Coda Octopus Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 16, 2024

There are 8 speakers on the call.

Operator

Good morning. Welcome to CODA Octopus Group's Third Quarter 2020 4 Earnings Conference Call. My name is Sherry, and I will be your operator today. Before the call, Coda Octopus issued its financial results for the Q3 2024 ended July 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, Anne Marie Gail its Interim CFO, Gail Jardine.

Operator

Following their remarks, we will open the call for questions. Before we begin, Jeff Turner will make a brief introductory statement. Mr. Turner, please proceed.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to CODARO Octopus' 3rd quarter fiscal 2024 earnings conference call. Before management begins their formal remarks, we would like to remind everyone that some statements we are 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.

Speaker 1

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 ks for the year October 31, 2023, and Forms 10 Q for the 1st, 2nd and third quarters of this fiscal year. You may get Codron Optica'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 our link in the Investor Relations section of CODAR 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, Jeff, and good morning, everyone. Thank you for joining us for our Q3 2024 earnings call. Our revenue in the Q3 2024 increased by 12% over the Q3 2023 revenue, and we have delivered a solid set of results, including increasing our gross profit margin, operating income, net income and earnings per share. During the second and third quarters fiscal year 2024, there was a notable slowdown in the pace of placing orders concerning U. S.

Speaker 2

Defense Programs. A presidential election year. This has resulted in lower order intake from U. S. Defense programs in the 2nd and third quarters of fiscal year 2024, an area critical for our growth strategy.

Speaker 2

Notwithstanding these temporary challenges, I am very pleased with our overall results, including increasing revenue by 12%. In the Q3 2024, the Marine Technology business revenue increased by 6.5% over the Q3 2023. I am particularly pleased with the increased utilization of our rental assets so far in fiscal year 2024, including during the Q3, resulting in an increase in our gross profit margin to 82.9 percent in the Q3 2024 compared to 82.1% in the Q3 2023. As stated previously in the year, we expected that the revenue of our engineering business would be back loaded. And indeed, in the Q3, the engineering business saw an increase in revenue of 19.8 percent over the Q3 2023 and an increase in gross profit margin from 50% in the Q3 2023 to 62.6%.

Speaker 2

Moving to our Q3 2024 overview. During the Q3 of 2024, we continued to make progress against our key growth drivers and we participated in some high profile and high impact events. To recap, our strategy is to work to include our technologies into defense and other programs, which have an opportunity profile for multiple year purchases of multiple systems. We have been performing business development focused on achieving this. The DABET program is a good example of this where we're seeing funding allocated under the program for repeat annual purchases, including pull through Etoscope sales.

Speaker 2

This model is critical for the success of our growth strategy. Bearing this in mind, in the Q3, we continue to execute against the strategy outlined. A short summary of some of the highlights in the Q3 are: we completed a successful demonstration of the Echoscope Pipe sonar technology for a new major U. S. Defense contractor for multiple on the sea applications.

Speaker 2

Following this very successful demonstration, we are now going through this contractor's vetting process. We are very excited and pleased with the growing interest and realization of the power and added imaging capability that our real time three d ecoscope sonar uniquely provides over the traditional sonar system. Based on the ship hull scanning platform, which we developed and delivered to our Navy customer in fiscal year 2023, we have now completed several new ship hull scanning trials with different U. S. Navy groups and for different applications.

Speaker 2

Again, we are particularly pleased with the momentum and level of interest we are seeing in this area of ship hull scanning applications for which there is a real requirement to find a global solution. Although this application is challenging, largely due to the complex geometry and features on the ship hull, we have developed a solid understanding and capability and are supporting several Navy groups with their ongoing evaluation of our custom design ship hull scanning solution, which has been developed under a multiyear U. S. Navy program. We provided pre mission support and training on the DABB to 2 Navy commands in preparation for their field deployment on critical missions.

Speaker 2

The utilization of the DABB in operations is vital for the continued adoption within the fleet and we're happy that these teams are now actively using the technology and realizing the benefits for their live operations. We also continue to see that these commands are submitting funding requests for further investment in the technology. This again is exciting because we're seeing pull through sales of the Etoscope from the DAVID program as we continue to build upon these relationships, which we are establishing. We provided support to a major defense technical demonstration event. The Rim of Pacific exercise, the Rim PAC held biannually in Pearl Harbor, Hawaii is the world's largest international maritime warfare exercise.

Speaker 2

At this event, we supported the Navy's Matsu-1 division to actively demonstrate the combined DAVID and ETCOscope solution to multiple dive teams from many visiting countries who specifically attended in order to dive the DAVID system. Subsequent to the event, we have engagements with several allied navies for local trials of the DAVID and the ECHOSCOPE systems. We supported NIWIC in their demonstration of the ECHOSCOPE technology at the capability demonstration event for the Coastal Trident for We

Speaker 3

were

Speaker 2

able to demonstrate We were able to demonstrate the capability of the ETCOscope to many potential users who we believe were able to witness the power of the technology and its applicability to their on the sea defense application. Let me now turn the call over to our Interim CFO, Gail Jardine, to take you through our financials before I provide our closing remarks.

Speaker 3

Thank you, Anne Marie, and good morning, everyone. Let me take you through our Q3 2024 financial results. Starting with revenue. In the Q3 of 2024, we recorded total revenue of $5,500,000 compared to $4,900,000 in the Q3 of 2023, an increase of 12%. The marine technology business, or products business, generated revenue of $3,100,000 compared to $2,900,000 representing a 6.5% increase over the Q3 of 2023.

Speaker 3

Our marine engineering business, our services business, generated revenue of $2,400,000 compared to $2,000,000 representing a 19.8% increase over the Q3 of 2023. As discussed earlier, our total consolidated revenue increased in the 3rd quarter by 12%. Both the marine technology and the engineering business saw an increase in revenue in the 3rd quarter. However, sales to North America were down. We believe that this relates to the U.

Speaker 3

S. Presidential election, where the convention is to make decisions on defense acquisitions after the outcome of the election is decided. Moving on to gross profit and margin. In the Q3 of 2024, we generated gross profit of $4,000,000 compared to $3,400,000 in the Q3 of 2023. Consolidated gross margin was 73.9 percent this quarter versus 68.8% in the Q3 of last year.

Speaker 3

In our Marine Technology business, gross margin increased to 82.9% in the Q3 of 2024 compared to 82.1% in the same quarter of 2023. This reflected changes in the mix of sales, which included a high utilization of our rental asset and associated services. Our marine engineering business gross margin increased to 62.6% in the Q3 of 2024 versus 50.0% in the Q3 of 2023, again reflecting the mix of engineering projects during the Q3 of 2024. I must point out that the gross margin of the engineering business in the current quarter is and not to be viewed as an upward trend that will persist. Now moving on to our operating expenses.

Speaker 3

Total operating expenses for the Q3 of 2024 increased to $2,700,000 compared to $2,500,000 in the Q3 of 2023, which is largely due to increases in selling, general and administrative costs. Our SG and A costs in the Q3 of 2024 totaled 2,200,000 an increase of 11.7 percent from CAD1.9 million in the Q3 of 2023. As a percentage of revenue, our SG and A costs for the Q3 of 2024 were 39.5% compared to 39.6% in the Q3 of 2023. The increase in SG and A is mainly due to an increase in wages and salaries, in office costs and in marketing. In accordance with our strategy, we continue to recalibrate our working capital bias from R and D towards business development and marketing activities.

Speaker 3

Accordingly, our Q3 marketing expenses increased by approximately 180%. This included the fees relating to the appointment of a business development focus group we have hired in the U. S. To assist us in this area. Operating income in the Q3 of 2024 was $1,400,000 compared to $900,000 in the Q3 of 2023, an increase of 61.2%.

Speaker 3

Operating margin was 25.4% compared to 17.6% in the Q3 of 2023, primarily due to the increase in revenue and gross profit margin. Income before taxes in the Q3 of 2024 was $1,600,000 compared to $1,100,000 in the Q3 of 2023. Net income after taxes in the Q3 of 2024 was $1,300,000 or $0.11 per diluted share, compared to $1,000,000 or $0.09 per diluted share in the Q3 of 2023. Moving now to our balance sheet. As of July 31, 2024, with $25,200,000 in cash and cash equivalents on hand and no debt.

Speaker 3

This represents an increase of $800,000 from October 31, 2023, where the comparable figure was $24,400,000 I would like in this call to address the use of cash. We intend to use a portion of our excess cash to fund an acquisition in this 2024 fiscal year. We have identified a target and are actively going through our due diligence. Subject to a satisfactory conclusion of this process, we intend to close this within this fiscal year, which ends on October 31, 2024. Thank you.

Speaker 3

I will now turn the call back over to Anne Marie for closing remarks.

Speaker 2

Thank you, Gail. I am very pleased with our 3rd quarter results, which saw an increase in revenue, gross profit and earnings per share. We continue to work to create stable long term shareholder value and executing 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. Our team is doing an outstanding job in maintaining superior margins and profits for our shareholders, while all the time seeking to grow sustainably without compromising our track record of being a tightly run profitable business. We believe that we are making good progress We believe that we are making good progress against some of the goals that we have set for ourselves in 2024, including advancing the DABIT on Teva system program for adoption by the Special Forces in early 2025, supporting the rollout of the DAVID technology, returning the engineering business to its pre COVID $10,000,000 revenue profile and continuing to develop our pipeline of candidates under our M and A strategy.

Speaker 2

And through our M and A strategy, we aim to add complementary capabilities, which will broaden the scope of our capabilities and opportunities with a focus on defense applications. Through our strategy, we aim to pivot the revenue model of the marine technology business to a multi year and multi sale model as we started to see with a David product line. To conclude, we would like to thank our shareholders for their continued support. We are now happy to answer any questions. Operator?

Operator

Thank

Speaker 3

you.

Operator

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

Speaker 4

Great, thanks. Good morning. My first question is in the press release, the 10 Q, and you began your prepared comments with delays for orders that are typical of this stage of the election cycle. And I'm fairly certain we're headed for another CR that's going to begin in October. So do you expect as a result both segments of your business will experience near term pressure compared to the July quarter just reported?

Speaker 4

And if so, how long do you think that will last? Or do you have enough commercial business as well as opportunity with foreign governments that you think you can offset this pressure?

Speaker 2

Good morning, Brian. Thank you very much for your well considered questions. So as we have really said actually, Brian, when you look at our year to date results, you can see that sales from Americas was down by 35.9% or thereabouts. I mean, last year this time, we were €7,300,000 compared to €4,600,000 this year. So this is really a reflection of the ongoing elections and therefore what it really means is that sustenance programs are being funded, but new programs are really, really in abeyance until the outcome of the elections.

Speaker 2

What I am pleased to see despite revenues from the Americas falling by 35%, what we've demonstrated is the resilience of our revenues. And really, most of that is from the commercial marine market. The focus of our growth strategy is certainly in the because that's really where you have requirements, real requirements and budgets. But it has always been the case for our business. We're well established in the commercial marine market.

Speaker 2

And you could see from our revenue, I mean, that we had strong increase in our revenue outside of the U. S. Of course, I would like to see that we are dependent on funding from U. S. Defense program for a broader growth strategy.

Speaker 4

Okay. And then with that said, last quarter, you mentioned the 1st U. S. Commercial service provider was using the DAB for tunnel inspection project. Given what's happening on the government side of the U.

Speaker 4

S, that's going to be potentially important. So I'm hoping you can discuss the near term pipeline for commercial and or is sorry or is the DAB adoption right now, could you comment on the Pearl Harbor demonstration? Is that more a function of foreign government?

Speaker 2

Well, yes. So the RIMPAC event, it's really all about the ONTEBT system really there. And we had a really good turnout there. We have some good quality ongoing follow-up, but that was a really, really pivotal event for our technology. And it's as we've always said, this event was led by MUTSU, which is the mobile diving and salvage unit division 1.

Speaker 2

And really what we're seeing is that the U. S. Is championing the technology because that's its event and they had a superb turnout and a lot of focus was on the DABID. Yes, it's slow, but we are very, very excited where we've got to with the untethered variant. And for the tethered variant now, what we are seeing, as I said, is that there is requisitions being put forward by different commands for acquisition of the technology.

Speaker 2

All of those acquisitions are on hold, but that doesn't mean they won't happen once budget is available. And also, what we're also seeing is, as I've said, and I'm really excited about it because it validates our strategy, we're seeing pull through sales of the Echoscope. So when we started this program, we weren't sure how the Navy would adopt the technology. Would it be just the DABET system or would we see our Echoscope being pulled through? And indeed, we're seeing pull through sales, and we're also seeing that they're excited about our real time 3 d sonar technology.

Speaker 2

And so that's quite exciting. In terms of the commercial opportunities for the David itself, those are ongoing and we have it slower than we would like, but there are complexities for the adoption of the technology wholesale. We still have active discussions with 3 major offshore commercial, offshore providers. But all the discussions are about how to integrate the DAF into their, if you like, their analog diving bells. So it needs pre work, one such commercial offshore service provider.

Speaker 2

We're actually working on an engineering project that the first part of that is the conversion of from their analog systems on their diving bell because, for example, having to transfer the data over Ethernet when they don't have Ethernet capabilities and impossibility. So those are barriers that we didn't envisage. But as I said, there is nonetheless quite still quite some excitement around the DAVID technology capabilities. And we are seeing, as I said, now in the Navy, we're seeing different commands using those now on critical mission. I'm really excited because the biggest threat to the adoption of technology is it falls into disuse.

Speaker 2

We're not seeing that. We're definitely seeing the fleet using the technology asking for more. We see also at RIMPAC, we see the event was largely about the DAB. They were absolutely excited to dive the system and we were sold out. So all in all, I'm excited about the DAB and the prospect for the DAB.

Speaker 2

It's slower than we would like, but nonetheless, we feel this is going to be a significant program for our business.

Speaker 4

Okay. And then last quarter, you talked about a thermite program where there were preproduction orders to the Navy. Can you talk about how this program is advancing? And are you seeing any impact from the election on this program? Does that impact it?

Speaker 2

No, not at all. That's as I said in my last call, we've got the 1st preproduction low quantity order that's just ongoing. We expect the production order in 2025, and I don't expect that to be impacted. There's also the second opportunity for an aircraft program. That's also a big opportunity for us.

Speaker 2

We expected that order a little bit earlier and we still don't have that order. And the biggest barrier there is the terms and conditions that they've put forward to us and we're negotiating their terms and conditions right now before we accept the ordered orders there, but we want to be sure that the terms that we are signing up to are viable for our business. So the negotiations are ongoing. And that's another program that if we could overcome the contractual hurdles would be significant for the ceramide itself.

Speaker 4

Great. Two more questions for me. First, you touched on the ship hull scanning feasibility study being done. How should we think about the market opportunity as well as the pipeline in the near term and the sales cycle there?

Speaker 2

Yes. So it's what I call an absolute white space because it's there are no solutions for ship health scanning. There are hodgepodge of things, but not a solution. And we were funded under this program to put forward a solution. We delivered the platform, which is on a diverse sled, if you like, which embeds not only our escrow, but our heads up display system.

Speaker 2

And I think we've now had several trials with a number of different stakeholders. I think we are close. I think we are at least the closest as to what a solution could look like in the market. So and we are and there are lots of different stakeholders. The addressable market is global because what's on the ship hull, it's a problem.

Speaker 2

What attachments are there, a problem. So it is a real requirement, and we think we're close to being adopted, but we do still have more trials to go through and more features to introduce. But I think I am excited about this program. I'm really and it's one of the things our focus group is helping us to understand and model more the opportunities. So, we're understanding that more.

Speaker 2

And as I said, the market is a global market if we were supposed to be the solution of choice.

Speaker 4

Great. My last question is around the discussion, you guys talked about M and A. It sounded like a target that has complementary products. Can you touch in any way on size? Is it a small tuck in, something larger?

Speaker 4

Anything you can provide would be helpful.

Speaker 2

Well, this target really, it's about expanding the group's capabilities. Notice what I've said, not the product segment or the engineering, but the group's capabilities. So to that extent, I'm very, very excited about it. The price the acquisition price we have in mind of using about 6,500,000 nauseam, in 6 weeks' time, I can talk ad nauseam, Brian, about this.

Speaker 4

Great. Okay. Thank you.

Speaker 2

Welcome.

Operator

Our next question is from Richard Deutsche with Stutter Securities. Please proceed.

Speaker 5

Yes. Thank you. Anne Marie, it's such a comfort to have somebody with your vast history and knowledge running this show. And having followed this business for several years now, it's nice to see all this hard work starting to come into commercial reality. So really appreciate all the hard work you and the crew have done.

Speaker 5

Brian asked a bunch of the questions, but a couple of things I'd like to go into here. On the acquisition, do you see any shares being offered as part of this acquisition shares of Coda or would it be mostly all cash?

Speaker 2

It's all cash. It's all cash. It's not to say just to clarify in terms of once we do integration that some of those key employees would not be participating in the group stock incentive plan, but the cash on the table is what we've offered. But just to clarify that in the future for key employees in that business, they will be eligible over time to participate in our stock incentive plan.

Speaker 5

Sure. Sure. So would this be a mostly engineering software R and D acquisition? Or are you acquiring an existing hardware line?

Speaker 2

Richard, as I said, if this goes to plan, we're close. In 6 weeks' time, I'll be able to talk more about this on this call. I'm not prepared to discuss the target, what they do or anything else. I'm sorry. I just think it's

Speaker 5

I understand. On your call today, unless I missed it, did you have any update on your digital audio product, which I think has tremendous potential?

Speaker 2

You didn't actually. And just and I do too think that it has quite a lot of opportunities. So I expect Richard purchase orders in September from the Navy for the digital audio stuff. There's going to be another round of funding, I think, in September. It's not going to be at the level that we anticipate, but I think they'll start they have started buying, but in lower quantities, but I expect additional purchase orders in this September.

Speaker 2

So that passed all the safety assessments and now it's really about waiting for the purchase orders to come forward.

Speaker 5

Okay. That's great. Is there any above water application for the digital audio? Or is it all just underwater?

Speaker 2

Well, there's a big one, but I don't think it's massive. It's like medical chambers could use the digital audio because they have the same thing of someone going into a medical bay that you have to communicate with them. So for like a decompression chamber, some things like that. So there is that medical application for the digital audio communication system that we have.

Speaker 5

Okay. And just two quick ones here. On the ship scanning, how close are we to a winner of the technology being approved? Or would this just be another round of further development?

Speaker 2

Well, I don't think we have a massive development. But the thing is in terms of the budgets and the pocket of budgets where it's coming from. As I said, we are working very closely with our focus group to understand the budget and where that is going to come from, who are the people behind the program. So that's still being understood. So I don't have more information.

Speaker 2

But the thing also to say that as soon as we have the safety sign off under the program, we will start targeting the global market. Right now, we are just working with the U. S. Navy, but as soon as we have their safety assessments done, then we will start broader global marketing for the solution.

Speaker 5

Okay. And my final question is, do we currently have any sales or exposure to China considering that situation?

Speaker 2

Yes, we do, of course. China, I have to say again, China is the biggest global market for offshore renewables. That's the main thing that we're using our technology for. So to that extent, we do have exposure where it's becoming increasingly impossible to sell to China. And also on this call, I'd really like to address that outside of us selling to China, there's also the broader problem like a lot of components used by a lot of companies are finding themselves on the security, the Bureau of Investigation Security Blacklist.

Speaker 2

And what that means is that you can't buy those components anymore. And it also means reengineering additional costs. So the situation with China is fraught, not just from a sales cycle, but also you never know when a component and that component may not be anything major. It could be quite innocuous. And suddenly it's no longer available because then it's on that blacklist.

Speaker 2

So the kind of it expands beyond selling to China, but also buying from China components.

Speaker 5

I see. Well, just to go a little further into that, during this recent quarter, can you tell us how much revenue that we were generating from China?

Speaker 2

I can't tell you. I can give you an approximate number. That's in pounds. I would think that was about $600,000 something like that.

Speaker 5

Fair enough. Well, thank you again so much. We appreciate your work and thanks for your answers.

Speaker 2

Thank you, Richard, for your questions.

Operator

Our next question is from Andrew Scott with 395 Group. Please proceed. Andrew, your line is live.

Speaker 6

Hello?

Operator

Go ahead, please.

Speaker 6

Okay. Thank you. Anne Marie, great quarter. Your enthusiasm is very strong on this call, so it's making us a lot more hopeful. Your financial results were great.

Speaker 6

The return on equity ROE, your management effective ratio is very good. I just had one question. I heard about the acquisition, heard about the potential defense contractors. So it sounds like a lot of great things are on the come. How about overall market adoption?

Speaker 6

I know things have slowed down in North America a little bit with the presidential election. But more on a macro perspective, are you seeing greater adoption with the multitude of Coda Octopus products? Have you started to see a turn or more market penetration? Can you give a little bit of an outlook to what you're seeing?

Speaker 2

Well, as you saw year to date, you could see that what I'm particularly excited about is just the increased utilization of our rental really and the associated services, which I think went up year to date from $1,000,000 to $1,800,000 I think actually what's striking for me and most of the rentals have been around an application called cable laying. What I am seeing is that we are truly just like the breakwater solution where whenever you think of placing a breakwater, it's called Octopus. It's really the case when you think of laying a cable, it is Cuda Octopus. And also, this in this year, really what we've had major success with is we had a patent a few years ago, which is the around the CableLane application. And that particular patent is about really automating the, ETCO technology where through our tracking algorithm, it actually can predict the cable touchdown point.

Speaker 2

Now that is a massive thing because then if the cabling that you're paying out, 1st of all, you can't see and it gets tangled, then that's a deal breaker. It stops and it costs a lot of money. Within the engineering spec, you have to also know precisely where the cable touchdown point is going to be. And we have, let's say, through our solution, conquered that. And I can say in Europe, we're definitely the standard and the solution for cable laying.

Speaker 2

So I'm particularly excited about that. And the broader, as I said, rentals going up because I think I particularly like rentals because of their profitability for our business. So that we're seeing on the broader sense that, as I said, although slow on the actual getting the purchase order for the David, I'm still very, very excited about the David. And we have several opportunities that we're working through the details of getting customers over the line. So I feel that that's going ahead.

Speaker 2

And the broader acceptance of the Echoscope throughout for anything to do with real time monitoring, real time threat detection, forward looking obstacle avoidance, the Echoscope is singled out for that and we still don't see any competition for those markets for the Echoscope.

Speaker 6

Yes. Thank you. Great job. Great quarter. Yes, we think your products are the best.

Speaker 6

All right. Thank you. I'll turn it over to the next question.

Speaker 2

Thank you.

Operator

And our final question is from Steve Emerson with Emerson Investment Group. Please proceed.

Speaker 7

Thank you. Ann Marie, great, great quarter and in particular, great call and greatly appreciate the insight into opportunities. I didn't without work in my model. I'd like to flesh out a little bit this hull attachment market. It sounds like that has to be a live diver, not a robot.

Speaker 2

When you think of I think you're thinking about the ship hull scanning, Steve, is that right?

Speaker 5

Yes.

Speaker 2

Yes. So when you think of a robot actually look, the biggest challenge on the water is the turbidity, is the water conditions, current, turbidity, all of that is the barrier to really working on the water. Even if you have a robot, and we do have some applications where we're working with customers on embedding the, exoscope into their robot, you still need something like the exoscope there because that's the real thing that's going to give you real time visualization and zero visibility water conditions. So that's the first thing. It's not replaced by a robot, but a robot could be a means of deploying the technology as a platform just like a diver handheld platform.

Speaker 2

So and also some of the limitations of when you're dealing with ship hull scanning is is it's really not only is the geometry where you're looking, how do I look under a hull. The thing is that you're in what we call a GPS denied area. So what that means is that you don't have things like your heading, your accurate position of where you are. And this is really our solution. Not only does it embed, the esterscope, but it has underwater navigation systems on the platform so I can derive some semblance of position and heading for how do I stitch that data together if I don't know where I am.

Speaker 2

So these are some of the challenges we have worked through and continue to work through with our customers.

Speaker 7

Okay. What I'm wondering is, these ports in, call it, conflict zones can have a huge number of ships going in and out or they go in and out in a convoy. So maybe I'm just wondering, you know, how many of these systems need to be employed, in a particular port or how long it takes to scan a hole? And maybe as an add on question, how much funding have you received or have an R and D funding for this application?

Speaker 2

I'll start with the funding. I think this was a multiyear, 3 year program. And I think over the life of the program, we were funded, I think, dollars 1,700,000 which includes also delivering the solution. Look, Steve, that's a big, big thing question you're asking me about. The way that if I move away from your conflict situation, let's just do the bread and butter stuff.

Speaker 2

The bread and butter stuff for ship hull scanning. Steve, you do need to know what's coming in your port. So all ship that enter your port could be the subject of an attachment, whether it be drugs or some hostile thing that could blow up the port. Those are the things. So you don't need to go to a combat zone, in other words, for the application to be viable.

Speaker 2

The application is viable for anything that's entering your water. So that's the kind of humble application we're looking at right now.

Speaker 7

So it sounds like a $1,000,000,000 total available market. Or when you have penciled out the available market, what kind of ranges or number of units do you come up with?

Speaker 2

Steve, I would say that I'm not prepared to discuss that the first thing we've got to do is to understand if we have the solution. We're focused on getting the solution. I would say again that the market is global, but I dare say I would not want to start throwing out numbers about addressable markets that mislead the audience. I mean the first thing we have to do is to get the solution and we are close and excited about it. And in fact, as I said, in the quarter, we had success full events around the ship hull scanning application.

Speaker 2

But we still need to get to the point where we have the safety assessment and we have this as the solution for the Navy. But it's getting closer. Okay.

Speaker 7

Are we what year of this 3 year R and D contract are we? Are we close to the end waiting for them to evaluate? Or can you give any timing guesstimates on this project where we are?

Speaker 2

So we have completed the project. As we said, we've delivered the platform last year. And now what we are doing, we are supporting the Navy with their trials, ongoing trials. So that's where we are. We don't have any more funding because we have delivered our final deliverable in fiscal 2023.

Speaker 2

And since then, we have been supporting them on with their trials to their own stakeholders.

Speaker 7

Okay. So at this point, are we waiting for a follow on R and D or we're waiting to complete our and their evaluation with potential orders?

Speaker 2

They're doing their evaluation. So there is nothing on our side outside of when we get an order from them to come and support a trial, which we that's what's ongoing, the ongoing support. So as I said, I don't have a roadmap as to the time then and but I know the system is now in evaluation. This is a U. S.

Speaker 2

Navy program and it does take time.

Speaker 7

Got it. And regards to a possible acquisition negotiation, can you give us some idea as to what area of your business this acquisition would, shall we say augment?

Speaker 2

Well, what I'm prepared to say on this call, Steve, is that it expands the group capabilities and it's highly complementary to our business.

Speaker 7

Okay. Is it the aerospace business or is this the Marine business?

Speaker 2

It is the group capabilities that it extends. And I specifically said that we weren't looking at a segment expansion, but a group expansion.

Speaker 7

Okay. Excuse me. Again, thank you for your help and great progress.

Speaker 2

Thank you, Steve, for your always insightful questions. Thank you very much.

Operator

And this will conclude our question and answer session. I would like to turn the conference back over to Anne Marie Gao for closing remarks.

Speaker 2

Thank you very much for attending the earnings call today. Have a great day. Thank you.

Operator

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

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Earnings Conference Call
Coda Octopus Group Q3 2024
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