Earnings Call Transcript - KSCP Q4 2025

William Santana Li, Chairman and CEO

All right. Let's get going. My name is William Santana Li, Chairman and CEO of Knightscope. I'm here with our Trustee and CFO, Apoorv Dwivedi. We're going to do a little bit of a different format today. First, an announcement regarding this Thursday, then Apoorv will go through the 2025 financial results that we filed on Form 10-K. And then we aggregated a bunch of questions that have come in, including from the three equity research analysts, and we'll try to put that in a much more efficient approach to answering questions. So with that, I'll start it off: we're going to have our first annual Autonomous Security Force Day and also celebrate our 13th year anniversary in business. I often like to say we're here in Silicon Valley. There are 22,000 start-ups here. Ninety-five percent of them failed despite having unbelievable ambition, financing and the like. And for us to be able to start the company, get it funded, grow it, take it public, buy two companies and still be at it 13 years later is certainly a testament to the relentless nature of the Knightscope team. And I couldn't be more excited about our future as we build out the nation's first autonomous security force. So this Thursday, we're going to have several VIP private sessions for previews as to what we're building during 2026 and intentionally to get some market feedback, and then we're going to have an open house in the evening here in Sunnyvale at our new headquarters. And there's rumors flying around, there's going to be an ice cream truck and a bunch of other stuff. So hopefully, if you have an RSVP, please be sure to check our social media channels or newsletters, and you can grab a spot there. So that will be at 6:00 p.m. this Thursday. All right. With that, I'll turn it over to Apoorv, who will walk you through history, meaning 2025, and kind of what happened then. Then we'll talk a little bit about the acquisition and the questions and why all the excitement for 2026 and beyond. So with that, Apoorv?

Apoorv Dwivedi, CFO

Thanks, Bill. Good afternoon, everyone, and thank you for joining. I will begin with a review of our financial performance, first for Q4, and then the full year 2025, followed by commentary on liquidity and capital strategy. With that, let's jump right in. Q4 revenues declined approximately 9.8% year-over-year, due to delayed product shipments, primarily driven by supply chain constraints which we've talked about in the past that resulted in delays of ECD product deliveries. The services business remained materially unchanged. Gross loss of $1.6 million reflects ongoing margin pressure driven by elevated material and other input costs for production and by under-absorption of fixed manufacturing overhead. These factors were consistent with full year trends and underscore the need for improved scale and supply chain normalization to drive margin recovery for the company. Our operating expenses of $9.7 million in the quarter increased approximately $3.8 million year-over-year, driven by higher investment in both R&D and SG&A functions. R&D spending reflects the company's deep commitment to continued advancement of our next-generation platforms such as the K7, the K1 Capsule and the Signals software. SG&A increased primarily due to targeted investment in talent and organizational capabilities, which are critical to positioning the company for future scale and growth. Overall, the cost structure reflects a deliberate investment phase to support long-term expansion. Q4 2025 net loss of $11 million widened versus prior year due to a combination of lower revenue, continued gross margin pressure and sustained operating investment. The quarter reflects a near-term financial impact of scaling the platform, while revenue growth remains uneven. With that, moving on to full year. 2025 full year revenue grew approximately 4.9% to $11.3 million, driven primarily by the services revenue expansion in both the Machine-as-a-Service ASR offerings and our full service maintenance plans on the ECD installed base. However, growth in the product revenue was modest due to the already discussed supply chain-related constraints and shipment timing issues discussed earlier. Cost of goods sold increased by approximately $1.1 million versus prior year, reflecting higher bill of material costs and production variability. The lack of scale continues to pressure unit economics, reinforcing the importance of driving higher volume and utilization as we continue to grow. Full year operating expenses increased approximately 12.1% year-over-year, driven primarily by a $5.4 million increase in R&D investment compared to 2024. This reflects continued focus on platform development and next-generation products to support future scalability. The increase was partially offset by cost savings in SG&A expenses of approximately $1.8 million as well as the absence of $0.5 million in restructuring charges incurred in the prior year. This demonstrates progress in optimizing the company's cost structure while investing in growth. Full year loss increased to approximately $33.8 million. This reflects a combination of modest revenue growth, continued gross margin pressure and elevated investment levels, consistent with the company transitioning to growth. Weighted average loss per share of $4 decreased by approximately 63.5% year-over-year. Finally, from a balance sheet and cash flow perspective, we used approximately $30.3 million in operating activities during 2025, reflecting a continued investment to drive organizational scale. Importantly, we raised $42.2 million through financing activities, allowing us to strengthen our balance sheet and support ongoing operations. We ended the year with a significant increase from the $11.1 million, representing an approximately 83% year-over-year improvement in cash position. Looking ahead, our focus remains actively on managing liquidity through a combination of capital markets access, operational discipline and strategic initiatives designed to improve cash generation over time. In summary, 2025 was a year of foundational investment. We strengthened the liquidity position, continued to grow revenue modestly and made critical progress in evolving our business model towards a more integrated and scalable platform. While near-term financial performance reflects that investment phase, we believe the combination of our technology, software and now human-enabled delivery capabilities position Knightscope to pursue larger opportunities and improve financial performance over time. With that, I'll turn the call over to Bill as we go through the questions provided by our analysts.

William Santana Li, Chairman and CEO

Yes. Apoorv, I think there's some connectivity issues. So if you want to kill the PowerPoint and turn your video back on would be great. So while he does that, let me put things in context a little bit. We've been at this problem and tackling this issue of trying to see if we can make the U.S. the safest country in the world, utilizing technology, AI, robotics, electric vehicle technology, telecommunications, the whole gamut. And after working on the problem for over a decade, it's become obvious to me that the nations addicted to CCTV cameras, security guards and video management systems running on Windows and are unwilling to change or willing to change at a snail's pace. And so we wanted to try to be helpful to our clients to build a managed service provider that can take a lot of the technological burden, complexity regarding the technology itself, installation, IT, cybersecurity, keeping things up to date, making sure it's all operating off of a Chief Security Officer's hands and come with a go-to-market complete full solution instead of having this disparate set of widgets all over the place that don't talk to each other and the like. And an accelerant and catalyst to do that was the acquisition of Event Risk that we recently announced. And that's a transformative and strategic acquisition so that we can go to market as a managed service provider to actually fix the client's problems instead of doing the mix and match. And that's one of the reasons we're extremely excited about our future. We've been at this for a very long time. I've never been this excited and kid around with the team here. It's like I couldn't sleep before because all kinds of problems and stuff. Now I can't sleep because I'm too excited. So the future looks genuinely bright. We have a lot of contracts signed, and just focused very much on execution, both operationally and technologically. We've got a lot of new technologies that we're developing, and we're going to showcase some of that this Thursday. And the coming years are going to create literally a new kind of entity that has never existed before, a managed service provider that can be that nation's first autonomous security force. So with that, we got a bunch of questions in from a variety of folks, including our research analysts. So Apoorv, if you want to read off the first easy question, we can get on it.

Apoorv Dwivedi, CFO

Absolutely. All these questions are easy. The first one was basically, can you provide visibility on timing of supply chain issues clearing up? And basically, are any supply chain disruptions anticipated due to all the global conflicts happening across the Middle East and Europe?

William Santana Li, Chairman and CEO

I think there's volatility prior in the system, still in the system, and I would forecast going forward, we'll continue that volatility. So we need to better manage the volatility. Some of it has to do with tariffs, geopolitical instability, et cetera. Some of it has to do with an end-of-life component. And some of it has nothing to do with, hey, can you get the NVIDIA chip? It's the one specific resistor or button or what have you that ties up the whole thing, and it's not one strategic component. So this continues to be a whack-a-mole kind of problem that we're working through. We now have a supply chain manager and a team that's proactively working the issue. So we're starting to plan better, buy in advance, replace components, outright replace suppliers if needed. But to be on a cautionary note, we've had our struggles. I think we can try to minimize the damage, but a lot of it is not necessarily directly in our control. So we're working through the problem. I don't know if Apoorv, you had a different take on that?

Apoorv Dwivedi, CFO

No, I agree, Bill. I think the volatility is driven primarily by macro events. And I think we're doing a lot of things internally to mitigate as much as possible, right? The broader electronics market, in particular, continues to be volatile. There's longer lead times, tighter availability in items like compute modules, networking hardware, memory, et cetera. So I think those are some things that are just outside of direct control, but we are putting in place mitigation steps. So things like making sure we're not relying on single source, expanding our relationships to multiple vendors, making sure that we identify items that have the highest risk and making sure that we have enough of those in stock, which is an investment in inventory. So there's a lot we're doing, and we've been able to learn over the last few months that we're working through. I would say keeping supply chain and production in sync is important for us, and we'll continue to adjust as things progress. We do expect that versus prior year, this year, we'll have slightly better, if not much better outcomes as we continue to invest in supply chain and our relationships.

William Santana Li, Chairman and CEO

All right. Next.

Apoorv Dwivedi, CFO

Next question was on the move. Is the move to the Sunnyvale facility complete and up to operational efficiency?

William Santana Li, Chairman and CEO

Mostly. Mostly done. We have a little bit of a challenging landlord situation with less flexibility than we want, but we're working through it. One of the reasons we're having this Autonomous Security Force Day here is to showcase the progress that we've made since we've moved into the building. Still a lot more that we want to complete, but things are looking pretty good. I will confess that some of us are nervous that we're going to run out of space a lot sooner than we were planning, but that's a good problem to have in the coming quarters.

Apoorv Dwivedi, CFO

Next one is on the recent acquisition. Following the Event Risk acquisition, can you give us an estimate of how much your potential market has expanded? Do you have an estimate around the new TAM?

William Santana Li, Chairman and CEO

I've been wanting to do an acquisition like this for five years. The TAM that we actually put in the investor presentation, if you haven't seen the latest one, is at knightscope.com/america. That $230 billion is the TAM we're going after and it remains unchanged because this was the overall plan. I think this is an unlock or a catalyst for us to be able to go to market much more efficiently and much more aggressively. One of the enticing things in the coming quarters will be to see genuine accelerated growth versus the less than optimal growth we've seen to date. The idea may involve two different steps. First, we have existing clients from the acquisition and our legacy clients, and there's a significant opportunity to cross-sell technology or security agents between them, so there's that kind of literal synergy. Once that's done, we'll go to market together in specific verticals to bring a total solution. The TAM doesn't change; the amount we can capture from it and do so in an accelerated fashion is, I think, dramatically increased. If you haven't heard, the team is now well over 400 employees and we're growing at a pretty serious pace.

Apoorv Dwivedi, CFO

Yes, I agree, Bill. I think the way to think about it is not whether the TAM has increased, but more our ability to penetrate that and grab a larger piece of that market share faster is definitely accelerated. We've talked about this in the past where we've said, generally, when the RFPs and RFQs are out for security guards only, we were, for example, excluded from those because we don't have guarding services. We don't have humans. We're only technology. And then when we would try to go after technology-only RFPs and RFQs, again, we didn't have a full-on solution. So it kind of limited us a little bit. Now with the acquisition and being able to go to market in a way that allows us to provide that fully managed services or fully managed security services, it just allows us to go to market faster.

William Santana Li, Chairman and CEO

Yes. And a little bit more context for those newer to that conversation. There are, I think, rough numbers, more than 6,000 guarding companies in the U.S. that maybe have more than 100 employees, plus or minus. Our friends over at Lake Street helped us vet the first 100, and we came across Event Risk and Eric Rose. And a lot of special things about why we got so animated and excited. Having a combination of a serious operator who's been more than around the block, has been able to work in large established guarding companies, help train Navy SEALs, Marines, law enforcement and been able to grow and bootstrap an entire company unto himself with the team was an accomplishment in and of itself. If you add the growth, the continued double-digit growth that he's been able to enjoy over the past few years is another important bullet point. But another one is very interesting. The industry is 100% to 400% employee turnover rates. The Knightscope Security Force is at 6%, very laser-focused on recruiting, on recruiting the right people, providing them health benefits, providing them the appropriate training. And in our case, we're going to be adding a few more things. The Board of Directors kindly approved stock options for the entire team so we can also attract more people and keep the people employed and engaged and have them be part of the winning solution here. And we're working on some new technologies to add to those security agents. So in the future, you'll be hearing us talk about ASAs or augmented security agents that really don't exist today. And that allows all of that, combined with the stationary technology, the autonomous robotic technology, the augmented security agents, all having that data fed into our upcoming new Signals software platform. And our remote monitoring team is going to give us an unprecedented capability to properly secure a facility. And our security analyst that's remotely operating then now has machines to do things autonomously. They can escalate things to a different risk level to have some humans involved. And then there is a response element, both armed and unarmed. And that's unprecedented in the industry. And one of the reasons why we're in good spirits and more than rather excited about the future.

Apoorv Dwivedi, CFO

Question on the sales forces and how we mash them together. Two questions, and I'll combine them here. What is the overall sales pipeline expected for the ASR, the ECD and the Event Risk, or now known as the Knightscope Security Force business? And then what is the timing around being able to sell legacy Knightscope with the Knightscope Security Force services together?

William Santana Li, Chairman and CEO

I want Wall Street, the media and our own team internally to stop focusing on selling widgets — how many units did you sell, how many of this standard stationary device did you sell. What we really need to focus on is aggregate total revenue growth from providing an actual solution to our clients. Our overall strategy is to deliver a managed service, to focus on fixing the client's problems, improving outcomes, improving quality and improving service levels. Hopefully there are some cost reductions for the client depending on the location, but overall we should manage this much better than what's being done today. The important part is whether we are fixing the client's problems, not whether you sold an agent, 10 agents, 100 agents or 300 agents with a contract. That shift in focus is why we changed strategy — to force the adoption that's needed across the country. Most humans and most large organizations don't want to change. I told the Pentagon, DHS and Congress the same thing. This whole country does not want to change. Even in Silicon Valley, where you have a lot of engineers, when you give them electricity, fire and the Internet, in terms of AI the reaction is often, no thanks, I know what I’m doing. We need a different path to make those changes and to give some relief to chief security officers. If you put yourself in their shoes today, it's different from 30 years ago. If you're ex-law enforcement or ex-military, your go-to skill set is securing a property. Now they are being asked to talk about 4G and 5G versus private LTE versus industrial Wi-Fi, drones, whether a solution is cybersecurity compliant, whether the DoD accepted Impact Level 5, or if it’s a FedRAMP issue, and how a robot should work with a security guard. It's too much. You're asking a CSO to be the chief technology officer, the chief information officer, the chief information security officer, the head of facilities, purchasing and everything else, and then we wonder why it's not working and it costs too much. I want the whole team, external and internal, to be focused on top-line revenue and bottom-line profitability as we get there.

Apoorv Dwivedi, CFO

From a modeling perspective, will you be breaking Event Risk into its own reporting line item? Or will it be included within the services revenue? I can answer that one, Bill. Really, TBD. We're assessing the right way to reflect the Knightscope Security Force revenues and line items in the business. Most likely, though, we do consider it to be a service, and we would want to include that in the services line. However, there are some GAAP rules that we're evaluating along with our auditors to make sure that we not only provide the right level of disclosures, but the right level of visibility as we go forth and draft up our 10-Qs and 10-Ks.

William Santana Li, Chairman and CEO

And I think we missed part of the answer to the other question. The pipeline overall is rather healthy, let's put it that way. We're intentionally focused on execution as the primary driver. So changing the recruiting profile of the team, setting the standards of the team differently, changing processes, figuring out appropriate uses of AI for specific areas, building new technologies — everything is very much focused around execution because the pipeline is rather healthy.

Apoorv Dwivedi, CFO

Absolutely. Next question is, will you be announcing the contracts of the Knightscope Security Force when they are won?

William Santana Li, Chairman and CEO

I think that's also a TBD. As we mentioned during the sit down with Eric, if you haven't seen the interview, go on our YouTube channel. We want to take a thoughtful balance-of-the-year process to think through the branding, through IT, through HR, through finance, accounting, audit, technologies, et cetera, instead of rushing decisions. So that also applies to press releases, public relations, external affairs, government relations and investor relations. So something we'll ponder and think through as the company continues to mature as a premium managed service provider.

Apoorv Dwivedi, CFO

Next question kind of dovetails right into that, Bill. Can you provide a timeline for integration? How is the process so far? And are there any notable items to call out?

William Santana Li, Chairman and CEO

This is probably my 24th, 25th, or 26th acquisition; I've lost track. As I often say, doing the deal is the easy part for those who have been around the block. It may not seem that way for participants, but it is actually the easy part. The hard part is day one after you close the transaction. I will say it has gone a lot more smoothly than we expected. We have willing people who want to work together, who want to make changes, and who need additional support and adjustments. As I mentioned, the integration plan is to try to get everything sorted in a reasonable time frame over the balance of the year. In terms of priorities, finance, accounting, and audit-related items come first, probably dovetailing HR and IT at the same time. Finally, go-to-market, branding, marketing, and that sort of thing will come last. We are planning to be at GSX in Atlanta in September, so you will start getting more than a sneak peek then of how the integration is going.

Apoorv Dwivedi, CFO

Yes, Bill, I think being super deliberate in how we merge two organizations, primarily around culture, around go-to-market strategy and obviously, the back-end support needed to support the growth of the combined organization are things that we're looking at. From a timeline perspective, I think it will take a couple of quarters, if not more, for us to kind of get our hands around how we want to move forward as a combined company. We are looking at internally, some of the things you talked about. For example, finance first, just integrating the finance functions, then looking at HR, IT. And then finally, as we move into the client-focused or public-focused phase of the combined company.

William Santana Li, Chairman and CEO

Any outlook for any more M&A over the next year?

Apoorv Dwivedi, CFO

Last question, Bill. What are some key milestones should investors watch out for in 2026?

William Santana Li, Chairman and CEO

I can start. Maybe you want to finish, but I think the 10-Q we filed in the second quarter will reflect some of the activity from the security force side, and subsequent 10-Qs will as well. So keeping an eye on the regulatory filings starting mid-May will be important. Maybe some in the audience don't realize this, but usually when you make an acquisition there is a roughly 71-day rule requiring you to file the overall impact, so we're working on that and expect it to occur in the coming weeks, probably in May. That will be important because it will show whether the strategy is working and whether the company is growing and heading toward profitability. Second, technology. This gets exciting if you can build a significant competitive advantage in a large market with capabilities that no one else has. Watch whether beta prototype testing for the K7, which we're spending a lot of time on, actually occurred in the second half of the year. The Board, management team, suppliers and vendors are all excited, and the recruits we are hiring — go to knightscope.com/careers, we have a lot of openings — are eager to work on the K7. So K7 progress is important to follow. On the stationary side, we're unveiling the K1 Capsule and Super Tower this Thursday, so progress there matters. Also watch the Signals platform. Those are three public items to keep an eye on. Basically, two answers to whether Knightscope is doing well: is revenue going up, as shown by regulatory filings rather than press releases, and are we making serious progress on technology development that will provide a sustainable competitive advantage. Those should be the two key items to watch, unless Apoorv has another.

Apoorv Dwivedi, CFO

No, Bill, I think at the end of the day it comes down to improvements in execution and how that shows up in the company's financials and in how we are perceived in the market by investors, customers, clients and vendors. It's really about our ability to grow revenue, and with the combined company we believe this will accelerate. So look out for the second half to see some of that proof. Product launches and commercialization of the new products the team is working hard on will be important. And overall, hopefully, as we do these things the right way over the next few quarters, especially into the latter half of 2026 and through 2027, 2028 and 2029, we should see improvements across all of our P&L line items, both on the revenue side and through cost mitigation. That will be the sum of our execution, and if we do it right it will show up in the financials.

William Santana Li, Chairman and CEO

I've received many questions about what Bill, Apoorv and Mercedes know about running a guarding business. Keep in mind our approach is very similar to how a private equity firm would look at it: we want to buy a solid business run by stellar management, give them the tools, support and technology to grow, and give them the autonomy to do so. We found that in Event Risk. The management team is very strong and has been growing quickly. Client retention rates are exceptionally high, and employee retention rates are exceptionally high. We have real hitters we are betting on to continue growing the business. We will bring technology that ensures this is not a commodity staffing business driven only by headcount the way the industry has been run today. We are reimagining and re-architecting how physical security is delivered to clients. From our initial interactions with knowledgeable parties, prospective clients and people in the pipeline, we know we are on the right path. Our focus right now is heads down on execution. For the balance of the year, to wrap up, the priorities are technology development, growth, and finishing the integration so that 2027, 2028 and 2029 can be exceptional years for us. We are in great spirits. The market is still trying to understand what we just did, both on Wall Street and in the security industry, but the proof will be in the pudding. I am betting on this team and we are highly confident the future is bright. Apoorv, do you have any final thoughts?

Apoorv Dwivedi, CFO

No. Same, Bill. I echo both your sentiment and the team's sentiment in that we have a lot to do. We have a lot going on, and we just have to keep our heads down and focus.

William Santana Li, Chairman and CEO

Yes. Lastly, I want to publicly thank our Board of Directors and the management team for the support in doing this strategic acquisition. Again, I've been wanting to do this for half a decade and finally got the brave pill to do it. And now I'm just kicking myself that we didn't do it five years earlier, but this is going to be a lot of fun. So hopefully, for those of you that can join, we'll see you Thursday night for our first annual Autonomous Security Force Day. Please be safe. Thanks, everybody.