Knightscope, Inc. (KSCP) is an innovator in robotics and artificial intelligence (AI) technologies focused on public safety. The company designs, develops, manufactures, markets, deploys, and supports Autonomous Security Robots (ASRs), the proprietary Knightscope Security Operations Center (KSOC) software user interface, Blue Light emergency communication devices (ECDs), and the Knightscope Emergency Management System (KEMS) software platform. Knightscope's mission is to make the USA the safest country in the world by providing advanced security solutions that empower public safety professionals.

Financials

In the first quarter of 2024, Knightscope reported revenue of $2.3 million, a decrease of 22% compared to the same period in the prior year. Service revenue remained relatively flat at $1.7 million, while product revenue decreased by $0.6 million to $0.6 million. The decline in product revenue was primarily due to structural changes made to the ECD product line organization that impacted the timing of sales, production, and delivery of products. The company recognizes revenue when devices are fully installed, and the structural changes led to a period-over-period decline in installations across the ECD products.

Knightscope's gross loss for the quarter was $1.4 million, compared to a gross loss of $0.2 million in the same period last year. The increase in gross loss was primarily due to higher service costs, including a write-off of approximately $0.4 million related to the discontinuation of the version 3 K5 ASRs and $0.4 million in obsolete inventory. The company also experienced higher depreciation, outside field services, and other costs associated with the ASR and ECD product lines.

Research and development expenses increased by 12% to $1.6 million, while sales and marketing expenses increased by 34% to $1.5 million, primarily due to increased advertising costs related to the Regulation A Infrastructure Bond Offering that closed in March 2024. General and administrative expenses remained relatively flat at $3.6 million.

The company reported a net loss of $7.6 million for the first quarter of 2024, compared to a net loss of $2.4 million in the same period last year. The increase in net loss was primarily due to the higher gross loss, as well as a decrease in other income, net, which was $0.7 million in the current quarter compared to $4.1 million in the prior year quarter. The decrease in other income, net, was primarily due to a smaller decrease in the fair value of warrant and derivative liabilities.

Liquidity

As of March 31, 2024, Knightscope had $2.5 million in cash and cash equivalents, compared to $2.3 million as of December 31, 2023. The company also had an accumulated deficit of $169.1 million and a stockholders' deficit of $26.6 million, which raises substantial doubt about its ability to continue as a going concern.

Recent Developments

To address these challenges, Knightscope has implemented a roadmap to profitability, focusing on streamlining costs and operations across all aspects of the business. The company has taken several actions, including reducing headcount, consolidating manufacturing operations, closing satellite facilities, and outsourcing field services for its ECD product line. These initiatives are expected to yield less than favorable near-term results of operations, but the company believes they will better position it for long-term financial health.

Knightscope's annual revenue for the year ended December 31, 2023, was $12.8 million, with a net loss of $22.1 million and negative operating and free cash flows of $24.2 million and $29.3 million, respectively. The company's quarterly revenue and profitability have been volatile, reflecting the challenges of scaling its business and the impact of the recent operational changes.

Outlook

Despite these challenges, Knightscope believes that the market for its security solutions will continue to grow, driven by the increasing need for surveillance to combat rising crime rates and security breaches, as well as the growing demand for automated and efficient security solutions. The company's primary goals remain meeting client demand for its technology, attracting new client orders, and ensuring consistent performance in the field.

As of May 14, 2024, Knightscope had a total backlog of approximately $4.3 million, comprised of $1.9 million related to ASR orders and $2.4 million related to orders for ECDs. The company is focused on scaling its business and becoming more streamlined, which management expects will decrease gross margin loss over time.

Knightscope's strategy is to try to keep fixed costs as low as possible and minimize variable costs while achieving its overall growth objectives. The company is evaluating and taking a number of near-term actions to facilitate this result, including decreasing expenditures for real estate leases, optimizing team composition and size, leveraging third-party manufacturers, reducing telecommunication service and cloud costs, and transitioning its ASR and ECD production processes to a more traditional assembly line process.

Risks and Challenges

The company's liquidity situation remains a significant concern, as it will require significant additional financing to meet its planned capital and operational needs. Knightscope is pursuing opportunities to obtain additional financing through equity and/or debt alternatives, but there can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms, or at all.

Knightscope's ability to regain compliance with the Nasdaq listing requirements and continue as a going concern are also key risks facing the company. On April 24, 2024, Knightscope received a delisting determination letter from Nasdaq, indicating that the company had not regained compliance with the minimum bid price requirement. The company has requested a hearing before a Nasdaq Hearing Panel to appeal the delisting determination and is considering implementing a reverse stock split, if necessary, to regain compliance.

Conclusion

In conclusion, Knightscope is navigating the challenges of scaling a robotics and AI security solutions provider. The company has implemented a roadmap to profitability, focusing on streamlining costs and operations, but its financial performance and liquidity situation remain significant concerns. Knightscope's ability to secure additional financing, regain Nasdaq compliance, and capitalize on the growing market for its security solutions will be critical to its long-term success.