Knightscope Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2025

There are 2 speakers on the call.

Operator

And a few things to cover. One, if you have a question, please use the q and a little button at the bottom of of the screen there for you, and we will try to answer your questions. If we can't legally answer what you're asking, we might reword your question. Another thing to note, we will not be sharing any MNPI or material nonpublic information. We can certainly provide clarifications or stuff that's not material, but no material items.

Operator

So we wanna be in strict compliance with our friends over at the SEC and NASDAQ. Still have some people coming in. And then, again, please make sure to ask your questions, in the q and a section at the bottom there, and we will spend a few moments first to have Apoorv walk you through the results from the first quarter. We've had a lot of folks have a little bit of confusion as to when these occur. So, normally, for a 10 q filing, it's, six weeks after the quarter has ended.

Operator

I get all sorts of, all sorts of love messages and and and texts like, hey. Where's the filing? Hey. Where's the filing? It's the day after the quarter ended.

Operator

It's like, well, I kinda need time to prepare and get all the filings pulled together and all the numbers, reviewed by the auditors, etcetera. So it's six weeks after the quarter has ended, and then a little difference for the year end. That's usually, after the first quarter is actually fully ended. And then we we do the review thereafter, which we just, did with all of you, last month. So now that we, I think we have more than a quorum, I'm gonna turn it over to Apurv, who's our CFO.

Operator

He's gonna walk you through, pretty exciting first quarter. So, Apurv, you wanna take it away?

Speaker 1

Absolutely. Thanks. Thanks, Bill. Good afternoon, everyone, and thank you for joining us today. I'm I'm excited and pleased to walk you through our financial results for the quarter ended March 31, 2025 and provide some commentary on our on our progress.

Speaker 1

Let's dive right in. Total revenue for the first quarter, was 2,900,000.0. This is a 29% increase compared to the 2,300,000.0 in the first quarter of twenty twenty four. Now this is driven by both, growth in service revenue and our product revenue. Our service revenues grew by grew to about 2,100,000.0, which is up 25% from 1,700,000.0 prior year, primarily due to the strength in both the ASR subscriptions and the, full service maintenance agreements on ECD clients.

Speaker 1

On the product side, revenues increased by 44% to about 800,000 809,000, actually, as compared to the 563,000 in the prior year, primarily because of the, some of the distribution partnerships that we've created in the past years, they're starting to take off. So this year over year growth reflects, the expanding deployments across our platform or product lines and client retention as well as expansion in the machine as a service model. Sorry. There you go. On the cost structure, piece or gross loss, let me just kinda walk you guys through there.

Speaker 1

So our gross loss, came in approximately $700,000, which is a meaningful improvement, compared to the loss of $1,400,000 a year ago. Now this is driven primarily due to some some savings in the total cost of revenue. Our cost of revenue came in slightly higher at, slightly lower at, 3,600,000.0, this year compared to 3,700,000.0 in q one. So not largely flat, but primarily due to the savings from one time scrap fees that last year, if you recall, we were going through changes in our, we we were, in our, robots that we were swapping out for the higher version, the version threes versus version fives. And those, onetime scrap fees were then offset by higher cost and product, to support the increase in sales volume this year.

Speaker 1

So, importantly, as you can see, we are making tangible progress towards achieving the goal of positive gross margins, primarily driven by price optimization, better asset utilization, and a disciplined cost control. Moving on to our operating, expenses. Operating expenses for the quarter came in at 6,200,000 as compared to the 6,800,000.0 in 2024. This is about a 9% reduction year over year. If I break that down, you can see that research and development expenses were about 2,100,000.0, which is about 35 percent higher than q one twenty twenty four.

Speaker 1

This reflects, our continued investment in product innovation and and feature set expansion as we continue to, invest in innovation and and drive product growth, innovation growth. On the sales and marketing expense side, we actually came in 15% lower at 1,300,000.0, versus prior year, and this is primarily due to the fact that we continue to make strategic changes in our go to market strategy. Finally, g and a expenses came in at 2,800,000.0. This is, almost, $800,000 lower from prior year's expenses, 3,600,000.0, last year, primarily due to cost discipline and savings in prior year IR spend, that we had related to promotion of our public infrastructure bonds in q one twenty twenty four, if you guys recall. And, we also had no restructuring charges this quarter compared to the about a hundred thousand we had in q one twenty twenty four.

Speaker 1

So with that, our, net operating income or or loss, actually, Loss from operations for the quarter was about 6,800,000.0. This was about a huge improvement from the 8,300,000.0 in the first quarter of last year. And and and going one line further, net loss after taking into account other income and expenses came in about 11% lower than prior year's loss of 7,600,000.0, notably because we did not have to recognize any change in fair value of warrants. So last year, if you got if you recall, we had, these, warrant liabilities on our books that we extinguished mid year, but there was a fair value exercise that we have to run when we have these type of warrants. And and there was a $700,000 gain prior year that did not show up this year.

Speaker 1

But overall, it's a it's a good thing because we don't we no longer have those warrants on our on our on our balance sheet. Other income and expenses came in largely flat. Our, earnings loss per share improved also to about one point, $1.29 as compared to a loss of almost, $4 per share last year. And and I wanna highlight also that, our cash balance, you know, came in stronger position in, in this year q one than both q one last year and even at the end of 2024, where we had about 11 point 2 million. So with that, you know, the the, in summary, q one twenty twenty five reflects continued revenue growth, narrowing gross loss, lower operating expenses, and progress on key operational initiatives that the company is focused on this year.

Speaker 1

And we are focused on on on basically three main things. One is driving towards a positive gross margin. We're focused on scaling our services and product footprint and, operating the business with increased efficiency and discipline. With that, thank you for your support, and I'll pass it back to to Bill.

Operator

Thanks, Sapurf. And that's exciting that, you've been with us just a bit over a year and to have a good quarter. As you you and I have made, with the team, a massive amount of changes the last fifteen months, like dozens and dozens and dozens of changes all across the business, up and down the income statement, all around the balance sheet, clean things up. And finally, it's starting to show up in the numbers, and we're hopeful that, that trend, will continue. So if folks have questions, for Aparvore or myself, please make sure to put them in the q and a section, at the bottom of your screen.

Operator

But how do you how do you feel overall, Aparvore? I know we just went over the numbers, but, like, how are you feeling about the the company and the and the progress just kinda more subjectively?

Speaker 1

Look. It's it's it's an interesting place to be. We are, you know, a company that is in our size, a lot of times, the performance of the things that we do is largely, you know, driven by external events just as much as driven by internal events. And what I am I would say I'm excited about and and and have a positive outlook in is on that we've talked about this. All of the things that we did last year that we were we we thought, you know, were were somewhat, risky in that sense that we didn't know how they're gonna turn out, but we're geared towards driving, you know, high growth, driving better margins, more efficiency.

Speaker 1

They're starting to kinda, you know, take, take hold. And what this tells me is that we just have to continue to execute. And as long as the team is focused on execution, you know, things are positive. And and and we just gotta keep keep that focus on and continue to make progress towards, some of the goals that we have laid out in the long term.

Operator

Yeah. We made some controversial and difficult decisions, but Yeah. You know, I think we'd do it all over again. And, we're heading in the right direction and actually feeling pretty good, about stuff. Okay.

Operator

Now the questions are starting to pile in. So That's right. So the rule here is the easy ones, I'll do. All the hard ones, you have to do. Right.

Operator

Alright. Scott Buck is in the house. Let's see. Scott, can you provide a little color on how the current level of macro uncertainty may be impacting the conversations you're having with potential customers. You wanna try that and I can Sure.

Operator

Go in?

Speaker 1

Sure. So, you know, on one hand, I think where the uncertainty is having an impact or will have an impact in my mind is really on the financials. Primarily, if you think about tariffs. Right? So on one hand, you have political uncertainty that that probably has less impact on us directly.

Speaker 1

Although, you know, the some of the focus on on security, on national safety is actually, I I would say, positive in our favor. On on the other side, you have the financial impact of things like tariffs. That is, frankly, is unknown. We do know that there are some impacts to our our suppliers who have to worry about the components they outsource from from, foreign company foreign, based companies, and those, they have to pass on to us. So we have to figure out how to manage that.

Speaker 1

And and some of that is still being being determined. Right? Things are changing almost on a daily basis. So yet to remain. Although if track if if if tariffs do stay and they stay high, we anticipate some impact of that primarily on, obviously, pricing to component pricing to on really the lead time for some of the items that we need.

Speaker 1

Component lead time, we see become elongated when all everybody wants the same same components, you know, and wants to hold them before the the tariffs take effect. So those are two areas. Obviously, we'll continue to work through them. But on the other side, like like I talked about, from a safety and and and security perspective, I I think we're gonna see some some tailwinds there. Bill?

Operator

Yeah. I think, one, in the way I view things in in chaos is always opportunity. So I'm actually kinda bullish about the the set of circumstances. Second, we are, you know, American made. Yes.

Operator

We do have some, components and and the like, that may come, with a a tariff penalty. I I think on the subscription side of things, it becomes a lot less of a material item because, you know, you're if you got a thousand dollar widget and now it's thousand 500, okay, or how many of those widgets does it really apply to? And then remember, if it's a subscription service, you're not paying that tariff the second, third, fourth, fifth year in the subscription. All our operating costs and everything is, you know, dollar denominated US based. And then there's certainly the the tailwinds on, you know, Buy American and American jobs, which were right in the in the thick of things.

Operator

Yeah. And then not to be funny about it, but, like, chief security officers aren't sitting around going or criminals. Like, hey. What's the tariff amount of this month for this country? Or, you know, what's on my Bloomberg terminal?

Operator

Or, you know, what are the markets doing? Criminal activity is kinda divorced, from that from a very, very macro perspective. Sure. Sometimes in in more desperate times, things get a little bit worse, but it's kind of on the margins. So I think we're just kinda there's always gonna be noise.

Operator

Ignore the noise, focus on the signal, and kinda move forward. So I we're not in the market exposure kinda, issue where, you know, everyone's, like, freeze everything and and, you know, it relies solely on imported items, and we've got a, like, literally a business concern that's not what we're frankly focused on. Dane Jones, is the per share loss improvement partially or mostly due to the reverse split? I forget the timing of it. Report?

Speaker 1

Yeah. I can I can answer that one? The so the reverse stock split took place last year in August, September time frame. We the board passed it back in August, then we enacted it mid September. The per share price is taking into account the, the reverse stock split.

Speaker 1

So what we do is we essentially take last year's shares outstanding, modify it for the split, adjust it for the split, and then report out. So this is a one to one, comparison.

Operator

Doctor Reddy wants to know, when do you report positive EBITDA, and when do you report positive earnings?

Speaker 1

You know, work in process, doctor Reddy. We we are just as, excited about reporting positive earnings and EBITDA as you are, if not more so. Timing is yet to be determined as we continue to drive, focus on business growth.

Operator

And I'll give you a slightly different answer. It might get me in trouble. But, you know, if if we wanted to, all of a sudden, show positive numbers, there are certain things that we could do in the company. But then kinda like the addressable market, the size potential of the company, the future growth gets very, very, very limited. And so, like, do you want a immediately profitable company that stays small, or do you look at the competitive environment and the opportunities out there and maybe we should invest on some new technologies and go after a much larger piece of the pie of a much larger pie.

Operator

So remember, we're financially aligned with our shareholders. Our, we work for you, and the objective here is to create long term shareholder value, not, you know, quarter by quarter, minor improvements in in increments. So we will get there, but we wanna go after the the the big fish as opposed to, swimming in the in the small pool.

Speaker 1

Yeah. This next one is, from Robert. I think it's the same same answer.

Operator

Question. Yeah. Ed Woo is on the call. Alright. Is the Doge program having any effects on your focus on federal security customers?

Operator

I I think this one's two ways to to to look at it. On the negative side, it has made a little bit of headaches, for us because people are, long term contacts and relationships and the like, are getting dozed or and or retiring. So that makes doing, you know, kinda day to day business really difficult. What we submitted to the White House, at their request was kind of, you know, what what is your input? What's Nightscope input for the AI task force, and what could AI and automation bring to, Doge and the entire administration and and federal apparatus?

Operator

And, you know, our friends over at the Washington office racked up the numbers and, you know, kinda looked like about $10,000,000,000 of opportunity. So I think on a more positive standpoint, if you've dramatically reduced your, headcount, but you still have kind of the same mission to secure all these facilities, you're looking for much more efficient ways, and different ways to, accomplish the job. So that opens up, additional newer, discussion. So like everything in life, nothing's kinda black and white, got some negative and and some positive. I'll be on, Capitol Hill all, of next week continuing to foster, relationships, throughout the the federal sector.

Operator

And, you know, there there's genuine opportunities for us to help. But always remember, as I always say, the federal government does not move quickly. So we're working on it, but, there's certainly opportunities out there.

Speaker 1

Anand asks, their investment rate of return is very weak. When are we going to make profits? Again, you know, same similar question as the ones before. We are on a path. Our goal is to to obviously make profits.

Speaker 1

You know, we have a path outlined, and we'll continue to follow that path.

Operator

K. Next question, Bill,

Speaker 1

I think is for you. Francis asks, what happened to Stacy Stevens?

Operator

So no different than us, clearing out the entire board and terminating 40% of the management in order to get a lot more efficient and aligned. The board of directors elected to eliminate the position, and Stacy, was terminated. But we certainly thank him for all the years of effort to get, Nightscope, up and going, but he's no longer with the company.

Speaker 1

Scott asks, as revenue scales, how quickly will you need to add additional cost infrastructure to support that growth? Again, I wanna better understand, operating leverage opportunity. Great question, Scott. Again, I think I think we have a little bit of, time. Right?

Speaker 1

It's a it's not a linear model. It's more of a step scale. Right? So as we think about, where we are today, we we we are okay. We are adding, obviously, some cost infrastructure as you, recently saw the announcement announcement that the company is moving to a new facility.

Speaker 1

We will absolutely make some investments in in building, you know, cleaner, more efficient production lines. We are already adding additional headcount, as it relates to production shifts and on those things. And those will happen linearly, but, we we are cognizant of that. And I think the goal for us is to, scale the revenue first, get to the point where we're kinda bursting at the seams, and then add costs. And that way, we have a better, ability to to manage that cost and and and make sure that the revenue is sustainable, and and to do do it responsibly.

Operator

I think, Scott, I I would add a couple other items. One is, just by a simple example, we have a staff that runs twenty four seven that monitors the health of the machines all across the country. Just because we added ten ten percent more machines, 50% more machines, or a % more machines, we're not increasing the staff, there. So there's, like, a critical mass needed to operate the company. There's a critical mass to just be public.

Operator

It's a critical mass. So I think the the numbers, both, at the gross margin level and, net income level over time basically need scale. We need to continue to to grow, and and get our cost down, but there is a factor there. So what we're gonna do is try to be very careful of not adding costs and then actually do the opposite. So one of our, executives along with the entire leadership team is very focused on automation and AI, on how that impacts our manufacturing processes, our products, our services, and having very poignant conversations as to, okay.

Operator

Why does it take so long to do to get from x to y, while there's 32 steps and too many meetings? Okay. Well, how can we automate this part? How can we automate this part? How can we literally change the process and delete this part, etcetera?

Operator

So what we wanna do is, continue to grow the revenue, but not continue to add, proportionally, you know, additional, costs into the into the system, so that can we finally enjoy those margins. So I think there's significant, leverage opportunity, as we scale up.

Speaker 1

Absolutely. Especially as you think about focusing on our fixed costs. Our goal is to, you know, keep the fixed costs, you know, part of that formula, right, as as, steady as possible and continue to, you know, obviously, you know, optimize on the variable costs that, that we need to incur or, incur as we as we scale up.

Operator

Yep.

Speaker 1

Joseph Dejohn asks he says congratulations. When will the new facility be up and running?

Operator

So, I wish we can just drag and drop, you know, download stuff from the cloud. So, fortunately, we have an overlap. We negotiated a really sweet deal for us. We've got free rent baked in. We actually have two facilities right now.

Operator

The old facility, the lease terminates, August time frame. So we're in process of adding IT infrastructure. We're gonna go get furniture, all this other good stuff, and get all the branding set up and and security profile for the facility. So we started moving things over. The k seven team is the the first to go over.

Operator

It was awesome to have our first, actual technical business meeting, there. And the team's excited. I'm super excited. It's not just a symbolic, opportunity, but the facility itself is gonna facilitate a significant amount of collaboration and and efficiency. And, hopefully, once we get all settled in, we shall do an open house or shareholder meeting or invite you all for some pizza or barbecue or something.

Operator

We'll figure it out. But we'll we'll do something, once we're all settled in. But, I I do wanna caution, especially for the analysts that are on the call, there is a risk of a bit of disruption during, this quarter and next as we move things over. We've already, you know, shut down numerous facilities. It is a significant amount of, unfortunately, unfortunate workload, that needs to get thrown on top.

Operator

We're trying to minimize the amount of disruption so that we can keep, you know, production moving along, but, you know, there are are are certain risks. But things are looking up. It's gonna be fun. It's gonna be awesome, and we're looking forward to, hosting you, there for a visit.

Speaker 1

Jordan Bendel asks, how does your order book look like? Any backlogs? I I can take that, Bill. We we do, you know, disclose our backlog numbers. We as of, actually, early this month, we had a total backlog of about, 2,500,000.

Speaker 1

This is a this comprised of a 1,900,000 in, ECDs and about, you know, 600,000 in ASR related orders.

Operator

Ed, just in case you didn't hear the answer on the question for the tariffs, I think there's, we can't say zero impact, but in my view, it's not material. The uncertainty certainly causes some supply disruptions in terms of timing, so we're we're trying to manage that. There are few commodities, specific ones that, may be impacted. But, you know, I think we put it in as a risk factor, but unquantifiable. And, you know, on the positive side, you know, we're US made, and US operated and with US customers.

Operator

So on the flip side of that, you know, not much to, not much to report.

Speaker 1

Greg Reed asks, at IPO, I had purchased shares. I watched my investment dwindle. What are you doing to get the company back to that IPO value?

Operator

First, Greg, thank you for the support and the 35,000 investors that backed the effort. Second, I would encourage you to download the latest updated investor presentation at knightscope.com/America. That's knightscope.com/America, and that gives you the long list of things not only that we have done, but where we're going. The different way to answer your question is we need to get revenue up, cost down, and we need to, build new technologies, to wow and sustain long term profitable growth. And we've been cleaning house.

Operator

So there's a if you go to my Twitter handle, which is w Santana Lee, under the highlights section, I think there is a a few posts there, like, what have you done for me lately? And it's a lot. You know? If you missed the earlier part of the call, you know, we, brought in an all new board of directors, brought in a new CFO, took 40% of the management team out, took about 30% of the payroll down, moving 13 facilities, hopefully over the medium term here down to one facility. We added a new department, brought in a new sales team, brought in a new accounting team.

Operator

We've changed pretty much everything, the address of the building for the company. Probably the only thing that we haven't touched is is the logo. So the list is very long, and why we're really excited about, getting to not only the the IPO levels, I I think those are are too low for where we need to go. And beyond that is all the changes that we've made over the last fifteen months are actually starting to show up in the numbers. And I've as I've cautioned all these years, this is a long term build.

Operator

This is not a, you know, get rich get rich overnight, approach. The mission is to secure the country, and I think that in the end will be invaluable, to not only society but to our shareholders.

Speaker 1

Max, from, he asks, have you seen any order delays or cancellations due to macro uncertainty? I I haven't seen any bill, but I I don't know if you recall any

Operator

I I haven't I've personally been signing contracts, as my, sales internship, and we haven't seen that. And, again, not to be funny about it, but, you know, chief security officers, chiefs of police, and sheriffs aren't sitting around, you know, counting tariffs and, you know, looking at their Bloomberg terminal. They're focused on day to day realities, and that just doesn't hit the hit our part of the economy.

Speaker 1

Mark asks, what has been the biggest obstacle in ramping up customer base and becoming a household name?

Operator

Oof. You want me to do that one? Sure. So, Mark, we we just celebrated our twelfth year anniversary last month, and it's been a very, very long, arduous, difficult road to basically will this company into existence. To make an important footnote, three major corporations and three funded startups have tried to do what we do doing.

Operator

All of them have failed, gone bankrupt, or given up. So that speaks to the level of difficulty of executing, this business and in this sector. I think if I were to look back at the twelve years, like, what went wrong or what could have made things go faster, it's it's sadly, it's cash, cash, and cash, meaning funding. Prior, to put it in context, if if you were a newer investor, before we went public, so the first nine years, we probably raised around a hundred and $20,000,000. Sounds like a lot of money.

Operator

Right? But a hundred and $20,000,000 over nine years is not a lot of money. We probably should have tried to I don't know how we would have done it, but we probably should have tried to raise a quarter billion dollars to get things going and then another quarter billion to grow. So every issue that we have on the team and the growth is literally funding related. We know how to get from a to b, and, it's as I often say, people cash in time.

Operator

There's no, like now there isn't. There was before. Now there isn't, like, I don't know how to do that or I don't know how to we know exactly what to do, and that's why all these changes over the last fifteen months have been effective is we have a very keen grasp on the business and kinda where all the dead bodies are and all the bad stuff and all the technical debt and process debt. But if you don't have enough salespeople, if you don't have enough production people, and if you can't have enough capital to build enough finished goods inventory so that you can sell faster, if you don't have enough of a marketing budget, you know, the list goes on and on and on, you can't expect, you know, some big hockey stick, of growth. So that's the unfortunate, you know, truth.

Operator

Like, what would I wanted to do differently? I don't know how I would have done it, but that's, to me, the the the root cause of the issues.

Speaker 1

Yeah. No. I I will also say that, one, we are a b to b business. We're not a b to c business, so it's, you know, our customers are other businesses that that like our products and want to utilize them to to make their property and their perimeter safe. I'm actually, to be honest, surprised sometimes when I I talk to, you know, a random person or a stranger, and and and they're like, oh, I've seen your robots, or I saw I

Operator

saw you too.

Speaker 1

Yeah. And and, you know, so, you know, I'd love it to be a household name. I think we'll we'll you know, that's that that happen organically as you continue to to deploy more and more robots, and more more of our technology, not just robots, in into the field.

Operator

It'll happen. And if you wanna help, if you know a hospital administrator in your neighborhood, you know the mayor, you know the city council member, you know the chief, you know the sheriff, you know the chief security officer at the local casino or commercial real estate or whatever, like, send them over to knightscope.com, and, you know, we'll take good care of them and see if we can be helpful. But, you know, this this can't be we can't achieve the mission and grow the company literally by ourselves. Like, one, would be naive. Two, be arrogant.

Operator

We genuinely need your help and support, and I'm grateful and appreciative that, you know, a hundred people would, you know, take time on out of their Wednesday to, sit here and listen, about how to really make a difference in the in the country. And it and it can't just be us, it just can't be technology by itself.

Speaker 1

Scott and Ed are, asking us to give them more information on the new headquarters, the put the plans for when we will move, and, potential disruptions and or cost from from

Operator

Well, the first thing we're gonna do is upload Scott and Ed's profile pics into our system, and we're gonna be be on the lookout for these two guys. They show up at our headquarters. Just kidding, guys. So to give a little context, we've been operating out of, originally, about 13,000 square feet of class b warehouse space in Mountain View, California. Through the acquisition of Case, we inherited another dozen facilities all across the country.

Operator

We've started to consolidate, the couple production facilities and some of the warehousing in Mountain View and literally ran out of space. So it's been a a bit brutal. So we landed a quote, I think, the Silicon Valley Business Journal, but I I think there's probably well over a billion dollars of commercial real estate kinda just sitting around, in Silicon Valley. So we were basically able to get a facility that's 33,000 plus square feet, so more than double where we have class a class a office space that, Siemens had, taken over a couple years ago, had dumped $11,000,000 into it. It's a brand basically, a brand new effective, brand new building, and never moved in.

Operator

So we were able to, land, and secure that facility for on a square foot basis, probably half of what we're paying for double the amount of space. So that will help us consolidate the the team, all the production, give us some extra room to do testing. We're gonna turn the facility into, a test environment for future technologies, as well as be able to set it up to greet, government officials, prospective clients, hopefully, investors, and one, two, or three equity research analysts, to come and visit and get some robot selfies and touch and feel and see robots, in action. This is gonna take some time. There is, as I mentioned earlier, a little bit of disruption risk, to do this move, before, the August time frame, but things are underway and genuinely excited for the team.

Operator

They've all worked really hard. If you only knew what it would take to do what we're doing, I wanted to you know, my way of rewarding them is, one of the ways, is to give them a a much more positive, inspiring, and exciting environment, to have them do their life's best work in service of the our country.

Speaker 1

Yep. And I can I can, offer some, insights onto the cost and and disruptions? Really, what, you know, the costs are gonna be around, you know, moving facilities, some moving costs, furnishing costs, right, setting up the facility for for our operations. So those are some anticipated costs. We we don't think any of them to be, you know, anything beyond what we would normally expect from a move like this.

Speaker 1

On the other hand, the disruption piece is something we'll continue to keep an eye on and work through, Scott and and Ed. Really comes down to, you know, when we perform the move, we have to obviously stop production, stop production on the ASRs, stop production on the, on the ECDs, you know, take all the production lines out and and reestablish them in the new facility. The facility is not that far, but there is disruption associated with that. Now what we are doing is we're we're evaluating, both internally and using third parties, consultants to help us figure out how do we do that with minimize disruption and simultaneously use the opportunity to optimize the new production lines. So most likely, of the things we're gonna do is we're gonna accelerate production and and have, you know, inventory on hand, and then pause production, for either the a c e ECD or the ASR depending on which one we pick to go first.

Speaker 1

And and then, you know, establish it, get that up and running, and then do the same thing or repeat the process for the for the next line. So, you know, obviously, there will be something there, that we're concerned about. Both Bill and I talked about this earlier. We're hoping to and we we are actively evaluating ways to mitigate that.

Operator

We we shut down two facilities last year, and, we try not to make the same mistake twice. So we're gonna be super careful here to to try to make it as smooth as possible, but it's a significant amount of workload.

Speaker 1

That's right.

Operator

If you've ever moved your own home, you realize, like, wow. I have a lot more stuff than I actually realized, and why the boxes keep coming. Yeah. Well, multiply that times a hundred. Right.

Operator

Sorry. Let's keep going.

Speaker 1

Yep. Francis Hemet asks, two things. He says, one, I'm impressed by your new marketing. Who's doing that? And and secondly, he wants to know what our what our sales process is now.

Operator

I'll, I'll send you the the payment for that question later, Francis. So one of the fortunate or unfortunate things I've been doing the last fifteen months to make all these changes and and turn things around is basically for me to physically do the work myself. So there's a running joke, internally that I have numerous internships, and one of my internships has been the marketing intern. And basically going into that area, seeing what tools we're using, what messaging we're using, how the process is working or not working, and in a lot of cases, ripping everything out and starting over. So that's me plus, some outside, help that, that I brought in to do some of the blocking and tackling to implement what I've what I'm asking to get done.

Operator

Sales process today, guess, we have, I would say, two different sales processes. So on the emergency communication devices is very different. It's more transactional. A lot of, inbound, and we have, numerous resellers, because it's more of a commodity. And let's say the general contractor already had specked us in and just needs the quote.

Operator

Like, they don't need a demo. They don't need to be talked into it like it's already, done. So that's a completely different process than, hey. We're gonna put a four, you know, 400 pound robot that's autonomous on your campus and, you know, they probably need a demo, need an explanation. So you typically, those happen, how those happen is to have, first, like, a discovery call.

Operator

Like, do you actually have a problem that we can help with? And, you know, the worst client that we could have is the sorry if there's anyone that's a chief innovation officer on the call, but the one of the worst clients we could have is the CIO that has budget and wants a shiny object but doesn't have, like, actually any problems. That's kind of a a waste of time for us. The the client that has, you know, a a budget problem or a crime problem or both, where where we can be super helpful, That's where we wanna go spend time. So we wanna make sure that, you know, who are we talking to?

Operator

Do you actually have authority? Do you have budget? Kind of you know, do you actually have a need? You know, when's it what's is it this year, next year, next quarter, tomorrow? Kinda do that first.

Operator

And then second, do a, a kind of webinar, type of demo. Then we'll go deploy, an online and in an in person technical review, for lack of a better way of saying it, a a complicated site survey of understanding their needs, but also, you know, where's the outlet to to plug in the docking station, or what's the connectivity. Then we come back to them with the proposal, and and off we go. But, two two different very different processes.

Speaker 1

Two questions related to government. One is, please discuss the FedRAMP authorization, how long it lasts, and then are we looking for additional government contracts?

Operator

So FedRAMP, you have to get it, and then you have to maintain it. So you need to, you know, have ongoing contracts, but you need to support it. So I I think I've said this publicly. We spent four and a half years and 2 and a half million dollars to to get through the nightmare federate process. It probably, plus or minus, probably gonna cost us a a half a mil, a year to keep it.

Operator

So you need to, you know, have a staff. You need to do all the processes that you outlined. You need to do the Kanban or continuous monitoring of stuff. So it's, you know, not an insignificant it's not just a piece of pay. It's not a business license that you just put on the on the wall and forget about.

Operator

And, yes, we're actively going after, additional government, contracts, multiple agencies and multiple, departments, you know, wherever there there might be a need. We're we're going, we're certainly going after that. We we did win a a phase one contract with the Air Force. We deployed it initially with the Department of Veterans Affairs, and we're in active discussions with, numerous other opportunities. I I think the opportunities are very large, but they're not gonna be quick.

Operator

So this is gonna, take, some time as I've cautioned, throughout. But, as one of our colleagues who worked on FedRAMP for those nightmare, years, I told him, like, hey. We got our foot in the door. He's like, we didn't get our foot in the door. We got our whole body in the door.

Operator

Like, and now with our, team at the Washington office that we set up in in DC, I'll be there all of next week actually speaking to folks on Capitol Hill, prospective, end users, policymakers, think tanks, etcetera. And, we recently announced that we joined the AUVSI. This is the association of unmanned vehicles, and, there is a strong push to have the administration and the legislature start thinking about how we, actually put forth a national robotics strategy. You you don't want, you know, kinda what happened in other sectors of the technology economy, to happen to, the robotics industry. So we're working on strategies to, see how we can take a more aggressive and proactive approach to, to growth.

Speaker 1

Next question, from Dino. He asks, please help us understand how a machine such as Optimus I think we that's the, Tesla machine robot with millions of dollars behind its development might or might not leapfrog, Nightscope machines and capabilities, directly applicable to safety and security.

Operator

Dino, I I think I'm super excited for Optimus and Figure and everyone work working on humanoids. They likely will start indoors. A hun nearly a % of our business is outdoors. The technology is extremely difficult, but, I don't know what the time bound is. Is it the next two years, or is it the next five or seven?

Operator

It's gonna happen. There's enough capital and intellectual capital and financial capital behind it to to get it to work. And the the really thoughtful approach of not trying to take parts from the industry and try to make something, They're very much focused on the actual mechanics and fluid mechanics and, you know, power budgets, etcetera, needed to tailored solution, I think, is actually gonna be really exciting. I I think you're kinda see presupposing that we may not partner with, one of those providers once it's viable. It's not something that we would be working on.

Operator

But probably the easier way to answer your question, like, I don't think that you're gonna find a a bipedal humanoid doing 10 to 25 miles an hour, to patrol something outside. Like, I don't think that's likely to happen, and more likely that we would add a humanoid to our, portfolio. As I often said, and I said it a little bit earlier, we'd be highly naive and arrogant to think that we're gonna make The US the safest country in the world all by ourselves. So I think we're gonna build a bunch of technology that's proprietary and magical. I think we're going to acquire more and more companies over time, and we're gonna add partnerships.

Operator

The idea here is not like, how do we make the best robot? Like, that's not the mission. We're not a robotics company. We're a public safety innovator. The mission is to make The US the safest country in the world.

Operator

If he told me that, you know, we can do that with rubber bands and paper clips, guess what? Tomorrow, we're gonna open a massive rubber band and paper clip company. Like, we need to focus on the mission, not on necessarily the technology. And there's a time and place. Criminals and and terrorists can be anywhere.

Operator

You're gonna need a massive portfolio, to actually have Nightscope everywhere and become that household name that was mentioned earlier.

Speaker 1

Next question is, I was wondering if manufacturing speed and capabilities have improved. How are sales looking for the k five, as compared to the emergency phone devices? Any color.

Operator

So manufacturing speed capabilities have improved, I think, probably, a lot more yet still to be done. For those of you joining us, kinda newer investors, we used to build one tech you know, one technician build one robot and, like, took forever. And now we've gone down from, like, a hundred and twenty hours to build a machine to less than sixty. And if we get really slick about things, we can hopefully get down to twenty hours. So that's moving along, nicely, so much so that we're adding, actually recruiting for a second manufacturing shift.

Operator

So if you know someone that, is highly skilled, would like to go help build some robots here in Silicon Valley, have them go to knightscope.com/careers, and please apply. And I think moving to the new facility is gonna also provide some process opportunities that we we just physically couldn't do it in the smaller facility, and then looking at some new newer technologies to to kinda speed, things up. On the k five, remember that we spent last year building new machines to replace the old machines, and we took a hit on purpose to get the entire k five version three fleet out of the field as I had demanded prior and wasn't completed. And then we finally got that done. And so we haven't been spending time generating new revenue for the ASRs in a material manner, up until now that we got that accomplished.

Operator

And now we can go focus on, on growing that ASR business, now that we have things significantly improved in terms of quality and service calls and, you know, maintenance issues.

Speaker 1

Two questions. I'm gonna combine them. One, is the relationship with DPRO continuing? Any drone integration with the k seven? And then how far away is the k seven from being able to operate in real time?

Operator

The the Dragonfly team, you know, the letter of intent we signed, you know, had, the onus was on them to propose how to integrate their, their technology. We do have one pending client that we've been, working on. In terms of, k seven and and drone integration, I think now having spent enough time, waltzing around the federal sector, it's probably the opposite of what you're thinking. The the need is actually the anti drone or counter UAS, work. That's probably gonna be more of our focus as opposed to adding a drone, although that still could be on our on our, road map.

Operator

In terms of the k seven, making lots of progress, super excited, crossing fingers that before the year is out, we'll have a visually representative running, prototype, and then start production next year.

Speaker 1

Brian asks, can you provide more detail on types of partners and sales that are helping growth at Night School?

Operator

Most of the ASR business is a direct sale. Having this is already really complicated technology, complicated sales process. You don't want an intermediary in the middle of that to really botch it. On the ECD side, we we do have multiple, resellers where that's been a a more streamlined sale.

Speaker 1

Yep. And then, the question came in. I'm happy to see cash on hand. You mentioned cash raised in the quarter. Was that just more ATM, or is dilution decreasing?

Speaker 1

Yes. I I think maybe the answer to all those questions is yes. Although, you know, whether dilution, I'm assuming you mean by dilution mark that either share price gonna be impacted. Really, you know, one share price isn't necessarily determined by one thing. Right?

Speaker 1

There's macro events. There are micro events. There's company specific events that drive some of that. We did raise, some money through the, ATM as well as, the about two just approximately 2,000,000 we raised to a specific customer at the March. So, if you think about Investor,

Operator

not customer.

Speaker 1

Sorry. Yes. Or investor. And and and and we also have AR. Right?

Speaker 1

We sell products. So it's increasing velocity on on collecting on accounts receivable, continuing to, strategically leverage our ATM, and and working with investors when we can to to, raise cash needed to run the company is all all the different ways we look for for for the cash raise.

Operator

And I think it's gone a lot easier now that we have a very clean, cap table. We don't have a lot of, you know, shenanigans going on, and people are seeing that we're making good progress. So I I think things are looking up.

Speaker 1

How do you compare your with your peer companies as far as size?

Operator

I'm not sure what you mean by peer. I think that's one of the issues the analysts have because it's like, where do you put Nightscope? Is it a public safety company? No. It's a technology company.

Operator

No. Actually, it's in a robotics company. Well, it's kind of a weird odd drone. Let's put it in the drone sector. Or, no, it's actually law enforcement technology.

Operator

No. It's let's put it in defense and aerospace. And, you know, having there isn't a publicly traded, you know, peer that has, know, scaled autonomous technology across the the country. As I mentioned earlier in the call, there's three major corporations and three startups that have tried to do this. They've all, all kind of failed.

Operator

I I think if you wanted to change the word peer to something broader, you could do that. I mean, there's a lot of people doing a lot of great work at, you know, the team at Live View Technologies privately held, the team at Flock Safety privately held. Obviously, the team at Axon and and motor Motorola Solutions, are multibillion dollar companies that, continue to to grow and and serve our country. So I think the the problem with the word peer, I'm not sure how to answer that.

Speaker 1

Are there any new partnership opportunities with the US Fed on defense border, border protection, etcetera?

Operator

Tons of opportunities. It it could be border protection. It could be securing of, you know, critical infrastructure. Some of it's just it might sound boring, but, like, there are where do you store the armaments? Well, in acres and acres and acres of land.

Operator

Where? What kind of middle of nowhere? Well, how are those acres and acres and acres and acres and acres of land secured? Well, we could barely afford, like, five guards to try to do this twenty four seven, but kinda not working. Well, maybe we should have a conversation.

Operator

You know? How many guards are at the FEMA warehouse staring at the supplies? Is the supplies really moving? Do you really need you know, are you know, as I often say, the GSA manages, nearly 10,000 federal buildings, a lot of them vacant, with the federal protective services, thirteen thousand officers and guards. A lot of that being cut down, now.

Operator

You know, how do you secure a national lab? You know? What security do you use at NASA? What's the next generation of technologies the FBI wants to see? Like, the list now hopefully start understanding why we spend so much time and so much money because there's so many opportunities to be helpful.

Operator

And if you got your foot in the door like, I won't name which, you know, three letter agency, but, you know, multiple calls, and they're like, you know, we wouldn't be talking to you if you didn't have your ATO. Like, this conversation would be over. So I lots and lots of opportunities, lots and lots and lots of effort.

Speaker 1

Max asks, when do we think, when we think about the Salesforce, where are we at for rep headcount, and where do you expect to be at the end of the year?

Operator

We typically don't give out kinda headcount by department. I think we have way too small of a team right now, and it would be really smart for us to double or triple, before the year's out is probably the the cleanest way to answer that.

Speaker 1

Greg asked, I saw the road show in Asburn. Loved it. Seed in he's a seed investor. Thank you, Greg. And then Mark says, I'm connected toward DuPage County Sheriff's.

Speaker 1

Happy to make a connection. I'd love that, Mark. Okay. Then we have Paul who asks, how many robots are with client base? What is the growth rate in the near term?

Operator

So our financials, oddly, are, a a couple of comments, and then I'll turn it to. Our our financials are set up in product and service. This gets a little, confusing. But on the product side, the emergency communication devices are sold, outright. And then there may be a service component of software and maintenance that goes with it, but it's a much smaller portion than the product sale itself.

Operator

Under services is all the autonomous security robots, and that includes the hemispheres, the towers, the k three, the k five, and those are obviously on a on a recurring, revenue basis. I think if if you come we have not been, separating out the autonomous security robots robots and, reporting on them. In total, the machines in network is, nearly 10,000 if you combine all the ECDs, and ASRs. And one of the caution, because I've been asked this question multiple times, we need to be very careful with the numbers because a onetime sale of a, I don't know, blue light tower for 13 or $15,000 is very different than a hemisphere that gets sold for $7,500 or $1,111,000 bucks a year or somewhere in there, versus a $70,000 robot. So you can't kinda just use each number and kinda all add up because I've seen people do this, and that's why I'm trying to caution you not to do this, and go, let me just add all these up, assume the same average revenue.

Operator

And you can't do that because the revenue is as low as, you know, for maybe a call boxes, I don't know, 5,000, 7 thousand dollars to as high as some clients, you know, in the 90, a hundred thousand dollar range. So that's why we kinda don't break it out, that way because, folks end up making really bad assumptions. I don't know. Poorv, did you wanna add anything to that?

Speaker 1

No. I I think you've you've you've answered it. Really, the way we think about, you know, our growth is is machines and network. You know, the ECD side, you know, there there's two aspects of this. One on the ASR side is a subscription model, that the growth is really dependent on our ability to continue to increase that installed base.

Speaker 1

The more the in, you know, over and that's a cumulative process. Right? It's slow slow, slower in terms of speed, but as we get more and more customers on our machines and network, that that has kind of this this awesome, cumulative impact. The ECD side is more you know, today, it's a transactional sale. However, we are continuing to think about ways to add more and more subscription based services to those communication devices.

Speaker 1

And I think, you know, right now, it's a sixty forty split between the two. But as that changes or as it shifts, we expect to get more robots out there and continue to get more more ECDs out there. And, as you mentioned earlier, Bill, the price points are such that, really, a a customer may, go for the ECD first, or there are different types of customers, and and and we continue to, find the right, optimized path in in going to market.

Operator

Alright. Checking the time. Let's do the FedEx version to try to get through the rest of these because I think we're past the top of the hour here.

Speaker 1

Absolutely. Any, big name clients like Fortune five hundred in the pipeline to boost credibility and stock value?

Operator

Cannot comment on that.

Speaker 1

Yeah. We have to get their permission. How do the Knightscope k five robots optimize for security and surveillance compared in market fit and scalability to Optimus? I I think we already kinda answered this question. Yeah.

Speaker 1

We we definitely are open to a partnership. The more humanoids or any type of robotics out there actually helps us because it makes, the mass market more, have a high propensity to adopt, robotics. So it's all it's all a tailwind for us. Yep. The the next question is how is how is it going with the city in New York City?

Operator

Yeah. Not not not so well. And I I I feel, I'm sympathetic to leaders of major organizations that demand to get x thing done, and then the organization is unable to or unwilling to follow through. We're here for the NYPD and NYC, whenever they're ready with the appropriate budgets and authorities, but it has not gone, well, to be frank.

Speaker 1

Yep. Has the time between first contact of a potential client signing a contract been consistent increasing or decreasing compared to, like, say, last year?

Operator

So I sold the last four ASRs. I might have broke some process rules along the way, but we were minus four days on delivery to order. So, yes, we've been improved things, significantly. One, enablers, we don't have a, you know, humongous backlog. Remember, some time ago, we were nearly $6,000,000 worth of backlog.

Operator

Now we're down to around $2.02 and a half million bucks. Second, the production processes have improved. Third, we tried to get the client experience team involved with the sales team much earlier in the process so that the downstream activities, go quicker. But I think the, way to fix this and what I was mentioning earlier, and Apur mentioned touched on in as well, is to fix this is to get to have enough financial resource to have enough finished goods inventory so that we have a month, two, or three months of inventory on hand. So my team hates me for saying this, but, you know, we sign a sign on Friday.

Operator

We should ship the following Friday. Like, why are we sitting around waiting, weeks and months on end? But it it has significantly improved. Still more to be done.

Speaker 1

Yeah. Juan Francis, bought more shares this morning. Thank you, Fran.

Operator

Thank you, Francis.

Speaker 1

And he's looking he wants to know if we're looking at new verticals.

Operator

New verticals. I'm gonna say no. We're pretty much the verticals that are on our website are the ones that we're focused on. We got plenty to do. Don't need to be adding more.

Speaker 1

Robert wants to know when you remove older equipment at your clients and provide them with new upgraded equipment, is this at an expense, meaning Nightscope's expense, or does a client contribute towards upgraded cost?

Operator

So this is a luxury for our clients that have stuck with us for all these years. You're a Nightscope client. You get unlimited software upgrades, firmware upgrades, and at times, hardware upgrades, all on our nickel. So they're not having to come out of pocket, to get the latest, most advanced technologies, that they want, at their fingertips. And that's part of providing, great, service and part of the subscription.

Speaker 1

And and to clarify, that's primarily on the ASR side where a client sign up for the subscription. The expectation is that they continue to receive, the best of our our hardware and software, at no extra charge. Correct.

Operator

Correct.

Speaker 1

Next question is sorry. There's a regarding PR, why don't we see reports, news articles of successes, I. E, arrests, reduction in thefts, relating to where Nightscope machines are in use?

Operator

So if you go to Nightscope.com/crime, you can see what we've legally been allowed to say. This is a massive frustration for the media and for, investors, and it comes down to this. Most chief security officers don't want you knowing what they're doing or what they're utilizing for the obvious security reasons. Second, if it's a retail establishment as an example, no one wants to go on camera and say, yeah. So there is a couple murders here, and then that's it stopped happening.

Operator

Like, that doesn't help business. Right? So, we're trying to think about clever ways to, get around that. One, we started writing, kinda some short stories. If you go to knightscope.com/chronicles, these are stories based on what's happened in in the real world, but generalized enough so we we don't get in trouble with our, clients.

Operator

But I think these these will happen, over time, but that's the root cause as to why they're not happening as quickly as you probably might want.

Speaker 1

Yep. As autonomous robots rely on efficient batteries, how is Nightscope optimizing power systems for the k five and the k seven?

Operator

One is do a thorough analysis on power budgets. So one of the big, fights here is you want a lot of compute at the edge. You wanna be able to do things fast and not be going up into the cloud, but that amount of compute eats a lot of juice, kinda kinda gets hungry. You don't want to do all the stuff in the cloud. One, it costs a lot of money.

Operator

Two, there's a lot of latency going up and down. And then, oh, by the way, going up and down costs a lot of money. So speccing the right chipset, is extremely important, and trying to figure out what, you run, on that chip is also important, how efficient, and maybe you can parse it. Some of the work gets done at the edge. Some of it that's less time sensitive gets done in the cloud.

Operator

And and then you gotta think about the battery technology itself and the patrol schedule. So maybe to be a little technical, not all batteries, charge and discharge in the same kinda it's not a linear curve. It doesn't, you know, just go this way. So you wanna find a part of that curve that's the least damaging to the battery to charge and recharge and the fastest part, and then you oscillate from that let let's go oscillate from 65% to 85%. Sixty five % to 85% gets you the most efficient way for us to operate twenty four seven because no one wants a robot sitting, you know, charging for eight hours.

Operator

So we'll, you know, try to charge for thirty minutes and then go patrol for a couple hours and then come back, and you're kinda topping off the tank. So that's kind of a different way to do the the the power management. But, you know, the the root cause of it is you gotta be very careful. A a lot of stuff can eat a lot of, a lot of, energy. Lights, motors, compute, cameras, thermal cameras, etcetera, all eat a lot.

Operator

So we gotta be, very efficient.

Speaker 1

I think we're at the end. There was a Mark has a suggestion on putting essentially facts and circumstances, to be shared on the website, along with the value prop. And thank you, Mark. We'll we'll review that suggestion and and obviously try to continue to provide, ways to how we add value to our clients, both internally and externally.

Operator

So I wanna thank Apoorv and the entire Nightscope team for, all the, supporting all the crazy changes we've made, over the last fifteen months. But now we're in a much, much better, spot. I think, physically, emotionally, psychologically, financially, strategically, kinda every which way you wanna look at it, things are looking up, and we're also grateful for the thousands of investors that continue to support and and back the company. And, hopefully, we can have you all out sometime, later this year, to take some robot selfies and grab a bite and have some discussions on the on the future of public safety and, discussing the fact that robots will be everywhere. Alright.

Operator

We're way over time. Thanks, everyone. Appreciate, all the, kind support, and we're working literally seven days a week, twenty four seven for you, and for the country, and genuinely appreciate the support. Thanks, everyone. Be good.

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Earnings Conference Call
Knightscope Q1 2025
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