Kraken Sonar (PNG.V) Announces $1.5 Million Order

As alerted yesterday, Kraken Sonar (PNG.V) announced that it received a $1.5 million order for its KATFISH product from a major defense contractor. First and foremost, this order validates the very first point we set forth in our investment thesis in our previous research report on Kraken. As a microcap investor this is crucial as it provides confidence that management is executing and that our investment thesis is on track. 

The significance of this order cannot be underestimated for the reasons set for below:

  • This validates Kraken's unmanned underwater vehicle (UUV) technology and product. The UUV market is a competitive one, but as described in our research report Kraken has serious competitive advantages in technology (fully integrated sensors and systems) and price. They have now officially broken into the market with this order, and that is a huge success. 
  • The company notes that the order actually is worth around $2 million when service charges (spare parts and support) are added to the order. 
  • This order almost doubles the size of the company in terms of revenues (but note that 75% of the revs from the order will not hit the books until 2016). 
  • 25% of the order will be paid upfront, 75% upon completion. 
  • Recall that the company expects 55% gross margins from KATFISH product. 
  • As previously discussed, the first order will take 10-12 months production time, but future orders the company expects can have a lead time of just 2-4 months. 

I would anticipate additional KATFISH orders to be announced in the coming months as the company aggressively is attempting to obtain placement. I would also not be surprised if the company announces a distributorship deal announced with a major company that handles all manufacturing aspects for the KATFISH, similar to what the company has done with its Aquatrak product. 

The stock responded nicely to this news with a near 40% pop. 

Bottom line: This order is significant for the company. Not only does it validate their KATFISH product, it sets the stage for growing momentum for future orders. And...just this one order nearly doubles the size of the company.