Knightscope, Inc. (NASDAQ:KSCP) Q1 2025 Earnings Call Transcript

Knightscope, Inc. (NASDAQ:KSCP) Q1 2025 Earnings Call Transcript May 14, 2025

William Li: Today Recording in progress. Night scope in all things robots. So appreciate everyone taking time out of your busy schedules for us. As we let people in, a few things to cover. One, if you have a question, please use the Q&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 MMPI or material non-public information. We can certainly provide clarifications or stuff that’s not material, but, no material items. We want to 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&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. I get all sorts of love messages and texts like, hey. Where’s the filing? Hey. Where’s the filing? It’s the day after the quarter ended. It’s like, well, I kind of need time to prepare, and get all the filings pulled together and all the numbers reviewed by the auditors, et cetera. 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 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 going to turn it over to Apoorv, who’s our CFO. He’s going to walk you through, pretty exciting first quarter. So, Apoorv, you want to take it away?

Apoorv Dwivedi: Absolutely. Thanks. Thanks, Bill. Good afternoon, everyone, and thank you for joining us today. 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 progress. Let’s dive right in. Our total revenue for the first quarter was $2.9 million, this is a 29% increase compared to the $2.3 million in the first quarter of 2024. Now this is driven by both growth in service revenue and our product revenue. Our service revenues grew by grew to about $2.1 million, which is up 25% from $1.7 million prior year, primarily due to the strength in both the ASR subscriptions and the full service maintenance agreements on ECD clients. 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 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, our 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 kind of walk you guys through there. So, our gross loss came in approximately $700,000, which is a meaningful improvement compared to the loss of $1.4 million a year ago. Now, this is driven primarily due to some savings in the total cost of revenue. Our cost of revenue came in slightly higher at, a slightly lower at, $3.6 million this year, compared to $3.7 million in Q1. 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 were, in our robots that we were swapping out for the higher version, the version threes versus version fives.

Q&A Session

And those one-time scrap fees were then offset by higher cost in product to support the increase in sales volume this year. 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 $6.2 million, as compared to the $6.8 million 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 $2.1 million, which is about 35% higher than Q1 2024. This reflects our continued investment in product innovation and features that expansion, as we continue to invest in innovation and drive product growth, innovation growth.

On the sales and marketing expense side, we actually came in 15% lower at $1.3 million 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&A expenses came in at $2.8 million. This is almost $800,000 lower from prior year’s expenses, $3.6 million, 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 Q1 2024, if you guys recall, and we also had no restructuring charges this quarter compared to the about $100,000 we had in Q1 2024. So, with that, our net operating income or loss actually, loss from operations for the quarter was about $6.8 million. This was about a huge improvement from the $8.3 million in the first quarter of last year.

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 $7.6 million, 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 were extinguished mid-year, but there was a fair value exercise that we have to run when we have these type of warrants, and there was a $700,000 gain prior year that did not show up this year, but overall, it’s a good thing because we don’t we no longer have those warrants 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 I want to highlight also that, our cash balance came in stronger position in, in this year Q1 than both Q1 last year and even at the end of 2024, where we had about 11.2 million. So, with that in summary, Q1 2025 reflects continued revenue growth, narrowing gross loss, lower operating expenses, and progress on key operational initiatives that the company is focused on this year, and we are focused 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 Bill.

William Li : Thanks, Apoorv. And that’s exciting that, you’ve been with us just a bit over a year and to have a good quarter, as you and I have made with the team, a massive amount of changes the last 15 months, 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 trend will continue. So folks have questions, for Apoorv or myself, please make sure to put them in the Q&A section, at the bottom of your screen. But how do you how do you feel overall, Apoorv? I know we just went over the numbers, but, like, how are you feeling about the company and the progress just kind of more subjectively?

Apoorv Dwivedi : Yeah. Look. 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 driven by external events just as much as it driven by internal events. And what I am I would say I’m excited about 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 thought were somewhat, risky in that sense that we didn’t know how they’re going to turn out, but we’re geared towards driving high growth, driving better margins, more efficiency. They’re starting to kind of 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 we just got to keep that focus on and continue to make progress towards, some of the goals that we have laid out in the long-term.

William Li: Yeah. We made some controversial and difficult decisions. But, yeah. I think we do it all over again. And, we’re heading in the right direction and actually feeling pretty good, about stuff. Okay. Now the questions are starting to pile in.

Apoorv Dwivedi : So, that’s right.

William Li: So the rule here is the easy ones, I’ll do. All the hard ones, you have to do.

Apoorv Dwivedi : Right.

A – William Li: 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 want to try that and I can.

Apoorv Dwivedi: Sure. Helen? Sure. So, 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 probably has less impact on us directly. Although some of the focus on security, on national safety, is actually, I would say, positive in our favor. 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 on our suppliers, who have to worry about the components they outsource 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, and some of that is still being determined, right?

Things are changing almost on a daily basis. So, yet to remain. Although, if track, if tariffs do stay and they stay high, we anticipate some impact to that, primarily on, obviously, pricing, to component pricing, to on really the lead time for some of the items that we need. Component lead time, we see, become elongated when all — everybody wants the same components, and wants to hold them before the tariffs take effect. So, those are two areas. Obviously, we’ll continue to work through them. But on the other side, like I talked about, from a safety and security perspective, I think we’re going to see some tailwinds there. Bill?

William Li : Yes. I think one in the way I view things in chaos is always opportunity. So, I’m actually kind of bullish about the set of circumstances. Second, we are American-made. Yes, we do have some components and the like, that may come with a tariff penalty. I think on the subscription side of things, it becomes a lot less of a material item because, you’re, if you got $1,000 widget and now it’s $1,500, 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 dollar-denominated U.S.-based. And then, there’s certainly the tailwinds on Buy American and American jobs, which were right in the thick of things.

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 this month for this country, or what’s on my Bloomberg terminal, or what are the markets doing? Criminal activity is kind of divorced from that. From a very, very macro perspective. Sure, sometimes in more desperate times, things get a little bit worse, but it’s kind of on the margins. So, I think we’re just kind of, there’s always going to be noise, ignore the noise, focus on the signal, and kind of move forward. So, we’re not in the market exposure kind of issue where, everyone’s like, freeze everything and it relied 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. Apoorv?

Apoorv Dwivedi: Yeah. I can answer that one? So the reverse stock split took place last year in August-September timeframe. We, the Board passed it back in August, then we enacted it mid-September. The per share price is taking into account the reverse stocks. That’s 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.

William Li: Dr. Reddy wants to know when do you report positive EBITDA, and when do you report positive earnings.

Apoorv Dwivedi: Work in process, Dr. Reddy. 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 you continue to drive, focus on business growth.

William Li: I’ll give you a slightly different answer. It might get me in trouble, but if we wanted to all of a sudden show positive numbers, there are certain things that we could do in the company. But then kind of like the addressable market, the size potential of the company, the future growth gets very, very, very limited, and so like, do you want an 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. So remember, we’re financially aligned with our shareholders. We work for you, and the objective here is to create long-term shareholder value, not quarter-by-quarter minor improvements and increments.

So, we will get there, but we want to go after the big fish as opposed to swimming in the small pool. Yeah. This next one is, from Robert. I think it’s the same answer. Question. Yeah. Yep. Ed Woo is on the call. Alright. Is the Doge program having any effects on your focus on federal security customers? I think this one’s two ways 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 kind of day-to-day business really difficult. What we submitted to the White House, at their request, was kind of what is your input? What’s the Knightscope input for the AI task force, and what could AI and automation bring to Doge and the entire administration and federal apparatus?

And, our friends over at the Washington office racked up the numbers, and kind of looks like about $10 billion of opportunity. So I think on a more positive standpoint, if you 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 kind of black and white. Got some negative and some positive. I’ll be on Capitol Hill, all of next week, continuing to foster relationships throughout the federal sector, and 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.

Apoorv Dwivedi: Anand asks, their investment rate of return is very weak. When are we going to make profits? Again, similar question as the ones before. We are on a path. Our goal is to obviously make profits. We have a path outlined, and we’ll continue to follow that path.

William Li : Okay.

Apoorv Dwivedi: Next question, Bill, I think, is for you. Francis asks, what happened to Stacy Stephens?

William Li : 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 Knightscope up and going. But he’s no longer with the company.

Apoorv Dwivedi: Scott asks, as revenue scales, how quickly will you need to add additional cost infrastructure to support that growth? Again, I want to better understand operating leverage opportunity. Great question, Scott. Again, I think we have a little bit of time, right? 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 are okay. We are adding, obviously, some cost in infrastructure as you recently saw the announcement that the company is moving to a new facility. We will absolutely make some investments in building cleaner, more efficient production lines. We are already adding additional headcount, as it relates to production shifts, and those things, and those will happen linearly, but 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 kind of bursting at the seams, and then add costs, and that way we have a better ability to manage that cost and make sure that the revenue is sustainable, and to do it responsibly.

William Li : I think, Scott, I would add a couple of other items. One is, just by a simple example. We have a staff that runs 24/7, that monitors the health of the machines all across the country. Just because we added 10% more machines, 50% more machines, or 100% 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. There’s a critical mass. So, I think the numbers, both at the gross margin level and net income level over time, basically needs scale. We need to continue to grow and get our costs down, but there is a factor there. So, what we’re going to 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, why does it take so long to do, to get from X to Y? Well, 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, et cetera? So what we want to do is continue to grow the revenue, but not continue to add proportionally additional cost into the system so that we can finally enjoy those margins. So I think there’s significant leverage opportunity, as we scale up.

Apoorv Dwivedi: Absolutely. Especially, as you think about focusing on our fixed costs. Our goal is to keep the fixed costs part of that formula, right, as steady as possible and continue to obviously optimize on the variable costs that we need to incur or incur as we scale up. Joseph Dejohn asks, he says congratulations. When will the new facility be up and running?

William Li: So, I wish we can just drag-and-drop, 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. The old facility, the lease terminates August time frame. So we’re in process of adding IT infrastructure. We’re going to go get furniture, all this other good stuff, get all the branding set up, and security profile for the facility. So we started moving things over. The K7 team is the first to go over. It was awesome to have our first, actual technical and business meeting there, and the team’s excited. I’m super excited. It’s not just a symbolic opportunity, but the facility itself is going to facilitate a significant amount of collaboration 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. We’ll figure it out, but we’ll do something once we’re all settled in. But, I do want to 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 shut down numerous facilities. It is a significant amount of, unfortunately, unfortunate workload that needs to get thrown on top. We’re trying to minimize the amount of disruption so that we can keep production moving along, but there are certain risks. But things are looking up. It’s going to be fun. It’s going to be awesome, and we’re looking forward to hosting you there for a visit.

Apoorv Dwivedi: Jorgen Brendel asks, how does your order book look like? Any backlogs? I can take that, Bill. We do disclosure backlog numbers. We as of, actually, early this month, we had a total backlog of about $2.5 million. This is comprised of a $1.9 million in ECDs and about $600,000 in ASR-related orders.

William Li: 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 trying to manage that. There are a few commodities, specific ones, that may be impacted. But I think we put it in as a risk factor, but unquantifiable. And on the positive side, we’re U.S.-made and U.S.-operated and with U.S. customers. So, on the flip side of that, not much to report.

Apoorv Dwivedi: 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?

William Li : 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. So, there’s a, if you go to my Twitter handle, which is W. Santana Li, under the highlights section, I think there’s a few posts there, like what have you done for me lately, and it’s a lot. If you missed the earlier part of the call, 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.

We’ve changed pretty much everything, including the address of the building, for the company. Probably the only thing that we haven’t touched is the logo. So, the list is very long, and why we’re really excited about getting to not only the IPO levels. I think those are too low for where we need to go, and as beyond that is all the changes that we’ve made over the last 15 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. This is not a 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.

Apoorv Dwivedi: Max, from, he asks, have you seen any order delays or cancellations due to macro uncertainty? I think — I don’t know. I haven’t seen any bill, but I don’t know if you recall any.

William Li : 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 Chief Security Officers, Chief of Police, and Sheriffs aren’t sitting around counting tariffs and 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.

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

William Li : You want me to do that one?

Apoorv Dwivedi: Sure.

William Li : So Mark, we just celebrated our 12th 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’re doing. 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 12 years, like what went wrong or what could have made things go faster? It’s — sadly, it’s cash, cash and cash, meaning funding. Prior to put it in context, if you were a newer investor before we went public, so the first nine years, we’ve probably raised around $120 million.

It sounds like a lot of money, right? But $120 million 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 $25 billion to get things going and then another $25 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, and time. 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 15 months have been effective is we have a very keen grasp on the business and kind of 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, the list goes on and on and on. You can expect some big hockey stick of growth. So that’s the unfortunate truth, like what would I’ve wanted to do differently. I don’t know how I wouldn’t have done it, but that’s to me the root cause of the issues.

Apoorv Dwivedi: Yes. No, I will also say that, one, we are a B2B business, we’re not a B2C business. So it’s our customers are other businesses that like our products and want to utilize them to make their property and their perimeter safe. I’m actually to be honest, surprised sometimes when I talk to a random person or a stranger, and they’re like, “oh, I’ve seen your robots, or I saw And — so I’d love it to be a household name. I think we’ll — that happen organically as we continue to deploy more and more robots and more technology not just robots into the field.

William Li: It will happen. And if you want to 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 we’ll take good care of them and see if we can be helpful. But this can’t be — we can’t achieve the mission and grow the company literally by ourselves, like one that would be naive to be arrogant. We genuinely need your help and support. And I’m grateful and appreciative that 100 people would take time on — out of their Wednesday to sit here and listen about how to really make a difference in the country and it can’t just be us and it just can’t be technology by itself.

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

William Li: Well, the first thing we’re going to do is upload Scott and Ed profile picks into our system, and we’re going to 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. We’ve started to consolidate the couple of production facilities and some of the warehousing in Mountain View and literally ran out of space. So it’s been a bit brutal. So, we landed I’ll quote, I think the Silicon Valley Business Journal, but I think there’s probably well over $1 billion of commercial real estate kind of 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 office space that Siemens had taken over a couple of years ago, had dumped $11 million into it. It’s the brand — basically a brand new — effective brand-new building and never moved in. 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 team, all the production. Give us some extra room to do testing. We’re going to 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 going to 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. They’ve all worked really hard if you only knew what it would take to do what we’re doing. I wanted to, my way of rewarding them, one of the ways, is to give them a much more positive inspiring, and exciting environment to have them do their life’s best work in service of our country.

Apoorv Dwivedi: Yes. And I can offer some insights on to the cost and disruptions. Really, what the costs are going to be around moving facilities, some moving costs, furnishing costs, right, setting up the facility for our operations. So those are some anticipated costs. We don’t think any of them to be anything beyond what we would normally expect from a move like this. On the other hand, the disruption piece is something we’ll continue to give an eye on and work through, Scott and Ed. Really comes down to when we performed the move, we have to obviously stop production, stop production on the ASRs, stop production on the ECDs, take all the production lines out, and establish them in the new facility. The facility is not that far, but there is a disruption associated with that.

Now, what we are doing is 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 one of the things we’re going to do is we’re going to accelerate production and then have inventory on hand and then pause production for either the ECD or the ASR depending on which one we pick to go first, and then establish it, get that up and running and then do the same thing or repeat the process for the next line. So 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 are actively evaluating ways to mitigate that.

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

Apoorv Dwivedi: That’s right.

William Li: 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. Sorry. Let’s keep going.

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

William Li: I’ll send you the payment for that question later, Francis. So one of the fortunate or unfortunate things I’ve been doing the last 15 months to make all these changes 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 I brought in to do some of the blocking and tackling to implement what I’ve what I’m asking to get done.

Sales process today, I guess, we have, I would say, two different sales processes. So, on the emergency communication devices, it’s very different. It’s more transactional. A lot of inbounds, and we have numerous resellers, because it’s more of a commodity, and let’s say the general contractor already had spec’d us in and just needs the quote. 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 going to put a four, you know, 400-pound robot that’s autonomous on your campus, and they probably need a demo, need an explanation. So you typically what those happen, how those happen is to have, first like, a discovery call? Like, do you actually have a problem that we can help with?

And 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 waste of time for us. The client that has a budget problem or a crime problem or both, where we can be super helpful. That’s where we want to go spend time. So, we want to make sure that who are we talking to? Do you actually have authority? Do you have a budget, kind of do you actually have a need? When’s it, what’s, is it this year, next year, next quarter, tomorrow, kind of do that first? And then second, do a kind of webinar type of demo. Then, we’ll go deploy an online and in-person technical review, for lack of a better way of saying it, a complicated site survey of understanding their needs, but also, where’s the outlet to plug in the docking station, or what’s the connectivity, and then we come back to them with the proposal, and off we go.

But two different, very different processes.

Apoorv Dwivedi: 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?

William Li : So, FedRAMP, you have to get it, and then you have to maintain it. So, you need to have ongoing contracts, but you need to support it. So, I think I’ve said this publicly. We spent 4.5 years and $2.5 million to get through the nightmare veteran process. It probably, plus or minus, probably going to cost us $1.5 million, a year to keep it. So, you need to have a staff. You need to do all the processes that you outlined. You need to do the ConMon or continuous monitoring of stuff. So, it’s not an insignificant, it’s not just a piece of pay, it’s not a business license that you just put on the wall and forget about. And yes, we’re actively going after additional government contracts, multiple agencies and multiple departments, wherever there might be a need.

We’re certainly going after that. We did win a Phase 1 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 think the opportunities are very large, but they’re not going to be quick. So, this is going to take some time, as I’ve cautioned throughout. But as one of my 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 can get our foot in the door, we got our whole body in the door. Like, and now with our, team at the Washington office that we set up in D.C., I’ll be there, all of next week actually speaking to folks on Capitol Hill, prospective end users, policymakers, think tanks, et cetera.

And we recently announced that we joined 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 don’t want, kind of 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 growth.

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

William Li: Dino, I think I’m super excited for Optimus and Figure and everyone work working on humanoids. They likely will start indoors. A nearly 1% 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 5 or 7? It’s going to happen. There’s enough capital and, intellectual capital and financial capital behind it to get it to work, and 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 power budgets, et cetera needed to a tailored solution. I think it’s actually going to be really exciting. I think you’re kind of see presupposing that we may not partner with one of those providers once it’s viable.

It’s not something that we will be working on. But probably the easier way to answer your question, like, I don’t think that you’re going to find 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, I said it a little bit earlier, we’d be highly naive and arrogant to think that we’re going to make The US the safest country in the world all by ourselves. So, I think we’re going to 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 going to add partnerships. 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. If he told me that we can do that with rubber bands and paper clips, guess what? Tomorrow, we’re going to 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 terrorists can be anywhere. You’re going to need a massive portfolio to actually have Knightscope everywhere and become that household name that was mentioned earlier.

Apoorv Dwivedi: Next question is, I was wondering if manufacturing speed and capabilities have improved. How are sales looking for the K5, as compared to the emergency phone devices, any color?

William Li: So, manufacturing speed capabilities have improved. I think probably, a lot more yet still to be done. For those of you joining us, kind of newer investors, we used to build one technician build one robot and like took forever, and now, we’ve gone down from like 120 hours to build a machine to less than 60, and if we get really slick about things, we can hopefully get down to 20 hours. So, that’s moving along nicely, so much so that we’re adding, actually recruiting for a second manufacturing shift. 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 going to also provide some process opportunities that we just physically couldn’t do it in the smaller facility, and then looking at some new newer technologies to kind of speed things up.

On the K5, 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 K5 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, and now, we can go focus on growing that ASR business, now that we have things significantly improved, in terms of quality and service calls and maintenance issues.

Apoorv Dwivedi: Two questions and we combine them. One, is the relationship with DPRO continuing any drone integration with the K7? And then, how far away is the K7 from being able to operate in real-time?

William Li : The Dragonfly team, the letter of intent we signed had, the onus was on them to propose how to integrate their technology. We do have one pending client that we’ve been working on. In terms of K7 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 need is actually the anti-drone or counter-UAS work. That’s probably going to be more of our focus as opposed to adding a drone, although that still could be on our roadmap. In terms of the K7, 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.

Apoorv Dwivedi: Brian asks, can you provide more detail on types of partners and sales that are helping growth at Knightscope?

William Li : 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 watch it. On the ECD side, we do have multiple resellers, where that’s been a more streamlined sale.

Apoorv Dwivedi: Yes. And then, the question came in. I’m happy to see cash on hand. You mentioned cash raise in the quarter. Was that just more ATM, or is dilution decreasing? Yes. I think maybe the answer to all those questions is yes. Although, whether dilution, I’m assuming you mean by dilution mark that is the share price is going to be impacted? Really, one share price isn’t necessarily determined by one thing, right? There’s macro events, there’s micro events, there’s company specific events that drive some of that. We did raise, some money through the, ATM as well as, the well, two just approximately 2 million we raised to a specific customer at the March. So, if you think about

William Li: Investor, not customer.

Apoorv Dwivedi: Sorry. Yes. Our investor. And we also have AR, right? We sell products. So it’s increasing velocity on collecting on accounts receivable, continuing to strategically leverage our ATM, and working with investors when we can to raise cash needed to run the company is all the different ways we look for the cash raise.

William Li: 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 shenanigans going on, and people are seeing that we’re making good progress. So, I think things are looking up.

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

William Li: 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 KnightScope? Is it a public safety company? No, it’s a technology company. No. Actually, it’s in the 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. No. It’s let’s put it in defense and aerospace, and, having there isn’t a publicly traded peer that has scaled autonomous technology across the country. As I mentioned earlier in the call, there’s three major corporations and three start-ups who have tried to do this. They’ve all kind of failed. 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 Motorola Solutions, are multibillion dollar companies that, continue to grow and serve our country. So, I think the problem with the word peer, I’m not sure how to answer that.

Apoorv Dwivedi: Are there any new partnership opportunities with the US Fed on defense, border protection, et cetera?

William Li: Tons of opportunities. It could be border protection. It could be securing of 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. Where? Well, 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 24/7, but kind of not working. Well, maybe we should have a conversation. How many guards are at the FEMA warehouse staring at the supplies? Are the supplies really moving? Do you really need you know, or, as I often say, the GSA manages, nearly 10,000 federal buildings, a lot of them vacant, with the Federal Protective Services, 13,000 officers and guards, a lot of that being cut down now.

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

Apoorv Dwivedi: 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?

William Li : We typically don’t give out kind of 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 it, before the year’s out, is probably the cleanest way to answer that.

Apoorv Dwivedi: Greg asks, I saw the road show in Ashburn. Loved it. Seed in, he’s a seed investor. Thank you, Greg. And then, Mark, says, I’m connected toward DuPage County Sheriffs. Happy to make a connection. I’d love that, Mark. Okay. Then we have Paul who asks, how many robots are with client base, and what is the growth rate in the near-term?

William Li : So, our financials oddly are, a couple of comments, and then I’ll turn it to Apoorv. Our financials are set up on product and service, and 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. Under services is all the autonomous security robots, and that includes the hemispheres, the towers, the K3, the K5, and those are, obviously, on a recurring revenue basis. I think if you can, we have not been separating out the autonomous security 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 one-time sale of a, I don’t know, blue light tower for $13,000 or $15,000 is very different than a hemisphere that gets sold for $7,500 or $11,000 a year or somewhere in there versus a $70,000 robot.

So, you can’t kind of just use each number and kind of 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, and you can’t do that because the revenue is as low as, for maybe a call boxes, I don’t know, $5,000, $7,000 to as high as some clients, in the $90,000, $100,000 range. So, that’s why we kind of don’t break it out that way, because folks end up making, really bad assumptions. I don’t know. Apoorv, did you want to add anything to that?

Apoorv Dwivedi : No. I think you’ve answered it. Really, the way we think about our growth is machines in network. The ECD side, there’s two aspects of this one on the ASR side. It’s a subscription model, that the growth is really dependent on our ability to continue to increase that install base. The more, and that’s a cumulative process, right? It’s slow, slower in terms of speed. But as we get more and more customers on our machines and network, that has kind of this awesome, cumulative impact. The ECD side is more, 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. And I think, you know, right now, it’s a 60-40 split between the two.

But as that changes or as that shifts, we expect to get more robots out there and continue to get more ECDs out there. And, again, as you mentioned earlier, Bill, the price points are such that, really, a customer may, go for the ECD first or there are different types of customers, and we continue to, find the right, optimized path, in in going to market.

William Li: 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.

Apoorv Dwivedi : Absolutely. Any, big name clients like Fortune 500 in the pipeline to boost credibility and stock value?

William Li: Cannot comment on that.

Apoorv Dwivedi : Yeah. We have to get their permission. How do the Knightscope K5 robots optimized for security and surveillance compare in market fit and scalability to Optimus? I think we already kind of answered this question. 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 a tailwind for us. Yes. The next question is, how is how is it going with the sale in New York City?

William Li: Yeah. Not so well. And 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.

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

William Li: 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 improved things significantly. One, enablers, we don’t have a humongous backlog. Remember, some time ago, we were nearly $6 million worth of backlog. 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 Apoorv mentioned, touched that 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 we sign on Friday. We should ship the following Friday. Like, why are we sitting around waiting weeks and months on end? But it has significantly improved. Still more to be done.

Apoorv Dwivedi: Juan Francis bought more shares this morning. Thank you, Francis.

William Li : Thank you, Francis.

Apoorv Dwivedi: And he’s looking, he wants to know if we’re looking at new verticals.

William Li : New verticals. I’m going to 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.

Apoorv Dwivedi: 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 Knightscope’s expense, or does the client contribute towards upgraded cost?

William Li : So, this is a luxury for our clients that have stuck with us for all these years. You’re a Knightscope 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.

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

William Li : Correct. Correct.

Apoorv Dwivedi: 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 Knightscope machines are in use?

William Li : So, if you go to knightscope.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, yes, so there is a couple murders here, and then it’s it stopped happening. Like, that doesn’t help business, right? So, we’re trying to think about clever ways to get around that. One, we started writing, kind of some short stories. If you go to knightscope.com/chronicles, these are stories, based on what’s happened in the real world, but generalized enough so we don’t get in trouble with our clients. 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.

Apoorv Dwivedi: Yes. As autonomous robots rely on efficient batteries, how is Knightscope optimizing power systems for the K5 and the K7?

William Li : 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 want to be able to do things fast and not be going up into the cloud, but that amount of compute eats a lot of juice. Kind of gets hungry. You don’t want to do all the stuff in the cloud. One, it costs a lot of money. 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 spacing the right chipset is extremely important, and trying to figure out what you run on hat 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.

And then you got to 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 kind of it’s not a linear curve. It doesn’t, just go this way. So you want to 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’s go oscillate from 65% to 85%. 65% to 85% gets you the most efficient way for us to operate 24/7 because no one wants a robot sitting, you know, charging for eight hours. So we’ll, you know, try to charge for 30 minutes and then go patrol for a couple of hours and then come back, and you’re kind of topping off the tank. So that’s kind of a different way to do the power management.

But the root cause of it is you got to be very careful. A lot of stuff can eat a lot of energy. Lights, motors, compute, cameras, thermal cameras, et cetera, all eat a lot. So we got to be very efficient.

Apoorv Dwivedi: 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 review that suggestion and obviously try to continue to provide ways to how we add value to our clients, both internally and externally.

William Li: So, I want to thank Apoorv and the entire Knightscope team for, all the, supporting all the crazy changes we’ve made, over the last 15 months, but now we’re in a much, much better spot. I think physically, emotionally, psychologically, financially, strategically, kind of every which way you want to look at it, things are looking up. And we’re also grateful for the thousands of investors that continue to support 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 future of public safety and, discussing the fact that robots will be everywhere. Alright. We’re way over time. Thanks, everyone. Appreciate, all the, kind support, and we’re working literally seven days a week, 24/7 for you, and for the country and genuinely appreciate the support.

Apoorv Dwivedi: Thanks, everyone.