Earnings Call Transcript - KSCP Q3 2025

Alison Schwanke, VP of Marketing

Welcome, everybody, to the Third Quarter 2025 Knightscope Earnings Call. My name is Alison Schwanke, I'm the VP of Marketing here at Knightscope. And I'm joined by our Chairman, CEO, and CFO. We're excited to go through the results and some exciting news for us here at Knightscope. I'll hand it over to you, Bill.

William Li, CEO

Thanks, Ali. Welcome, everybody. We're livestreaming from our brand new Knightscope headquarters here in Silicon Valley. If you see some noise or things going on in the background, we're getting ready for KHQ night, with friends and family here this evening, and we're excited to get everyone to come visit the new facility. So the other important thing to note is that we will not be covering any MNPI during the call, so no material non-public information. If you ask a question after the discussion on the earnings, if we can't answer the question, we'll try to rephrase it so we can. But Ali is here to moderate and make sure we stay out of trouble.

Alison Schwanke, VP of Marketing

If you do have any questions, please use the Q&A feature inside the webinar, and we'll make sure and line those up so we can answer after we address some of the initial findings.

William Li, CEO

So with that, we're going to turn it over to Apoorv, who's going to walk us through the third quarter.

Apoorv Dwivedi, CFO

Thanks, Bill. So as we look into our third quarter financials, there are three primary themes that are emerging. On one side of revenue, we saw modest revenue growth. The company is still largely early-stage in an industry where there's a lot of excitement around robots. However, the adoption is still uneven. We believe that we will be able to better penetrate existing markets and enter new markets with innovative technologies that the company is bringing forth in the near future. On the margin side, things have been challenged as we continue to build scale economics in manufacturing, field servicing, and material manufacturing. Historically, our team has been exceptionally scrappy, doing whatever it takes to meet growing demand. This scrappiness has been our superpower, but it doesn't scale. So as we prepare for our next phase of growth, we're overhauling how we build and deliver our products. In Q3, we saw a temporary dip in our margins as a direct result of the deep dive we took in our manufacturing operations. Lastly, our investment in product development and innovation. We are investing in innovation and product development, and we believe that it will be a critical engine of our growth in the near future. With that, let's jump into the financials. Total revenue of $3.1 million grew by 23.5% versus the prior year. This was driven by an increase in both sides of the business. Services revenue grew modestly by 2%, while product revenue grew by 82%, largely due to the company delivering higher production to catch up from prior quarter's component shortages. Gross loss of $1.6 million is largely driven by a $600,000 write-off of slow-moving and obsolete inventory that we identified as part of the move from Mountain View to Sunnyvale, in addition to recognizing higher material costs incurred to meet production demands of the third quarter. OpEx increased by almost 13% and ended at $7.9 million, largely due to intensified investment in R&D, primarily in the next-generation 4-wheeled K7 robot. As such, our R&D investment increased by $2 million as compared to the prior year. However, this was offset by cost savings of about $1.1 million across SG&A, primarily in lower third-party professional fees and in lower IR expenses. As a result of these dynamics, our loss from operations came in at $9.5 million as compared to $7.7 million the prior year. Additionally, our net loss of $10 million came in $1 million better than the prior year, primarily due to the $3 million expense hit that we took last year as part of the change in fair values of the warrant liabilities, which are no longer on our books. EPS came in at negative $0.98 as compared to a loss of $3.58 the prior year. And finally, on a positive note, our cash balance continues to increase as the company relies on its ATM as well as cost management. So we ended our cash balance at about $20.4 million this quarter versus $5.3 million last year at the same time. With that, I will pass it on to Bill for the next segment.

William Li, CEO

No, before we go to the Q&A, I really think we might have a video at this show.

Apoorv Dwivedi, CFO

Oh, interesting. Let's do it.

William Li, CEO

Let's roll it. All right. Well, hopefully, everybody enjoyed that. We've been working on the Knightscope K7 for a very long time. We're excited to announce that we're going to start limited series production in the second half of '26. And we're in very good spirits here as we build on what Apoorv said, kind of resetting the stage and foundation for the growth of Knightscope. I've never been this excited about the company's future even since inception. So things are looking up here. Ali, do you want to hit us with the easy questions first?

Alison Schwanke, VP of Marketing

Yes, absolutely. Well, the first one I already answered, but I'm going to go ahead and read it again. Robin was excited for us to speak about what was coming. I think maybe that was the video that we referred to, but the earnings were released this morning. So what other news is behind that?

William Li, CEO

Literally behind us. All new K7 autonomous security robot. We're really excited about building a new foundation to handle much larger environments at much higher speeds with a ton more capabilities. And I think you and I are going to be sharing a little bit more over the next coming months and feeding some exciting news ahead of the launch in the second half.

Alison Schwanke, VP of Marketing

Yes, absolutely. Well, there are a couple of questions here regarding some of the financials. So let's go into those. So Greg says, is the company building first, then selling the inventory or building inventory and then selling products?

Apoorv Dwivedi, CFO

Well, that's a great question. Traditionally, we've sold the products first, then built them. However, as we kind of move forward towards scaling, I think one of the things we want to do is figure out how do we build the stock and then sell the inventory as demand comes in. It's important for us to be able to do this as we scale because that allows us to turn the bookings into revenue much faster.

William Li, CEO

I think historically, if you look at the numbers, we at the peak had maybe $6 million worth of backlog. We've brought it down to about $1 million or $2 million. We want to get that down as much as possible and start building finished goods inventory so that we can actually ship quicker. This will improve the whole operations, the financials, everything. So that was one of the other reasons to move here to a much larger facility. In Mountain View, we had about 13,000 square feet. Here in Sunnyvale, we're at 33,000 square feet with a lot more capacity for us to continue to grow.

Alison Schwanke, VP of Marketing

There's a question here about the stock. The stock is down over 99% from the IPO price. How can you justify C-level salaries with such dismal performance?

Apoorv Dwivedi, CFO

Look, the stock price is rarely an indication, especially for a company of our size. It's really an indication of the performance of the company itself. It's really more driven by market dynamics and what people think the stock and the company will do and what they're seeing. Now the salary expectations and the compensation are determined by the Board. The Board assesses what they think we've done, how we've performed and how well we operate, and they determine that. Overall, the company has reached a really great point so far. It took us a lot to get here. We're looking forward to growth. And I think what we're seeing is the compensation reflects where the Board feels that the company is going to be.

Alison Schwanke, VP of Marketing

Fantastic. Let's talk about the K7 capabilities. There are some questions here about what all it can do and what capabilities the new K7 has?

William Li, CEO

We're not going to unveil everything today, but it will go up to 10 miles an hour, so much faster than the K5. It can handle much more difficult terrain, such as light-duty off-road as well as street-level environments. We're still working on this; it's not ready for prime time just yet, but we're going to develop off-grid capabilities for deploying these in much larger environments that currently lack power infrastructure. This is another big R&D investment for us in the next year plus. We have a few things up our sleeves. But remember what I've often said, we want to put 1 million machines in the network that can see, feel, hear, smell, speak, and autonomously cooperate. The K7, this next generation of technology is a massive step towards that vision.

Alison Schwanke, VP of Marketing

Yes. One more quick thing to add is the amount of hours that we've now acquired and experienced in the field of controlling.

William Li, CEO

I think if we would have tried to build this much earlier in our development cycle, it would have been that much more difficult. We've now operated well over 4 million hours fully autonomously across every time zone in the U.S. and during multiple seasons. This experience gives us a competitive advantage because we can analyze designs from various projects—anything from science fair projects to startups—that might have interesting ideas. A quick review tells us what will fail and why you wouldn't want to pursue that path. Having this intelligence and understanding from being out in the field is essential. You cannot develop the stuff in a laboratory.

Alison Schwanke, VP of Marketing

Absolutely. Well, let's pivot a little bit back to some shareholder questions. So we have a couple of questions here about what we're doing to drive or specifically address shareholder value.

Apoorv Dwivedi, CFO

Sure. Shareholder value comes from execution, right? We, as a team, must figure out how to execute and deliver on the promises of growth that we're making to the shareholders. This is a process. It doesn't happen in one or two quarters. It takes time. The company is going through a true transition period. We grew for the last 10 years through being scrappy. While scrappy is great for innovation, moving to the next phase of growth requires us to implement processes, structured systems, and prepare for scale. We need shareholder support to continue to believe in us. But what we will deliver in the future is higher revenues. We are focused on that. We're working on penetrating new markets and driving our margins lower. Right now it's an interesting time because we have to clean up some backlog from the past. But as we go through that cleanup phase and set up for scale, that's how we add shareholder value through growth and innovation.

William Li, CEO

I think maybe it might be worthwhile recapping what we've done over the last two years and why we're excited. We've literally turned Knightscope inside out and upside down, going through every functional area and department. We brought in a new board, got rid of about 40% of the management team, and cut about 30% of payroll to bring in new talent. We shut down a few facilities and moved into a brand new one. We set up a new remote monitoring department, new sales team, accounting team, new CFO, and new VP of Marketing. And now, we're working on a huge product launch with the K7. There’s the K1 stuff that we'll talk about next year. So it's about focusing on growth while having a stable foundation, as Apoorv was trying to emphasize. We've changed everything in the building, including the company's address and logo. No stone has been left unturned to ensure that we're set for success. Our three growth strategies are to: one, grow the existing business; two, develop new products for sustainable competitive advantage; and three, focus on mergers and acquisitions to build top-line revenue.

Alison Schwanke, VP of Marketing

That actually parallels what's being asked here, which is, are you working on any M&A opportunities?

William Li, CEO

Never crossed my mind. Do you want to cover that one?

Apoorv Dwivedi, CFO

Sure. We are absolutely looking at M&A opportunities. There are two primary areas we are focused on. One is on hardware, software, and humans—those three critical components of our future growth. On the hardware side, we have development here. On the software side, we look for partners and/or companies to acquire that allow us access to things like perception AI or audio AI or sensor AI. These elements will help us enhance our analytics and enable our machines to perceive the environment in a better way. The third part is the human side. As you know, we invested in the RTX group, which puts humans in the loop. We believe that robots alone will not solve the issues; we need to augment humans to make them better.

William Li, CEO

I think defining the next-generation augmented security guard is certainly a path we’re considering for remote monitoring. Clients don’t care about product features; they just want solutions that address their problems effectively. What we're building is a comprehensive solution that will permanently fix the security issues instead of pushing specific technology or strategies.

Alison Schwanke, VP of Marketing

This question relates to autonomous driving, as larger companies are already adopting it. Was there a consideration in teaming up with them to incorporate Knightscope tech into one of theirs? Or are we totally committed to developing our vehicles in-house?

William Li, CEO

Totally in-house. As I often say, there's going to need to be a very large portfolio of technologies. What we've shown is just the beginning, similar to the K5 and K1. It's very different to secure and protect a school than it is to secure the underpass of a bridge or a federal courthouse. You can't have one technology flaunted as the solution. If that was the case, then all the cameras in the U.S. would solve everything, yet there are 85 million of them and they aren't fixing much. We need a portfolio, and either we’re going to develop it ourselves, partner with others, or acquire technology. One way or another, we must achieve our mission, which results in make-or-buy decisions. In some cases, we know more about the marketplace than what currently exists.

Alison Schwanke, VP of Marketing

Fantastic. There are several questions about government contracts. Do we have any government contracts we are pursuing? What is the latest regarding some of the work you did on Capitol Hill?

William Li, CEO

So yes, we have contracts at the local, state, and federal levels, particularly on the stationary side. To be frank, the federal side has been frustrating. We were in the middle of conversations when the government shutdown occurred, which was not productive. We will restart those conversations, but that certainly was a setback. At the same time, the problem remains—military bases need to be hardened, and the 10,000 federal buildings still require improved security. The solutions we're developing, including partnerships with our friends at Palantir to integrate our technology into their FedStart platform, are major enablers for growing our federal business. But as I’ve stated, this is a medium-to-long-term process; significant growth isn’t going to happen overnight with clients that move very slowly.

Alison Schwanke, VP of Marketing

Regarding the K7, how do we think about its applicability for border security? Is it rugged enough?

William Li, CEO

Well, light-duty off-road capability is really important. We're looking into off-grid charging and autonomous charging, which is critical because you don't necessarily have power out in remote areas. I believe the Department of Homeland Security is considering a request for proposals regarding certain autonomous technologies to support our friends at CBP. So that’s definitely on our roadmap.

Alison Schwanke, VP of Marketing

Great. What about the ability for us to share K7 preorder numbers as part of future quarterly reports?

William Li, CEO

The key is we want to execute first and then talk about our successes. I think that's going to stay our course for now. We have heard a lot of interest from existing and former clients, and reengaging them is at the top of my mind. We wouldn’t build this if we didn’t believe there was significant demand. But as Apoorv mentioned, we want to ensure deployment before discussing actual numbers.

Alison Schwanke, VP of Marketing

Yes, there is currently a waitlist open. If there is interest, people can visit the website under the Autonomous Security tab or find more information on the homepage.

William Li, CEO

Knightscope.com/K7 or go to the homepage and you'll find a button to access it.

Alison Schwanke, VP of Marketing

Let's discuss how the K7, and the robots' lines, are made regarding components. How are the K components sourced relative to tariffs versus U.S.-made?

William Li, CEO

To be clear, we design everything; we engineer it, manufacture it, deploy it, and support it. For the majority of our products, if not all, we are Buy American Act compliant, and that is the strategy for these machines. We need to be cautious of other companies that import technology from overseas without proper cyber controls or point of origination discussions. We're being careful with that—this is technology built and designed in America to protect Americans.

Alison Schwanke, VP of Marketing

Let's talk about the facility we have here. We have a couple of questions on if it's possible to arrange tours for those unable to attend events.

William Li, CEO

We should set that up because we receive that request a lot. April 4 is probably the next time we'll have an event, coinciding with our 13th anniversary. We want to ensure the facility is set up properly for prospective and existing clients to understand and experience the technology. It's essential for them to come and see it in person, rather than just PowerPoints or Zoom calls. We will spend the next three to six months enhancing our new Knightscope headquarters and will extend an invitation to everyone.

Alison Schwanke, VP of Marketing

Robert has a question about our sales force. Have we reassigned your sales force to specialize in different industries, federal, state, etc., or local governments?

William Li, CEO

It's a mixed bag. We’ve found that vertical-only strategies have sometimes worked well. We've brought on a new director who specializes in local and state sales. As we're doing with new technology, no one has done this before, so there's a lot of experimentation. What works in one region may not work in another.

Alison Schwanke, VP of Marketing

Do you believe the new K7 will outperform our competitors? How?

William Li, CEO

What competitor? I'm kidding. To be serious, we're committed to making the U.S. the safest country in the world. We want to support anyone developing new public safety technology, new law enforcement capabilities, or physical security. We're confident in the K7 and its capabilities and are excited to bring it to market.

Alison Schwanke, VP of Marketing

It's essential to remember that substitute competitors and clients' perceived habits represent one of our biggest challenges.

William Li, CEO

The real problem is not the technology—it’s humans. Large organizations are resistant to change. I don’t believe it's new news—we have been engaging with the Department of Veterans Affairs for five years, trying to convince them they have budget issues, staffing problems, and security concerns. This resistance results in stagnant progress; hence, I am an advocate for a national robotic strategy to catalyze changes in federal agencies.

Apoorv Dwivedi, CFO

The adoption is uneven, especially in the safety and security world. The more people and industries that adapt to what robots and machines can do for them, the easier it becomes for us to present our value proposition. Otherwise, we are competing against the status quo, which can make sales challenging.

William Li, CEO

I think we shared with analysts this valuable insight: If you visualize a bar chart, the top three guarding companies in the U.S., each with about a third of the market share, generate approximately $30 billion in revenue and employ about half a million people. In contrast, all other competitors combined only make up about 1% of this, which has not changed drastically for a decade. This illustrates that people are inherently reluctant to change.

Apoorv Dwivedi, CFO

Yes, we have more than 100 total ASR devices in the field. The biggest challenge is adoption. We have early adopters renewing and expanding. However, we face hurdles where potential clients still need to become comfortable with the new tech.

William Li, CEO

When Ali first joined, I once lamented about struggles with certain clients. She challenged me to focus on those clients who renew for years—understanding why they stay. That's the mindset we aim to adopt.

Alison Schwanke, VP of Marketing

Some feedback from the field indicates we're seeing more acceptance of the technology's capabilities rather than just being seen as a novelty.

William Li, CEO

For investors, I think it would be fair to share that we analyzed financials regarding those clients renewing over time, and it's lucrative—aligned with our initial plans. We'll need to continue our approach.

Alison Schwanke, VP of Marketing

We have one question about overcoming the fear of robots. What can be done?

William Li, CEO

Congress asked the same thing. There are soft and hard solutions. The soft solution involves communication—hosting webinars, inviting people, and educating customers. For places we've deployed for a long time, people are familiar with the technology. The hard solution requires a national robotic strategy mandating federal agencies to allocate a specific budget for robotics and automation. This approach could shift the marketplace significantly.

Alison Schwanke, VP of Marketing

I'll group these two questions together: who will K7's customers be, and are the red/blue lights restricted to law enforcement?

William Li, CEO

There are no restrictions. A security vehicle may have those. We're not yet ready to disclose who the clients will be, but we will likely start with existing clients. We aim to conduct beta testing before a wider release.

Alison Schwanke, VP of Marketing

Do you envision any entry into the K-12 education market?

William Li, CEO

I struggle with K-12; our country can’t fund teachers adequately. Schools lack budgets for necessary tools. It’s a difficult situation that I believe needs to be addressed. We operate better in 24/7 environments, such as healthcare and casinos. K-12 doesn't run 24/7; this presents challenges for us.

Apoorv Dwivedi, CFO

Yes, ECD devices are the primary revenue driver today, contributing about 60% of total revenue.

William Li, CEO

We're focused on growth—blocking and tackling at our core. We plan to revamp the K1 lineup, but today it's all about K7.

Apoorv Dwivedi, CFO

The revenue recognition dynamics across both products vary. For ECD devices, we recognize revenue as a one-time sale, while robots recognize it over time. This means ECD device sales will have a higher percentage of revenues initially, but we're focused on increasing the recurring revenue from services alongside this.

William Li, CEO

Given so many competitors have struggled, what should we watch for that indicates the market is maturing enough for Knightscope to succeed?

Apoorv Dwivedi, CFO

Adoption will be a good indicator. Once the market reaches a tipping point where having an autonomous security robot becomes standard, that’s when we’ll have succeeded.

William Li, CEO

At some point, we’ll get to a stage where not having an autonomous security solution puts a client at risk of not being compliant. Eventually, it will be like you don’t build a new building without fire extinguishers or alarms.

Apoorv Dwivedi, CFO

Greg asks about our fourth-quarter income versus development expense investments. If expenses exceed income, how is it sustainable? Long term, it’s not sustainable if we don't drive growth and improve margins. Being a hardware company poses unique challenges, but once we scale, we can leverage economies of scale to boost our gross margins and improve profitability. Execution is key.

William Li, CEO

Over 12 years on these calls, we've heard we're out of cash, going to hit a wall, etc.—yet we’ve never missed payroll and currently have the most cash on hand. We’re positioned to execute our plans and improve gross margins. The leadership team is excited because we have a clear plan moving forward.

Apoorv Dwivedi, CFO

Investors want to know how Knightscope is helping early investors recover losses. Continuing to be investors. This is a long game. As we grow and improve revenues, margins, and execution, our share price will reflect that over time. The current price isn’t indicative of our accomplishments and is subject to market influences beyond our control.

William Li, CEO

We’ll continue to focus on execution and technology development, and we appreciate the long-term believers in Knightscope.

Apoorv Dwivedi, CFO

We're also examining the integration of drones for surveillance with ground units—this tech's future is exciting.

William Li, CEO

If we can define the nation’s first autonomous security force combining hardware, software, and humans effectively, we can change the landscape of public safety significantly.

Alison Schwanke, VP of Marketing

There are a couple of personal questions for you, Bill. How have you managed through dark times in the company’s history?

William Li, CEO

After taking a company public, the initial years were the hardest of my career, but I am motivated by making America the safest country. I've learned to work with an amazing team dedicated to this mission, and I'm optimistic about our path forward.

Alison Schwanke, VP of Marketing

We’ve had many inquiries about the K7. Could you provide us with a walkaround?

William Li, CEO

Absolutely, let’s discuss the Knightscope K7 autonomous robot, which stands in front of us. It’s not too small and boasts numerous capabilities. For autonomy, it’s crucial that these machines run 24/7 without issues. Thus, the combination of sonar technology, LiDAR, and various cameras is designed to ensure we can operate like a self-driving car. With these sensor stacks, we're learning continually through practical experiences in the field.

Alison Schwanke, VP of Marketing

Let’s ensure the audio quality for viewers is optimal. Testing, testing...

William Li, CEO

It’s equipped with a robust public address system to broadcast messages—either recorded or live. It can speed up to 10 miles per hour, designed for light-duty off-road formats, and suitable for various environments, including solar farms and borders. Additionally, we’re developing acoustic event detection technologies. More to come in the coming months as to how it operates and the notifications it generates. We hope to design the experience for clients, demonstrating the capabilities of the K7 in person as we prepare for upcoming demonstrations.

Alison Schwanke, VP of Marketing

Let’s wrap up today’s call. Any closing comments from you, Apoorv?

Apoorv Dwivedi, CFO

Thank you for joining us. We appreciate the opportunity to share our updates with you, and we look forward to progressing.

William Li, CEO

To close, our investors often ask why they should be interested in Knightscope. There are three core risks: market risk, execution risk, and technology risk. I don't believe there is market risk; crime isn't going away. Technology continues to advance, and we have a new strategy that will unlock our potential—through execution, I would place my bet on the Knightscope team every time. Thank you all.

Alison Schwanke, VP of Marketing

Thank you.

Apoorv Dwivedi, CFO

Thank you.