KNOW LABS, INC. (KNW)·Q3 2023 Earnings Summary

Executive Summary

• Pre-revenue quarter; net loss was $3.60M and GAAP EPS to common was a loss of $0.18, widened by recognition of $4.96M in preferred stock dividends (cash settlement plus deemed accretion). Management also cited EPS loss of $0.07 before preferred dividends, unchanged YoY, creating a key GAAP vs “before dividends” discrepancy .
• R&D intensity remained elevated to accelerate Bio‑RFID validation: MARD improved to 11.3% in July from 12.9% in May (20.6% in early May), supported by >300 three‑hour datasets and ~2B data points collected over six months .
• Liquidity tightened: cash fell to $3.93M with updated runway “at least” through December 2023 (vs prior guidance to February 2024); burn rate reduced from ~$1.2M/month to ~$0.8M/month; management expects 2023 capital raises via preferred stock, convertible debentures, and equity .
• Strategic progress: Gen1 portable prototype completed (enables scaled data collection); Gen2 design underway (target at least 50% smaller); patent portfolio expanded to >169 issued/pending, with intent to maintain #1 non‑invasive glucose IP position .
• Stock catalysts: further peer‑reviewed accuracy improvements, FDA engagement milestones, Gen2/device characterization, and financing actions; listing risk addressed—NYSE American focuses on market cap, not sub‑$1 share price (market‑cap threshold context discussed) .

What Went Well and What Went Wrong

What Went Well

• “We reduced our burn rate from $1.2 million per month to roughly $800,000 per month,” improving cash efficiency while continuing R&D and algorithm work .
• Accuracy momentum: MARD improved from 20.6% (technical feasibility, May) to 12.9% (algorithm refinement, late May) to 11.3% (expanded dataset, July), moving closer to sub‑10% target .
• Scale and IP: “Our research and development team has collected more than 300, 3‑hour glucose data sets… almost 2 billion data points” and patent portfolio grew to >169 issued/pending, reinforcing IP leadership in non‑invasive glucose monitoring .

What Went Wrong

• GAAP EPS to common shareholders deteriorated due to $4.96M preferred dividend impacts; Q3 GAAP EPS was a loss of $0.18 vs $0.07 YoY, highlighting capital structure dilution to common holders despite operational EPS commentary excluding dividends .
• Liquidity compressed: cash fell to $3.93M and runway shortened to “at least” December 2023, increasing reliance on external financing this year .
• Regulatory readiness needs: management emphasized more work on generalizability—wider glycemic ranges, diverse physiologies, and real‑world environmental conditions—before seeking FDA trials, implying timing uncertainty .

Financial Results

YoY (Q3 2023 vs Q3 2022):

Segment (Q3 2023):

KPIs and Program Metrics:

Estimate comparison: Wall Street consensus (S&P Global/Capital IQ) was unavailable for KNW; therefore, no estimate beat/miss analysis for Q3 2023 is provided.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We reduced our burn rate from $1.2 million per month to roughly $800,000 per month.” — Ron Erickson .
• “We have… collected more than 300, 3‑hour glucose data sets in the last six months… almost 2 billion data points.” — Ron Erickson .
• “We learned there is more work to do… data accuracy across all glycemic ranges… patient physiological characteristics… real‑world environmental conditions.” — Ron Erickson .
• “Our core goals for the balance of 2023 are… algorithm refinement with the goal to deliver an under 10% MARD… Generation 2 design… regulatory strategy and technology socialization with the FDA.” — Ron Erickson .
• “Know Labs reported a net loss of $3.59 million… EPS of a loss of $0.07, unchanged from the year‑ago period… before preferred stock dividends.” — Pete Conley .

Q&A Highlights

• FDA accuracy threshold: Management targets MARD under 10% with broad, diverse clinical populations as necessary for FDA readiness .
• NYSE listing concern: NYSE American does not specify a minimum share price; market cap criteria and multi‑day evaluation emphasized; company monitors compliance .
• Investor confidence: Focus on transparency via published clinical studies and manuscripts; belief that informed investors gain confidence as differences become apparent .
• Gen1 deployment: ~12 units built; component inventory to build ~100; external testing anticipated around end of 2023/early 2024 .
• Cash runway change: From prior “February 2024” commentary to “December 2023” tied to accelerated development spend; financing plan underway for 2023 .

Estimates Context

• S&P Global/Capital IQ consensus estimates were unavailable for KNW in Q3 2023; the company has limited analyst coverage, so no beat/miss analysis vs Wall Street consensus can be provided. Future estimate anchoring should be revisited as coverage evolves.

Key Takeaways for Investors

• KNW remains a pre‑revenue, R&D‑stage med‑tech focused on non‑invasive glucose monitoring; near‑term stock moves likely hinge on scientific validation (MARD trends), device characterization, and FDA engagement milestones rather than financial metrics .
• Liquidity tightened: cash $3.93M and runway “at least” through Dec 2023; watch for financing (preferred, convertibles, equity) and dilution risk to common holders—especially given recent preferred dividend impacts on GAAP EPS .
• Accuracy trajectory is favorable (20.6% → 12.9% → 11.3% MARD); further improvements toward sub‑10% will be key catalysts and de‑risk regulatory narrative .
• Device roadmap progressing: Gen1 enables scaled data collection; Gen2 targeting ≥50% smaller and designed for manufacturing—milestones around Gen2 design/characterization can be incremental positives .
• Regulatory path requires broader datasets (glycemic ranges, diverse physiologies, real‑world conditions); investors should expect continued publication cadence and FDA “socialization” rather than hard submission dates in the immediate term .
• IP remains a strategic asset (169+ patents); continued portfolio expansion supports defensibility in non‑invasive glucose monitoring, aiding potential partnerships/licensing optionality .
• Trading implications: near‑term—monitor press releases/manuscripts on accuracy and Gen2 progress; mid‑term—track financing structure/terms, FDA engagement markers, and listing compliance disclosures .

Appendix: Press Releases in Q2–Q3 2023

• May 5, 2023: Technical feasibility study (MARD 20.6%) .
• May 30, 2023: Algorithm refinement (MARD 12.9%) .
• June 7, 2023: Gen1 prototype completion .
• July 26, 2023: Expanded dataset with novel preprocessing (MARD 11.3%) .

Notes on EPS: The press release and call highlighted EPS loss of $0.07 before preferred dividends for Q3 2023, while GAAP EPS to common shareholders was a loss of $0.18 due to $1.63M Series D cash dividend settlement and $3.34M deemed dividends accretion on Series C/D recognized in the quarter .