Knightscope Inc

NASDAQ:KSCP

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[William Li, executive]

Greetings, everyone, from Silicon Valley. We enjoyed the first quarter and second quarter town halls with you this year and having interacted with hundreds and hundreds of our investors, I know having a clear and easy-to-understand quarterly video presentation followed by a frank and direct discussion has been valuable for many. As a reminder, this town hall format is intended to provide an informal forum for our nationwide 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 part of that is communicating with you directly and consistently. And so we're back at it again for the third quarter 2023 town hall. Of course, any and all figures presented today in this presentation of the financial highlights from our recently filed quarterly report on Form 10-Q should be read in full context of the company's recent regulatory filings and risk factors available to you at ir.knightscope.com.

Okay. With that ever exciting disclaimer out of the way on to the third quarter numbers. For the 9 months ending September 30, 2023, we booked approximately $9.8 million in net revenue, which compares favorably to the $3.3 million we booked in 2022 over the same period, reflecting an almost tripling of revenue year-over-year. That puts us on an approximately $13 million annual revenue run rate, well over double last year in 2022 when we recorded $5.6 million in net revenue for the entirety of the year. Additionally, as of October 29, 2023, the company had a total backlog of approximately $4.1 million, comprised of approximately 2.4 million new orders related to autonomous security robots and $1.7 million related to new orders for our portfolio of K1B products, and that includes the K1 Blue Light Towers, E-Phones and Call Boxes. Compared to the backlog reported as of July 30, 2023, of $4.9 million. Overall, we have made significant progress in reducing our backlog. Though our backlog for ASRs increased slightly by $0.3 million, whilst we made significant reductions in the K1B backlog by approximately $1.1 million, which was primarily related to the fulfillment of a large strategic client order. We would note that the backlog will fluctuate due to new incoming orders, while we also continue improving our production and supply chain processes to get machines out the door. We continue to work to improve our gross margins as we scale up. We reflected a gross loss during the first 9 months of 2022 of $2.1 million and have significantly improved that this year for the same period to a small loss of just $154,000. We expect as we continue to execute on our road map to profitability that we will see continued improvements in the future. We'll be covering the highlights of our plan later in the presentation. Comparing the first 9 months of 2022 to the first 9 months of 2023 on a per share basis, we improved significantly from a $0.40 loss per common share to a $0.26 loss per common share. As of September 30, 2023 and December 31, 2022, we had $4.6 million and $4.8 million, respectively, of cash and cash equivalents on hand. Also as previously disclosed, the approximately $6 million of convertible notes secured in connection with the acquisition of Case Emergency Systems were fully extinguished by the end of the second quarter of 2023.

Speaking of cash, just a few weeks ago, we launched our public safety infrastructure bond offering. As with any Reg A+ offering, these types of financings can remain active for months. We intend to conduct rolling closes of the bonds on a monthly basis, and we recently successfully completed our initial closing and those investors began earning interest on their closing date. Interest starts accumulating for investors on their respective closing date and not at the completion of the entire bond offering. As I like to say, it is in your interest to earn interest. This bond offering provides non-dilutive and nontoxic growth capital for us to continue to build on our momentum, and we feel strongly that it is better to pay our supporters than Wall Street insiders. Typically, high-yield debt offerings from publicly traded companies are often not available to retail investors, and we thought to address this in justice with our unique bond offering. The price per bond is $1,000. You can earn 10% interest for up to 5 years, and that maturity, your original investment, along with the accrued interest is returned to you. So as an example, if you invested $10,000 let's say, you would be paid $1,000 in cash annually for 5 years, yielding $5,000 in interest payments over the life of the bond. And at maturity, we will return your original $10,000 to you. So start with 10 grand and finish up with 15,000. Again, the company intends to conduct closings on accepted investments in the bonds on a rolling basis intended to occur on or about the last business day of each calendar month. You can learn more at bond.knightscope.com, and we hope you will join us and be a force for good.

Yes, the rise of the robots is happening, and it's happening now. We continue to add to our backlog of ASRs and during 2023 have proudly added new clients with a nationwide footprint to the mix, positioning us well for expansion opportunities as we work hard to partner with our clients in support of their public safety and security programs. In addition, I'm excited to share that the K1 Hemisphere and the all new fifth generation of the K5 ASR were released for commercial production with the first unit shipping out to clients at the end of September. This was a huge milestone for us, positioning us for growth and continued improved financial performance. The robots are coming. We endeavored to sustain our double-digit growth rates year-over-year as we build our client base through delivery of more ASRs and Blue Light emergency communication systems into the field, building and selling, building and selling, building and selling as in rinse and repeat with a commitment to meeting demand by delivering quality, cutting-edge technologies and continuing our efforts in addressing one of the nation's most pressing issues of crime and violence. Oh, by the way, recent headlines teach us that perfecting autonomous and self-driving technologies continues to be a challenge for many. We are proud of the fact that we have our autonomous security robots deployed running fully autonomously not remote control or teleoperated, providing security services 24/7 and 365 across the country. We have now been in the field generating millions of dollars of revenue for well over 2.5 million hours in the field. With our demonstrated leadership in the field, we continue to build our competitive advantage by leveraging real-world experiences and introducing complementary innovative solutions to our clients, and we keep making important announcements almost on a weekly basis, reflecting the growing interest in our technology solutions to augment public safety and security, announcements like clockwork every week, tick, tock.

We are actively engaging interested prospects nationwide, and it's not out of the realm of possibilities that our robots may be coming to a city near you. And by being a supporter of Knightscope, you can be part of it all and instrumental in making the rise of the robots happen. And yes, the robot roadshow has made over 100 stops across the country thus far. You can learn more about the robot roadshow at knightscope.com/roadshow, including learning how to be a host for our pod landing.

Lastly, let's discuss our road map to profitability. As you have seen, we've made significant improvements in our financial performance through the third quarter of 2023, and the momentum continues. The key drivers, including our accretive acquisition of Case Emergency Systems in October 2022, and expense reductions up and down the P&L has made a positive impact. It is important to note that we'll continue to focus on reducing the existing backlog of orders as we have shown we can do, identifying and implementing additional cost reductions and operational efficiencies as we scale up with the objectives of reducing lead times for our products and services and improving gross margins. It takes a certain level of cost to design, engineer, test, build, deploy and monitor all our machines and network and Blue Light emergency communication systems across the country. But as the company continues to grow, these costs will be covered over a much wider array of revenues.

So our first key ingredient to achieving profitability is simply scaling up the business with efficient processes to better cover our fixed costs.

Our second key item is to optimizing our pricing strategy to account for inflation and the cost of certain products and services, including encouraging our clients to switch to the much higher quality and effective private LTE solution for telecommunications.

Our third area of focus is variable costs. We've identified numerous ways to reduce the bill of material costs for our machines, which includes a focus on opportunities to replace existing components with improved technologies at much lower cost points as well as changing the manufacturing processes for certain body components. Also to maximize throughput, we are carefully scrutinizing processes for labor efficiency and selection of suppliers, lots and lots of redesigning of parts, subsystems and processes, rearchitecting of major systems and resourcing of suppliers. We anticipate that these changes will also contribute to a reduction of our ongoing service and maintenance costs for our machines and network.

Lastly, for our fourth item, we are scrubbing all our discretionary operating expenses, while at the same time, weighing investments in new tools and tooling to improve overall efficiencies. These all will be a big focus throughout the remainder of 2023 and into 2024. In order to improve our performance, we have developed a plan and have begun executing on it with literally hundreds of major and minor changes, and we are all genuinely excited and looking forward to a bright future for Knightscope and our investors as we can see a clear path to the profitable future. And despite all the skeptics, we at KnightScope believe more firmly than ever in our mission and remain laser-focused on execution and looking to make all our investors and supporters proud as we march ahead to help create a safer future for our country. We'll now transition to the live portion of the town hall for questions from our longtime unwavering investors, new retail investors, institutions and analysts. And don't forget, "Long Knightscope. Short the Criminals".” Thank you.