Thanks Dave
Sales grew 16% to $26.4M, beating analyst estimates, although it reported a net loss of $0.7M, compared to a positive net profit last year. Management maintained guidance for sales of $120M to $135M (implied growth of 40%), and it expects adjusted EBITDA between $26M and $34M (implied growth rate of 45%). It also expects strong RFP (request for proposal) activity in naval defense from 2025 to 2027. Sales growth was driven by strength in subsea batteries and services, partially offset by weaker sonar sales. Service revenue grew substantially, its gross margins imrpvoed to 56% from 51% in the prior year. It is pivoting towards high-growth services, as its service revenue grows substantially, but some net profit margin pressure persists due to reinvestment in growth infrastructure. Backlog of $134M was strong, growing 24% year-over-year.
We think these were decent results, but we think a standout quarter would have included better net profit margins and increased guidance. Still, we think its outlook is strong and it is shifting its sales mix to a higher margin business, which we think is beneficial over the long-term. We remain comfortable with this name, and would be OK slowly averaging in over time.