Coda Octopus Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 13, 2023

There are 7 speakers on the call.

Operator

Welcome to CODA Octopus Group Third Quarter 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 the fiscal Q3 ended July 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 Arch Chair and CEO, Anne Marie Gail is acting CFO, Gail Jardin. And following remarks, we will open the call for questions.

Operator

Before we begin, Jackie Kreshner from Gateway Group will make a brief introductory statement. Ms. Kreshner, please proceed.

Speaker 1

Thank you. Good morning, everyone, and welcome to Coto Octopus' 3rd quarter 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 statements. For more detailed risks, uncertainties and assumptions relating to our forward looking statements.

Speaker 1

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 ks and Forms 10Q for The first, second and third quarters of this fiscal year. You may get Coda Octopus' Securities and Exchange Commission 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' website. Now I will turn the call over to the company's Chair and CEO, Anne Marie Gale.

Speaker 1

Anne Marie?

Speaker 2

Thanks, Jackie, and good morning, everyone. Thank you for joining us for our 3rd As a management, we have established over many years a good track record of running a profitable and In addition to remaining profitable in the 3rd quarter, we have been profitable for 45 of the last 50 quarters and every year for the last 12 years. We have also spent the last 4 years on the development Our new generation of underwater products and solutions, including our ETCOOP TIGHT and our Diver Augmented Vision Display System, DAVD, which underpin our growth strategy. We believe that the company has almost unrivaled potential with a unique product set at a time when the market will expand. Against these impressive metrics, management's core focus continues to be on organically growing the company.

Speaker 2

Despite disappointing results due to low order intake in the 3rd quarter, we remain optimistic about our business and the pipeline of opportunities we're pursuing and the strong momentum we're having in our core target market, In addition, we have maintained a strong balance sheet and do not envisage the requirement for new Capital to fund our growth plans. Our Marine Technology business has 2 business models. These are outright sale of our technology and rental and associated services. The main reasons we have not met our Q3 financial goals are: firstly, although our Marine Technology business continues To increase its quality of pipeline of opportunities, order conversions have slowed, principally, out sales from Asia and in Europe for rentals and associated services due to a All in the number of offshore wind projects. Secondly, our U.

Speaker 2

K. Services business has also experienced significant delay in receiving orders because the priorities of its defense customers have temporarily shifted to land based defense applications to support the requirements in Ukraine. This has affected naval requirement parties, the areas where we provide our solutions. Turning to the company's outlook for Q4. Although we continue to be profitable at the end of this third quarter, We are behind on our full year 2023 business plan financial goals.

Speaker 2

As a reminder, we have We've been working to a revenue plan of $26,000,000 overall for fiscal 2023. Due to the delays we have experienced year to date in converting opportunities into firm orders, We continue to be laser focused on our core strategy to grow the business And as a management, we remain completely committed to this. As we focus on growing the business, We continue to believe we have significant opportunities around our Echoscope type and DAVD solutions, including I'd now like to summarize our 3rd quarter results. In the 3rd quarter, Our Marine Technology business order peak was down significantly. This is due to two reasons.

Speaker 2

First, we have seen a slowdown in new European offshore wind projects being initiated. This has impacted on our rental and associated rental services revenues. It is widely reported, including on Bloomsburg, that the cost of these fixed price offshore wind projects have soared 40%, compounded by higher interest rates thus requiring renegotiations. Significant revenue decreases in this sector. Our Echoscope cable monitoring and lanes solution is used in this market.

Speaker 2

2nd, we also saw reduced order intake in key geographies, Japan, China and South Korea. In these geographies, our technology is used primarily in Underwater Construction and Offshore Wind Applications. Though we Have continued to increase our pipeline of opportunities and believe that our inquiries and quotation levels are good, We have experienced significant delays in converting these into orders for the business. As a result of these factors, revenue fell in the Marine Technology business and was $2,900,000 in the 3rd quarter compared to CAD4 1,000,000 in the previous Q3 2022. Despite the decrease in revenue in the 3rd quarter, we do not believe that this is due to anything systemic or loss of our market position in the areas in which we excel.

Speaker 2

We believe it reflects the slowdown in offshore wind In the European market, the delays in European offshore service providers entering the U. S. Offshore wind market, As reported by the likes of and delays in converting opportunities emanating from Asia into firm orders. We believe that in the Q4 of 2023, We will see some of these opportunities materializing into orders. Within our current business strategy, the 2 pillars of growth for our company are our exoscope pipe, real time 3 d imaging sonar and our recently launched Diver Augmented Vision Display System, DABD, which is in adoption by the U.

Speaker 2

S. Navy. I will therefore focus the rest of my remarks on these two pillars. Firstly, turning to the Ecoscoop and progress in this area in the 3rd quarter. The underwater imaging sonar market is growing largely due to the new generation of underwater vehicles focused on bringing new capabilities to the subsea and underwater market.

Speaker 2

Recently, it was announced that the U. S. NIVE has now standardized the Vidyo ReDefender as its preferred solution in the small underwater vehicles In general, the new generation of underwater vehicles present new capabilities, which in turn is fueling the demand for more capable sensors such as ours. One of the key emerging requirements for the defense market for this class of vehicle is real time We were selected for and executed trials on this platform with naval information warfare centers, NIWIC in our Q3. It continues to be our strategy to work on further increasing The number of new defense underwater vehicle programs in which the Echoscope technology is embedded and trials like these are a key precursor to such success.

Speaker 2

In the Q3, as part of a second phase Defense Navy program, we completed and delivered for customer evaluation a full survey grade diver Handheld solution, which embeds our Echoscope type imaging sonar and the DADD for the Navy and which will be used for high resolution real time three d mapping and inspection in ship hull applications. Also in the Q3, a coordinated trial was to support the need for real time three d inspection and critical mapping from a small man portable remotely operated The trials flawlessly and successfully showcased the Echoscope's capability to perform real time three d inspection, target identification and high resolution mapping as well as uniquely allowing the ROV pilots to fly the ROV in zero visibility conditions using the live real time three d display from the exoscope pipe. In addition to the NiWave Vehicles team, other U. S. And U.

Speaker 2

K. Navy attendees We're able to witness the demonstration. Evaluation of the trial results is ongoing with different related departments. We also received in the 3rd quarter very favorable mission results from 3 of our defense customers who have selected, integrated and recently demonstrated our ETCO technology on their subsea vehicles. These programs vary from small vehicles to larger vehicles, all greatly benefiting from the real time three d volumetric data unique to our patented ETCOOP technology.

Speaker 2

Notable also as these defense customers have success with the technology on one of their programs, They take the same solution into other programs. For example, 1 defense customer has expanded the use of our technology on 4 different vehicle programs. We continue to believe that there is significant momentum around our exoscope based solutions. Secondly, now turning to our progress on the DABD in the 3rd quarter. As a reminder, the Teva DADD system has now moved from the Navy's R and D phase to their As part of the continued fleet field rollout in the 3rd quarter, we performed Two crucial training events, Swomik in San Diego received their initial DABD training as new Yuusha Group to the DABD family.

Speaker 2

Suomiq is responsible for all ship maintenance and diver salvage in the busy San Diego area, and they have already been able to utilize the DABD system on a live mission. Additionally, UCT in Port Hueneme received additional DABD units. In the Q3, we trained the Navy's newly appointed field DADD super user, We have been brought on board to work with the Navy DABD program managers specifically to ensure the operational success of the newly fielded DABD system. On an ongoing basis, we will support joint field missions as part of the field DABD Super Users on boarding process. During the quarter, we also supported U.

Speaker 2

S. Navy dive inspection and salvage operations in Going to the recent devastating wildfires where the DABD Echoscope Inspector System was used for real time three d mapping and monitoring the underwater environment. In the Q3, we continued to make progress on the 2 variants of the DABD system, tethered and untethered. By way of progress on adoption, a major European offshore provider has completed It's findings on the DADD Teva system trial, which they performed in our 2nd quarter. Quoting directly from their report, they concluded that beginning of the quotation, The advantage of the DABD alone, Compass decks, taking snapshots and presenting graphical information for diver and supervisor, all combined with a 3 d live The 3 d Sonar fits well within our scope of work and our survey division is aware of it.

Speaker 2

We think that the combination of DABD and 3 d Sonar has potential within our organization. End of quotation. This provider is one of the big 4 global dredging companies that together Control 80% of the global dredging capacity and has confirmed their intention to adopt the DAPD and we are working on a model for initial adoption. We also have made progress with the DABD on tethered variants. DABD on tethered prototype systems were delivered to our project sponsor earlier this year as part of their evaluation program.

Speaker 2

We have made further progress in this quarter and has been awarded initial further funding of approximately $750,000 out of a total contract value of $1,800,000 The scope of delivery for this Funding is supplying 8 evaluation systems and performing further customization work. This is significant because for the first time, another foreign navy has co opted into the U. S. Navy DABD program. We're still optimistic that this Variant will move forward to field operations in financial year 2024, subject to successful completion of the evaluation stages and we continue to focus on completing the funded Customization work package.

Speaker 2

Turning now to trials and adoption discussion. We have good quality discussions ongoing with a second major European offshore provider where we have completed customization work necessary for their specific helmet and rebreather system and we plan some field work with this customer later this year with the DAVD system. We also provided in the 2nd quarter commercial terms to a major Japanese offshore construction company who is an established user of our Echoscope. We have since made further progress and have been invited to conduct a pre adoption DABD training with this customer later this month. Also in this month, we will also be demonstrating The DABD to several interested Japanese customers in both the defense and the commercial sectors at the same time.

Speaker 2

We are also excited about the 2nd phase trials with the Spanish They are interested in both the tethered and untethered variants. We continue to believe that the likely inflection point for the DABD is in financial year 2024, where we hope to have acquisition budget lines established with a broader customer base, including foreign navies and commercial offshore service providers. To restate, despite challenges with order take during the quarter, We have good traction and momentum behind our solutions and believe we have achieved key milestone targets around these. As we work towards closing fiscal 2023, we remain confident about our longer term goals to grow the business and we believe we are well positioned for this. Now turning to our Marine Engineering business.

Speaker 2

This business supplies sub assemblies into broader mission critical programs under contract with prime defense contractors. This gives them the opportunity to have repeat orders for these sub assemblies to the life of the program. We continue to reiterate this segment is important for our group as we have a strong These are important relationships for our group strategy. There is also a strong crossover of engineering skills, which is vital for us to maintain our competitive lead in real time three d imaging sonar and our diving technology. Year to date, the U.

Speaker 2

K. Part of our services business has experienced significant delay in receiving orders. This is largely due to their defense customers' priorities having switched temporarily onto land based applications related to This delay has affected Autotech and have also contributed to our business being off plan. Approximately $2,500,000 worth of orders anticipated in the Q1 of our 2023 We will continue to work towards restoring the services business to its $10,000,000 revenue profile over the next 2 years. Finally, before we discuss our 3rd quarter financial performance in greater detail, I wanted to briefly mention our most recent leadership appointment.

Speaker 2

Last week, We announced the appointment of John Price as our new permanent Chief Financial Officer effective on November 27 this year. John is joining CODO with more than 28 years of Sure. Holdings Corporation since 2021. John brings a Seasoned background in corporate finance and accounting along with key public company and technology industry experience. We look forward to welcoming John to the company later this year, and we would like to thank Gail Jardine for her work as Acting CFO in the interim.

Speaker 2

Let us now turn the call over to Gale to walk you through our financials before I provide my closing remarks. Gail?

Speaker 3

Thank you, Anne Marie, and good morning, everyone. Let me take you through our fiscal Q3 financial results. Starting with revenue. In the Q3 of 2023, we recorded total revenue of $4,900,000 compared to $6,300,000 in the Q3 last year, a reduction of 22%. The Marine Technology business generated revenue of $2,900,000 compared to $4,000,000 a 28.5% decrease from the prior year quarter.

Speaker 3

As reported earlier by Anne Marie, this decline revenue was a result of weak demand from strategic markets and geographies, such as Asia for outright sale and Europe for rentals, particularly in the offshore renewable sector. Our UK services arm was also affected by delays in receiving Key orders due to its customers' focus being on land based defense applications to support the Ukraine efforts and not the naval based Moving on to gross profit and margin. In the Q3 of 2023, We generated gross profit of $3,400,000 compared to $4,600,000 in the Q3 of fiscal 2022. Gross margin in the Q3 of 2023 was 68.8% versus 72.8% in the 2020 to Q3. In our Marine Technology business or Products business, gross margin fell to 82.1% in the Q3 of 20 23% compared to 86.7% in 2022 Q3 period, reflecting changes in the mix of sales and higher commission costs during the period.

Speaker 3

Our Marine Engineering business gross margin increased to 50% this quarter versus 48.2% in the 2022 Q3. Now moving to our operating expenses. Total operating expenses for the Q3 of 2023 fell slightly to $2,501,000 compared to $2,540,000 in Q3 of 2022, driven by a slight reduction in both selling, general and administrative expenses and research and development expenses. SG and A remains below our targeted internal budget, largely because of reductions staff headcount and targeted new hire positions remaining unfilled. Our selling, general and administrative costs in Q3 2023 totaled $1,900,000 and remained in line with the previous 22 Q3.

Speaker 3

As a percentage of revenue, Our selling, general and administrative costs for Q3 2023 was 39.6 percent of total revenue compared to 31.3% in the Q3 of fiscal 2022. Looking forward on our Given the significant process we've made in R and D in the last 4 years, we remain focused on aligning a significant portion of our resources and strategy from Research and Development to Global Business Development, Brand Building and Investor Relations. We expect SG and A to increase on a full year basis as we hire new staff and expand our management team. We believe we have developed world class products and solutions that provide market leading positions for Koda and that we can make meaningful progress in our markets through these investments to create shareholder value. Operating income in the Q3 of 2023 was $900,000 compared to $2,000,000 in the Q3 of 2022.

Speaker 3

Operating margin was 17.6% compared to 32.3% in the Q3 of 2022, driven by the change in revenues as explained previously. Net income before taxes in the Q3 of 2023 was $1,100,000 compared to $2,000,000 in the Q3 of 2022. Net income after taxes in our Q3 2023 was $1,000,000 or $0.09 per diluted share compared to $1,800,000 or $0.16 per diluted share in the same quarter last year. Moving now to our balance sheet. As of July 31, 2023, with $24,900,000 in cash and cash This represents an increase of $1,400,000 in cash in the 3rd quarter and an increase of $2,000,000 in the 9 month period year to date of 2023.

Speaker 3

That completes my financial summary. Now I will turn the call back over to Anne Marie for closing remarks.

Speaker 2

Thank you, Gail. As stated previously, although in the Q3, we are behind in our business plan, We continue to be profitable and are focused on executing our existing plan and growth strategy. We have significant momentum around our growth pillars and again our focus is converting these into tangible near Term opportunities for the business. Management will continue its efforts to explore the rental and lease model for The DAVD system with the objective of galvanizing market adoption, We also have a near term growth catalyst from the digital audio communication module, which has progressed in this quarter. If we are successful with this module, it will provide the company with Certification of revenue, which counterbalances the longest sales cycles of both the exoscope and the DAPT and potentially adds a good stream of additional revenues for the company.

Speaker 2

We have Track record of consistent profitability and we have a solid on leverage balance sheet with cash on hand and no debt, which gives us confidence in our outlook for Coda. Furthermore, with our solid balance sheet, we do not envisage needing additional capital for the growth targets we have set out for the next 2 years. To conclude, our management remains committed to executing the company's growth strategy and delivering value for our shareholders. We're now happy to take your questions. Operator?

Speaker 1

Thank

Operator

Our first question is from Brian Kinstlinger with Alliance Global Partners. Please proceed.

Speaker 4

Hi, Anne Marie. Thanks for taking my questions. First looking at the 10 Q and you've been clear that revenue from Asia has been pressured for 2 consecutive quarters And you highlighted the slower conversion of proposals to orders. Do you expect these trends to continue given the challenging economy in Asia? Or are there signs that this slower conversion is temporary?

Speaker 2

Well, We've got a really strong customer base in those geographies. Well, everything that we see, these are delays And the opportunities for the business have not gone away. So we remain confident and we still See at the beginning of our Q4 revalidation requests coming in. So I certainly believe that in Q4, We'll get some of those orders and certainly in Q1, we would expect some of these orders to So overall, I think these are more delayed than they've gone away, Brian.

Speaker 4

Great. And then on the DAB, the tethered side, it sounds like you've got a lot of training, is that ramps and command centers? And then you highlighted at the end the interest in Japan and Europe. And then you mentioned an inflection point in fiscal 2024. First, is that Beginning of the year, do you think that's more towards the end of the year?

Speaker 4

And help us understand what that means in terms of a revenue range. Is it going to be Much more significant, do you think? I'm just trying to understand what that inflection point really means.

Speaker 2

Well, look, I mean, This year, we set out to do something like €2,000,000 of DVD revenues. And I think that we have met that actually and we've Exceeded that a little bit. What I see, as you've rightly said, the This is now an item that's open for purchase by any command in the U. S. So that's very good news for the business.

Speaker 2

In addition to that, what we're seeing is that, as I mentioned, is that we've got 1 European major European Sure. Service provider having conducted rigorous trials have confirmed that this Could be game changing for their organization and their intention to adopt a DABD. We also have Pre adoption discussions in Japan and later this month, we will be running training with a major Japanese customer that we think will adopt the DAVD in this calendar year. So I think we have a swirl of or swell of good Around the DAVD and we do expect that, that will be significant part of our revenues in 2024. On the untethered version go, I would expect that To be more the back end of 2024 because as I pointed out earlier, I think that program As we move forward, I'm very, very excited about that because for the first time, Brian, we have a foreign Navy Jointly funding the program and having their own requirements in the U.

Speaker 2

S. Work package. And we've always said that one of the parts to adoption will be the U. S. Navy itself working with foreign navies on adoption, and we're seeing that coming through.

Speaker 2

So I am really, really excited about the progress. I mean, in this quarter, We were funded to the tune of $750,000 of a $1,800,000 contract And part of that is for 8 evaluation systems and the other part is for some customization work for the Navy. So I'm really excited about the DAVD, the prospects for the business for the DABD. And I think we're making really, really good progress because a number of things happened in this quarter. As I said, We've got a European a major European offshore service provider being happy about the trials.

Speaker 2

We also Are doing pretrial training in Japan, also at the same time demonstrating the capability to a wide breadth of Japanese customers. And so I feel really, really excited about where we are with the DABD. And I do believe that the biggest We have with the DVG, as I've always said, it's going to be the on Teva version. And Therefore, what we're seeing now with that variance is that it's moving into its second evaluation phase, which is the Forte evaluation system and we're doing some customization work for them.

Speaker 4

And quickly a follow-up on that. How long do you think evaluating those 8 units takes? Is that a couple of months? Is that a couple of quarters? How do you think about that?

Speaker 2

This is why I said that I really think that we will really start seeing the impact of Revenue impact because they've started acquiring systems, I feel that's going to be more in the back end of 2024.

Speaker 4

Got it. Okay. And then in terms of your revenue goals, you highlighted obviously this year you're behind plan. Your first year I'm curious, do you think you're 1 year behind plan given all these catalysts? Are you a little bit more than that given the market conditions?

Speaker 4

And then secondly, Your full year outlook suggests the 4th quarter is much stronger than the 3rd quarter. Is that because of these orders starting to convert Or is it more what you highlighted, the digital audio module is going to offset the weakness that you're seeing right now?

Speaker 2

No. It's really, Brian, some of The delays we expect orders from Asia to start coming in, in the Q4. As I said, we're seeing some Activities on revalidation of our proposals. So that's all looking robust For the Q4, look, I do believe that in the Q4, our results overall Grown in the way that we've set out to grow. Our growth strategy is still intact.

Speaker 2

I think that despite Challenging market conditions, the business still demonstrates that it can be not only profitable, but I think that Earnings will still be quite strong for the business. And I think that looking at the pipeline of opportunities that we see for the business, I have still feel excited about the opportunities, particularly for really where we're going to make a difference in terms of our group strategy, Brian, let me be clear. It's the number of on the Ecoscoop side, it's the number of underwater vehicles that The technology is embedded into and that's the defense side. So to To some extent, the budget there is a different budget from the commercial market where that's susceptible to The broader macroeconomic conditions. So really, our goal is to grow the opportunities in the defense market where we can see Repeat revenues and we're certainly seeing a swell around our technology in the defense piece.

Speaker 2

Absolutely, there's Quite a lot of traction and momentum. We've got good quality business development activities around the ex group. And a lot of these activities, Brian, just to see, are closed door events or Invitations that we have received to come and demonstrate the technology on these new platforms. So there is the technology is becoming well known in the Technology is becoming well known in the defense space and we're having success So I think that's what's going to make a difference to our revenues in 2024. And therefore, this is really why I am still quite confident about our growth strategy and our plans to grow the business.

Speaker 2

And that's really our focus. Of course, I don't I can't predict precisely What the market conditions will be, but what I'm telling you right now is that I'm excited about the business, the quality of activities that We are engaged in. They're very, very promising. The results we're having, very, very promising. So I'm excited about Next year.

Speaker 4

Thanks. Just one point of clarification and then that's all I've got. I just want to make sure I understand we're halfway through the October quarter. Are you saying the conversions have started to already happen or you expect they're going to happen in the next 6 to 7 weeks?

Speaker 2

No, look, as I said, just to be clear, so what we did in year to date as a business, We've done something like $15,000,000 For the rest of the year, I think that we're going to be doing something like $5,500,000 so more in line overall, our results look more to be in line with $21,000,000 for 2023. So that's what we plan we can see today for our last quarter.

Speaker 4

Okay. Thank you.

Operator

Our next question is from Walter Ramsey with Walrus Partners. Please proceed.

Speaker 5

Thank you. Got a couple of questions. Is the company investigating any strategic alternatives?

Speaker 2

Strategic alternatives, hi Walter, what do you mean by strategic alternatives?

Speaker 5

Well, I guess not. Okay. The Q4 coming up, do you have any intention or have you Begun to consider any way establishing reserves or doing any write offs? The inventories We're up to like $11,000,000 now. So anything that could happen there?

Speaker 2

No, not at all. I mean, as you know, I mean, a lot of our inventory, the makeup of our inventory, Walter, Has to do with our Echoscope technology, our DABD technology. So we don't see the use and also our particular Designed for those systems, I don't see the use case for writing off inventory at all. None of the inventory we carry as such is obsolete inventory. So we don't have any plans to make any reserve at all Because we think our inventory is current.

Speaker 5

Okay. And just one last thing, if you could possibly Elaborate, if you know the answer anyhow. It just seems preposterous to somebody on the outside that The U. S. Navy would allow its R and D operation to be hijacked by the Army to work on land based Systems, can you explain what's going on there?

Speaker 2

Well, no, I think that It's just where they are. I mean, things where the fighting force, I think, is right now. I mean, they're looking for aircraft, Land based defense, so not naval defense in Ukraine. So I think really that's Pretty much what the situation is, they're not doing removing mines at this stage as you would have read in the news. They're pretty much now fighting using Land B Defense Systems.

Speaker 2

And this is the problem for our business that priorities, they've not gone away. They've just shifted for the time being.

Speaker 5

Well, okay. I'll accept that I guess, but it still sounds a little crazy. And I guess one more, Excluding the military, you did obviously point out offshore wind is a big problem and everybody knows that. But As far as a lot of the other vertical markets the company used to focus on at any rate, I mean, are they all under pressure as well? Or is this through the interest rates, you think?

Speaker 5

Or is it just the offshore wind?

Speaker 2

Well, it's not really just the offshore wind, but if you look at the breakdown of our results, what I can see to you year to date, I can see equipment sales have gone up by 3.9%. For example, Reinforcement of the growth pillars that we have, that's all JBD and the ex group solution, Where we have seen pressure or softening rentals, which are down by 36.9 percent software sale, which goes with our hardware, up by 13.4 percent and again services which are part of our rental package and some customization work It's down by 36.9%. So really the softening that we're seeing or weakening in the market is around Offshore wind, and I think a large part of the problem, Walter, is about some of the big European offshore developers, they've been delayed in entering the U. S. Market and they're the ones With the expertise and I think at some point these delays No, I understand a lot.

Speaker 5

I mean the wind is I mean I live Cape Cod, so I know all about the offshore wind situation, but I was thinking more about the oil and gas mapping, salvage, dredging, bridge inspection, Port security, all that stuff, is that down also?

Speaker 2

Well, as I said, what we see in the numbers, which It's really about services softening. I'm not seeing equipment sale year to date have gone up. So, I think for applications such as construction in Japan might slow a little But I think these are more projects being postponed than going away. Oil and gas, I mean, this year, We were up, I mean, we did in the previous year 1.3% of our Marine Technology business was in Oil and Gas this year it's 4.5%. So it's a mixed picture, But I think the overriding weakening has been around offshore renewables and Some sort of strategic geographies like Asia, we've experienced a slow rate of conversion.

Speaker 2

But what I can see, I don't necessarily see our inquiries level tapering off. We're quoting a good level In those markets, they're just slow in converting into firm orders.

Speaker 5

Okay. That's very helpful, Anne Marie. Thanks.

Operator

Our next question is from William Boehmer with Vanquish Capital Partners. Please proceed.

Speaker 6

Good morning, Anne Marie.

Speaker 2

Good morning, Pelt.

Speaker 6

So my question tailed with Walter's. Would you mind providing us Your initiative on the U. S. Commercial market, given the infrastructure bill, which targets bridge work, Including oil and gas offshore now that the commodities are approaching $90 a barrel domestically here, Surely, I would assume that your products there are needed.

Speaker 2

Well, they might be needed, Walter. Sorry, Bill. But As I said, we're responding to good level of inquiries globally in the U. S. Also, But it just takes time to convert some of these.

Speaker 2

I feel optimistic about the technology in Stations that you have highlighted and we have business development activities globally, but It does take time to convert opportunities into orders, especially When you're talking about a piece of equipment being $250,000 it's not the sale we make overnight. So, that's really

Speaker 6

Yes. I think the question I was asking was On the corporate level, do you have specific targeted sales personnel going after The U. S. Market, which at this time is far advancing, especially in the capital initiatives on the oil and gas and offshore markets here versus Europe?

Speaker 2

We're always looking for good people, Bill, to join our team. We continue to build our team. Sales and marketing is a big, big part of our effort, but we have to find the right to put in place. I mean, recently, we've just expanded our management team. We've just formed a new digitalization team that we've hired 3 people into the digitalization team for CodeOpta, and we continue to look for the right Business Development people to join our business, but it has to be the right people.

Speaker 2

So we do have Steve, people and we are looking to expand the team, but we do have to find the right people to bring on board And that's been through this year.

Speaker 6

Well, I thank you for that and I'm looking forward to seeing some growth. Thank you.

Speaker 2

Thank you, Bill. Thank you.

Operator

Thank you. This will conclude the question and answer session. I would like to turn the call back over to Anne Marie for some closing

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Coda Octopus Group Q3 2023
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