Kraken Robotics Inc. (PNG-X) reported modest revenue growth in its final quarter before completing the $615-million acquisition of Covelya Group, a deal that sharply expands the Canadian marine-technology company's market reach.

The company's Q2 revenue rose four per cent to $27.3 million from $26.4 million a year earlier, but changes to a customer project led to a $1.5-million hit in quarterly sales. Excluding that adjustment, the St. John's, N.L.-based company said revenue would have climbed to $28.8 million. Analysts surveyed by FactSet had expected revenue of $26.3 million.

The quarterly results do not include financial results from Covelya, which Kraken acquired in July. The deal, first announced in March and funded through a mix of cash, debt and stock, will broaden Kraken's market opportunity beyond its sonar, battery and imaging business by adding navigation, positioning, communications and monitoring technologies to its product offering.

“Through our Covelya acquisition, we have significantly increased our technological capabilities, total addressable market in the overall ocean economy, and our ability to provide both products and services to a range of customers with our dual-use technologies,” Kraken chief executive officer Greg Reid said during a conference call with analysts.

The acquisition also deepens Kraken’s exposure to the defence sector while targeting new opportunities in offshore energy and other marine markets, Reid noted.

“We are in the early stages of what we believe will be a significant growth cycle. This growth is expected to be driven by the defence industry, due to geopolitical drivers, an industry upgrade cycle and the changing nature of warfare towards autonomous and hybrid fleets,” Reid said.

Quarterly EBITDA jumps 7%, loss increases

Kraken's adjusted EBITDA increased seven per cent to $5 million in Q2, while its gross margin improved by three percentage points to 59 per cent.

The company still booked a $7.5-million net loss in the quarter, worse than the $699,000 loss it reported a year earlier, but it includes a $6.9-million provision from an arbitration proceeding with a supplier.

“We continue to focus on building the business for long-term growth,” Reid told analysts.  

Kraken shares fell after the company released its second-quarter results early Thursday, but pared some of their losses. Kraken’s stock has been an investor darling in recent years, up 1,252 per cent since 2022, but the company’s shares are nearly cut in half from hitting all-time highs of $10.72 in March when it announced the Covelya deal.  

Kraken reiterated its 2026 financial outlook in its quarterly release, forecasting revenue of $290 million to $320 million, adjusted EBITDA of $65 million to $75 million and capital expenditures of $27 million to $33 million. The company announced last month it has $327 million in combined product orders

Product revenue rose two per cent to $16.9 million, with Kraken citing demand for its KATFISH systems, synthetic aperture sonar and subsea batteries. Services revenue increased six per cent to $10.5 million, aided by higher offshore-services work.

The company said over three-quarters of full-year revenue is expected to come from product sales, with the balance from services, and Kraken CFO Joe MacKay indicated on the analyst call that second-half results should be weighted more heavily to the fourth quarter.

Revenue impact of the Covelya deal

The Covelya acquisition could also change how Kraken earns revenue from some customers. Reid said the broader product portfolio is creating opportunities to move beyond one-time equipment sales into longer-term service contracts.

“There are cases where we might initially have just sold a product, where (Kraken’s) Sonardyne sold a product or Covelya sold a product, where there are now some discussions about, 'well, don’t just sell a product, maybe provide it as a service to us over a period of time, maybe monitoring solutions for us underwater for a period of time,' so it can be a data sale.”  

However, Reid pushed back on an analyst question on whether Kraken’s management was concerned that its customers may bring battery production in-house.

“The short answer is no, we’re not seeing our customers manufacture a Kraken-equivalent battery in-house that would take away our demand. In fact, it’s quite the opposite,” he said.

New customers added

Reid said Kraken added nearly 10 battery customers over the past roughly 18 months and are fielding calls from several others interested in developing underwater drones.  He said some of those newer customers could become more meaningful over the next 12 to 18 months.

Still, much of the company’s quarter was focused on the long-term impact of its Covelya acquisition.

Kraken announced new leadership appointments aimed to help integrate Covelya into its existing operating structure, including Joanne Roberts, who has experience at defence companies including Drumgrange, Ultra and Thales, and Bernard Mills, a former CEO and managing director of an Airbus Group subsidiary.

Reid told analysts how Covelya's portfolio will help Kraken improve access to the rise in global defence spending opportunities as it pushes to become a global supplier of mission-critical subsea intelligence technology.

“The oceans are getting more connected, the undersea domain is getting more contested. Maritime security, whether it’s port and harbour security, littoral waters or the deep blue ocean, is increasingly in focus, driven by geopolitics and energy security,” Reid said.