Mr. Greg Reid reports

KRAKEN ROBOTICS REPORTS STRONG Q2 2023 FINANCIAL RESULTS

Kraken Robotics Inc. has filed financial results for the quarter ended June 30, 2023 (Q2 2023).

Management comments

"With solid results in the first half of 2023, we look forward to a continued ramp in the second half of 2023 and beyond," said Kraken president and chief executive officer Greg Reid. "Our sonar and subsea power business are seeing strong growth opportunities, and with significant contracts in hand, we have been focused on adding depth across the organization and sharpening our execution as we scale.

"With the recent expiry of share purchase warrants, the repayment of the acquisition debt and no further contingent consideration from the PanGeo acquisition, and increases to our credit facilities, we have derisked our balance sheet and potential for share dilution. Having secured several long-term contracts and customer relationships and added more depth in areas such as engineering, project management and production, we are building future value. Our outlook, driven by industry trends in subsea security and offshore renewables, is strong. We believe our value in the market is not reflective of our significant investment to date, our unique competitive position and strong pipeline. We will continue our focus on execution as we believe we are in the early days of creating significant shareholder value."

Q2 2023 financial highlights:

• Products revenue in the quarter was $10.5-million, an increase of 24 per cent over the comparable quarter. The increase was the result of continued sales of Katfish, subsea batteries, work with the Canadian Navy on its RMDS (remote mine-hunting and disposal systems) program as well as the sale of synthetic aperture sonar (SAS) systems.
• Services revenue in the quarter was $3.2-million, a decrease of 45 per cent over the comparable quarter due to a large Acoustic Corer project in the comparable quarter a year ago. Sequentially, services revenues increased 41 per cent from Q1 2023.
• Consolidated revenue for Q2 2023 was $13.7-million compared with $14.7-million for the quarter ending June 30, 2022, a decline of 4 per cent due to the large services project in Q2 2022. Sequentially, consolidated revenue increased 80 per cent in the quarter compared with Q1 2023.
• Gross margin in Q2 2023 was 57 per cent compared with 45 per cent in Q2 2022 and increased due to the sale of higher-margin products during the quarter compared with the prior year.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the quarter was $3-million compared with an adjusted EBITDA of $3-million in the comparable quarter. Adjusted EBITDA margin in the quarter was 22 per cent compared with 21 per cent in the comparable quarter due to improved gross margins.
• During the quarter it was determined that PanGeo (acquired in July, 2021) would not meet its second earnout under the terms of the share purchase agreement. As a result, the company recorded a gain on the extinguishment of contingent consideration of $4-million and recorded an impairment of goodwill $2.8-million.
• Net income in the quarter was $2-million, compared with net income of $500,000 in Q2 2022.
• Subsequent to the quarter, warrants for shares of 10 million expired on July 26 and the company paid promissory notes and interest associated with the acquisition of PanGeo of $4.4-million. This combined with the extinguishment of contingent consideration and other debt payments has resulted in debt reduction of $11.4-million.
• In addition, after the quarter, credit facilities were increased by $5-million to $9.5-million for the company's main subsidiary, Kraken Robotic Systems Inc. Consolidated lines of credit now stand at $11.7-million. The increase provides greater flexibility on working capital predominantly on increased government defence programs.
• At June 30, 2023, Kraken had $11.3-million in previously awarded non-repayable financing to draw upon from government agencies and project partners for research and development. Of this, $5.5-million of cash has been received for contracts to be completed.
• Total assets were $70.5-million on June 30, 2023, compared with $63.4-million on June 30, 2022.

Highlights year-to-date June 30, 2023:

• Product revenue year-to-date was $15.8-million compared with $12.2-million to June 30, 2022, an increase of 29 per cent.
• Service revenue year-to-date was $5.4-million, a decrease of 29 per cent compared with the comparable period ending June 30, 2022, due to a large project completed in Q2 of the prior year.
• Consolidated revenue year-to-date was $21.2-million compared with $19.8-million, an increase of 7 per cent over the comparable period ending June 30, 2022.
• Gross margins year-to-date were 58 per cent as compared with 42 per cent in YTD Q2 2022 and increased due to sale of higher-margin product revenue during the year compared with the prior year.
• Adjusted EBITDA year-to-date was $3.9-million compared with an adjusted EBITDA of $2.6-million in the comparable period, an increase of 41 per cent. Adjusted EBITDA margin year-to-date was 19 per cent compared with 13 per cent in the comparable year due to improved gross margins.

Financial update

Kraken is reiterating its financial guidance for 2023. Revenue and adjusted EBITDA will continue to accelerate in the second half of 2023 as the company executes on the large number of orders received in late 2022 and early 2023. The company expects revenue to be in the $66-million to $78-million range and adjusted EBITDA in the $12-million to $17-million range. The midpoint of Kraken's guidance range ($72-million in revenue and $14.5-million in EBITDA) implies revenue growth of 76 per cent over 2022 and adjusted EBITDA growth of 275 per cent. Capital expenditure in 2023 is expected to be approximately $6-million.

About Kraken Robotics Inc.

Kraken Robotics is a marine technology company providing complex subsea sensors, batteries and robotic systems. Its high-resolution 3-D acoustic imaging solutions and services enable clients to overcome the challenges in the oceans -- safely, efficiently and sustainably. Kraken Robotics is headquartered in Canada and has offices in North and South America and Europe. Kraken is ranked as a top 100 marine technology company by Marine Technology Reporter.

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