We're keeping very close, if you like, relationship with the targets at the moment. But I think, it is wise and prudent that we understand the environment that we're working with before closing such a significant transaction for a group.

[Operator Instructions]. Our next question is from William Bremer with Vanquish Capital Partners. Please proceed.

Congratulations on the untethered order, sizable $800,000, 16 being deployed. I'm just curious if this occurred during the quarter, it seems that, it's quite material, either on product development, something that we've been waiting for untethered for quite some time, as well as dollar amount. I mean, it equates quick math over 15 of the quarterly revenue. I'm just curious, why a press release wasn't released during the quarter on such a material event?

You are assuming, Bill, that we received this very early in the quarter. In fact, we received this very, very late in our quarter. So, we knew, we were doing this call, so it seemed appropriate at this. I mean, I think we received this order a week ago or so, and there are certain protocols we have to follow before we release a press, make a press release. So, we knew this call was coming up, so it would make sense then we report it at this point. And in fact, most times, we're not allowed to release, make announcements, because we've got to get the customer's approval. So, this is also a problem for our business, because of the sensitivity. So, we, for example, can't give you the customer's name.

I understand, okay. Thank you, very much.

At this time, there are no further questions. This will conclude our question-and-answer session. I would like to turn the call back over to Annmarie Gayle for closing remarks.

Thank you, operator. Thank you for your continued interest in Coda Octopus, and thank you for attending this call today. Have a great day. Thank you.

Thank you. This will conclude today's conference of Coda Octopus. You may disconnect at this time.