Frequent readers of mine know the story here. First selected as a 2024 Wolf Pick in mid December of 2023 at $0.61 with an original position of $0.58. Today on the morning of their 2025 annual financials it sits at $8.45 for a near 14 bagger and has traded as high as 17.5x.
If you were a little late on that one you still could have more than tripled your money over the past year with the stock returning 264%.
I had planned to cover Kraken in my my monthly earnings preview (What’s Wolf Watching) this weekend, but the company released earnings a couple of weeks before the deadline - usually a positive sign.
I’ve taken plenty of profit off the table with only about 25% of my original position remaining, the latest at $9 generating a 1451% return, but my current holdings are still more than 3x of my cost basis. Kraken has been very kind to me.
In terms of these financials, I’d say my expectations are low. I don’t anticipate them living up to the current $2.6B market cap. A long way from the $125M market cap when they were selected as a Wolf Pick less than two and a half years ago. We’re also more than a quarter into 2026 by the time these financials are released, and a lot has occurred with Kraken since their year end. Most notably of course was their $615M acquisition of Covelya Group consisting of $480M in cash and $135M worth of stock. To fund this the company raised over $402M, and the deal hasn’t officially closed yet.
How does their guidance look for 2026 and beyond and how much to they still need to grow into this valuation. Let’s dig in to ensure they are on the right track.
Balance Sheet:
Given the post financials acquisition and subsequent raise, I’ll try to be brief here.
At the end of December, Kraken’s current ratio was 5.5 consisting of $120.5M in cash, $34.7M worth of inventory, $27.3M in A/R and $27M of other current assets against $37.9M in liabilities due over the next year.
They had $22.7M of long term debt spread across six separate loans. Post financials they amended their revolving credit facility from $35M to $150M. They will surely need to tap into that given the $480M in cash they plan to utilize for the Covelya acquisition.
Kraken’s aging report is a little suspect with $1.7 in anticipated losses and that’s on top of over 25% of invoices past due. 86% of their A/R is concentrated within four customers.
Overall, their balance sheet looked great at year end with just their cash position covering all of their 2026 liability commitments by over 3x. Given the acquisition and adjoining raise of capital occurred in March, it will need to be re-evaluated with Q1’s financials that investors will see by the end of May.
Cash Flow:
Just $1.5M of operating cash flow was generated in 2025 compared to an operational cash burn of $11.6M in 2024.
As is usually the cash with Kraken, their OCF was heavily influenced by working capital changes, most notably was the inventory ramp up in 2025 - a strategic decision to have more on hand available to sell. It was partly the reason for the raise earlier in the year. Therefore one could conclude their cash flow is better than it looks.
Covelya wasn’t the only acquisition in the last year as they also acquired 3D at Depth last April for $23.8M and spent another $26.5M on capex, mainly for their new N.S. facility to expand capacity which is now completed.
Kraken raised nearly $110M in capital through dilutive measure in 2025 and added $9.4M in net debt.
Overall they more than doubled their cash position in 2025 to $120.5M. Of course this will look much different at the end of Q1.
Share Capital:
306.6M shares as of Dec 31 - 17% dilution in 2025 and 48% over two years
13.7M options, all ITM, earliest expiry May of 2027
Insider ownership around 3% and getting lighter post financials. I wonder if the CEO wants the 800k in shares back that he sold at $2.98 ten months ago
47.4M subscription receipts which will convert to common shares upon Covelya closing
Approx 15-16M shares to Covelya as part of the acquisition
Fully diluted float approximately 382M shares
Income Statement:
On the year, Kraken drove a modest 12% increase in revenue to $102.2M. Much more impressive were gross margins with increased by 1300 basis points from 49% to 62%, and that helped to drive 42% more gross profit dollars on just 12% more sales. This was achieved through strong demand for batteries and synthetic aperture sonar (SAS) products, and robust growth in subsea services.
Unfortunately there was no operational leverage obtained in 2025 with operating expenses growth of 78%, significantly above their rate of revenue increasese (12%) and GP dollars (42%).
While non cash burning depreciation and SBC costs rose dramatically, cash burning Admin costs were up by 85% while R&D rose by 26%. Headcount in Q4 was 53% higher on a YoY basis contributing to much of the variance.
Therefore after generating 42% more GP dollars in 2025, their operating income was down by 38% YoY to $8.6M.
After an $8M net income tax recovery in 2025, they experienced $3.3M in income tax expense , so net income for the year decreased by 86% to $2.9M vs $20.1M.
On a quarterly basis, it looks quite similar. A very slim revenue increase of 1% with a dramatic improvement in margin to 70% vs 48% to grow gross profit dollars by 48%.
Cash burning expenses grew by 74% with most of the negative impact of their previously mentioned tax bogey to last year occurring in Q4 resulting in a just better than break even net income of $54k vs $13.7M.
Overall:
If you’ve got this far, let me tell you that almost everything above is pretty much meaningless, and that makes me question my own sanity for writing it in the first place. The following is much more important.
That $2.6B market cap I referred to in the opening effectively turns into a $3.4B market cap at the current $9+ share price given the dilutionary measures that will take place on the acquisition of Covelya closing - that should take place sometime in Q2. That means investors won’t see any combined results until mid to late August, and fully blended for a whole quarter until November.
The guidance for 2026 for Kraken Robotics which doesn’t include the acquisition is in itself quite encouraging. Revenue at their mid point of $170M would represent a 66% increase. The company has already received $87M worth of orders as of yesterday - 50% of their annual guidance with more than two thirds of the year to go. Therefore this guidance could be a little sandbagged.
Unfortunately AEBITDA is the only profitability metric they provided guidance on and that is expected between $40-$50M. I say unfortunately as their historical AEBITDA to cash flow conversion has been very weak. They achieved $25M of AEBITDA in 2025 and only delivered $1.5M in operational cash flow. I anticipate 2026 to have significant restructuring and acquisition expenses, therefore I assume similar poor AEBITDA to cash flow conversion this year.
We know that this guidance will be updated when the acquisition has been finalized, and those could generate some very eyepopping numbers. Covelya was expected to deliver between $250-$275M last year and if you tack on their CAGR of 24%, that delivers $310M in 2026 on the low end. According to the recent earnings release, Covelya has already received $135M worth of orders putting them on track for that $310M figure. Therefore upon closing the deal, annualized total revenue of a half billion dollars looks like a near certainty, but with a lot of questions on what happens underneath the revenue line.
That is where I have some concerns with the acquisition. The $615M price tag is reportedly an approximate 10x AEBITDA - that metric once again that I despise so much. 10x net income or cash flow I would usually consider a good deal at the top end, particularly given a 24% CAGR in a very attractive sector. 10x EBITDA or AEBITDA can potentially become an overpay very quickly, particularly if Covelya’s cash conversion from AEBITDA is similar to Kraken’s. They are going to need to grow both at significant rates and generate some considerable synergies to make this look attractive a few years down the road. How much of this transaction will be made up of goodwill and intangibles will be very interesting to look at eventually.
Unfortunately it won’t be until November until we see a full quarter results of the combined businesses, and likely another year from then to see any results of synergies and operational efficiencies. Until then the stock will continue to trade on speculation, news, and the strength of the defence sector. I do like this $3.4B implied valuation of the combined businesses more than I did the $1.6B valuation of Kraken’s business the last time their financials were reviewed, but that’s not saying much.
If you want to continue to nerd out on Kraken, I’ve attached two decks. The first is more about the Covelya acquisition itself, the second is their latest investor deck just recently updated.
Given their Q1 results next month will not have combined results, I’ll probably pass on another review and wait until August for Q2. Until then, I’m maintaining the 3.25 stars.
Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.
It's not often the conclusion is longer than all the other sections, but this one was very informative. I'm hoping for a dip so I can get in.
Ye gods, you need to be a proffesional to work through that lot....thanks for your views wolf