Operator: Good morning and welcome to the Kraken Robotics 2024 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. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an Operator by pressing star and zero. I will now turn the call over to Joe Mackay, Kraken’s Chief Financial Officer. Please go ahead.

Joseph Mackay: Thank you Dave and good morning everyone, and thank you for joining Kraken Robotics’ earnings release call for the three and 12 months ended December 31, 2024. During the call, all participants are in listen-only mode, and then following 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&A, and our AIF which is available on SEDAR+ 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&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 Reid, our President and CEO.

Greg Reid: 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. Beginning with an 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, Anduril, and Teledyne, and companies in the offshore service supply chain such as Ocean Infinity, 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, 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, otherwise known as SAS. Over time, our product line-up 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 brand. We also offer robotics as a service, or RAAS solutions providing seabed and sub-seabed imaging surveys for clients. We enhanced our RAAS solutions’ capabilities with the recent acquisition of 3D at Depth, a leader in underwater light detection and ranging, otherwise known as LiDAR. 3D 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 350 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 SAS, 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 exception 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 robotics solutions that address complex underwater challenges. Moving onto 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&D teams to enhance our product development road map. Now moving onto 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 350 strong. We again met our annual guidance with total revenue for fiscal 2024 growing 31% year-over-year to $91.3 million, adjusted EBITDA growing 47% in 2024 to $20.7 million, and adjusted EBITDA margin was a healthy 22.7% for the year. To accelerate growth during 2024 and beyond, we closed over $70 million of equity financings during the year, as well as $45 million of new committed credit facilities and an uncommitted $30 million 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 REPMUS 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&D and technology teams continued to refine our technical road map 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 sub-seabed 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 comments on the financial results.

Joseph Mackay: Thanks Greg. Today, I’ll start by reviewing the full year results ending December 31, 2024, and then move onto our fourth quarter results. Consolidated revenue for 2024 increased 31% to just over $91 million. Product revenue in 2024 increased 26% during the year to just over $66 million 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 great growth at 47% and increased to $25 million, and that was driven by an increased number of Sub-Bottom Imager jobs as well as Acoustic Corer projects. Gross profit for the year increased 32% to $44.7 million, while gross profit margin remained unchanged at 49%. Adjusted EBITDA for 2024 increased 47% to $20.7 million compared to $14.1 million in the prior year, and we saw adjusted EBITDA margin improve to 22.7% compared to 20.3% in the prior year. Net income for the year increased to $20.1 million compared to $5.5 million in the prior year. You’ll notice that we brought deferred tax assets onto the balance sheet in the quarter, given our profitability outlook, and that had an impact of a deferred tax recovery of $9.7 million 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 at the end of the year of $163 million, cash stood at $58 million, while working capital stood at $94 million. All those metrics were up significantly over the 2023 levels. Switching to the Q4 results, consolidated revenue for Q4 was flat at $28.1 million over the prior year. Our subsea batteries service revenue and our sonar revenue grew in the quarter, while our Catfish and remote mine disposal system revenue declined on a year-over-year basis. Gross profit in Q4 increased 15% to $13.5 million, implying a 48% gross margin percentage compared to 41.8% in Q4 2023. The year-over-year improvement relates to a change in revenue mix over the Q4 in 2023. Adjusted EBITDA increased 23% in the quarter to $7 million, 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 Reid: 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 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, including 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 sub-seabed 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, an 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 3D subsea LiDAR sensors. Switching to the current year 2025, some of the key activities, and I just want to go through them by various areas of our business. First on subsea batteries, in February we announced we’d signed a 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 unscrewed 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 SAS demo activity in 2025 as we prepared 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 SAS, new subsea power designs, and potentially integrating our 3D LiDAR technology into our product portfolio. In the subsea services space, in addition to our traditional sub-seabed service activities, 2025 in services will see a focus on integration of 3D at Depth’s subsea LiDAR business, cross-training of the teams and cross-selling, as well as the roll-out 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 2025: revenues ranging from $120 million to $135 million, the midpoint of which $127.5 million represents 40% annual growth versus 2024; adjusted EBITDA between $26 million and $34 million, the midpoint of which $30 million represents 45% annual growth versus 2024; capital expenditures will be in the range of $13 million to $17 million in 2025. We based on our top line guidance on existing contracts in hand, including the $45 million of year-to-date 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 billion versus the $900 million we shared in February of 2024. 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+. Please also visit Sophic Capital’s website for additional information. 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.

Operator: We will now begin the question and answer session with analysts. [Operator instructions] Our first question comes from Nicholas Boychuk with Cormark Securities. Please go ahead.

Nicholas Boychuk: Hey, good morning guys.

Greg Reid: Morning Nick.

Nicholas Boychuk: On the pipeline, you mentioned obviously it’s grown very well, doubling from $900 million to $2 billion. Can you walk through a little bit a couple of the moving parts within that, specifically whether this is a lot of new demand that’s been coming from other 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 Reid: Yes, hi Nick. I would say it’s a combination of both. We last provided this pipeline figure just over a year ago. There has been a number of new programs that we had either not a whole lot of granularity on the size and the timing on it, that’s become more clear over the last year, and as well as there is a couple of programs that we might have had a bit further out in the pipeline, that are getting a bit closer given all the recent geopolitical activity. I’d also highlight, you were talking about defense-related programs, related to Catfish and underwater vehicles, the emergence of XLUUVs 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, that’s the reasoning for the increase in the number.

Nicholas Boychuk: Okay, and then on the battery business specifically, you mentioned the XLUUVs. 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 you comment at all on the conversations and how that’s going with other customers, aside from the one large one that you had mentioned previously?

Greg Reid: Yes, I would say the engineering teams are working on some new battery designs later this year, so 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, so 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 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. Just across the board on the subsea power business, we’re seeing lots of opportunity to expand that side of our business.

Nicholas Boychuk: Okay, great. Last from me, you’ve got all this demand, obviously you’ve mentioned that you have the new battery facility in Halifax. How are you guys feeling about your existing facilities, your 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 or the U.S.? Any thoughts on that?

Greg Reid: 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 are 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, 3D at Depth, which is a service business, which now we have about 65 of our 350 people based in the U.S. with that acquisition. That could open a door for future manufacturing in the U.S. as well, as it may be required to address some program opportunities. 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 SAS, we have runway with existing facilities to ramp up that business without major capital requirements.

Nicholas Boychuk: Thanks.

Operator: The next question comes from Benoit Poirier with Desjardins Capital Markets. Please go ahead.

Benoit Poirier: Yes, thank you very much, and good morning Greg and Joe. Just in terms of given all the announcements 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 Reid: Yes, I would say for the current year, we are running full out in the German facility, and we expect a very solid year out of that. Based on the announcements that we’ve had in the past and other things that we haven’t announced yet, that yes, our battery business, the numbers that we talk about for our battery business are very solid for the year.

Benoit Poirier: Okay, and with respect to the opportunity with the Singapore Navy, obviously they are going through elections, so would it be fair to say that this potential catalyst has pushed to the right, and do you see any other opportunities for the Catfish for 2025 to replace this potential order?

Greg Reid: 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 program has in terms of announcement been pushed along, so nothing to say on that front right now, Ben. But in terms of--you know, we don’t want to delineate the detail of our sales pipeline, but there are numerous Catfish and SAS opportunities programs that are coming to market shortly. There’s others that might get awarded this year, and we expect that we’re well positioned, ourselves and a few other competitors, we’ll be bidding on them, so those are, I’ll call them bigger programs where you’re delivering equipment over--you know, multiple systems over a few years. There is 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 where almost on a weekly basis, you’re hearing about new opportunities because of increased defense spending out of NATO or other countries. 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: Okay, and maybe last one, just in terms of working capital assumptions in 2025, obviously if you could give an update on the Canadian Navy RMDS contract. Just wondering how its progressing toward the completion, the timeline, and what we might expect from a working capital standpoint in 2025.

Greg Reid: Over to you, Joe.

Joseph Mackay: Yes, thanks Ben. If you look at the contract asset on the balance sheet, that’s been a bit of a draw on our working capital, and that really relates to that contract is a--is more of a milestone-based contract. That contract will be largely completed by the end of 2025, 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 a draw on working capital has also been contract liability, and that’s come down as we’ve delivered a lot of product during 2024. 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. We should be working capital positive in 2025 with those two main items reversing.

Operator: The next question comes from Steven Li with Raymond James. Please go ahead.

Steven Li: Hey guys. Maybe Greg to start, 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 the ones that you have on your slide in 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.

Greg Reid: I’ll explain processes. Every country is different, but generally how our industry works is an RFI comes out - request for information. That is then followed by a request for a 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. Each country is different, Steven. Some of the names that you just mentioned there, the RFIs have come out. 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 and how they do their procurement.

Steven Li: Okay, thanks. Very good. Joe, maybe a question for you. Very strong in services. Is 15% organic, is that still a good target for you guys?

Joseph Mackay: I would say it would be north of 15% organic.

Steven Li: So north of 15, and even though you had the acoustic large deal in Q4, so a bigger base, and then 3D at Depth on top of that?

Joseph Mackay: We’re not going to break out guidance by company - I mean, we did give what the 2024 revenue was for 3D, it was US $14 million, and so you can kind of--you know, based on your overall model, you can kind of back into that, but it should be north of 20%.

Steven Li: Okay, and [indiscernible] factors, the U.S wind offshore, some of the weakness that Greg referenced on the call, right?

Joseph Mackay: Yes, no impact from U.S. offshore in 2025.

Steven Li: Okay, perfect. And then last one from me--yes, go ahead, Greg?

Greg Reid: Yes, I was just going to clarify that. Within our sales pipeline for the year, we did not have a lot of--you know, 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.S. 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.

Steven Li: Got it, and then one more from me, you’ve got 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.

Joseph Mackay: No, it shouldn’t be. As I said in answer to Benoit’s question, working capital kind of reverses. If you look at the midpoint of our guidance and the midpoint of capex, we should be free cash flow of $15 million, and then with those other--you know, with contract assets and contract liabilities reversing, it shouldn’t be really a drain on free cash flow.

Operator: The next question comes from Doug Taylor with Canaccord Genuity. Please go ahead.

Doug Taylor: Yes, thank you, good morning. Appreciate you guys hosting this call to give us some more color here. I’ll start with another question on the pipeline, which you’ve updated today - obviously pretty impressive expansion of that pipeline. In just helping us understand how we should think about this and the conversion to revenue and growth, maybe I could get you to talk about how much pipeline, the $900 million last year did convert or reached 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 Reid: 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--you know, 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 multi-year pipeline on the service business where you do have it on the batteries and the sonar business. The biggest drivers of it are the sonar and batteries side. The batteries 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, 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. 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. On the sonar side, which is a combination of Catfish product as well as our SAS that goes in other people’s underwater AUVs, 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 bones. 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 and into focus. If I look at that, those numbers that I talk about when we talk about $2 billion, are really looking forward to four years, sort of saying here’s all the programs that we see and what’s changed from the number we talked last year at $900 million. It was just the visibility to see a number of these other programs and have them put meat on the bone. Then occasionally, there’s some that just come out of the blue, that we weren’t aware of, that are because of increases in naval spending. There is 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: I appreciate all that color. 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. It’s understandable that there is a large 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 Reid: 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 focused--we think we have good wind to the business to be able to continue to grow this business, you know, 30%, 40%-plus a year, that’s at a high level. Talking 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 in programs across all areas of the business that we’re working hard to close. 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 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--you know, our ability to hit that number, 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 is, I’ll call them, more individual opportunities that might be not multi-unit 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.

Operator: The next question comes from John Shao with National Bank Financial. Please go ahead.

John Shao: 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 it the same as before, or do you think it’s going to accelerate in today’s environment given the urgency?

Greg Reid: 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. In terms of overall ability to access some of these opportunities, as I mentioned earlier on the call, there’s just a lot of irons in the fire. Yes, there are these multi-year 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. You’re also seeing there’s a lot of new companies coming into the market, not on the sensor side and tow fish side where we play, but there’s a lot of new AUV companies and unmanned surface vessel companies that have raised a lot of capital and 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 Shao: Thanks for the color. In terms of your battery business, we understand there still seems to be a good portion of potential customers 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 Reid: Yes, thanks, that’s a good point. Yes, 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 not being an AUV provider, we’re focused on providing some sensors and batteries that go into other people’s underwater vehicles. Come to a company like Kraken and we’ll improve your battery capabilities and make you more competitive. Yes, there is that outsourcing angle that our sales team is focused on as well, and we’ll see how that plays out over time.

John Shao: Thank you. I’ll pass the line.

Operator: The next question comes from Gabriel Leung with Beacon Securities. Please go ahead.

Gabriel Leung: Good morning and thanks for taking my questions, and congrats on the progress. Greg, you talked a little earlier about being super busy with demoing 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 push backs, I guess, on those fronts, whether it’s related to pricing or any capabilities you might be lacking in the products. Just curious to hear what your customers are saying.

Greg Reid: Yes, hi Gabe, good morning. I would say--I mean, people always like to discuss on the battery side as it relates to pricing. If you look at electric vehicles and batteries, pricing has been going down. 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 on 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. Overall, which yes, cell pricing might have been going down, we’re able to--you know, 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, 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&D side, and we have to continue to put product into the market that the customers are happy with, that are reliable, that are easy to integrate, that they’re easy to operate, and that’s the continual push for companies like Kraken and our competitors.

Gabriel Leung: Got you, thanks for that feedback. Then just moving over to the services side of the business, with the inclusion of 3D at Depth, are you able to talk about what the revenue capacity actually is for that side of the business now? How aggressively are you looking to build out, I guess, your fleet there to facilitate growth?

Greg Reid: I would say thinking about our business, the three legs of the stool - batteries, sonar and then services, so services is an important leg of the stool. Yes, adding in 3D at Depth is really a nice fit, where you take your more European-centric, offshore wind-centric business and combining it with 3D at Depth’s American and more oil and gas-focused business, it’s a nice combination. The combined business, if you look at the two of them as well over $40 million, $45 million last year, and ultimately if you think of that, we’ve got a number of different tools, so 3D at Depth brings on the order of 19, 20 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. 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. 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 would build a Catfish to use it in the commercial market, we ended up selling it in the defense market. This year as we’ve ramped up manufacturing, we’ll have a couple 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. As a reminder for everybody, on our service business, we’re not in the boat business, so I’d call it a relatively capex-lite 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.

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

Greg Reid: Okay, thank you David. 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 team’s 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. Thanks for your continued support and thanks for joining the call today, and we look forward to talking with you again soon.

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