Mr. Greg Reid reports

KRAKEN ROBOTICS REPORTS RECORD 2023 FINANCIAL RESULTS AND SEES STRONG MOMENTUM CONTINUING

Kraken Robotics Inc. has filed its financial results for the fourth quarter and year ended Dec. 31, 2023 (Q4 2023). Please refer to the audited consolidated financial statements, management's discussion and analysis (MD&A) and the annual information form for the year ended Dec. 31, 2023, filed on SEDAR+ for more information. The MD&A contains a comprehensive analysis of fiscal 2023, the financial quarter ended Dec. 31, 2023 (Q4 2023), and other information. Unless otherwise specified, all dollar amounts are denominated in Canadian dollars.

Q4 2023 financial highlights

• Consolidated revenue for Q4 2023 was $28.0-million compared with $8.8-million, an increase of 218 per cent over the comparable quarter and marked the company's strongest quarter to date for both the product and service businesses. Revenue mix was 70-per-cent product/30-per-cent service.
• Product revenue in the quarter was $19.6-million, an increase of 287 per cent over the comparable quarter. The increase was the result of continued delivery of subsea batteries, work with the Canadian Navy on its Remote Minehunting and Disposal Systems program, the production of its KATFISH product, as well as the sale of Synthetic Aperture Sonar systems.
• Service revenue in the quarter was $8.4-million, an increase of 124 per cent over the comparable quarter due increased work with Sub-Bottom Imager and Acoustic Corer technologies.
• Gross margin percentage in Q4 2023 was 42 per cent compared with 50 per cent in Q4 2022 with the change related to revenue mix by project in the quarter when compared with the prior year.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the quarter was $5.7-million compared with an adjusted EBITDA of $900,000 in the comparable quarter. Adjusted EBITDA margin in the quarter was 20 per cent compared with 11 per cent in the year ago quarter.
• Net income in the quarter was $2.6-million, compared with net loss of $1.3-million in Q4 2022.

Financial highlights for year ended Dec. 31, 2023

• Consolidated revenue was $69.6-million compared with $40.9-million, an increase of 70 per cent over 2022.
• Product revenue was $52.6-million compared with $24.9-million in 2022, an increase of 111 per cent and was driven by growth in all our key products businesses including systems and subsea battery businesses.
• Service revenue was $17.0-million, an increase of 6 per cent compared with 2022.
• Gross margin percentage was 49 per cent as compared with 42 per cent in 2022. The increase is due the sale of higher-margin products during the current year compared with the prior year.
• Adjusted EBITDA was $14.1-million compared with an adjusted EBITDA of $5.3-million in 2022, an increase of 166 per cent. Adjusted EBITDA margin was 20 per cent compared with 13 per cent in the comparable year. This is due to higher revenue with improved gross margin.
• Total assets were $76.4-million on Dec. 31, 2023, compared with $71.4-million on Dec. 31, 2022.
• Capital expenditures for 2023 were $7.6-million, compared with $5.1-million in 2022, with the increase driven by the growth of the overall business.
• Net income for the year was $5.5-million, compared with a loss of $4.2-million in the prior year.

2024 financial guidance unchanged

As outlined in the company's Feb. 15, 2024, press release, Kraken is reiterating its 2024 financial guidance. For 2024, Kraken expects revenue between $90.0-million to $100.0-million and adjusted EBITDA in the $18.0-million to $24.0-million range. Capital expenditures in 2024 are expected to range from $6.0-million to $7.0-million. The company's 2024 outlook is driven by contracts in hand and reflects strength across both its products and services groups addressing defense and offshore energy customers.

Management comments

"Two thousand twenty-three was a very strong year for Kraken, with 70-per-cent growth in revenue and 166-per-cent growth in adjusted EBITDA. We expect our strong growth trajectory to continue in 2024. To use a baseball analogy, we are in the second inning of a nine-inning ball game," said Kraken president and chief executive officer Greg Reid. "We have a strong pipeline of opportunities and a unique competitive position. In 2023, we made significant improvements in our business, including strengthening our technical and commercial depth, adding specific skill sets to our board of directors, and making significant investments in headcount and infrastructure. While not always apparent to external parties, these changes are positioning us to capture significant new business and improve our execution in the future. Below, I highlight several points that give us confidence that our future looks bright as the Kraken team brings our world-class solutions to existing and new customers across the defence and commercial markets."

There is a notable acceleration in demand for dual use defence and commercial technologies for subsea security, surveillance, and infrastructure inspection. Kraken provides advanced technology solutions to these markets.

In the mine countermeasures (MCM) market, Kraken is one of a small number of companies with proven operational solutions, solid reference customers and has the best price/performance offering. This is against a backdrop where existing Navy equipment is often dated, and a natural industry upgrade cycle is under way.

This MCM renewal cycle is now being accelerated by challenging geopolitical situations across the globe (the Middle East, the Black Sea, the Baltic, China/Taiwan and other Asia-Pacific areas, and the Arctic). Most navies around the world are in various stages of planning and executing these upgrades with multiple significant tenders in the market or coming to market in the next 12 to 36 months. Kraken has worked hard for the last 10 years throughout the naval defence community, working with end users, OEMs (original equipment manufacturers), shipbuilders and policy makers to help shape the requirements for this upgrade cycle. While the company has primed some programs itself, it is often involved as a subcontractor as a part of larger consortium bid processes. Often, the company is part of multiple consortiums bidding on a program. The company believes it is well positioned for success with maritime defence spending programs through the end of this decade.

Defence industry spending is growing and the allocation of spending to unmanned maritime platforms is growing. Kraken provides sonar and energy solutions to some of the strongest positioned uncrewed underwater vehicles (UUVs) manufacturers in the world such as HII, Teledyne and Anduril. These companies are benefiting as demand grows for reasons noted above but also as technical capabilities improve and new classes of subsea vehicles emerge as force multipliers, such as the XLUUV.

Commercial market activity is also strong, driven by the development and maintenance of offshore wind and offshore oil and gas infrastructure. In these markets, the company offers technology differentiating solutions for seabed and sub-seabed intelligence, that is needed in both the buildout phase as well as operations and maintenance phase of offshore energy. Momentum in this market is visible as numerous suppliers to this market post strong financial results and growth outlooks and M&A (merger and acquisition) activity grows.

About Kraken Robotics Inc.

Kraken Robotics is a marine technology company providing complex subsea sensors, batteries and robotic systems. The company's high-resolution, three-dimensional acoustic imaging solutions and services enable clients to overcome the challenges in our oceans -- safely, efficiently and sustainably. Kraken Robotics is headquartered in Canada and has offices in North America, South America and Europe.

We seek Safe Harbor.