Ms. Gayle was appointed Chairman of the Board in March 2017, and previously served as a Director since 2011. Additionally, Ms. Gayle has been the Group CEO since 2011; assisted with the restructuring of the Company, 2009-2010, and served as SVP of Coda’s Legal Affairs, 2006-2007. Earlier in her career she worked for a major London law practice, the United Nations and the European Union. Ms. Gayle has a strong background in restructuring and has spent more than 12 years in a number of countries where she has been the lead adviser to a number of transitional administrations on privatizing banks and reforming state-owned assets in the CEE countries including banking, infrastructure and telecommunications assets. Ms. Gayle has also managed a number of large European Union funded projects. Ms. Gayle holds a Law degree gained at the University of London and a Masters of Law degree from Cambridge University. She is qualified to practice as a solicitor in England & Wales.
Thank you for giving us your time to answer some questions.
Would you describe the CODA Group business segments and operating locations?
Our business comprises two discrete business operations: Marine Technology Business selling proprietary solutions to the underwater market / offshore service providers and Defense Engineering Business, working primarily as sub-contractors to Prime Defense Contractors on subassemblies for Defense Programs.
Our Marine Technology Business develops and supplies technology solutions to the underwater and diving markets. We own key proprietary technology including the world’s only real time 3D/4D/5D/6D underwater imaging sonar, marketed under the Echoscope® brand. Our other core technology relates to the game-changing diving technology (Diver Augmented Vision Display System (DAVD)), which is the only technology that provides a real time data platform to both the diver and dive supervisor, where the data hub for the diver is on a pair of fully transparent glasses embedded in the Diver’s Helmet or facemasks. These technologies are the only real time underwater 3D information platforms that address a myriad of real-world challenges including zero or no visibility water conditions; inspecting, locating, placing or extracting items from the seabed; tracking an underwater vehicle or diver; or flying a Remotely Operated Vehicle in zero visibility water conditions. Competing solutions for our imaging sonar are the multibeam or 2D real time imaging and scanning sonar – none of which are capable of generating a real time 3D image of moving objects underwater. With more advanced sonar technology than our industry peers, and the ability to provide unique features and functions in underwater sonar technology, we view ourselves as the “smart phone” of the underwater technology market.
Our Defense Engineering Business which is conducted through our two engineering subsidiary companies Colmek and Martech, supplies embedded solutions and sub-assemblies into mission critical defense programs. These solutions and sub-assemblies are designed, manufactured, and sold into several mission critical integrated defense systems around the world such as the Close-In-Weapons System (CIWS) for the Phalanx radar-guided cannon used on combat ships.
We are headquartered in Orlando, Florida but have physical locations across numerous offices in the U.S., Europe, Asia and Australia. In the U.S., outside of our Orlando headquarters, we also have an office in Salt Lake City, Utah. Outside of the U.S. we have offices in Edinburgh, Scotland; Portland, England; Copenhagen, Denmark; Mumbai, India; and Brisbane, Australia
In terms of percentages, can you tell us how much of CODA revenues come from commercial customers and military/defense/law enforcement customers? Can you do the same for service revenues and product revenue?
For the six months ended April 30, 2022, about 68% of our revenue was generated by our Marine Technology Business (Products) segment and about 32% was generated by our Marine Engineering Business (Services) segment. For our last fiscal year, ended October 31, 2021, about 74% of our revenue was generated by our Marine Technology Business (Products) segment and about 26% was generated by our Marine Engineering Business (Services) segment. For our Engineering Businesses, 100% of revenue is derived from the Defense industry and for the Marine Technology Business, approximately 40% of our revenues is generated from the Defense industry.
In your fiscal H1 2022 CODA reported revenues slightly higher than fiscal H1 2021. Do you expect fiscal H2 2022 (ending 10-31-22) revenues to be higher and what products will impact H2 2022 revenues the most?
On October 4, 2021, we filed on Form 8-K with the SEC, Management Internal Financial Targets. These do not constitute guidance but more our internal management performance plan for the Business. This plan included revenue of $28 million in fiscal year 2022 (Ending October 31, 2022) and $40 million in fiscal year 2023 (Ending October 31, 2023), relative to revenue of $21.3 million we reported for fiscal year 2021 (Ended October 31, 2021). Results in the first half of fiscal year 2022 were below our internal plan mainly because the business experienced a slower pace of converting opportunities into firm orders. We believe this is due to the war in Ukraine and supply chain issues. We do expect on a full year basis to be off those internal projects but would expect to exceed our performance in fiscal year 2021. We continue to believe that with the foundation we have built, we have the opportunity to increase our market share of the sonar imaging market and also to expand our revenues by the global roll out of the DAVD.
Can you describe the development and progress of the DAVD program? Is DAVD 3.0 available to customers yet?
DAVD was derived out of a requirement for the Office of Naval Research and NAVSEA, and forms part of their “Future Naval Capabilities Program”. In collaboration with ONR, NAVSEA, and NSWC PCD, CODA developed the first Prototype with hardware and software components of the DAVD (GEN 1) pursuant to a CRADA Agreement (Collaboration Research and Development Agreement) in 2019. Once the prototype was developed, GEN 1 received Approved Navy Use (ANU) status along with CODA’s Echoscope® (real time 3D sonar).
Fleet issue with the DAVD (GEN 1) started in 2020 and since then we have had several generations with the DAVD. We finalized GEN 3 in fiscal year 2021. Since the development of GEN 3, we have started an upgrade program with the Navy where the fleet issued systems are now being upgraded to GEN 3.
GEN 1 was compatible with two types of Kirby Morgan helmets (KM-97 and KM-37). Now, GEN 2 and 3 are compatible with most commercial and defense Kirby Morgan Helmets and is now compatible with the several Full-Face Masks which is a tethered solution, thereby expanding our addressable market. We are now working on the next generation, which offers completely tetherless operation. We expect this will extend to untethered diving in both the defense and commercial diving sectors.
Does CODA have any other product developments you think our readers should know about?
We have two new product developments that readers should know about: The Echoscope PIPE® CIVS (Close-In Visualization Sonar) and the SEADP (Survey Engine Automatic Detection System).
In 2021, based on a US Government Requirement, we developed and delivered the new Echoscope PIPE® CIVS to a Prime Defense Contractor in order to deliver a short-range high resolution 3D Sonar. Traditionally, our sonars are for imaging from 0.5-150 meters whereas the CIVS sonar is specifically focused from 0.1-20 meters at a much higher resolution. With this new development, CODA is exposed to a whole new set of customers as this type of high resolution, near-field inspection is required for many use cases such as Ship Hull and Critical Assets Inspections for very small objects.
Our other newest product development, the SEADP, was recently launched as a new product based on machine learning/deep-learning technology to help with side scan sonar processing. For side scan sonar processing, a key requirement is to identify obstacles including boulders in areas where installations are to be placed. Significant manhours are required by qualified geophysicists scientists to manually identify these boulders in side scan data, and this is often a redundant and very expensive process. Using SEADP, the identification of boulders has been reduced to minutes compared to many days by qualified geophysicists. This again expands the opportunity to increase our revenues for oil & gas and offshore renewables applications.
As of 4-30-22 CODA reported $20M in cash. How much of an operating runway does $20M provide and absent sufficient operational cash flow, where might future funding come from?
CODA has a multi-year track record of positive EBITDA and net income, and future capital needs of the business above and beyond our internal cash flow capabilities are not expected to be material. As you noted, we have a relatively significant cash balance that provides us with additional capital flexibility to pursue strategic opportunities as they may arise.
What do you consider CODA’s core competencies?
CODA’s leading efforts on innovation for real-time underwater imaging provide it with a significant advantage over competitors. We are the only company in the world that can provide real time 3D/4D/5D and 6D imaging. There is no other sonar in the market that can provide imaging for moving objects underwater in real time 3D such as underwater vessels, divers, marine life, and installations of critical assets such as placing blocks for construction of breakwaters. We have further cemented our lead in this area with our new series of sonar, Echoscope PIPE® (Parallel Intelligent Processing Engine) products. PIPE sonars can generate multiple real time 3D images from the same acoustic ping, whereas our previous generation of sonars could generate only one real time 3D image from an acoustic ping. In our previous generation of sonars, for each ping that was sent out by the sonar, we received back 16,384 pieces of information. In the current generation of sonars Echoscope PIPE® we receive back 81 million pieces of information, whereas the competition returns on average 256 pieces of information.
With our company being a first mover in innovating and commercializing real-time 3D sonar technology as well as the shifting market requirements to real-time 3D imaging in the subsea market, we have positioned CODA to be the market leader in real-time 3D underwater imaging visualization. We have also strengthened this market-leading position by securing a strong patent and IP rights portfolio.
Furthermore, we have strengthened our position as a market leader with the addition of the DAVD technology to our portfolio, a game-changing technology which provides a real time information hub. The system is composed of a topside control panel enabling the dive supervisor to provide information to the diver as needed and see what the diver is seeing. The see-through Heads-Up Display (HUD) in the diver’s helmet and a Diver Processing Pack controlling the HUD, display, ultra-low light enhanced edge video and the digital audio system. This technology is set to change the way diving operations are performed globally in the defense and commercial diving space as use of DAVD can significantly enhance the efficiency, safety and timeliness of executing projects.
In addition to our innovative technology, we have also been able to expand our business with an engineering focused segment through two subsidiaries: Colmek and Martech. Through these two subsidiaries, we’ve created strong long-term relationships with major Prime defense contractors that rely on us to provide proprietary parts into several funded U.S. and U.K. Defense programs. Through leveraging the long-standing relationships we have with Prime Defense Contractors, we are able to build a pipeline of long-tail recurring revenues by supplying proprietary parts comprising sub-assemblies in a number of funded programs including Phalanx and US Navy Mine Hunting Systems programs.
In July, the NASDAQ has gained 10% yet CODA shares have remained flat. Alliance Global Partners analysts have issued a recent target price of $8.00/share (+63%) for CODA. What would you say to investors to create enthusiasm for a CODA investment?
Up until 2020 our primary focus was on R&D to create the foundation for future growth. We have since completed and released to the market significant products such as our new generation of sonars, Echoscope PIPE® and have addressed issues which were barriers to standardization of the technology, such as size, weight, power and price. These significant developments give us an opportunity to shift our focus from R&D to investments on building a global brand and growing the market for our technology solutions. Thus, with our year over year increase in number of sonar units sold and rented and the roll out of the DAVD to the global market, we believe this will add significant revenues to the Group.
Further, we are exposed to growing end markets that have strong tailwinds in offshore renewables, offshore oil & gas and global defense markets to name but a few end markets we are exposed to. These upside opportunities, coupled with a nicely profitable business today and a debt-free balance sheet, make for exciting times at CODA as we look to execute upon our growth objectives.
The Traders News Team
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