Earnings call transcript: Kraken Robotics Q2 2025 shows revenue growth, EPS miss

Kraken Robotics Inc. (NASDAQ:KRKN) reported its earnings for the second quarter of 2025, revealing a mixed financial performance. While the company achieved a revenue of $26.4 million, surpassing expectations with a 6.15% surprise, its earnings per share (EPS) fell short of forecasts, posting an EPS of $0 against the expected $0.0089. Following the earnings announcement, Kraken Robotics’ stock experienced a decline, with shares dropping by 2.87% to close at $3.39, reflecting investor concerns over the EPS miss. According to InvestingPro data, the stock has seen remarkable growth with a 137% return over the past year, despite recent volatility. The company currently appears overvalued based on InvestingPro’s Fair Value analysis.

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Key Takeaways

• Kraken Robotics reported a 16% year-over-year increase in Q2 2025 revenue.
• The company maintained its annual revenue guidance between $120 million and $135 million.
• Despite revenue growth, EPS missed forecasts, resulting in a negative market reaction.
• New product launches and facility expansions are planned for later in 2025.
• Strong market opportunities identified in defense spending and offshore energy sectors.

Company Performance

Kraken Robotics demonstrated robust revenue growth in Q2 2025, with a 16% increase compared to the same period last year. However, the year-to-date revenue of $42.5 million represented a 3% decline from the previous year. The company reported a gross profit of $14.8 million, marking a 27% increase from Q2 2024, and an adjusted EBITDA of $4.7 million, reflecting an 18% margin. InvestingPro data shows the company maintains a healthy gross profit margin of 52.5% and operates with a moderate debt level, with a debt-to-equity ratio of 0.25. The company’s financial health score is rated as "GOOD" by InvestingPro’s comprehensive analysis framework.

Financial Highlights

• Revenue: $26.4 million, up 16% year-over-year
• Earnings per share: $0, missing forecast of $0.0089
• Gross profit: $14.8 million, up 27% from Q2 last year
• Adjusted EBITDA: $4.7 million, 18% margin

Earnings vs. Forecast

Kraken Robotics’ Q2 2025 revenue exceeded the forecast of $24.86 million by 6.15%. However, the EPS result of $0 was a significant miss compared to the forecasted $0.0089, representing a 100% shortfall. This marks a deviation from the company’s historical performance, where it has typically met or exceeded earnings expectations.

Market Reaction

Following the earnings release, Kraken Robotics’ stock fell by 2.87% to $3.39. While this decline reflects immediate investor concerns about the EPS miss, InvestingPro data reveals the stock has delivered impressive returns, with a 40.6% gain over the past six months and a strong three-month performance. The company maintains solid liquidity with a current ratio of 4.3, indicating strong short-term financial health. Analysts maintain a positive outlook, with price targets ranging from $2.34 to $3.60.

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Outlook & Guidance

Kraken Robotics maintained its annual revenue guidance of $120 million to $135 million and adjusted EBITDA guidance of $26 million to $34 million. The company plans to launch a new high-energy-density battery and a Launch and Recovery System for unmanned surface vessels in Q4 2025. Additionally, Kraken is expanding its battery production capacity with a new facility in Halifax and increased operations in Germany and Canada.

Executive Commentary

CEO Greg Reed stated, "We’re well positioned to continue the solid growth," emphasizing the company’s strong market position and technology applications in both military and commercial sectors. Reed also highlighted the expected strong performance in the services and battery businesses for the remainder of the year.

Risks and Challenges

• Supply chain disruptions could impact production timelines and costs.
• Geopolitical tensions may affect international sales and operations.
• Market saturation in certain regions could limit growth opportunities.
• Fluctuations in defense spending could influence contract awards.
• Competition from other tech firms in the subsea power and sensor technology space.

Q&A

During the earnings call, analysts inquired about Kraken Robotics’ battery capacity expansion and potential customer opportunities in the Asia-Pacific region. The company clarified its sales and marketing investment strategy and highlighted a robust pipeline of demonstrations and requests for proposals (RFPs), indicating strong future demand.

Full transcript - Kraken Robotics Inc (PNG) Q2 2025:

Jamie, Conference Call Operator: Good morning and welcome to the Krafton Robotics Second Quarter of twenty twenty five Financial Results Conference Call for the three months ending 06/30/2025. As a reminder, all participants are in a listen only mode and the conference is being recorded. My name is Jamie, and I will be your operator today. After the presentation, there will be an opportunity for analysts to ask questions. At this time, I’d like to turn the floor over to Joe McKay, Kraken’s Chief Financial Officer.

Please go ahead.

Joe McKay, Chief Financial Officer, Kraken Robotics: Thank you, Jamie, and good morning, everyone. Thank you for joining Kraken Robotics Q2 twenty twenty five earnings release call. During the call, all participants are in a listen only mode. And then following management’s commentary, we’ll conduct a question and answer session with the financial community. Members of the media and retail investors should contact our PR staff and our Investor Relations staff listed on our press release today.

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 expressed or implied in our forward looking statements reflect the company’s judgment based on information available at the time of this call today. Please see our forward looking statements and risk factors included in our press release, our MD and A and our AIF, which are all available on SEDAR and our website. Today’s call will include non financial non IFRS financial measures and they are reconciled to our IFRS results, which are within our release as well as the MD and A. Unless otherwise stated, all dollar amounts discussed today are denominated in Canadian dollars.

With all that being said, I’ll hand it over to our President and CEO, Greg Reed.

Greg Reed, President and CEO, Kraken Robotics: Thanks, Joe, and good morning, everybody. Welcome to Kraken Robotics’ second quarter twenty twenty five conference call financial earnings conference call. I’ll start with a brief summary of Kraken Robotics. After this, I’ll summarize key highlights across our products and our services during our Q2 and the 2025 and what we can expect through the year and beyond. Then Joe will run through our Q2 and first half financial results and provide our outlook.

We’ll finish up the call with questions from analysts. Kraken is an ocean 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 U. S, Australian, Canadian, Danish and Polish navies, underwater vehicle manufacturers such as HII, Enduro, Teledyne and companies in the offshore service supply chain such as Ocean null , Fugro, Subsea seven, Saipem, Technip and more. We’re headquartered in Canada.

We have manufacturing and service operations in Canada, The U. S, The UK and Germany and we have sales and R and D offices in Denmark and Brazil. With almost 400 employees, we serve the global market supporting defense, offshore energy and marine science customers with solutions that enhance harsh environments underwater operations. We report two lines of business, products and services. Our product business focuses on subsea power solutions, subsea platforms and advanced sensors, all tailored for underwater applications for both defense and commercial markets, particularly in maritime security and offshore energy.

I’ll start first with subsea power products, which we brand SeaPower. These subsea pressure tolerant battery systems enable increased energy density for autonomous underwater vehicles in the demanding conditions of deep sea environments. Our SeaPower batteries are used by a number of Navy and commercial customers across the globe in their autonomous underwater vehicles. Our subsea power business is seeing strong demand driven mainly by defense customers with large underwater vehicles. Our subsea battery pipeline continues to be robust with opportunities across a range of customers from small to large underwater vehicles.

We continue to expect additional large vehicle design wins in 2025 as new customers order initial quantities of batteries for their engineering test prototype underwater vehicles. On the battery development front, we will introduce a new higher energy density battery later this year and expect them to start initial production in Q4. In addition, new cell form factors will allow us to address the smaller and the medium sized AUV market. That’s a segment of the market that we have not traditionally had solutions for. We’re also pleased to announce that an initial subsea energy storage partner who will use our batteries in their subsea energy storage systems that they sell to the offshore energy markets for reliable seabed power.

Finally, an update on our Nova Scotia production facility in Canada that we announced in February. This facility is on schedule to open in late September, early October with initial training of new hires. Equipment is moving in place and we’re fitting out the facility as we speak. In preparation for the move, these key hires have been shadowing our German operations where we build batteries and we’re targeting to manufacture initial batteries late at the 2025 out of Halifax. Turning to our other products business, sensors and platforms, geopolitical conditions across Asia, Europe and The U.

S. Are fueling defense spending across Western allies and interest in our sensors and platforms. Based on customer and industry conversations, the next twelve to thirty six months will likely see a major increase in request for proposals and contract awards around the world in the mine hunting and maritime security space. We anticipate the spend in this next phase will be significantly higher when compared to historical activity. Kraken has demonstrated the performance of our mine hunting sonar and systems capabilities with end customers that include leading NATO and Five Eyes navies like the Royal Danish Navy, Royal Australian Navy, United States Navy, the Royal Canadian Navy and others.

Our reputation within mine countermeasures is solid across the defense industry and we’re positioned to win our fair share of this new business. We have been active on the demo front within water demonstrations for our platforms and sensors so far this year in countries such as The U. S, The Netherlands, Italy and New Zealand and we’ll do additional demos in The UK and Turkey in Q3 and Q4. In September, our systems will be used by numerous navies at Retmus in Portugal, building off our success in 2024 at Retmus where five different navies used our sonar systems on their underwater vehicles. On the innovation front, looking at our product developments for our platforms and sensors, we have developed a new circular SaaS product, which we expect to be a requirement for the U.

S. Navy as well as several other large navies. We also have a longer range SaaS for larger unmanned underwater vehicles under developments and we’re in discussion with potential launch customers. We will also demonstrate a new unmanned surface vessel or USB launch recovery system with a large defense prime and a Navy in Europe this fall. Our LARS are advanced solutions that streamline the deployment and retrieval of our Catfish towed vehicle from unmanned surface vessels, enhancing operational efficiency in challenging marine environments.

Our new LARS is significantly smaller and lighter than our existing LARS and opens the aperture to allow for integration on a greater variety of vessels of opportunity and USVs. Moving over to our service business, this is an important part of Kraken’s growth strategy, capitalizing on the increasing demand for advanced subsea solutions in the offshore energy sector, particularly in the commercial offshore markets. Here, we provide clients with a variety of subsea survey and inspection capabilities that reduce client costs and risks across all aspects of marine infrastructure planning, construction, operations and maintenance and decommissioning. In addition to being a high margin profitable and growing revenue stream, the feedback loop between our offshore teams and our customers to our R and D and engineering groups add significant value to guiding our technology roadmaps. In other words, we eat our own cooking.

Similar to our subsea battery business, our service business had strong results in the second quarter and the 2025. This was the first quarter from our acquisition of three d at depth and its contributions to our financial results, operations and opportunities have been solid. Since the acquisition closed, three d at depth has had projects in the Gulf Of Mexico, Norway, Guyana, Brazil and Australia to name a few. In addition to commercial customers, we see the applicability of their technology to defense customers and prospects, several of whom are already evaluating it. In addition to offshore energy, three d also provides LiDAR services to The U.

S. Nuclear industry, while a small portion of their revenue stream, there are opportunities for growth in the nuclear sector in both services and potential product sales. Three d’s precise measurements and high quality service deliverables has a growing and highly repeatable customer base with clients returning for new datasets, enhanced second run data, comparative analysis, modeling and updates on previous measurement deliverables years after the initial data collection. The company’s average job size continues to grow as the company does more dynamic scanning work where the average job size is larger at over $500,000 per job. Beyond three d at depth, Kraken’s other commercial service business so far this year has been active in the North Sea, the Baltic Sea and Taiwan, where we’ve been conducting buried cable imaging and subsea bed boulder surveys for offshore oil and gas and offshore wind customers.

To support future commercial projects, we recently delivered dedicated Catfish to The UK and expect it to be in the water for customer demonstrations in September. Overall, our service business is recording strong asset utilization and to support future work, we’re building additional sonar and optical systems, which are accounted for in our CapEx figures. The U. S. Offshore renewables market has had challenges as noted by companies like and Fugro.

However, the renewable markets in other parts of the world remain strong and with our diversification geographically with offshore oil and gas and unique technology tools, we see minimal impacts from The U. S. Offshore renewables on our service business growth forecast. Before handing the call back to Joe to discuss our Q2 financial results, I want to highlight just a few other points that occurred since the last call. First, we strengthened our Board of Directors by appointing defense industry veteran and former Raytheon and Boeing executive, Kristen Robertson at our June AGM.

Kristen brings more than thirty years of experience managing complex portfolios at top U. S. Defense companies. As it relates to subsea technologies, she was Vice President and Manager of Autonomous Systems at Boeing, leading a portfolio of seabed projects including the Orca extra large unmanned undersea vehicle for the U. S.

Navy and she also served as Board Chairman for Boeing’s Liquid Robotics subsidiary. In July, we closed the $115,000,000 bought deal that was well oversubscribed and added a number of new long term institutional investors. This strengthening of the balance sheet is beneficial for us on a number of fronts, allowing us to more aggressively pursue our growth plans across capacity expansion, new product development and M and A. We have a good track record of selective accretive acquisitions and we expect our recent acquisition of three d at depth to continue that record. We continue to look at other M and A opportunities running them through our strategic and financial filters and we see opportunities across the spectrum for additional tuck ins to larger transformative deals.

Geographically, our M and A focuses on additional capabilities and customers in The U. S. And Europe. We are also pleased with the expansion of our institutional investor base and appreciate new analysts who launch research coverage on frac and bringing the total number of dealers covering our story to seven. With that, I’ll turn it over to Joe for financial comments on the quarter and the half year.

Joe McKay, Chief Financial Officer, Kraken Robotics: Thanks, Greg. For the 2025 ending June 30, the consolidated revenue totaled $26,400,000 compared to $22,800,000 in the year ago quarter, up 16%. During the quarter, our subsea battery business grew revenue by 26% and actually had a strongest quarter to date in terms of absolute dollars. Our service business grew organically by 27% and this excludes the $5,400,000 in revenue from three d that we recognized during the quarter that closed on April 1. Our sonar business in the quarter did decline by over 50% due to Canadian Navy RMDS project being largely completed in 2024 and timing of various catfish projects.

Year to date revenue was $42,500,000 down 3% from the prior year with the strength in our battery business and our service business being offset by lower sonar revenue mainly related to the RMDS project. Gross profit in Q2 increased 27% to $14,800,000 implying a 56% gross profit margin compared to 51% in Q2 last year. Year to date gross margins were 59% versus 48% for the six months in 2024. The year over year improvement relates to revenue mix with a higher percentage of revenues this year coming from higher margin projects in the current year compared to the prior year. Q2 twenty twenty five adjusted EBITDA was $4,700,000 compared to $5,400,000 in the comparable quarter last year, resulting in adjusted EBITDA margin of 18% compared to 24% in the prior year.

For the 2025, EBITDA margin was 17.6%. The lower adjusted EBITDA margin relates to increased admin expenses where we invested in business development, particularly in systems and processes as well as the numerous demonstrations that Greg had mentioned previously. Ultimately, we hope this increased business development will help us execute on our potential revenue pipeline going forward. CapEx intangibles in the quarter were $6,300,000 and $9,000,000 year to date, a significant increase over the prior year. The increase relates primarily to our subsea battery expansion that Greg indicated as well as investment in additional marine equipment to drive service revenue growth.

Our annual financial guidance for the year remains unchanged with revenues ranging from 120,000,000 to $135,000,000 and adjusted EBITDA between 26,000,000 to $34,000,000 This guidance implies significant increase in our revenue and EBITDA in the 2025, driven by growth in both our defense and commercial markets. With that, I’ll hand it back to Greg.

Greg Reed, President and CEO, Kraken Robotics: Thanks, Joe. In closing, 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. Follow them on X, former Twitter to get links to announcements and other media. Thanks for tuning in. Jamie, over to you for analyst questions.

Jamie, Conference Call Operator: Thank you, Greg and Joe. At this time, we’ll begin the question and answer session with analysts. And our first question today comes from Nick Boychuk from Comark. Please go ahead with your question.

Nick Boychuk, Analyst, Comark: Thanks. Good morning, guys. Wanted to start on the sonar and catfish business, specifically around the commentary that you had in the PR in these prepared remarks. It sounds like obviously the RFP environment for ’25 to ’27, it’s very strong. What can you guys share on how that procurement process is changing?

Are any of the Navy’s looking to streamline how they’re procuring equipment and get them into the field faster?

Greg Reed, President and CEO, Kraken Robotics: Yes. Thanks, Nick. Good morning. I would say it’s a variety. Yes, in some cases you’re seeing activity pulled in.

There’s a lot more, I’ll call them small opportunities 1z, 2z, three type systems, some smaller procurements on the AUV side that we’re seeing an acceleration on. On the catfish, the bigger programs that are more complicated programs, I wouldn’t say there’s really been any change in the last quarter. There is a number of these that have been telegraphed for a number of years. And there’s 10 or 11 or 12 different sizable programs that are coming up for tender this year, next year and into 2026. And those have been well telegraphed in our industry.

And I think as I mentioned on the last call that we had seen a couple of those accelerate, but since then there hasn’t really been any change. Just to say that there’s a lot of activity, and we expect to start to see these RFPs hitting the market in the not too distant future.

Nick Boychuk, Analyst, Comark: Okay, understood. And then switching gears to the Halifax battery facility. What’s it going to take and when should we maybe expect commentary about a potential offtake agreement or min volume commitment? And if that is in the works to whatever extent it might be, how are you thinking about customer concentration for what you’re producing from that facility versus having spare capacity available to meet incremental spot demand as new vendors want to start using your product or adopting it into their systems?

Greg Reed, President and CEO, Kraken Robotics: Yes, thanks. On the battery front, yes, at the end of the year, we’ll start to be operational on batteries and then producing batteries in the 2025 that will go to customers. In terms of making any press releases on certain customers, as people know, we don’t name customers and as business comes in, we will announce those awards if they’re material. Obviously, that adds significant capacity on top of what we have in Germany today. So we’re doing that with a view of discussions with various customers.

And we are running full out. All we can say is we’re running full out to get this new facility up and operational. I think in my prepared remarks or maybe in maybe it was in our press release, we are also taking on some additional capacity in our German facility. We’ve got the ability to add some space there now from another tenant. So overall, we’re focused on adding additional capacity that will help us meet all of our customer needs.

And as I mentioned, there are some other customers that are coming on, we’ll start to get initial orders on them later this year. And it’s really a balancing act of trying to fit people, various customers in.

Nick Boychuk, Analyst, Comark: Okay, understood. And then just rounding up the three legs of the stool services business. Is this quarter reflective of a full utilization of your equipment? Or is there some slack still within some of the utilization rates? Like I know you mentioned you’re going to add additional things, but is this quarter representative of a full run rate of that business?

Greg Reed, President and CEO, Kraken Robotics: I would say the way the service business operates is you have ebbs and flows of the business during different seasonal times of the year. The utilization rates on the three d equipment is fairly high and the laser side and we’re building some we’ve sent some equipment down to Brazil for the South American market there, Brazil and Guyana. And so as we sent some of those down, we are backfilling that with additional build. So three d is pretty tight in terms of high utilization, but we are building additional equipment. On the call it the original core service business, we’ve got a few different tools as you know in that market.

One of them is our sub bottom imager where utilization has been quite steady. We’re actually having issues right now where we’ve got too many jobs and not enough kit. So it’s a balancing act for the operations teams to manage that. If you remember last year on our acoustic core technology, we had a big contract and a few smaller ones. So we’re chasing some of those this year.

We haven’t landed another big contract on the AC front this year. That kit is available for use. So really that’s a long winded way of saying that parts of the business in services are full up right now and other parts have a bit of spare capacity.

Doug Taylor, Analyst, Canaccord Genuity: Got it. Thanks, Greg.

Jamie, Conference Call Operator: Okay. Thank you. And our next question comes from Doug Taylor from Canaccord Genuity. Please go ahead with your question.

Doug Taylor, Analyst, Canaccord Genuity: Yes. Thank you. Good morning. You’ve maintained your annual guidance here for 120,000,135 million dollars very impressive growth. As we stand here today, you’ve reported just 35% of the low end of that guidance range and you’ve always been consistent, you expect to be back end weighted as is typical.

So I guess my question here is can you help us with the degree of visibility you’ve got to versus the high end of the range and maybe talk about some of the opportunities that would get you between those two goalposts?

Greg Reed, President and CEO, Kraken Robotics: Yes. Good morning, Doug. Thanks. Would break it apart the three parts of the business as well. We expect services to have a really strong year.

We expect the battery business to have a really strong year. And the I’ll call it of the three legs of the stool, the one that’s not had a strong year so far is the sonar side, so our SaaS and our catfish business. All indications on the sales pipeline that we expect really strong activity in the second half of the year. Number of the demos that we already did this year, we expect a good chance that some of those will convert into revenue this year. And we have been building historically, we were more of a company that built to order as opposed to built to a forecast because we didn’t have the balance sheet to invest in inventory and that’s part of the reason for some of the raises that we’ve done year over the or so.

We’re building to forecast right now. We will have the equipment ready. There’s a lot of pipeline discussions and negotiations with customers on contract deliverables. And if we get those over the goal line, then we’ll be comfortable with our guidance. But I think that’s we don’t want to get into too much detail of what gets us from the low end to the high end.

It really just there’s a lot of moving parts and a lot of irons in the fire.

Joe McKay, Chief Financial Officer, Kraken Robotics: And I think if you look at our how we see the business, there’s a lot of large projects out there and it really comes down to timing on when and this is more going from the low end to the high end of revenue guidance. It really comes down to the timing of when we get the go ahead to start some of these projects and then revenue recognition how much you can recognize in 2025 versus 2026 and stuff like that very sizable jobs that will really come down to revenue recognition and when the jobs good line of sight that the jobs are going to go ahead just when do they the timing on when they go ahead.

Greg Reed, President and CEO, Kraken Robotics: And I’d add one other point I’d add to Joe’s comments is historically, we’ve talked about some of the bigger programs that we’ve worked on. And most of the time we are providing our equipment to various navies and they already have their existing vessels. There are some cases that we’ve been evaluating where we’ve had customers asking us to deliver the full solution I. E. Unmanned surface vessels as well.

So we’re looking at that internally of how we move forward on that because we do have some customers asking us to prime the whole thing. That’s that would be obviously some of the additional integrator contracts would be more sizable contracts.

Doug Taylor, Analyst, Canaccord Genuity: So if I’m maybe to summarize there, just to make sure I’m understanding, we’ve got these large, I think you said about a dozen substantial needs to be ten million twenty million thirty million dollars opportunity plus that could be percentage of completion. Some of those may hit this year, but it will depend on revenue recognition. But there are other opportunities to ship catfish systems or other sensor kit that would be maybe to existing customers who are adding on or something like that that could be kind of fast twitch and happen very quickly that may fall in the second half of this year. Is that a fair characterization of how you expect the rest of

Joe McKay, Chief Financial Officer, Kraken Robotics: the year to go? Yes. I think that’s fair, but also would be also not just on the products business, business, it would also be on the service business as well. Right.

Doug Taylor, Analyst, Canaccord Genuity: Okay. You mentioned this new LARS or ALARS opportunity, newer to me. So just want my understanding, you’re talking about getting into the business of selling these launch and recovery systems for third party vehicles as opposed to Catfish. Is that a business that you’ve been in to date to any significant degree? And maybe you could just talk about your competitive edge on the opportunity size there?

Greg Reed, President and CEO, Kraken Robotics: Yes. So maybe either you didn’t hear me correctly or I didn’t explain it properly. But yes, it is USB sorry, it is large for our own systems. But what we’re saying is that these are specifically for USVs. And to put it in context, traditional crude ships or manned ships, you might have people that are operating navies that are operating anywhere from a 30 meter to 80 meter vessel.

So it obviously has more deck space for these for a bigger launch and recovery system. Now we’re getting into a market where you’re getting unmanned surface vessels or USVs, which are replacing traditionally manned mine hunting ships. And these USVs might be on the order of eleven, twelve, thirteen, fourteen meters. So they’re much smaller. They have no people on board and hence we need a launch recovery system that is much smaller to fit on that vessel.

And we’ve been working on that for a year and a half or so. Our group that builds launch and designs and builds launch recovery systems are the ex Rolls Royce Marine Engineering Group out of Halifax. So we’ve got lots of experience. We’ve got a really neat design coming out that’s lightweight and we’ll demo it. And effectively what it does is just allows us to access a whole bunch of programs that are coming that are going to be on USBs as opposed to the traditional big ships.

Doug Taylor, Analyst, Canaccord Genuity: But with the catfish at the end of Yes,

Joe McKay, Chief Financial Officer, Kraken Robotics: with the catfish. Yes, okay.

Greg Reed, President and CEO, Kraken Robotics: We’ve customers inquire, we’ve had AUV companies inquire about us building launch and recovery systems for them. And while we have that capability, it’s just it would be a distraction to us. So we’re sticking with our own systems only.

Doug Taylor, Analyst, Canaccord Genuity: I appreciate that extra color. Thanks. I’ll pass the line.

: Okay. Thanks Doug. Thanks Doug.

Jamie, Conference Call Operator: Our next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead with your question.

Benoit Poirier, Analyst, Desjardins Capital Markets: Yes, thanks. Good morning, Joe. Good morning, Greg. Yes, with all these potential orders, could you maybe quantify what would be your bidding pipeline now and how it has changed versus previous quarters?

Greg Reed, President and CEO, Kraken Robotics: Hi, Benoit. Thanks. Yes, I don’t we’re not going to talk about it. We’re not going to quantify it. We’ve done it we just started doing it last year and we were doing it once annually and I think we did it once at the April timeframe.

I would say that overall, the direction has been higher just as a general commentary and predominantly driven by the defense market. But what we talked about, I think the last time we publicly disclosed that was roughly a $2,000,000,000 pipeline of which the figures were almost half of it related to, I’ll call it the sensor and platform business and then the next biggest piece was the subsea power business.

Benoit Poirier, Analyst, Desjardins Capital Markets: Quantification. That’s great color, Greg. And on the battery business, can you provide an update on the status of your discussion with other customers aside from the one large customers and your confidence to sign something by year end?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say that on the if you think about the subsea battery business, what really drives the volume in the industry is the big vehicles. And there’s a number of other companies, there’s eight to 10 different companies out there that have already made announcements or it’s known in the industry that they’re developing XLUVs. And we’ve got various stages of BD discussions ongoing with almost all of them. And I would say that we’re confident that we’re going to be able to get at least one of them signed this year and be able to show that and potentially more than there’s a handful of them that are in late stage discussions on that front.

Benoit Poirier, Analyst, Desjardins Capital Markets: That’s great. And obviously your Halifax will be live August, October, September. You also mentioned that you added some capacity in Germany. So could you maybe provide some color about your total battery capacity with those changes? And also the timing where you think those capacity could be fully utilized?

And thoughts whether you need to look already at another battery plan in light of the bidding pipeline that you see for on the battery side?

Greg Reed, President and CEO, Kraken Robotics: Yes. On combined facilities, Europe and in Canada, we are in the 200,000,000 to $200,000,000 of $250,000,000 revenue capacity. If we were humming along at both of those facilities when everything is fully operational and staff are trained. In terms of timing to fill those, that’s really tough question because we have our customers, many of them saying a lot of really good things. Some of them giving really strong indications, but they also have to convert their order book into their pipeline into orders as well.

So the only directionally commentary that we can give at this point is that in the last six months, we’ve had some of our customers talk about battery requirements that are much higher than they significantly higher than they had been talking about a year ago and indicating that what was a further out forecast for them was getting pulled closer. And that’s really driven by a number of different geographies both in North America, Europe and Asia Pacific. It’s I know I’m dancing around it Benoit, but it’s all the indicators are good when how quickly that gets filled up is to be determined based on customers.

Benoit Poirier, Analyst, Desjardins Capital Markets: Okay. That’s great. And maybe last one for me. You mentioned great color also about the integration of three d at depth. I was curious if you see an opportunity to leverage their relationship with the Department of Defense?

Greg Reed, President and CEO, Kraken Robotics: Yes. Well, our relationship, they’ve predominantly been focused on oil and gas is the most of their end market with a little bit nuclear as well. They have had, I’ll call them one off defense industry related sales the last couple of years. And so taking some of those, the product they have and the relationships that they’re start they’ve been starting to develop combining with a bunch of our relationships and we’re seeing definitely seeing opportunities to use their systems on AUVs, tow fish, other platforms. So it’s early days, but they’ve got great technology and there’s customer interest on the defense side also.

Benoit Poirier, Analyst, Desjardins Capital Markets: Thank you very much, Greg and Joe.

: Thanks Benoit. Thanks, Ben.

Jamie, Conference Call Operator: Our next question comes from John Shao from National Bank Financial. Please go ahead with your question.

John Shao, Analyst, National Bank Financial: Hey, good morning guys and thanks for taking my question. With a stronger balance sheet right now, just want to ask about your capital allocation priorities in 2025 and beyond. I know M and A would be important. So how would you describe your targets and your deal pipeline at this point?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say just specifically on the M and A front, as I mentioned in our prepared remarks, it’s there’s a range of tuck ins like historically that we’ve done that have added additional technologies or customer bases. And generally, it’s 50%, 60%, 70% gross margin type business. So that’s the basic. There’s a number of opportunities.

There always has been that will continue on. I think what’s changed over the last year is as we’ve gotten bigger and as customers are looking for more complete solutions that we see some opportunities to do some bigger transactions. And our criteria are there’s a few geographies that we obviously want to be in. It’s generally strong margin business and has a strong management team that doesn’t plan to go anywhere. So we’re adding across all areas of the organization by doing some of these things.

And from a financial point of view, I mean, I think the only thing we’re really prepared to say is everything that we’ve done so far on the M and A front, which has been relatively smaller M and A have been accretive transactions on a number of fronts. And we expect if we end up doing bigger transaction or bigger transactions that it will be the same criteria that will be nicely accretive to the overall business. Joe might have something to add here. Any?

Joe McKay, Chief Financial Officer, Kraken Robotics: Yes, nothing really much to to that other than we’ve indicated publicly that we are targeting The U. S. Or European markets.

John Shao, Analyst, National Bank Financial: Okay. Thanks for the colors. And you mentioned strong product demos and RP activities. I’m just curious about the geographic mix of those potential demands given that Europe is increasing their military spending right now. When you talk to customers in Europe, do you get a higher sense of urgency compared to, let’s say, two years ago?

Greg Reed, President and CEO, Kraken Robotics: Yes. Two years ago, yes, for sure. I mean, there’s for the last two, three years, a lot of our business activity has been driven out of Europe and the hotspots are the European market with the Baltic and then into the Black Sea. And then obviously Asia Pacific with China, Taiwan and the geopolitical tensions in the region there are a big focus for the defense industry and a driver of RFP activity and customer activity in that area as well.

Joe McKay, Chief Financial Officer, Kraken Robotics: So think just with all the demos like Greg listed before, I mean obviously with The U. S, Netherlands, Italy, New Zealand, UK, Turkey and Portugal all this year, they think that really shows what’s going on there out there.

John Shao, Analyst, National Bank Financial: That’s great to know. And maybe last question for me. Any comments on a potential graduation from the ventures into TFX?

Joe McKay, Chief Financial Officer, Kraken Robotics: Yes, that’s definitely on our to do list. To make that happen, need to integrate three d and it would be our goal to graduate.

Jamie, Conference Call Operator: Perfect. I’ll hop the line.

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

Jamie, Conference Call Operator: Our next question comes from Richard Chu from Scotiabank. Please go ahead with your question.

Richard Chu, Analyst, Scotiabank: This is Richard on for Kevin. We noticed that in recent weeks, one of your larger battery customers is increasing their presence in Korea and other parts of Asia. Can you just remind us on your presence in the region and any change in investments you may make, for example, sales and development? And on a related note, can you talk about what you’re seeing in terms of demand for your broader suite of products from Asian defense firms?

Greg Reed, President and CEO, Kraken Robotics: Sure. Good morning. I would say, in general, what you’re seeing is you’re seeing a lot of announcements out of some of our customers about different areas of the world. So specifically in that region, we talked about China and Taiwan, but there is all the countries there, whether it’s Australia or New Zealand or Japan or South Korea or Philippines, there’s a lot of activity happening in terms of how we address the market. It’s really a combination of in some cases we get brought in by our prime defense customers.

In other cases, we have the navies that come to us directly and ask us about our technology and then ask the some of the bigger primes to use our technology. In some programs that we bid, we’re on multiple consortiums with several larger primes. So that kind of covers how we go to market. In terms of specific sales and support offices in the Asia Pacific region, We haven’t press released it given details yet, but we recently signed we’ve got a few, I’ll call them reps and agents in the region, one in Australia, one in Taiwan, one in South Korea. The Australia one is new and the Taiwanese and South Korean ones are probably a year or two years old.

So we address the we talked to the end customer and some of the primes via some local presence there. And I expect that will over the next two months, have a key hire coming on in that region who’s very experienced in defense space with a lot of customers in that region. So he’ll be based out of that region and he’ll be an additional key BD person that we have. No manufacturing or in country service facilities today, but it is at the discussion phase with us and several of our customers. The second question was?

Joe McKay, Chief Financial Officer, Kraken Robotics: Richard, can

Greg Reed, President and CEO, Kraken Robotics: you say the second one again?

Richard Chu, Analyst, Scotiabank: Yes. Just can you talk about what you’re seeing in terms of demand for your broader suite of products from Asian defense firms?

Greg Reed, President and CEO, Kraken Robotics: Yes. I would say a lot of the refer to Asian defense firms in some cases in the region, there’s domestic defense companies. There will be domestic manufacturing requirements or joint ventures that will be required. In other parts of the region, it’s really a lot of The U. S.

Defense primes that or European defense primes that are selling the equipment into the Asia Pacific market and most of those companies are our customers. So, I mean, think that’s macro wise, it’s an area of quite a lot of activity.

Richard Chu, Analyst, Scotiabank: Got it. Thanks for the detail. And just circling back to your three d ad desk acquisition, it’s quite strong performance this quarter. So was that within your expectations or are there any one time items to think about? And I know you mentioned pretty strong utilization for that business.

So is this a good quarterly run rate to think about going forward?

Joe McKay, Chief Financial Officer, Kraken Robotics: Yes, I think the revenue three d generated we’re happy with that was in line with our forecast when we acquired the company. And no, there was no one time special items. I mean, there is the transaction costs on three d, you’ll see it aligned in the MD and A. But now the in line quarter and a great start for the company. And I think the trajectory would be relatively within that 5,000,000 to $6,000,000 envelope for the balance of the year per quarter.

Richard Chu, Analyst, Scotiabank: Got it. Thanks for taking my questions.

: Thank you. Thank you.

Jamie, Conference Call Operator: Next question comes from Stephen Lee from Raymond James. Please go ahead with your question.

Stephen Lee, Analyst, Raymond James: Thanks. Hey guys. The sales and marketing investments you’re making on the Sonos side, is it linear? As in the more feet on the ground, the more onesies and twosies or does it really depend on budgets, how fast the customer move and so on? Thanks.

Greg Reed, President and CEO, Kraken Robotics: It’s a combination, Stephen. Definitely have more feet on the ground helps in the sense of there’s a lot of areas of the world where just you have to be in front of the customer. The customer has to know your product, understand your product. And if you’re not there, then you don’t get a shot at the business. So there’s that, but then there’s also bigger programs, you’ll march at the pace that they march at.

In terms of is it linear, it varies throughout the time throughout the year as well depending there are certain times of the year. Generally, call it Q1 and Q2 are probably the busiest times of the year in terms of BD and demo related activity.

Stephen Lee, Analyst, Raymond James: Okay, got it. Thanks. And then Joe, in that S and M, the increase in the sales and marketing, there’s no one time there, right? So that’s a good baseline going forward?

Joe McKay, Chief Financial Officer, Kraken Robotics: Yes. It’s a decent baseline as Greg said in Q1, Q2 and I would actually say Q3 is also busy. We have the big retinas program where we have a large team in Portugal in Q3. And then it will lighten up a little bit into Q4. But as Greg mentioned, globally we’ve added a number of BD folks to our sales team.

And that is something that wasn’t there last year. And so we’re trying to convert that pipeline. But as Greg mentioned, the demos and a lot of the conferences and all that kind of stuff are Q1, Q2, but we do have a large number of large demos going on this year in Q3 as well.

Stephen Lee, Analyst, Raymond James: Got it. Very helpful. Thanks guys.

: Thanks, David. Thanks, Steve.

Jamie, Conference Call Operator: And ladies and gentlemen, at this time I’m showing no additional questions. I’d like to turn the floor back over to management for any closing remarks.

Greg Reed, President and CEO, Kraken Robotics: Okay. Thanks, Jamie. I wanted to close again, I want to acknowledge the hard work of all Kraken employees. These people are the core of our innovations, creating products and services demanded throughout the world by the most recognized defense companies and militaries. There’s many positive growth trends supporting our defense and commercial customer activities with many countries seeing a renewed commitment to defense spending and customers increasingly incorporating high end sensors and on demand systems into their fleets.

We’re well positioned to continue the solid growth. So thanks for continued support for our investors and our employees and thank you for joining the call today and we look forward to chatting with you again soon.

Jamie, Conference Call Operator: And ladies and gentlemen, with that we’ll conclude today’s conference call. We do thank you for your participation. You may now disconnect your lines.

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