Greetings and welcome to the Coda Octopus third quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation and you may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0 on your telephone keypad. It's now my pleasure to turn the call over to Dillon King, Investor Relations. Dillon, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Code Octopus's third quarter fiscal 2026 earnings conference call. Before management begins their formal remarks, we would like to remind everyone that some statements made today may be considered forward-looking statements under U.S. securities laws. These statements are subject to 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. 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 year ended October 31, 2025 and Form 10-Q for the first, second and third quarters of our fiscal year 2026. You may get Coda Octopus's Securities and Exchange Commission filings free by visiting the SEC website at www.sec.gov. I would also like to remind everyone that this call is being recorded and will be made available for replay through the Investor Relations section of Coda Octopus's website. Finally, as a reminder, this is our third quarter fiscal 2026 reporting. In all comparisons, unless explicitly stated otherwise, I'm with our third quarter fiscal 2025. With that, I will now turn the call over to the company's chair and CEO, Annmarie Gayle. Annmarie?

Thanks, Dillon, and good morning, everyone. Thank you for joining us for our third quarter fiscal 2026 earnings call. I believe we delivered a solid set of results during the quarter with consolidated revenue increasing 9.2% and pre-tax income increasing 16%. While geopolitical instability in the Middle East adversely affected customer activity in certain international markets and resulted in lower revenue within our marine technology business, the strength of our defense engineering services and acoustic sensors and material businesses enabled us to deliver growth in both revenue and Pre-tax Income. Our performance this quarter highlights the resilience of our diversified business model and the strength of our financial fundamentals. I am pleased with how the business has continued to perform despite challenging market conditions in some regions. Our company comprises three operating businesses, marine technology, defense engineering services, and acoustic sensors and materials. Our marine technology business remains the strategic centerpiece of the company and generated 43.8% of consolidated revenue during the quarter. Our long-term growth strategy remains focused on expanding adoption of our proprietary underwater technologies, including Ecoscope, David, and the recently introduced Nano Series, particularly within defense and autonomous underwater vehicle applications, where we continue to see significant long-term opportunities. Turning to our third quarter business highlights, marine technology business. Revenue in our marine technology business decreased 15.2% during the quarter. The decline primarily reflected reduced customer activity in the Middle East and parts of Asia following geopolitical instability in the region. Hardware revenue decreased 17.8% to $2.3 million compared to $2.7 million in the prior year period. Partially offsetting this decline was significantly improved rental asset utilization with increased rental revenue by 131.1% to approximately 0.7 million compared with approximately 0.3 million in the prior year period. The higher contributions from rentals together with lower commission costs resulting from changes in sales geography contributed positively to gross margins within this business. Turning to defense engineering services business. Our defense engineering services business delivered a strong quarter with revenue increasing 68.3% compared with the prior year period. The business benefited from increased activity and funding across several long-standing defense programs resulting in both higher order intake and higher execution levels during the quarter. Our UK defense operations experienced increased customer activity and contributed higher revenues compared with the prior year period. Within our US defense engineering business, we continue to see strengthening demand for repairs and spares under some of the sustainment defense programs that we have supported for decades. During the quarter, one of our prime contractor customers was awarded a multi-year repair and sustainment contract by the U.S. government. Following that award, we experienced increased repair-related activity and additional subcontract opportunities associated with the program. We continue to see encouraging demand trends in this area. Demand for SPARE supporting the Sustainment Defence System also remains strong, with SPARE's orders exceeding 2.4 million year-to-date. We also continue to make progress in electronic warfare, which remains an important area of defence investment. Our U.S. Defense Engineering Services segment is currently supporting several prime contractors in the development of rugged, deployable RF electronic warfare systems for a range of platforms, including unmanned systems, helicopters, airborne pods, and ground vehicles. We believe these programs represent a meaningful future opportunity enabling us to build upon our long-standing positions on legacy defense systems while expanding into next-generation defense programs as technologies and operational requirements continue to evolve. Turning to our acoustic sensors and materials business, Our acoustic sensors and material business increased revenue by 10.4% during the quarter. While gross margins were lower due to product mix, we continue to see encouraging demand for our acoustic materials and acoustic test tank solutions across international markets. While market conditions in certain international regions remain challenging, our diversified business model enabled us to deliver growth in both revenue and pre-tax income during the quarter. We remain focused on executing our long-term growth strategy, strengthening our position across defense, marine, and acoustic markets, and expanding adoption of our proprietary technologies. With that, I will hand the call over to Blair Cunningham, our President of Technology, who will provide an update on our technology initiatives, recent milestones and market activities.

Thank you, Annmarie, and good morning, everyone. As Annmarie noted, our strategic focus remains on expanding adoption of our proprietary underwater technologies, including David, Ecoscope, Nano, and our next generation underwater communication system, Voice Club 4. I will briefly highlight several notable developments during the quarter. A significant milestone during the year was the successful completion of the U.S. Navy's Authorization for Navy Use Assessment for the David Untethered System, incorporating the David Gen 4 HUD. As you know, we delivered 16 David Untethered Systems to the U.S. Navy earlier this year, bringing total deliveries to 24 systems. With AMU approval now in place, these systems can be fully evaluated and utilized by operational commands. We continue to provide training and support for the untethered system and believe the military diving market represents a significant long-term opportunity for David. Since our last earnings call, we have received approximately $1.4 million of orders from the U.S. Navy for David Kevin systems and related peripherals, supporting deployment to additional commands and adoption of the latest David Flex technology. We're also encouraged by indications that David may be incorporated into diving school and academy training curricula. The recent orders included four David Flex systems and Ecoscope sonars specifically for training purposes, which we believe reflects growing institutional acceptance of the technology within the naval diving community. Internationally, we continue to work closely with the European Navy that recently acquired David systems. We remain encouraged by customer feedback and believe this deployment provides a strong foundation for further expansion within international military diving markets. We expect to gain greater visibility into that customer's procurement roadmap later this year. In addition, we continue to make progress on a number of funded defense programs awarded during the year under separate contractual arrangements where our David and Nano technologies are being integrated as key vision and mission enabling components. These programs spanning diver machine teaming, critical diver health state monitoring, and advanced deep saturation diving provide further opportunities to demonstrate our technologies in operationally relevant environments and support their growing adoption across a broader range of defense applications. We're also pleased with the early market response to our NanoGen series sonar, our ultra-compact real-time 3D imaging sonar designed specifically for small subsea robotics and AI-enabled autonomous underwater platforms. We are actively working with a number of subsea robotic OEMs, research groups, and direct customers globally to integrate Nano into next-generation underwater platforms. enabling advanced real-time 3D perception, navigation, and autonomy capabilities that were previously impractical on vehicles of this size. Beyond our active programs, we continue to see growing interest in nano across both the US and European defense markets, particularly for diving systems and delivery vehicles, autonomous and unmanned underwater systems. We believe Nano's combination of ultra-compact form factor, low power consumption and real-time 3D imaging capability positions it well to address the rapidly evolving requirements of this emerging sector. This growing interest is further supported by the innovative software and hardware ecosystem we have developed around nano, providing OEMs and integrators with multiple levels of engagement from straightforward sensor integration through to a more comprehensive solution incorporating nano's real-time data and processing capabilities. providing the high-quality, real-time 3D data critical to delivering true AI-enabled 3D perception and autonomy solutions. As Annmarie commented with respect to our defense engineering businesses, we are seeing renewed demand across the U.S. defense market, driven both by increased spending on spares, repairs, and sustainment of established defense systems, as well as investment in next-generation capabilities including electronic warfare, unmanned systems, and increasingly autonomous platforms. We believe this broader increase in defense spending combined with the growing demand for more capable and autonomous systems creates additional opportunities for our nanotechnology, our established defense relationships, and engineering capabilities provide a strong pathway for introducing nano into these programs and expanding its long-term growth potential. Overall, I believe we're making steady progress in expanding adoption of our technologies and advancing opportunities that support long-term growth. With that, I will turn the call back to Annmarie and look forward to answering your questions during the Q&A session.

Thank you, Blair. Before turning to the financial results, I would like to formally welcome Mark Kelly, who recently joined the company as our Chief Financial Officer. Mark brings extensive financial and operational leadership experience, and we are very pleased to have him as part of the executive team as we continue to execute our growth strategy. Mark will now take you through our third quarter 2026 financial results. Following his remarks, I will return with some closing observations before we open the lines for questions.

Thank you, Annmarie, and good morning, everyone. As this is my first earnings call since joining the company, I'm pleased to have the opportunity to introduce myself to our shareholders and investors. I've enjoyed meeting the team and becoming familiar with the business, and I look forward to supporting the company's continued growth and execution of its long-term strategy. Let me now take you through our third quarter fiscal 2026 financial results. Total revenue for the third quarter 2026 was $7.7 million. compared with $7.1 million in the third quarter 2025, representing an increase of 9.2%. As Annmarie highlighted earlier, our results reflect the benefits of our diversified business model. While revenue in our marine technology business was impacted by reduced customer activity in certain international markets, this was more than offset by strong performance in our defense engineering services business and continued growth in our acoustic sensors and materials business. Marine technology revenue was $3.4 million compared with $4 million in the prior year period, representing a decrease of 15.2%. Acoustic sensors and materials revenue was $1.6 million compared with $1.5 million in the prior year period, representing an increase of 10.4%. Defence Engineering Services revenue was $2.7 million compared with $1.6 million in the prior year period, representing an increase of 68.3%. Gross profit for the third quarter 2026 was $5.1 million compared with $4.8 million in the third quarter 2025. Consolidated gross margin was 65.4% compared with 68.3% in the prior year period. The movement in gross margin primarily reflects changes in revenue composition during the quarter including the contribution from higher margin rental activity within our marine technology business, changes in sales geography, and the mix of projects and products delivered across the group. Marine technology gross margin was 78.5% compared with 77% in the prior year period. Acoustic sensors and materials gross margin was 52.4% compared with 54.8% in the prior year period, reflecting product mix during the quarter. Defence Engineering Services Gross Margin was 56.9% compared with 58.9% in the prior year period, reflecting the mix of contracts and programme activity during the reporting period. Turning now to operating expenses. Total operating expenses for the third quarter 2026 were $3.5 million, compared with $3.4 million in the third quarter 2025. Selling, general and administrative expenses were $2.8 million, compared with $2.9 million in the prior year period. The movement in SG&A was primarily driven by lower payroll-related costs. and favourable foreign exchange movements, partially offset by higher contingent consideration expense associated with the PAL earn-out. SG&A represented 36.1% of consolidated revenue during the quarter, compared with 40.6% in the third quarter 2025. Operating income for the third quarter 2026 was $1.5 million compared with $1.4 million in the third quarter 2025. Operating margin was 19.9% compared with 19.5% in the prior year period. Pre-tax income for the third quarter 2026 was $1.8 million compared with $1.5 million in the third quarter 2025. Net income after tax was $1.4 million, or $0.12 per diluted share, compared with $1.3 million, or $0.11 per diluted share in the third quarter 2025. The provision for income taxes during the quarter was $0.4 million, compared with $0.3 million in the prior year period. Turning now to the balance sheet. As of July 31, 2026, the company had cash and cash equivalents of $31.7 million and remained debt-free. The company continues to maintain a strong balance sheet and healthy liquidity position, providing financial flexibility to support both organic growth initiatives and potential strategic opportunities. Total assets a quarter end. were $68.9 million compared with $64.5 million at October 31, 2025. Overall, we believe the company remains well positioned financially with a strong balance sheet, positive earnings, and substantial cash resources. That concludes my financial review. I will now turn the call back to Annmarie for her closing remarks.

Thank you, Mark. I am pleased with our third quarter performance. Despite a challenging geopolitical environment that affected customer activity in certain international markets, we delivered growth in both revenue and pre-tax income while maintaining our strong balance sheet and debt-free position. The quarter once again demonstrated the benefits of our diversified business model. While our marine technology business experienced lower revenue due to the conditions in the Middle East and parts of Asia, the strength of our defense engineering business and acoustic sensors and material businesses enabled us to deliver overall growth and strong profitability. I am also encouraged by the progress we continue to make in advancing adoption of our core technologies. During the quarter and subsequent period, we achieved a number of important milestones across David, Ecoscope and NANA that we believe strengthen our position in key defense and underwater technology markets and support our long-term growth objectives. We're particularly encouraged by the continued traction we're seeing within defense-related applications, where increasing investments in underwater capabilities, autonomous systems, and forced modernization programs continues to create significant long-term opportunities for our technologies. I am also pleased with the opportunities our U.S. defense engineering business is seeing in supporting sustainment programs through repair and spare parts for long-standing defense systems. At the same time, the business is expanding its work with prime defense contractors on next generation defense technologies, positioning it to participate in evolving defense requirements and future programs. From a financial perspective, I am also pleased that the company achieved an important milestone during the quarter, transitioning from an accumulated deficit to positive retained earnings for the first time in its history. While primarily an accounting milestone, it reflects the sustained profitability, financial discipline, and progress the company has achieved over recent years. In parallel, we continue to advance our M&A strategy and remain actively engaged in evaluating and progressing acquisition opportunities that align with our strategic objectives. While we remain disciplined in our approach, we continue to pursue opportunities that could strengthen our business and support our long-term growth strategy. Overall, we remain confident in our strategy, encouraged by the progress we are making across the business, and well-positioned to capitalize on opportunities in our core markets. Operator, we are now ready to open the line for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question today is coming from Brian Kissinger from Alliance Global Partners. Your line is now live.

Great. Thank you. Hi, Annmarie. Last quarter, you highlighted there was an underwater vehicle OEM that purchased several Echoscopes, the NanoGen series for testing. Can you talk about any feedback from testing? And then with that time that's passed, do you have any more clear picture yet on how long testing evaluation may last for this or similar programs.

Good morning, Brian. Thank you very much for this question. So, yes, we're making really good progress on that particular program. The key thing for us to understand with these programs, they're development programs, so what that really means is that there is some amount of I'm pleased to say that we've reached really a very good point under that particular program. And Blair, I think that program is going for SAT trials soon. Is that correct?

Yes, that's correct, Annmarie, and good morning, Brian. Yes, the SAT trials will be imminent, and actually I'm with the customer as we speak at the moment. So yes, we're in the water, active with the vehicles, and things are going very, very well. So we hope to conclude that. I wouldn't be able to report that in the fourth quarter, I would hope.

And given it's in a development phase, is the next A big catalyst for this type of program, a design win, and would you announce that in a PR?

Well, the main thing I would say, Brian, is A, being on the vehicle, clearly that's very important. That's the starting point for us to really sort of say we can go into a procurement phase. We think this will be a big win for us because then, whilst the initial orders were three systems on the vehicle, there are other opportunities for that vehicle that we have some amount of visibility. Clearly, the precondition for that is that the SAT trials go well, but if they go well, we can see in Rapid Succession, and a number of other customers coming on board for that particular solution.

Great. And then thanks for the updates on the David, including the uses of training and some of the orders post-quarter. As it relates to the ANU approval for the David, you've had that for a couple of months. I'm curious how business development and particularly the sales cycle has changed as a result.

So thanks again, Brian. So we should really understand again that the ANU is one of the hurdles that takes us closer to a procurement cycle. The first thing for any defense technologies really is to put the technology in the field. So deployment is important and user acceptance test. Then we can move forward to, if you like, larger scale procurement. I'm pleased to say that we've removed the most important hurdle of getting the technology, first of all, in the customer's hands, and then moving forward to, if you like, deployment and user acceptance testing. These are all critical activities for the broader adoption of any defense technology, including David's.

And can you share us the feedback of these customers that it's in the hands of that are new and training? And it sounds like we've got a bunch of new potential customers that are in trials.

Yes, so really, really positive feedback on the David program. As we reported in this quarter, which I see as a confirmation of the maturity of the technology, There's the potential that David technology will be used in various institutions for training, diving academies, for example. So we're very, very heartened by that. And that is really endorsement that the technology is moving forward. In addition to that, as Blair mentioned previously, we have several discrete contracts where David and Nana are really being integrated in different programs where we're doing some integration work for adding David and Nana as mission critical vision components in these different programs. So I feel very much that the signaling that we have is wholly positive. And what I see is the technology moving forward. I think We should really understand, however, that these are longer-term opportunities for our business.

Great. I have a couple more, mostly now from the financial perspective. With the war in Iran not seeing an end in sight and taking that into account, how should we think about marine technologies, quarterly revenue? Is there anything that could substantially increase or decrease from the last few quarters? I guess, what are the puts and takes that could cause any volatility from where we were recently in the last few quarters?

Well, so as we've always reported, Asia and the Middle East are strategically important markets for our business. Of course, the geopolitical situation has been very disruptive for our business. However, We think that this is not really structural. These are timing issues. So we continue to see opportunities. We continue to have visibility of what customers are doing. But the fact still remains that it's very challenging offshore to really run a project, really, because of the disruption in the market. There are security issues, safety for personnel. Some of them are supply chain issues for end customers. So I think that we're not seeing any structural changes in the market, but what we're certainly seeing is deferral of opportunities because of the ongoing uncertainty.

Great. Two more. The marine engineering business has historically enjoyed stronger demand in the second half of the year compared to the first half of the year. Looking back at the last few years, and maybe that's seasonal, maybe it's just timing, I'm curious with this contract award from your prime, do you see maybe the company sustaining the types of revenues seen in the last two quarters, or do you expect it will continue to be lumpy as we've seen in the last few years?

Well, certainly it will be lumpy, but what I can say on the visa statement program, again, we should remember the way these procurement activities occur. So annually, for many of these programs, there's a fixed amount of spending for, if you like, parts to these programs. but as these parts are now and most times they are sitting in a warehouse but what we're actually seeing now is that these parts are now actively being used and there has been they are now if you like replenishing their warehouses and this is really where we see this opportunity for spares and repairs coming through. Of course I can't project The scale of the opportunity, but I can see as warehouses change and reduce what they have, we can see increased demand for spares and repairs.

Great. That's helpful. My last question is just high-level P&L strategy. How are you thinking about incremental investments, either in R&D or in SG&A, that positions the company for stronger revenue growth versus controlling expenses to drive incremental margin and profit? How do you think about that as a strategy right now from where the company is?

Well, as I've always said, really, organically, from an organic place, I see that the company has the fundamentals to grow significantly. The company has well-established revenue in the commercial offshore market, but there is a finite number of units we can sell quarter and quarter into that market. And therefore, our strategy, as you know, Brian, is to increase the number of defense programs that is adopting our technology. Part of that will involve increased R&D efforts and we see we're doing more especially now with the acquisition of PAL in our group who is one of the most foremost authorities on acoustics in the field. We are now leveraging their capability across the group and then really looking at the next generation of different technologies that we can advance and bring to the market in addition to the disruptive technologies that we currently have. Let me remind you, Ecoscope. Ecoscope is the world's only real-time 3D imaging sonar that can generate a real-time 3D image in zero visibility water conditions. What have we done with that technology? We have future-proofed that technology to make sure that we can get on a broader suite of underwater vehicle platforms. NANA is a good example of that, and that is not just a whim. That would have been in R&D planning for a good four or five years before we could realize such a feat. So we have several programs, internal programs, where we are looking to really leverage what we have. And Blair, one of the significant things that Blair mentioned is the Voice Hub 4 technology where the digital audio communication system, that is still a very, very strong technology where our program sponsor is significantly interested in this technology. We had to revisit the technology to reduce the bill of material costs What we feel now, we are really at that point with, for example, Voice Hub 4, where our program sponsor could be seriously interested in the technology. So I don't believe we are just, if you like then, watching costs. We are actually investing across our group in R&D. And as I said, we are spending a lot of business development effort on being contenders on technology. and we measure our success by whether or not these programs are advancing and we continue to be part of that process and we feel that we're really making good strides but I also want to emphasize that defense programs are naturally longer term programs.

Great. Thanks for taking all my questions.

Thank you.

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Zanul Baidar from Freedom Capital Market. Your line is now live.

Hi, Annmarie. Thank you for taking my question.

Pleasure.

First question is, you previously discussed it on initial day of deployment with European ideas. So what determines whether that customer moves to broader rollouts and can other navies use that qualification work to shorten their own procurement process?

Good. So thank you very much for that question. So Blair reported on that. We're making really, really good progress with that very influential European Navy report. Later this year, we will have better visibility into their procurement cycle. But what I can see is that they continue to be engaged on the technology and really also the visibility that we see with this particular customer. This is not just about David, but really pull through sales on the Ecoscope and our underwater inspection system, which is actually in use in over 30 ports in the U.S. as a security system. So we're making really good progress with that European customer. There's high level of engagement with that customer, and we're hopeful that... Closer to the end of the fiscal year, we will have better visibility into their procurement process. But again, I see this is the defense customer. They've got their own processes and it will take time. But what I can see is that I think this is moving forward. And yes, they're also very influential and therefore, if they move forward to broader adoption, which we expect, we would see also other European navies follow suit because they're really the trendsetter here in diving.

Okay, thanks. That's helpful. And the quick next one. With lower vessel procurement spending proposed in U.S. Coast Guard for 2027 budget. So how it's exposed is in your defense engineering business. And what could this mean for your next year?

Yes, so I'm quite heartened and excited by our defense engineering business in the U.S. because really as customers' requirements evolve and there's the new generation of, if you like, warfare technology, I'm pleased to see that we're working and getting a lot of opportunities to look at for some of the new evolving requirements. We're working with no less than four prime defense contractors on different opportunities around the same theme. I feel very much, you know, budgets may be reallocated, but it doesn't change the fact that these new technologies will have to move forward because it's the new, if you like, arena for fighting the next generation of warfare. So we're heartened to see that we're not just on the legacy programs but we're evolving with our customers into the new technologies.

Thank you. I appreciate for your answer. Thank you.

Thank you very much.

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Thank you very much for your interest in CUDA Octopus. Have a great day. Thank you.

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today. Thank you.