Introduction and Overview
William Li, Chairman and CEO of Knightscope, opened the Town Hall and annual stockholder meeting by acknowledging the challenges the Company has faced as a public entity. Despite external difficulties, he emphasized that Knightscope is performing better internally than ever before, with a bright future ahead. Li reiterated his confidence in the Company’s long-term success and highlighted ongoing efforts to drive stockholder value through sweeping changes in the business.
Market Potential and Strategy
- Market Opportunity: Li emphasized the vast and recurring market potential for Knightscope’s products in the public safety, law enforcement, and security sectors. He detailed how these markets are ripe for disruption through the use of robotics, AI, and automation. The Company sees a multibillion-dollar opportunity and aims to scale its operations to millions of robots in the long term.
- Recurring Revenue Model: Knightscope’s Machine-as-a-Service (MaaS) subscriptions are already generating significant revenue with high margins and strong client renewals. Li pointed out the Company’s first-mover advantage, especially with dwindling competition and federal authorization to do business with the U.S. government.
- Technology and Innovation: Knightscope is focused on building a diverse technology portfolio to address public safety challenges. The Company’s current offerings include eight machines and two software platforms, with plans for further expansion. The Intelligence Control Module (ICM) project underway now aims to consolidate various technical architectures into a unified platform and is expected to drive significant cost reductions and efficiencies.
Financial Performance
Apoorv Dwivedi, EVP and CFO, reported Knightscope’s Q2 2024 financial results. Total net revenues were $3.2 million, a 10% decline from the same period last year due to lower product revenue. Services revenue increased slightly due to more ASR subscriptions, but product revenue fell due to the absence of a large one-time sale from the prior year.
- Costs and Margins: The Company’s cost of revenues increased by $200,000, primarily due to higher third-party costs and scrap fees. Knightscope recorded a gross loss of $0.6 million, a significant decline from the prior year’s gross profit. The loss was exacerbated by onetime scrap fees and transition costs.
- Operational Expenses and Net Loss: Operational expenses remained flat at $6.2 million, excluding restructuring charges. The Company incurred a net loss of $6.3 million, higher than the previous year due to increased other expenses, including non-cash warrant valuation losses and interest on bonds.
Operational Improvements and Efficiency
Li detailed numerous operational improvements aimed at cost reduction, including changes in machine design, service process optimization, and facility consolidation. These efforts are expected to result in improved financial performance in the coming quarters and years. The Company is also focused on building a cohesive and streamlined team, having made significant changes to management and operational structures.
Conclusion
Li closed the Town Hall by reiterating his commitment to Knightscope’s mission and expressing confidence in the Company’s ability to achieve its goals. He emphasized the personal significance of the Company’s mission to him and urged investors to continue supporting Knightscope as it works towards making the U.S. the safest country in the world.
Overall, the call reflected Knightscope's determination to overcome current challenges and capitalize on its market potential through technology innovation, operational efficiency, and strategic focus on long-term growth.
Knightscope Q&A Session Summary
- Hemisphere K1 Growth: The Hemisphere K1, launched after last year, is seeing initial growth, with applications in apartment complexes, warehouses, and HOAs.
- Product Mix and Revenue: The revenue breakdown is roughly 68% from K1B (Blue Light) products and 32% from ASRs (Autonomous Security Robots).
- Financial Concerns: Knightscope currently has around $2.6 million in cash, fluctuating between $2 million and $5 million over the past 18 months. The Company continues to seek more funding while managing costs.
- Legal and Contractual Matters: The toxic convertible debt offering has been cleaned up, freeing the Company to pursue more favorable financing.
- Short Seller Legal Actions: An investigation into possible legal actions against a short seller (Capybara) is ongoing, with no new updates.
- Sales Announcements and Profits: New contract announcements are primarily for helping sales teams and not directly tied to immediate profits. The Company aims to improve its production efficiency to reduce the time between contract signing and revenue generation.
- Stock Price and Reverse Split: The Company must meet NASDAQ's requirement of maintaining a stock price over $1 for ten consecutive trading days by October 4. A reverse stock split is being considered, if necessary, with the Board having the authority to execute it. The Company is focused on improving financial performance and attracting institutional investors.
- Sales and Marketing Strategy: The sales team has strong backgrounds in technology, security, and law enforcement. The focus is on expanding the market and improving sales efficiency.
- Challenges with School Security: Budget constraints are a major hurdle for implementing advanced security solutions in K-12 schools, even though the technology is available.
- Knightscope’s Competitors: Several companies like Sharp, Cobalt, and Amazon have failed in similar robotics ventures, highlighting the difficulty of the market Knightscope is navigating.
- Operational Efficiency: Knightscope is consolidating its operations to improve efficiency and reduce costs, including shutting down its Irvine, California facility.
- Government and Military Contracts: Knightscope sees a significant opportunity in federal and military contracts, though these require long-term efforts to secure and implement.
- Product Expansion: Knightscope is focused on business-to-business and business-to-government markets, with plans for international expansion and possible consumer markets in the distant future.
- Acquisition Opportunities: Knightscope is actively exploring acquisitions to grow its technology portfolio and market reach.
- Executive Compensation: Executive pay is determined by an independent Board and is designed to retain talent and incentivize long-term growth.
- Use of AI: Knightscope's robots already use significant AI, with future plans to incorporate conversational AI for more interactive public engagement.
- Investor and Sales Support: Investors are encouraged to support the Company by buying shares, holding shares, and stopping brokers from lending shares for short-selling.
- Future Outlook: Despite challenges, Knightscope remains focused on scaling its operations, improving financial performance, and making a significant impact on public safety.
This Q&A session reflected Knightscope's ongoing efforts to navigate financial challenges, scale its technology, and expand its market presence while addressing investor concerns and operational hurdles.
