Earnings call transcript: Kraken Robotics beats Q4 2024 earnings expectations

Kraken Robotics Inc. (PNG) reported strong financial results for Q4 2024, significantly surpassing earnings expectations. The company posted an earnings per share (EPS) of $0.06, well above the forecasted $0.0163, marking a 268% positive surprise. Revenue also exceeded projections, coming in at $28.11 million against a forecast of $27.86 million. According to InvestingPro data, the company is currently trading at a high earnings multiple with a P/E ratio of 59.5, suggesting investors are pricing in significant growth expectations. Despite these robust results, Kraken Robotics’ stock saw a slight decline of 2.04%, closing at $2.45.

Key Takeaways

• Kraken Robotics reported a 268% positive earnings surprise for Q4 2024.
• Revenue for the quarter was $28.11 million, surpassing expectations.
• The company’s stock declined by 2.04% in pre-market trading.
• Strong year-over-year growth in both product and service revenues.
• Expansion in sales pipeline and strategic acquisitions highlighted.

Company Performance

Kraken Robotics demonstrated impressive performance in Q4 2024, with total revenue reaching $91.3 million for the year, reflecting a 31% year-over-year growth. The company’s product revenue grew by 26% to $66 million, while service revenue surged by 47% to $25 million. InvestingPro analysis reveals the company’s remarkable revenue growth of 81% over the last twelve months, with a strong current ratio of 2.78 indicating solid liquidity. This growth is indicative of the company’s strong positioning in the underwater imaging and robotic systems market, driven by increasing demand in both defense and commercial sectors. Discover 10+ additional exclusive insights about Kraken Robotics with an InvestingPro subscription.

Financial Highlights

• Total Revenue: $91.3 million (31% YoY growth)
• Product Revenue: $66 million (26% growth)
• Service Revenue: $25 million (47% growth)
• Adjusted EBITDA: $20.7 million (47% growth)
• Net Income: $20.1 million
• Cash Position: $58 million

Earnings vs. Forecast

Kraken Robotics reported an EPS of $0.06, significantly outperforming the forecasted $0.0163. This represents a substantial earnings surprise of 268%. Revenue also exceeded expectations, with $28.11 million reported against a forecast of $27.86 million.

Market Reaction

Despite the strong financial performance, Kraken Robotics’ stock experienced a 2.04% decline, closing at $2.45. InvestingPro data shows the stock has delivered an impressive 140.2% return over the past year, with particularly strong momentum in recent weeks, posting an 11.36% gain in the last week alone. The stock is trading below its 52-week high of $3.01 but remains above its 52-week low of $0.92. The decline may reflect broader market trends or investor caution amid geopolitical uncertainties. Get access to comprehensive valuation analysis and Fair Value estimates with an InvestingPro subscription.

Outlook & Guidance

Looking ahead, Kraken Robotics has provided a revenue guidance of $120-$135 million for 2025, indicating a projected growth of 40%. The company also anticipates an adjusted EBITDA of $26-$34 million, reflecting a 45% increase. Strategic initiatives include targeting additional XL UUV battery customers and expanding commercial services with the Catfish platform.

Executive Commentary

CEO Greg Reed highlighted the company’s growth potential, stating, "We think we have good wind to the business to be able to continue to grow this business 30%, 40% plus a year." He also emphasized the dual application of their technologies in military and commercial sectors, noting, "Our technologies are used in both military and commercial applications with leading navies, defense contractors and offshore energy companies."

Risks and Challenges

• Geopolitical tensions could impact market stability and investor sentiment.
• Supply chain disruptions may affect production and delivery timelines.
• Competition in the underwater imaging and robotics sector remains intense.
• Macroeconomic pressures could influence customer spending and investment.

Q&A

During the earnings call, analysts inquired about the company’s sales pipeline and market opportunities. Kraken Robotics emphasized its strong pipeline driven by defense and battery market opportunities, along with flexible sales cycles accommodating both long-term and short-term prospects.

Full transcript - Kraken Robotics Inc (PNG) Q4 2024:

Dave, Conference Call Operator: Good morning and welcome to the Kraken Robotics twenty twenty four Financial Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. My name is Dave and I will be your operator today. After the presentation, there will be an opportunity for analysts to ask questions. I will now turn the call over to Joe McKay, Kraken’s Chief Financial Officer.

Please go ahead.

Joe McKay, Chief Financial Officer, Kraken Robotics: Thank you, Dave, and good morning, everyone, and thank you for joining Kraken Robotics’ earnings release call for the three and twelve months ended 12/31/2024. During the call, all participants are in listen only mode. And then following that management’s commentary, we will conduct a question and answer session with the financial community. Media members with questions and retail investors should contact our PR staff and our Investor Relations staff, which are listed on our press release. Before we begin, I want to remind everyone that certain statements in this call may be forward looking in nature.

Matters discussed on today’s call, including guidance and outlook for 2025 and beyond, statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the expressed or implied in our forward looking statements reflect the company’s judgment based on information available at the time of this call. Please see our forward looking statements and risk factors included in our press release or MD and A and our AIF, which is available on SEDAR plus and our website. Today’s call will include non GAAP financial measures, and they are reconciled to the GAAP results within the earnings release and the MD and A. One other point, unless otherwise stated, all dollar amounts are denominated in Canadian dollars. With all that being said, I will hand it now to Greg Reed, our President and CEO.

Greg Reed, President and CEO, Kraken Robotics: Thanks, Joe, and good morning, everyone. Welcome to Kraken’s first earnings call. Since this is our first earnings call, I’ll start by providing an overview of Kraken Robotics, our business and our markets. After this, I’ll summarize key highlights during our fourth quarter and our fiscal year 2024. Then Joe will run through our fourth quarter and annual financial results and then provide our outlook.

We’ll finish the call with questions from analysts. So starting with the overview of Kraken’s business and markets. Kraken is a marine technology company focused on transforming subsea intelligence through the provision of advanced imaging sensors, endurance solutions and underwater robotic systems. Our technologies are used in both military and commercial applications with leading navies, defense contractors and offshore energy companies such as the Canadian, Danish, Polish, U. S.

And Australian navies underwater vehicle manufacturers such as HII, Enduro and Teledyne and companies in the offshore service supply chain such as Ocean null , Fugro, Technip and more. For investors not familiar with the subsea domain, it’s important to emphasize that this is a very challenging operating environment given factors such as corrosion, extreme pressure, low bandwidth communications and lack of underwater GPS. The barriers to entry are significant and in several of the segments we compete in, we do so with just a handful of competitors. Kraken ourselves were Kraken Robotics was founded in 2012 with a focus on a lower cost ultra high resolution sensor for seabed imaging and mapping called synthetic aperture sonar or otherwise known as SaaS. Over time, our product lineup evolved to include platforms such as a towed underwater vehicle that we call Catfish, autonomous launch and recovery systems and specialized pressure tolerant deep sea batteries under our SeaPower brands.

We also offer a Robotics as a Service or RAS solutions providing seabed and subsea bed imaging surveys for clients. We enhanced our RASH solutions capabilities with the recent acquisition of three d at depth, a leader in underwater light detection and ranging, otherwise known as LiDAR. Three d also provides millimeter resolution metrology and digital twin services for underwater assets and infrastructure. Headquartered in Canada, we have a manufacturing and service operations in Canada, The U. S, The U.

K, Germany, Denmark and Brazil. With over three fifty employees, Kraken serves the global market supporting the defense industry, offshore energy and scientific exploration markets with solutions that enhance underwater operations. Kraken Robotics reports on two lines of business, products and services. First, I’ll talk about our products business. Kraken’s product business focuses on advanced sensors, platforms and battery solutions tailored for underwater applications for both the defense and commercial markets, particularly in maritime security and offshore energy.

In 2024, our product segment represented 72% of our revenue. At the core of our product segment are innovative offerings like Kraken Synthetic Aperture Sonar, which provides configurable high resolution acoustic imaging for detailed seabed mapping, making it ideal for applications like underwater exploration and mine detection. Its compact configurable design allows it to be integrated into various unmanned underwater vehicles providing exceptional performance in both commercial and military underwater operations. Another flagship product is Catfish, a sophisticated towed underwater vehicle platform designed for high speed, high resolution seabed surveys, enhancing capabilities in areas such as mine detection and offshore energy exploration. Equipped with Kraken SaaS, Catfish delivers acoustic imaging, enhancing the precision and efficiency of underwater mapping and reconnaissance missions.

Complementing Catfish are Kraken’s autonomous launch and recovery systems. These are advanced solutions designed to streamline the deployment and retrieval of Catfish from host ships and unmanned surface vessels, enhancing operational efficiency in challenging marine environments. These systems integrate innovative robotics and sensor technology enabling safe and reliable handling of equipment, which is particularly valuable for defense and offshore energy applications requiring precision and adaptability. Switching to subsea power, our SeaPower subsea battery systems stand out for their pressure tolerant deep sea capabilities, enabling reliable power delivery for autonomous underwater vehicles in the demanding conditions of deep sea environments. These batteries offer exceptional energy to weight ratios, significantly extending the operational endurance and efficiency of unmanned underwater vehicles for applications like seabed mapping and offshore energy exploration.

These products collectively position Kraken as a leader in delivering cutting edge sensor and robotic solutions that address complex underwater challenges. Moving on to our service business, which represented 28 of our revenue in 2024. Kraken’s service business is an important part of our growth strategy, capitalizing on the increasing demand for advanced subsea solutions in the offshore energy sector, particularly in commercial offshore wind and oil and gas markets. For these markets, Kraken provides clients with a variety of subsea survey and inspection capabilities. Our solutions are in demand as customers look to reduce costs and risks across all aspects of marine infrastructure planning, construction, operations and maintenance and decommissioning.

The service business benefits from Kraken’s integrated approach where our field operations teams and service customers provide valuable feedback to our business development, engineering and R and D teams to enhance our product development roadmap. Now switching moving on to the highlights for 2024 before we switch over to Joe for the numbers. First, I wanted to talk about continued growth and improved financial position. 2024 was a year of significant growth and execution at Kraken Robotics. Business was strong across both the products and service segments with increased defense spending across the globe driving the former.

Financially, it was a record year for Kraken Robotics. Joe will go into the results in more detail, but in summary, we’re pleased with the financial results generated by Kraken’s entire team, which now stands at three fifty strong. We again met our annual financial guidance with total revenue for fiscal twenty twenty four growing 31% year over year to 91,300,000.0 adjusted EBITDA growing 47% in 2024 to $20,700,000 and adjusted EBITDA margin was a healthy 22.7% for the year. To accelerate growth during 2024 and beyond, we closed over $70,000,000 of equity financings during the year as well as $45,000,000 of new committed credit facilities and an uncommitted $30,000,000 accordion facility. An improved balance sheet was a key strategic priority, allowing us to build inventory to offer customers shorter lead times, to expand manufacturing capacity and to provide some capital for selective accretive tuck in acquisition opportunities.

On the operational side, in 2024, Kraken demonstrated a strong commitment to enhancing our operational capabilities through strategic investments and initiatives aimed at driving long term growth. We made investments across all areas of the business, including a focus on bolstering our project management, engineering, customer success and business development groups. Our business development and customer success teams participated in numerous trade shows and industry events such as the robotic experimentation and prototyping with maritime unmanned systems, otherwise known as REPMIS in Portugal to showcase our synthetic aperture sonar technology on unmanned underwater vehicles, fostering collaboration with allied nations and advancing our research and development efforts. Our R and D and technology teams continue to refine our technical roadmap across our product and service offerings. We have exciting new product development efforts across our subsea sensor, platform and power portfolios.

By prioritizing these operational initiatives, we are expanding our robust foundation for sustained growth, leveraging our expertise in seabed and subsea bed intelligence to meet the increasing demand for surveillance and security of critical underwater infrastructure across our markets. With that, I’ll turn it over to Joe for a comment on financial results.

Joe McKay, Chief Financial Officer, Kraken Robotics: Thanks, Greg. Today, I’ll start by reviewing the full year results ending 12/31/2024, and then move on to our fourth quarter results. Consolidated revenue for 2024 increased 31% to just over $91,000,000 Product revenue in 2024 increased 26% during the year to just over $66,000,000 and was driven by significant growth in our subsea battery business and offset by lower revenue in our sonar business. Service revenue in 2024 saw a great growth at 47% and increased to $25,000,000 and that was driven by an increased number of sub bottom integrator jobs as well as acoustic core projects. Gross profit for the year increased 32% to $44,700,000 while gross profit margin remained unchanged at 49%.

Adjusted EBITDA for 2024 increased 47% to $20,700,000 compared to $14,100,000 in the prior year and saw adjusted EBITDA margin improved to 22.7% compared to 20.3 in the prior year. Net income for the year increased to $20,100,000 compared to $5,500,000 in the prior year. You’ll notice that we brought the deferred taxes assets onto the balance sheet in the quarter given our profitability outlook and that had an impact of our deferred tax recovery of $9,700,000 in net income for the full year, a positive net income effect. Continuing with the balance sheet, we did a lot of work, as Greg mentioned, to improve the balance sheet during the year. Total assets ended the year with 163,000,000 Cash stood at $58,000,000 while working capital stood at $94,000,000 All those metrics are up significantly over the 2023 levels.

Switching to the Q4 results. Consolidated revenue for Q4 was flat at $28,100,000 over the prior year. Our subsea batteries, our service revenue and our sonar revenue grew in the quarter, while our Catfish and we won’t mind disposal system revenue declined on a year over year basis. Gross profit in Q4 increased 15% to 13,500,000 implying a 48% gross margin percentage compared to 41.8% in Q4 twenty twenty three. The year over year improvement relates to the change in revenue mix over the Q4 in 2023.

Adjusted EBITDA increased 23% in the quarter to $7,000,000 and it was due to improved gross margins as well as strong cost control. Adjusted EBITDA margin in the quarter stood at 25% compared to 20.5% in Q4 in the prior year. With that, I’ll hand it back over to Greg.

Greg Reed, President and CEO, Kraken Robotics: Okay. Thanks, Joe. Now turning to 25 onwards, I’ll touch on some points relative to our largest end markets, that’s defense and offshore energy. Starting with the defense markets, macro fundamentals are strong. Geopolitical tensions are accelerating investments in marine technology, driven by escalating conflicts and strategic rivalries across key maritime regions.

Ongoing tensions in numerous regions are prompting nations to bolster underwater surveillance and defense capabilities, whether it is Asia Pacific with the South China Sea, the Black Sea in the Baltic, the Red Sea and the Persian Gulf in the Middle East and increasingly the Arctic, the growing needs to protect critical underwater infrastructure such as undersea fiber optic cables, power cables and pipelines require innovative and effective technologies such as acoustic surveillance systems and autonomous underwater vehicles. These trends are compounded by a broader de globalization and protectionist policies, which could disrupt seaborne trade and necessitate enhanced technological solutions to ensure resilience and security in global supply chains. Countries are increasingly recognizing the strategic importance of securing their exclusive economic zones and critical maritime assets, leading to greater investments in underwater robotics, sensor networks and mine countermeasures, intelligence surveillance and reconnaissance and anti submarine warfare technologies. In addition to the geopolitical factors just mentioned, navies around the world are increasingly looking for unmanned systems, I. E.

Drones, to play a greater role as future fleets will be a combination of manned and unmanned systems. Many departments of defense are moving to expeditiously integrate unmanned systems in their surface and undersea fleets. As important, there appears to be a movement to accelerate getting commercial off the shelf systems or COTS in the hands of the war fighters through modernizing defense procurement, increasingly prioritizing speed, flexibility and innovation. In summary, increased defense spending, non U. S.

NATO and allied defense spending positions Kraken well for defense related growth. Our sensor and our subsea power solutions are used by the largest and fastest growing unmanned underwater vehicle manufacturers and our Catfish towed platform is ideally suited as a reasonably priced high performance mine countermeasure and seabed survey solution. In the commercial market, that is the non defense market, the largest segments are offshore energy such as offshore wind and offshore oil and gas. We continue to see solid demand for Kraken’s high resolution seabed and subsea bed imaging solutions for use in survey and inspection of subsea infrastructure. The U.

S. Administration’s policies towards offshore wind is causing some softness in The U. S. Market, but other markets continue to show strength. We expect growth in our commercial services business to continue with geographic expansion and increasing pool of assets for deployment and the introduction of additional tools and technologies into the service market, such as our Catfish seabed survey platform and our three d subsea LiDAR sensors.

Switching to the current year 2025, some of the key activities and I just wanted to go through them by various areas of our business. First on subsea batteries, in February, we announced we’ve signed the lease for an approximate 60,000 square foot of space in Nova Scotia, which will put us in a position to meet growing customer demand in the subsea power domain with manufacturing from both Canada and our original facility in Germany. This new facility allows us to more than triple our battery production capacity and is a strategic response to accelerating demand, especially from the defense sector for uncrewed underwater vehicles. We expect this facility to be operational at the end of this year. In the subsea sensor market, I.

E. Sonar, 2025 will see continued pursuit of major programs with many countries moving through the various procurement stages of upgrading their subsea mine hunting fleet and equipment. This activity is occurring globally. We have a significant increase in catfish and SaaS demo activity in 2025 as we prepare for major programs coming to the market. On the technology front, we continue to push forward on new technology developments such as circular and long range SaaS, new subsea power designs and potentially integrating our three d LiDAR technology into our product portfolio.

In the subsea services space, in addition to our traditional subsea bed service activities, twenty twenty five in services will see a focus on the integration of three d At Depth subsea LiDAR business, cross training of the teams and cross selling as well as the rollout of using catfish in the commercial market, where we are building an additional two catfish for this market in 2025. Now switching over to financial guidance for 2025. Against the defense and commercial market backdrops that I’ve described, I’m pleased to provide the following guidance for fiscal twenty twenty five. Revenues ranging from 120,000,000 to $135,000,000 the midpoint of which $127,500,000 represents 40% annual growth versus 2024. Adjusted EBITDA between 26,000,000 and $34,000,000 the midpoint of which $30,000,000 represents 45% annual growth versus 2024.

Capital expenditures will be in the range of 13,000,000 to $17,000,000 in 2025. We based our top line guidance on existing contracts in hand, including the $45,000,000 of year to date Subsea Power orders, combined with a mix of commercial and defense market pursuits. As noted in our earnings press release today, our sales pipeline has grown significantly to over $2,000,000,000 versus the $900,000,000 we shared in February of twenty twenty four. For those new to the Kraken story, we focus our business on annual targets and note that our actual annual results are often back end weighted with this year being no exception. Our quarterly results can vary based on the timing of new orders, product shipments and seasonality in our offshore business and our European manufacturing business.

With that, we’ll wrap up our prepared remarks by pointing you to our website, krakenrobotics.com, for more information. We update our website regularly, including our financial filings and other updates, and you can also find our financial filings on SEDAR plus Please also visit Soffit Capital’s website for additional information and follow them on X, the former Twitter, to get links to announcements and other media. Thanks again for joining us today, and I’ll switch the call back to David.

Joe McKay, Chief Financial Officer, Kraken Robotics: We will

Dave, Conference Call Operator: now begin the question and answer session with analysts. Our first question comes from Nicholas Wojciech with Cormark Securities. Please go ahead.

Nicholas Wojciech, Analyst, Cormark Securities: Hey, good morning guys.

Greg Reed, President and CEO, Kraken Robotics: Good morning, Nicholas. Good morning.

Nicholas Wojciech, Analyst, Cormark Securities: On the pipeline, you mentioned obviously it’s grown very well doubling from $900,000,000 to $2,000,000,000 Can you walk through a little bit, couple of moving parts within that, specifically whether this is a lot of new demand that’s been coming from either navies or other industries, other sectors or if this is a pull forward of things that you maybe knew of, but now have a lot more visibility? So is that a pull forward or new growth really?

Greg Reed, President and CEO, Kraken Robotics: Yes. Nick, I would say it’s a combination of both. I mean we last provided this pipeline figure just over a year ago. There’s been a number of new programs that we had either not a whole lot of granularity of the size and the timing on it. That’s become more clear over the last year.

And as well as there’s a couple of programs that we might add a bit further out in the pipeline that are getting a bit closer given all the recent geopolitical activity. I’ll also highlight here you’re talking about defense related programs related to catfish and underwater vehicles. The emergence of XL UUVs with a number of different potential players in that market should drive some strong growth as well. And we’re seeing a lot of activity related to our battery business. So that’s the reason.

So really across the board in the three areas of our business, being sonar batteries and then services, and that’s the reasoning for the increase in the number.

Nicholas Wojciech, Analyst, Cormark Securities: Okay. And then on the battery business specifically, you mentioned the XLUVs. How should we be thinking about the rest of this year as it relates to those other customers? You mentioned in the press release that you have new form factors you’re developing. Can at all on the conversations and how that’s going with other customers aside from the one large one that you have mentioned previously?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say the engineering teams are working on some new battery designs later this year. We’re qualifying some new cells right now. And we expect that some of those designs will open up some of the smaller vehicle opportunities, so small and medium sized vehicles that we haven’t traditionally played in. Expanding our market opportunity there, specifically as it relates to XL programs.

There are a number of companies out there that have XL development efforts. There are some companies that already have a product in the market. And we obviously are a supplier to one of those big ones. We expect, as we work hard through the year, to get some other clients signed up. We’ll see how the year progresses, but we’re targeting to have one of these signed by the end of this year, an additional player in the XL market signed by the end of this year.

And just across the board on the Subsea Power business, we’re seeing lots of opportunity to expand that side of our business.

Nicholas Wojciech, Analyst, Cormark Securities: Okay. Great. And then last for me. Just you’ve got all this demand. Obviously, you mentioned that you have the new battery facility in Halifax.

How are you guys feeling about your existing facilities, existing footprint to meet all that? Is there a need at some point where you’re going to need an additional facility for another geography, something like Australia, The U. S? Any thoughts on that?

Greg Reed, President and CEO, Kraken Robotics: Yes. I think the focus this year is really to ramp up the to get the new facility up and running, hit the ground running in 2026 to be able to fill that up fairly quickly. In terms of additional capacity requirements on that, we’re constantly evaluating that, looking at our pipeline, talking to our customers. I would highlight that today, we don’t have U. S.

Related manufacturing. We did do an acquisition, three d At Depth, which is a service business, which now we have about 65 of our three fifty people based in The U. S. With that acquisition. So that could open the door for future manufacturing in The U.

S. As well as it may be required to address some program opportunities. So nothing to announce today, Nick, but we’re evaluating it. And if the business keeps seeing very strong activity, yes, we would have additional manufacturing requirements down the road. On the sensor side of the house, so talking about Catfish and SaaS, we have runway with existing facilities to ramp up that business without major capital requirements.

Joe McKay, Chief Financial Officer, Kraken Robotics: Thanks.

Dave, Conference Call Operator: And the next question comes from Benoit Poirier with Desjardins Capital Markets. Please go ahead.

Benoit Poirier, Analyst, Desjardins Capital Markets: Yes. Thank you very much, and good morning, Greg and Joe. Just in terms of given all the announcement that we’ve seen this year, is it fair to assume that the majority of your battery capacity for this year is already secure?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say, yes, for the current year, we are running full out in the German facility, and we expect a very solid year out of that. And based on the announcements that we’ve had in the past and other things that we haven’t announced yet that we yes, our battery business the numbers that we talk about for our battery business are very solid for the year.

Benoit Poirier, Analyst, Desjardins Capital Markets: Okay. And with respect to the opportunity with the Singapore Navy, obviously, they are going through election. So would it be fair to say that this potential catalyst is pushed to the right? And do you see any other opportunities for the catfish for 2025 to kind of replace this potential order?

Greg Reed, President and CEO, Kraken Robotics: Yes. Thanks, Benoit. With respect to specific customers or navies, we’re not going to talk detail. I would highlight, I mean, I think it’s out there in the market. Most people are aware that, that particular customer is upgrading its mine hunting equipment.

And there was a couple of companies, including Kraken, in consideration for that. We would have expected we would have heard one way or another by now that, that program has, in terms of announcements, been pushed along. So nothing to say on that front right now, Ben. But in terms of we don’t want to delineate the detail of our sales pipeline, but there are numerous catfish and SaaS opportunities, programs that are coming to market shortly. Some there’s others that might get awarded this year.

And we expect that we’re well positioned ourselves and a few other competitors will be bidding on them. So those are, I’ll call them, bigger programs where you’re delivering equipment over multiple systems over a few years. There’s a number of smaller individual opportunities that we are in pursuit of as well. And some of them might come in based on end of year money from customers. Other ones were almost on a weekly basis, you’re hearing about new opportunities because of increased defense spending out of NATO or other countries.

So there’s I guess that’s a way of saying that there’s a lot of irons in the fire. And if we don’t get one particular one, there’s a number of other ones that are out there as well.

Benoit Poirier, Analyst, Desjardins Capital Markets: Okay. And maybe last one, just in terms of working capital assumption in 2025. Obviously, if you could give an update on the Canadian Navy RMDS contract. I’m just wondering how it’s progressing toward the completion, the timeline and what we might expect from a working capital standpoint in 2025.

Greg Reed, President and CEO, Kraken Robotics: Yes. Thanks,

Joe McKay, Chief Financial Officer, Kraken Robotics: you look at the contract asset on the balance sheet, that’s been a bit of a draw on our working capital. And that’s really relates to that contract is a is more of a milestone based contract. That contract will be largely completed by the end of twenty twenty five. So you’re going to see a reverse in that working capital draw that you’ve seen in the past. I would also mention that kind of a draw on working capital has also been contract liabilities.

And that’s come down as we’ve delivered a lot of product during 2024. And with some of these recent announcements that we’ve made in the last few months, you’ll see the contract liabilities increase as well. So that will reverse as well in 2025. So we should be working capital positive in 2025 with those two main items reversing.

Dave, Conference Call Operator: And the next question comes from Stephen Lee with Raymond James. Please go ahead.

Stephen Lee, Analyst, Raymond James: Hey, guys. Maybe Greg to start. Hey, when you talk about numerous RFPs coming to the market shortly, and I know Singapore was probably an outlier in terms of how drawn out it was. But like the ones that you have on your slide on your deck, The U. S, U.

K. And so on, usually, once the RFP is out, your expectation is the award is within how many quarters? Thanks.

Joe McKay, Chief Financial Officer, Kraken Robotics: Just

Greg Reed, President and CEO, Kraken Robotics: explain processes. Every country is different, but generally, how our industry works is RFI comes out. Request for information, that is then followed by a request for proposal or request for quote. And in some cases, you have the RFP come out and then things go to contract within six months. In other cases, you might have a year between RFP and actual award and start of the contract.

So each country is different, Stephen. Some of the names that you just mentioned there, the RFIs have come out. Other in other examples, they’ve had industry specific days where they invite industry in and talk about the program and give timelines on it. So that’s the nature of it. It’s hard to say that it’s always three months or always six months or always nine months.

It really depends by country how they do their procurement.

Stephen Lee, Analyst, Raymond James: Okay. Thanks. Very good. And Joe, maybe a question for you. So very strong end services.

Is 15% organic? Is that still a good target for you guys?

Joe McKay, Chief Financial Officer, Kraken Robotics: I would say it would be north of 15% organic.

Stephen Lee, Analyst, Raymond James: So north of 15%. And even though you had like the acoustic large deal in Q4, so bigger base and then three d debt on top of that?

Joe McKay, Chief Financial Officer, Kraken Robotics: Yes. We’re not going to break out guidance by company. I mean, we did give what the 2024 revenue was for three d was $14,000,000 And so you can kind of based on your overall model, you can kind of back into that. But yes, it should be north of 20%.

Stephen Lee, Analyst, Raymond James: Okay. And that also factors The U. S. Wind offshore, some of the weakness that Greg referenced on the call, right?

Joe McKay, Chief Financial Officer, Kraken Robotics: No impact U. S. Offshore in 2025.

Stephen Lee, Analyst, Raymond James: Okay. Perfect. And then last one for me. Yes, go ahead, Greg. Yes.

I was just going

Greg Reed, President and CEO, Kraken Robotics: to clarify that. So on within our sales pipeline for the year, we did not have a lot of in our forecast, we did not have a lot of U. S. Offshore wind. Historically, our sub bottom imaging related business has been predominantly European related.

We do some business in Taiwan and Australia and other geographies as well. And yes, we have done some business in The U. Offshore wind space. But while we might get some softness related to that, we can make it up in other areas of the service business and other geographies.

Stephen Lee, Analyst, Raymond James: Got it. And then one more for me. You’ve got a strong EBITDA for next year. How do we think about your cash flow, quality profile? Is it a bigger drain in the first half with the CapEx?

Thanks, Joe.

Joe McKay, Chief Financial Officer, Kraken Robotics: No, it shouldn’t be as as I said, I mentioned to Benoit’s question, working capital kind of reverses. If you look at the kind of the midpoint of our guidance and the midpoint of CapEx, we should be free cash flow of $15,000,000 And then with those other with contract assets and contract liabilities reversing, it shouldn’t be really a drain on free cash flow.

Dave, Conference Call Operator: And the next question comes from Doug Taylor with Canaccord Genuity. I

Doug Taylor, Analyst, Canaccord Genuity: appreciate you guys hosting this call to give us some more color here. I’ll start with another question on the pipeline, you’ve updated today. Obviously, pretty impressive expansion of that pipeline. And just helping us understand how we should think about this and the conversion to revenue and growth. I mean, maybe I could get you to talk about how much pipeline of the $900,000,000 last year did convert or reach some sort of decision?

And maybe you can wrap some sense of the timing of the overall pipeline and what you would consider adding to it before providing that figure?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say, Doug, looking at that sales pipeline, we’re going to update it annually. We’re not going to get into discussing it quarterly. In terms of the two bigger blocks of if you think of the three parts of our business, one being sonar, one being batteries, one being services, the service pipeline, just the business in general, has a different mix to it. You don’t go into a year with a huge pipeline or you don’t have a multiyear pipeline on the service business where you do have it on the batteries and the sonar business.

So the biggest drivers of it are sonar and battery side. The battery side is up very significantly from last year and not just because of our existing customers, but also because over the last year, we’ve had a lot of good, I’ll call it, unsolicited inbound interest just as knowledge of our product gets out there as well as a more dedicated BD focus on the battery side. So that there’s a number of players that are coming into the market across all sizes of underwater vehicles. But obviously, the XL vehicles, the ones that are the size of a subway car, are ones that really move the numbers the most. And on the sonar side, which is a combination of Catfish product as well as our SaaS that goes in other people’s underwater AUVs, We are versus last year, there’s a number of new programs that have that we’ve become aware of or just, I’ll call it, there’s been more meat put on the bone.

You know that a certain Navy several NATO, navies were talking about upgrading their mine hunting equipment. And now over the last year, the detail of that, the timing of it, the size of that has become much clearer into focus. So if I look at that, those numbers that I talk about when we talk about $2,000,000,000 are really looking forward to four years sort of saying, here’s all the programs that we see and what’s changed from our number we talked last year at $900,000,000 was just the visibility to see a number of these other programs and have them have meat put on the bone. And then there’s occasionally, there’s some that just come out of the blue that we weren’t aware of or because of increases in naval spending. There’s new buckets of money that are becoming available, which are, in some cases, hard to quantify how it flows into some of these opportunities.

Doug Taylor, Analyst, Canaccord Genuity: Well, appreciate all that color. And so I guess the next question from that is you’ve had to quantify this into the guidance which you’ve provided today in terms of near term conversion. And it’s understandable that there’s a larger range given some of the chunkier opportunities that would comprise your funnel. Maybe you could help us by understanding the degree of visibility, maybe the bottom end of the range versus the high end and maybe talk about what some of the variables are that would get you from one end to the other in terms of delivery timetables or future sensor bookings, anything like that would be helpful.

Greg Reed, President and CEO, Kraken Robotics: Sure. I’ll start at a high level and say that if you look at our historical growth and the markets that we play in and the solutions that we have, we’re really we think we have good wind to the business to be able to continue to grow this business 30%, forty % plus a year. So that’s at a high level. Talking specific specifically to this year, yes, it is a wider range of guidance than we’ve done in the past. There’s some more moving parts this year.

I’d say there’s a number of opportunities and programs across all areas of the business that we’re working hard to close. And we’re not going to talk about close rates on business. I think what we would say on the guidance is that for several years when we’ve given guidance, we’ve ended up at the beginning of the year, we’ve ended up hitting it at the end of the year. Yes, to hit the top end of the range, we’ve got work to do. But it’s not our ability to hit that number is the business is out there.

It’s closing on some of these opportunities. And those are exclusive of some of these major programs. So there’s, I’ll call them, more individual opportunities that might be not multiunit opportunities over many years, but specific year end money or specific short term programs that will allow us to push towards the high end of those numbers if we can execute.

Dave, Conference Call Operator: And the next question comes from John Chao with National Bank Financial. Please go ahead.

John Chao, Analyst, National Bank Financial: Hey, good morning. Thanks for taking my question. We understand the strong market demand for your defense product and the fact that your sales pipeline is getting bigger, but how should we think about your sales cycle? Is there the same as before? Or do you think it’s going to expect to accelerate in today’s environment given urgency?

Greg Reed, President and CEO, Kraken Robotics: Yes. Good morning, John. I would say that in some areas, you’re seeing more opportunities pop up that might be shorter term. Again, a bit more visibility when you talk about certain just at a high level, you’ll hear about certain NATO countries increasing their spending in certain areas. And so in terms of overall ability to access some of these opportunities, there’s a lot as I mentioned earlier in the call, there’s just a lot of irons in the fire.

Yes, there’s these multiyear programs that we’ve seen coming for a while that will come to market, but there is more, call it, short term opportunities as well. And you’re also seeing there’s a lot of new companies coming into the market, not on the sensor side and towfish side will replay, but there’s a lot of new AUV companies and unmanned surface vessel companies that have raised a lot of capital that are in the market out pursuing business. And we’ve had lots of opportunities with both the big traditional incumbents as well as a lot of the new emerging players.

John Chao, Analyst, National Bank Financial: Thanks for the colors. In terms of your battery business, we understand there still seems to be a good portion of potential customer that are trying to build battery systems on their own. So what kind of opportunity do you see out there? And how do you go after them to convince that Kraken is a better option?

Greg Reed, President and CEO, Kraken Robotics: Yes. That’s thanks for that. That’s a good point. Yes, there’s I mean, there are companies out there that do their own battery systems, and they do their own vehicles and try and do everything. Ultimately, how we try and convince them to outsource their battery manufacturing to a company like Kraken is just through discussion.

And those companies might be aware that some of their competitors are using our batteries and getting much more endurance. So the sales pitch to them is use our solutions. We’ve got capacity. We’re focused on being not being an AUV provider. We’re focused on providing some sensors and batteries that go into other people’s underwater vehicles and come to a company like Kraken and we’ll improve your battery capabilities and make you more competitive.

So yes, there is that outsourcing angle that our sales team is focused on as well. And that we’ll see how that plays out over time.

John Chao, Analyst, National Bank Financial: Thank you. I’ll pass the line.

Dave, Conference Call Operator: And the next question comes from Gabriel Leung with Beacon Securities. Please go ahead.

Gabriel Leung, Analyst, Beacon Securities: Hi, good morning and thanks for taking my questions and congrats on the progress. Greg, you talked a little bit a little earlier about being super busy with delaying the Catfish and obviously being in deep discussions with some XL AUV providers to integrate your batteries into the vehicles. We know what’s great about your products, but I’m curious to hear whether there’s been any notable pushbacks, I guess, on those fronts, whether it’s related to around pricing or any capabilities you might be lacking in the products. Just curious to hear what your customers are saying.

Greg Reed, President and CEO, Kraken Robotics: Yes. Hi, Gabe. Good morning. I would say, I mean, people always like to discuss on the battery side as it relates pricing. If you look at electric vehicles and batteries and pricing has been going down.

And we do get commentary from our customers as well, always looking for lower pricing. And really, how we’ve been able to maintain the good growth in the battery side and maintain margins is come out with new designs as well, which provide customers much higher kilowatt hours of capacity for their subsea vehicles. So overall, while, yes, sell pricing might have been going down, we’re able to because of the volumes that we do, we are able to get some efficiencies there. And then with new designs, which have a higher number of kilowatt hours, our dollar per kilowatt hours to our customer is getting to the price points that they want it to be. So we’re able to meet their needs that way.

In terms of other commentary on the catfish and the sonar, I mean, it’s really about customers are looking for you to continue to innovate. I mentioned some of the things that we’re working on this year on the R and D side, and we have to continue to put product into the market that the customers are happy with, that they’re reliable, that they’re easy to integrate, that they’re easy to operate. And that’s the continual push for companies like Kraken and our competitors.

Gabriel Leung, Analyst, Beacon Securities: Got you. Thanks for that feedback. And then just moving over to the services side of the business. With the inclusion of three d at depth, are you able to talk about what the revenue capacity actually is for that side of the business now? And how aggressively are you looking to build out, I guess, your fleet there to facilitate growth?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say, thinking about our business, three legs of the stool, batteries, sonar and then services. So services is an important leg of the stool. Yes, adding in three d at depth is really a nice fit where you take your sort of more European centric offshore wind centric business, combining it with three d at depth, American and more oil and gas focused business, it’s a nice combination. So the combined business, if you look at the two of them, is well over $40,000,000 40 5 million dollars last year.

And ultimately, you think of that, we’ve got a number of different tools. So three d at depth bring on the order of nineteen, twenty or 21 different subsea LiDAR sensors. We’ve allocated some CapEx to them. So they will continue to grow that amount of, call it, kit that they have. And then on our existing kit with our sub bottom imaging technologies, we’re building a couple other sub bottom imagers this year off of a base of around eight.

So that gives you a sense of the growth in that. And then one thing that we have not done a good job of the last couple of years is taking our catfish, which we use for the defense market and getting it into the commercial market. And part of that was as a result of our growth where every time we build the catfish to use it in the commercial market, we ended up selling it in the defense market. So this year, as we’ve ramped up manufacturing, we’ll have a couple of systems, catfish systems that we’ll deploy in the commercial market. So ultimately, across laser sensors, across Catfish, across sub bottom imaging, we’re adding capacity this year, Gabe.

And in terms of how aggressive we will be, we’re not going to get out over our skis. We’ll see how the utilization of the equipment is and how the demand in the market is, and we can incrementally add capacity to that market. And as a reminder for everybody, on our service business, we’re not in the boat business. So it’s I call it a relatively CapEx light type service business where our people are using our kit offshore and then processing the data with our data processors and our scientists analyzing data and providing service to customers. Does that give you color, Gabe?

Dave, Conference Call Operator: This concludes our question and answer session. I would like to turn the conference back over to Greg Reed for any closing remarks.

Greg Reed, President and CEO, Kraken Robotics: Okay. Thank you, David. So I just wanted to close by acknowledging the extraordinary accomplishments of our team last year. We exceeded expectations during a period of rapid growth. The teams carried its enthusiasm and hard work into this year.

These people are the core of our innovations, creating products and services demanded throughout the world by the most recognized companies and militaries. Joe and I and the rest of the senior management are committed to growing shareholder value. We ourselves are a significant shareholder, so our interests are aligned with yours. So thanks for your continued support, and thanks for joining the call today, and we look forward to talking with you again soon.

Dave, Conference Call Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for your participation.

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