Knightscope (KSCP) Q1 2023 Earnings Call Transcript

Transcript

William Santana Li (Chairman and CEO)

In the spirit of continuing to engage our original investor base, welcome our new investors from the public markets, and improve our communication with our friends on Wall Street, we're going to devote part of this town hall to reviewing some of the financial highlights from our recently filed quarterly report on Form 10-Q for the first quarter of 2023, as well as share some current events that may be of interest to our stockholders and potential investors. This town hall format is intended to provide an informal forum for our audience to ask questions from Wall Street to Main Street, from Silicon Valley to Washington, D.C. If we're going to achieve our long-term mission of making the U.S. the safest country in the world, we're going to need the entire country engaged, and today is part of it.

Of course, any and all figures presented today in this presentation should be read in the full context of the company's recent regulatory filings and risk factors, and those are available for you at ir.knightscope.com. Now, let's get to the numbers. Last year in 2022, we recorded $5.6 million in aggregate revenue, and that's from both service and product for the year, reflecting an over 60% growth rate from the prior year. Additionally, at the end of 2022, we built up a backlog of approximately $3.9 million in new orders. By the 19th of March of 2023, as reported in our 2022 10-K, that number had increased significantly to $5.2 million, which is almost the same amount of the revenue for the entirety of 2022.

The significant top line and backlog increases are attributed to our acquisition of CASE Emergency Systems during the fourth quarter of 2022. With respect to the first quarter of 2023, there are three key points. First, I am pleased to report that for the first quarter of 2023, we recorded approximately $2.9 million in revenue over the first three months of the year, which is an over 300% improvement over the first quarter of 2022. This included a year-over-year increase in service revenue of approximately 85%. Service revenue includes our ASR Machine-as-a-Service revenue, as well as maintenance and support revenue related to the blue light towers and call boxes, which is the primary driver of the significant increase as compared to the first quarter of 2022.

Product revenue relates to emergency communication device sales and contributed approximately $1.1 million in the first quarter of 2023. Despite the ongoing drag from supply chain issues, this reflects an annualized revenue run rate of approximately $11 million. Second, with our focus on top-line revenue growth and cost reductions taking effect during the first quarter, we had a significant positive swing from a gross loss in first quarter of 2022 of $549,000 to a gross loss during first quarter of 2023 of $213,000 or nearly $336,000 improvement. The increase in gross margins is primarily attributable to positive margins generated by our product sales.

On a percentage basis, gross margins move from a negative 58% gross margin to a negative 7% gross margin. Our plans are in place to continue to improve our service and product margins as we scale up. Comparing first quarter of 2022 to first quarter of 2023 on a per share basis, we improved significantly from a $0.30 loss per common share to a $0.06 loss. Last year, we noted our plan was to achieve profitability in the next 24 months. We have made positive movements in that direction. We plan to continue growing the company. We believe our sales pipeline is strong and increasing sales will allow us to grow, drive economies of scale, and better leverage our fixed cost base.

Third, during the first quarter of 2023, despite supply chain challenges, we were able to reduce our backlog of new orders from its peak of $5.2 million reported in our 2022 Form 10-K down to $4.7 million in about 30 days. Given the ongoing positive demand for our technologies, our multimillion-dollar backlog of orders is continuing to increase. We are therefore focused on transitioning our production strategy from a work cell environment, which is appropriate for smaller volumes, to a more traditional assembly line process set up to accommodate a larger volume of units with new processes to optimize throughput for the manufacturing of our Autonomous Security Robots here in Silicon Valley.

Our cash on hand at the end of 2022 was $4.8 million, and our cash and cash equivalents at the end of first quarter 2023 was approximately $2.4 million. We seek to improve our cash position through a seven-fold plan, which is underway and includes the following. Number one, continuing to grow our top-line revenue with new service contracts and product sales. Number two, leveraging our financing partnerships with Dimension Funding and Balboa Capital to fund new orders upfront, improving our cash flow. Number three, accelerating delivery of our backlog of orders. Number four, continuing to use our At-The-Market program managed by H.C. Wainwright. Number five, realizing cost savings from the cost cuts implemented in January of 2023.

Number 6, reducing our variable costs related to our ASRs, such as telecommunications, service, and cloud costs to improve our margins. Number 7, exploring a possible non-dilutive debt offering to continue to fuel our growth. As a follow-on to the 10 town hall marathon we conducted last month, we'll now transition to the live portion of the town hall for questions from our longtime investors, new retail investors, institutions, and analysts. Thank you. All right. Welcome, everybody. We have a very large gathering. Let me do some ground rules first. First and foremost, thanks to everybody for taking time out of your busy day to talk about all things Knightscope. For those of you who've gone through this with me a few times, just bear with me.

I need to put the forward-looking statements disclaimer, and looks like it might be too long, so I might need to do it in a couple of shots here. We need to put that in there just for safekeeping. The video that you just saw will be on our YouTube channel here shortly. You'll be able to grab that, and we can go over today again to answer any questions. I need to talk to counsel to stop making these disclaimers so long. Anyway. A few ground rules before we get going as I let people in here. This is intended to be questions from almost every angle. In some cases, obviously, I'm an officer of a publicly traded company.

I may not be able to answer your question exactly the way you asked it, so I might rephrase it or I'll tell you I can't answer it. I'll try to be as responsive as possible. As long as I legally can answer it, most likely, I will. Obviously, we wouldn't be sharing any MNPI or material non-public information. We wanna be mindful of that. Henry's already got his polite hand raised. Beat me to the punch here. Because we have such a large group, the easiest way to do this, the chat gets a little bit too much. It's just me on this side. The easiest way to ask a question, if you go all the way to the bottom of your Zoom there, you can click on the little reactions button.

Hey, Bill. First of all.

William Santana Li (Chairman and CEO)

I don't get him.

John Patrick (Shareholder)

... I know it's top of mind for you to get the buzz going.

William Santana Li (Chairman and CEO)

Speaker 13

Of course, sir.

William Santana Li (Chairman and CEO)

The cash position needs to get improved, right? There's seven things that we're working on. One is just the sales growth. Obviously, you've seen that we've been putting out good positive news almost like clockwork on a weekly basis. The momentum. Remember that we have financing partnerships with both Balboa and Dimension Funding. How this works is for some of the orders that's appropriate, we would get that financed, so we actually have the cash in hand for obviously a fee, but it helps the cash flow side of things. Obviously, we need to buy materials to get through the backlog. There's deployment times and everything else, so that can help the cash position. We need to deliver on the backlog itself, right?

wherever we're at, $4 million or $5 million or more dollars, that's cash coming into the company. The ATM we just spoke of, Mark. Cost reductions. Remember we announced a 20% reduction in force at the beginning of the year, and some of those cost reductions and actions that we took there will continue to help us in reducing the amount of cash that we utilize. We also announced that we're targeting to get to profitability here in the next 24 months, and part of that's improving all our margins and getting our costs down. The good news here on the telecom side is our clients are using the service and using it a lot, which means they're eating a lot of data.

We've been taking a lot of actions to reduce whatever we can control from a software standpoint to reduce those expenditures. We're also very hard pushing on getting the private LTE and lower types of costs for us to reduce that expenditure outright. The service costs need a good amount of work in terms of parts and logistics and the amount of maintenance and service. Remember, if you drove your car 24/7 for 30 days in a row and never stopped, and, you know, we took care of your fuel, you probably would need some service at the end of the month. If you did that for, you know, 6 or 12 months, you definitely would void the automaker's warranty.

That's the level of duress that these machines are going through. You gotta have some maintenance and service and support. There's obviously cloud costs. We're looking at a non-dilutive debt offering. The point here, Mark, is that the ATM is not the sole source to fix everything. We wanna look at this, you know, kinda systemically.

Speaker 13

I appreciate all the conscious thought that you're giving to it. In a related question, now, a lot of chatter in the chat about delisting. Are we gonna be able to avoid that, do you think?

William Santana Li (Chairman and CEO)

Delisting. We actually 2 things for Nasdaq. Knightscope is required to meet 2 financial metrics. One is you have to have a $50 million market cap, which we did get a notice for. We also have to have a share price that's over $1. That is also an important point. If we're able to. A few points here. If we're able to get above $1 or above $50 million market cap for 10 trading days in a row, that gets it cured. Nasdaq gave us a notice, them, us, and several 100 companies, because obviously the economy's not doing all that great in some aspects of the markets.

We have 180 days from the day we got the notice to cure the problem. Typically, not always, but typically, if you're unable to cure the problem within those 180 days, you can ask Nasdaq and petition as to why you should get another 180 day extension. Whichever way you wanna look at it, we have ±6-12 months to fix the problem. We don't control, I get tons of emails and text messages like, "Bill, you need to fix the share price." I don't control the market. That's frankly, not to be funny, but that's everyone on this call, and not me. It's supply and demand.

What I can do and what my team and I can do together is improve the financial performance of the company, keep it growing, keep telling the story to whoever will listen. The rest of it's kind of up to the market. We don't control pandemics or, you know, bank failures or interest rates or inflation, or the like. I think we have more than a reasonable chance that over the next 6 to 12 months that continued performance, cold financial performance, and getting to profitability and the company growing, it's kinda... I don't know.

From a personal standpoint, it's really hard for me to understand a company's growing double digits at the intersection of 4 important technologies, you know, AI, autonomy, robotics, and electric vehicle technology, that we wouldn't have the eyes and ears of a good amount of investors. We just need to kinda continue to prove ourselves. We've got a shot to fix it, but this is a 2-way street, and we don't control everything. Part of it's the market, which frankly, Mark, you and the rest of the investors on here represent.

Speaker 13

I guess there's two answers. One, as an officer of the company, I legally have a fiduciary responsibility to look at everything regardless if I personally like it or not. I don't know how to do that, basically. You would have in order to take it private, like if I'll put myself in. Not to use you as an example, let's say I invested at $10 a share, and then we took the company private at $1 a share, $2 a share, $0.50 a share. Like, I'd be pretty cranky. I don't know how to physically do that transaction, and then you'd have to go raise some capital to go along with it. Like, everything has to be on the table. Like, I don't think I'm speaking out of turn here.

I don't know how that cures the problem. unless you had a large financing source that would be willing to give the shareholders an appropriate price, right? and then have enough capital when you're private to grow the company. As I said, everything needs to be on the table. I don't know exactly physically how to do what you're suggesting. Sorry, I need to caveat that. That would be in the best interest of the existing shareholders, that footnote is kinda really important, right?

Madhu Tuluri (Shareholder)

Yeah. Got it. Yeah. Thanks.

William Santana Li (Chairman and CEO)

Of course. Kerry Dyne?

Kerry Dyne (Shareholder)

Hey, Bill. Thank you. I wanna echo the sentiments of everyone else. Thank you for your availability. It's refreshing to invest with a company where the CEO is so available to the shareholders. I did purchase in 2019, I believe it was Series S Preferred, and consider it a long-term investment. Had it been up to me, I'm making a statement, and then I do have a question. I would have loved to have seen the company stay private, perfect world, right? Grow and grow and grow like you're doing as fast as you're able. You're pulling on the supply chain. You're doing as much as you can. I appreciate that, and the whole team. Grow under the radar until Wall Street begs for you to go public.

You know, if you go out two, three, four years, whatever, where do you think you can get to on the gross margin? Thanks.

William Santana Li (Chairman and CEO)

Okay. The gross margin for us as a company is a little convoluted. The gross margin, as you can see in our regulatory filings for product-related sales, like, through the acquisition for all our stationary stuff, it's more like a product sale. Like, you sell the product. You may sell a service contract or something to go along with it, but there's a margin on that product. Kinda like when I was back in Detroit, you sell a car to the dealer, you have a margin. There's variable costs, there's fixed costs, it's abundantly clear. In our, in our case with the Machine-as-a-Service, it's a little odd, right? We don't sell the machine outright. We don't sell the software outright. We don't sell the data transfer outright and everything else.

You have a bill of material for the machine that gets depreciated over 3, 4, possibly 5 years at some point. You're using that to calculate the gross margin of which the revenue is obviously a part of that. The telecom costs, the service costs, the labor associated with the assembly of the machine, and then the cloud costs, right? It's a little weird because you need some scale for this to work. A good example might be the KNOC, the Knightscope Network Operations Center. Let's say you have a staff of 4 people that can run 168 hours a week, right? They need to run 24/7.

Just because you added the third, fourth, fifth or sixtieth or seventieth machine, it's not like we're adding, you know, additional people to monitor those machines. You need a little bit of scale, Barry, and that's the thing that doesn't always come across. The assembly portion also makes a huge difference. If us, you know, taking 120 hours and you can pick your hourly rate, and we can build something with less than 20 hours, you can do the math real quick and go, okay, that's gonna be material. It's not gonna be one thing. You're gonna have to, you know, keep the revenue going up. You need to get the telecommunications costs down, which are material. You need to get the service costs down.

You need to get the cloud costs down, you need throughput. You need to get these things out the door faster. Because we kinda see how there's possibility to get there is why we have the nerve, I guess, to say that we can get it to profitability in the next 24 months. Obviously, you know, at the end of the day, it's also the fixed costs, right? You need to keep the team as small as possible, as efficient as possible, so that we're, you know, generating a good amount of revenue. You start getting there. Like, if you multiply by 4 our first quarter annual run rate and you annualize it, you're about at $11 million, and we've got maybe 90 employees on staff.

You can start seeing that if we can, you know, keep the team efficient and lean, and get our costs down, we can get there. In terms of what it could look like longer term, I, in the interest of time, I wanna make sure that everyone has a chance here. If you go to knightscope.com/rise, R-I-S-E, the investor deck, the updated investor deck is there. There's literally a slide there that shows our target, of what we're trying to get at.

Barry Hannes (Shareholder)

Okay, great. Thanks so much. Appreciate it.

William Santana Li (Chairman and CEO)

Thanks, Barry.

Barry Hannes (Shareholder)

Thanks for all the hard work.

William Santana Li (Chairman and CEO)

Thank you. Mr. Matthew Miller.

Matthew Miller (Shareholder)

Hey, Bill, you hear me?

William Santana Li (Chairman and CEO)

I can hear you.

Matthew Miller (Shareholder)

All right. Sounds good. I'll say, before I get into my question, I just wanna make a comment on, like, I see a lot of chat going on about reverse splits and delisting. The first thing I wanna say is I'm, you know, unequivocally, you know, I'm sure Nasdaq will give you a, you know, more time, the 180-day extension if needed. You know, I've been trading for a long time, and I've seen companies do reverse split after reverse split, and I just wanna make the point that Knightscope has never needed an extension or asked for an extension beyond what they already had.

If it came down to the point where you did need an extension, I don't ever see them giving you a problem doing that. I just wanted to kind of point that out just so there's not gonna be that fear that, you know, two or three months down the line that we're gonna be looking at a reverse split or a delisting. I just kinda wanted to get that out of the way first. Hold on one second. Okay. I'm gonna start off my question just with a statement. Prior to myself becoming a full-time investor, I was actually in operations and management for one of the largest security companies in the world, which is kind of why I have an authentic alacrity for Knightscope.

While there are plenty of hardworking, qualified human security guards, I firsthand know the challenges, costs, and inefficiencies in the security guard industry with constant call-outs, turnover, you know, perfunctory training for new hires, which then translates over to level of service. The average cost for a human security guard for a company outsourcing security measures is anywhere from $35-$100 per hour, depending on whether the guard is armed or not. Knightscope is a cost-saving, efficient alternative to existing security measures, any company looking to cut down on costs without degradation of security efforts should look to Knightscope as a solution. Any narrative contributing to a non-favorable economic climate, kind of like we are in now, should actually be beneficial to Knightscope as an investment.

My question is, what can Knightscope leadership do to communicate this message to existing and potential shareholders? Basically, Knightscope is something you want to invest in as companies can save money on their existing security measures, and crime obviously isn't something going away no matter what the economic climate we're in.

William Santana Li (Chairman and CEO)

Hear, hear. Was there a question in there, Matthew?

Matthew Miller (Shareholder)

That was basically my question. I apologize. I know that was kind of a long-winded statement, but there was a question in there. What can Knightscope leadership do to communicate this message that basically, you know, you're investing into something that is going to be saving companies? Crime is gonna go on no matter what, and companies are gonna be looking to be saving money. Currently, their existing security measures are probably outsourcing a company for, you know, anywhere from $50 to $100 per hour. Investing in Knightscope, you're getting a superior service for a fraction of a fraction of the cost. You know, this is why it's an investment or this is.

William Santana Li (Chairman and CEO)

Yes.

Matthew Miller (Shareholder)

why you'd want to invest in Knightscope.

William Santana Li (Chairman and CEO)

I think, I'm the do all the above, kinda guy. If you want something done, you know, the Colin Powell's doctrine of overwhelming force usually is the one I wanna go towards, which is you need to spend time on everything. You need to spend time on calls here with our investors and supporters. You need to take every podcast opportunity that you have. You need to post on social media. You need to be on the Robot Roadshow. You need to have some of our existing clients be able to speak to a prospective client. You need to write white papers. You need to, you know, get a board member to write a blog. You can issue press releases. You basically, you gotta do everything.

I'm being an advocate for you here. I'm not a financial advisor. You know, Knightscope went public right at the tail end of what I would call the great bull market and the qualitative easing. The market turned. If you looked at a lot of high-tech companies, like you mentioned, their valuations have been crushed, you know, over the past 6 months. I mean, it's never good to see, for example, bank stocks go under. It's never good to see bank stocks swing 50% in a day, 20% in a day. Were you guys caught up in the Silicon Valley Bank failure at all?

William Santana Li (Chairman and CEO)

Yeah, we've disclosed this. That was a horrifying weekend. We had all our money tied up there. Fortunately, it got resolved, you know, after the weekend. We have since pulled our the funds over to to a different bank. Yeah, Investors want confidence, right? That kind of stuff going on does not instill confidence, instilled a lot of stress on us. Fortunately, you know, we came away unscathed and, you know, it's stuff like that where we don't control. You know, we can't sit here and whine and complain either. Like, it's a problem, all right, how do we fix the problem? You just gotta move on to the next issue. We can't, "Woe is me, the market. Woe is me, the short sellers.

Woe is me." It's like, listen, nobody cares. Put the numbers up, get the work done, get the revenue up, get the cost down. The rest of the stuff, like, it's entertaining, it's interesting, it's what have you, but, you know, the markets can be pretty rough. What they wanna see is results and growth, and that's what we're working on.

Speaker 15

you know, I think I've mentioned previously, I think your CASE acquisition was very timely and a very long-term, strategically well-planned acquisition based on the synergies that you have with the customer base, existing customer base, the potential for upsells. you know, obviously, you know, acquiring a new customer in the public safety room is the hardest thing. CASE had a set of customers where you could go back to and refurbish or do new installs, like your Rutgers announcement today.

You know, a question I always get from people is, "Well, don't you have a cell phone?" I'm like, "Well, if unfortunately you're in a situation where you get attacked or someone steals your cell phone from you, or you're disoriented, the first thing you're looking for is that call." I think the CASE offers that solution, and then it also offers Knightscope the opportunity to offer the K5 or the Hemisphere or other product lines. Are you seeing that opportunity starting to grow?

William Santana Li (Chairman and CEO)

I think there's a lot of cross synergies 'cause we're basically going after the same clientele in a lot of cases, I guess, pun intended. I think first and foremost, the folks working on blue light towers will tell you part of the solution is literally the physical presence of having that light there in the first place, can stop some negative behavior. Second, your phone isn't always charged. Your phone isn't always have connectivity. Just having the GPS location, we know exactly where that call came from, not I think it's over here, can be really helpful.

I think selfishly for Knightscope, and through the acquisition, there's a lot of synergies, for us to grow together and likely some product pipeline, you know, new things for us to do in the future. You know, if you look at it, you know, 7,000 devices that are out there in the field, you know, what happens when you're able to do a massive nationwide upgrade and add all the AI capabilities that we have, and in the long term, be able to have all these machines moving or not moving, see, feel, hear, smell and speak like there's inherent value creation, and it's a little bit of a land grab.

William Santana Li (Chairman and CEO)

Nothing clarifies the mind than a sore point of a need. I'm not saying anything that's not been public, but, you know, the city of New York, you know, had 30,000-33,000 officers or so, and they're losing 3,000-4,000 a year. They're short-staffed, they have budget, and they have a problem. That really crystallized, I think the city to really start rethinking, reimagining public safety. I think the best thing you can do with a client is just have them realize that they have a problem on their own. I think one of the other reasons we've done well with casinos, for example, is if they can't hire the staff to do the security, like, that's a problem.

I think the more time we spend fixing actual problems than trying to convince someone that might be skeptical, is the best time that we can utilize our resources.

Speaker 17

Got it. No, that makes sense. Yeah, again, I speak for the rest of the shareholders. I know they've said this several times already. We appreciate all your transparency and all the hard work you and your team are putting in. I know like myself, I actually initially invested while Knightscope was still private, it was prior to the IPO. Again, I share people's frustrations when you have that first initial investment to see where it's at. Again, this is a long term where you long Knightscope and short the criminals. This is not something that's gonna be overnight where it's gonna turn around. I think you and the team have a good overall plan, it seems like you're really executing in terms of revenue growth and getting the bigger contracts. I think this momentum continuing, like it will eventually financially turn itself around.

Thank you again for all the work you're doing for us. We appreciate it.

William Santana Li (Chairman and CEO)

Marco, thank you for the remarks and the sentiment. You have no idea what that means for the team on this side. We get punched in the face for breakfast most of the days, and just trying to get this all to work. It's technologically very challenging. You know, we're somewhat resource constrained, but we continue to make progress. Without your support, you know, we literally couldn't be doing this. We really appreciate that, Marco.

Speaker 17

Thank you, sir.

William Santana Li (Chairman and CEO)

All right. Thank you. Fernando. Hi, Bill. How are you? No, thanks so much for this. Congrats on the showcase in New York. I got to see it in Times Square. A lot of interest by NYPD. I mean, it was teeming with officers. That was a surreal week. Yeah. To get a police escort into town was just... I was just speechless. Yeah. A lot of tourists from all over the place, Germany. I mean, when I was in there, you know, they were asking about the robots and the robots coming to almost, like, greet them. That was very cool. You know, my question is, and you talked about sourcing, and, you know, construction, et cetera, throughput.

On the software, you know, and, you know, robotic stack and AI, you know, what access do you have to the top quality, right? I'm talking about, you know, the frontier technology of the likes of NVIDIA. Is the technology that you are selling perhaps not the premium, but then of course it's, you know, cost benefit to the customer? I just like to understand a little bit, you know, what are you selling? What is, you know, what is needed out there? Is it the top of the technology or is it a rung or 2 below that? What are you developing on the software side, like, with the likes of NVIDIA and others really that are at the frontier of that? I'd be very interested to hear.

You know, when you talk about casinos and even the NYPD, I mean, you know, again, you know, frontier technology is very expensive, right? Much more. What is that balance? What's your vision on technology? I know that we've spoken before on AI, right, and how to leverage that. I think a few points and for the audience's benefit. There's all this rage about AI and, you know, when's Knightscope gonna use AI? I just like, "What are you talking about? How could we possibly operate across the country 24/7, hands-off, fully autonomous level five without the use of AI?" Is mind-blowing. Like, these machines literally are not remote controlled, so you need AI for that. These machines recharge themselves when they need more juice. That's AI.

You can't detect a person in the middle of the night autonomously without AI. You know, one good example, Fernando, and the answers to your question is it's a mixed bag. I think the first thing is just an example of, you know, there's a lot of license plate recognition stuff out there, right? If you're at an airport coming in and the gate's closed and the car pulls in and there's all these lights that come on and shine onto the plate, and you get a perfect crisp picture, of that plate, and you can run the optical character recognition, like that's kinda easy.

Now, go do that at 4 in the morning in Kentucky when it's raining and foggy and you got half a picture and you're covered, like, at a weird angle. Now read that plate. Like, you kinda need to build some different models to be able to do that. In some cases, Fernando, it's older technology that's working, and it's likely that if we can't ship it in 3, 6, 9, 12 months, we're probably not working on it. Our clients don't necessarily need or want the latest, cutting-edge absolute thing that may or may not work. They have specific requirements. That said, if you wanna say cutting edge in terms of autonomy, you know, if you didn't catch the Bloomberg article from a few months ago, you know, they total up.

There's like, I don't know, $100 billion invested in self-driving autonomous stuff, 200 companies working on it. No one's shipped anything. Like, we've operated more than 2 million hours in the field, fully autonomous. I think you could argue we're at the cutting edge. It actually works. We have a different issue, Fernando, is the company's growing. There's always this technical challenge of you have technology out in the fleet, out in the field. You have a shiny new object over here. How do you either migrate or now you're gonna remove and replace? You know, doing high-end technology in the laboratory or prototype with no customer is really fun. In the real world, you've got to be able to service everything.

William Santana Li (Chairman and CEO)

Okay. A few comments. I think first and foremost, and I mean this in earnest, our mission is to make the U.S. the safest country in the world. We would be profoundly arrogant and naive to think that we're gonna do that by ourselves. We absolutely applaud anyone and everyone working on public safety, security, law enforcement, because you need everything to be working in order for us to not be appalled by our news feed every morning. I think second, there's been multiple attempts by major corporations to build stuff to compete against us. I guess most notably it was Sharp Electronics dumped $35 million into an internal division that they staffed up.

They have since shut that down some time ago and failed and were unable to basically ship anything at scale. Conveniently, I think Switch, which is a publicly traded data center, folks also attempted to do one and now have since disappeared for a couple of years. There's a number of folks in laboratories, in R&D and that sort of thing around the world. The only meaningful competition that I see on stuff that moves is a partial competitor, which would be Cobalt Robotics, who are indoors only.

Speaker 17

Yeah. Actually, I've seen them locally. This is the first one that came to mind, actually.

William Santana Li (Chairman and CEO)

Yeah. They're actually been kind to us to refer outdoor business to us 'cause they don't do that. We don't, a small minority of our business is indoors. We don't really see them in the marketplace too often competing head-to-head. There's a lot more activity, I would say, on the fixed stationary side of things. I think if you go to Knightscope.com/rise, R-I-S-E, the investor deck has a few comparables. One of them would be Flock Safety. It's primarily a very low-cost automatic license plate recognition camera that's stationary.

There is a penny stock on the OTC, Robotic Assistance Devices, AI, AITX, that also, you know, maybe is doing $1 million a year in business or so, primarily on the stationary side, if I recall correctly. Price pressure in terms of our autonomous stuff, we don't really have a lot of competition out there. I think that also speaks to how difficult this is. This is not necessarily easy, but price pressure we have not seen yet. Will it happen? I'm sure it might, but Bertrand, we haven't really experienced that.

Speaker 17

Okay. Yeah. That's great to hear. Thank you, Bill. Great to see you.

William Santana Li (Chairman and CEO)

Hey, good to see you too. Thanks for stopping in. Manikyam Mutyala?

Manikyam Mutyala (Shareholder)

Hey, Bill. How are you?

William Santana Li (Chairman and CEO)

I'm good. How are you, sir?

Manikyam Mutyala (Shareholder)

Yeah. I understand, you know, you cannot control the stock price or supply and demand, but I would say you can, not directly, but indirectly, can help the stock price. What my sense is, you know. If you spend just $500 or $600, buy just 1,000 shares in the open market, that would go a long way. Not only you can ask your colleagues like directors and officers, you know, just invest about less than $1,000 and buy something that will put everywhere, all over the world. You see these big people insiders are buying. That would help a lot. That's my suggestion.

William Santana Li (Chairman and CEO)

Yeah. We, since I'm an officer of the company, the council wanted us to set up a proper buying program for officers. I'm only allowed to buy, you know, in certain windows and that sort of thing. It was gonna cost more money to set up the thing than help the company. I think the best thing I can do is just keep telling everyone, like, okay, my entire net worth is in here. I haven't sold a single share. Don't plan to sell a single share. I got $7 million of them. If you think the pain from $10 down to less than $1 is painful on your side, I'm literally right there next to you and doing everything I can to try to fix the problem. I do appreciate the sentiment.

I'm not dismissing it, the actually physically doing it ended up being not so exciting.

Manikyam Mutyala (Shareholder)

I know. I understand. When stock drops from $10 to $0.50, you know, when you own the $7 million, I can understand your pain. At the same time, when management buys outsiders, they think they believe in the company, they are not going under. That's going to help a long way, just you putting $1,000. Always you can find a window.

William Santana Li (Chairman and CEO)

The MGM in the DMV area in Maryland, where the side I am. Were they seeing lots of theft in the garage casino there? I mean, it's just like every week, why will the casino invest in Knightscope, right? Product, right? It just makes sense to me and a higher return on investment, compared to like really losing customers because of fear that something's gonna happen when they come there. That's really my question. Start thinking why we're not seeing premium sales.

William Santana Li (Chairman and CEO)

I think it's a mixed bag. You can't say that we have a $5 million backlog of new orders and then say we have no sales, right? Those two don't go together. You may not like the it's not going as fast, like you wanted to see $10 million or 15 or 20, but we are trending the right way. I think it's part of what I mentioned before, and I'm gonna put this graph up for you. I think a lot of people joined a little bit later.

You know, you look at this curve, you know, If you just multiply our first quarter growth from 2023, which is a 300% improvement from last year, you can't literally say that we're not growing, because that curve starts looking a little steep. Could it grow faster? Yes. What are we short of? Staff. You know, how do you get more staff? Like more salespeople, more marketing people, more production people, more technicians, more QA people. You need capital. That's why you gotta think through the whole business of how do I grow this company? You need additional resources. Just because you get the sale doesn't mean it's gonna show up. Also we have a backlog. Could things go faster? Yeah.

If we had a bigger team, things could go faster. If we had a larger marketing budget, probably could go faster. If my CFO, if she's on, will kill me. If we had more than one Robot Roadshow pod, probably things would go faster. But you can't, you know, you're looking at us growing 60% from last year. Right now we're looking like we're trending towards, you know, doubling the size of the company. You know, is it going as fast as we want? No. We also have the supply chain issues. Lastly, I think I mentioned earlier, if you weren't on the call, to one of the other investors, is you've got a sector that doesn't wanna change.

You know, it's law enforcement, security, a lot of our friends and loved ones, that in that industry are not the most technologically advanced, savvy or welcoming, of folks. That's why to me, it was a huge, massive deal for the mayor of New York City, the largest city in the country, with the largest police department of 33,000 officers, to have the entire NYPD brass and the mayor go there in front of a Robot Roadshow and speak to the world at a press conference that they called because that, I hope, the mayor's right, and we're right that that's gonna help set the tone for others. You know, I, we're trying to go as fast as we can, but, you know, we can't, you know, create magic, either.

All of it needs to work, right? You can't just have one thing work. You have great marketing, but you don't have enough staff or you don't have enough supply, you know, you haven't fixed the supply chain issues. It's frustrating. I'll more than concede the point that you know, if you don't know the numbers, a violent crime occurs every 26 seconds and a property crime literally every 4 seconds. It's a massive market if you wanna look at it that way or a massive problem. I think, you know, Knightscope has a huge potential long term. If you can go fix this problem with some of the most advanced technologies out there, how can this not be priceless for society?

I think it's appropriate to say, if you read carefully the 10-Q that we filed on Friday for our first quarter results, our CFO went out and kind of did some, I would say, loose projections. You know, we were prior, we're burning a lot more money, and we're probably, you know, on the order of or less than $1 million a month, which is what was reflected in the 10-Q.

We've got, as I mentioned, and I'll put it back up for folks, you know, there's 7 avenues for us to be able to address those. I'm not sure we've gotten that sophisticated to delineate between, you know, cash flow positive and profitability, but plus or minus, you know, fourth quarter of 2024 is we're hopeful to get to that point, if not much sooner. It's, you know, it's very, you know, product mix. It's our costs, both on the variable side and the fixed side. I mean, we just need to continue to grow the company, and we need to get some of these costs down. That'll get us home.

You know, fortunately, we've had enough growth to hopefully show everyone on this call and the street that, you know, the company is growing, double-digit growth. It's a pure AI play. Like, this is not, you know, someone's R&D project somewhere. We're literally operated over 2 million hours in the field with paying clients. If you wanna play on autonomy, on robotics, on AI and electric vehicles, like, Knightscope is literally at the intersection and working on a huge problem. I think we need a little support and help from our, you know, investors and supporters. We need the team to continue to work, you know, extremely hard.

We continue to need to execute and hopefully the, you know, stock price will take care of itself in the future.

Speaker 10

Well, thank you for answering the question.

William Santana Li (Chairman and CEO)

Of course, of course. I've been attempting to monitor the chat on the side. I'm sorry, folks, there's some inappropriate stuff in here. There's a lot of spam and, if you're still on and I don't answer your question on here, if I could just kindly ask you to raise your hand and ask me directly, 'cause trying to go through this chat is gonna be an impossibility. Tom, if you had another question, feel free. Unfortunately, we've got some people here that probably shouldn't have been on the call. Anybody ask a question that's, wasn't answered today and you'd like a moment, please raise your hand. If not, we're at two hours and 15 minutes, and I'm still standing. All right, going once, going twice.

Speaker 11

I think Tom has his hand raised, Bill. I can take it down.

William Santana Li (Chairman and CEO)

He'll take it down? Okay. Anyone else? Okay. If not, thank you everyone for taking the time. If you didn't wanna ask the question and you still need an answer, you can write to me directly at [email protected]. I literally am the person that answers the questions. Again, [email protected].

If you need any of the latest, go to knightscope.com/rise, R-I-S-E, and you've got the latest videos, updated deck, and the like. All righty. Well, thanks everyone for taking the time out of your busy schedules. As I often say, and will continue to say, long Knightscope and short the criminals. We'll see you on the other side. Thanks, everybody.

Speaker 10

Take care, and thank you. Bye-bye.

William Santana Li (Chairman and CEO)

Cheers.

Knightscope - Q1 2023

Transcript

William Santana Li (Chairman and CEO)

Henry Schuler (Shareholder)

William Santana Li (Chairman and CEO)

Henry Schuler (Shareholder)

William Santana Li (Chairman and CEO)

Henry Schuler (Shareholder)

William Santana Li (Chairman and CEO)

Henry Schuler (Shareholder)

William Santana Li (Chairman and CEO)

Henry Schuler (Shareholder)

William Santana Li (Chairman and CEO)

Speaker 12

William Santana Li (Chairman and CEO)

Speaker 12

William Santana Li (Chairman and CEO)

Speaker 12

William Santana Li (Chairman and CEO)

Speaker 12

William Santana Li (Chairman and CEO)

Speaker 12

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

John Patrick (Shareholder)

William Santana Li (Chairman and CEO)

Speaker 13

William Santana Li (Chairman and CEO)

Speaker 13

William Santana Li (Chairman and CEO)

Speaker 13

William Santana Li (Chairman and CEO)

Speaker 13