Knightscope Inc (KSCP) 2023 Q2 法說會逐字稿

Hello, everyone. We received a good amount of positive feedback from the first quarter town hall. So we plan to continue down this path of having a clear, easy-to-understand quarterly presentation followed by a frank and direct discussion.

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 directly with you consistently.

Of course, any and all figures presented today in this presentation or 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 all available for you at ir.knightscope.com.

All right. But before we get to the financial results, I wanted to cover 2 specific items. First, we did it. We successfully cleared both compliance efficiencies from NASDAQ, and Knightscope is now back in good standing with the exchange. I wanted to take a moment to thank all of our supporters as all of you are an integral part of the Knightscope extended team in helping make the long-term mission a reality. Without our investors, we can't move forward, but with our investors, hey, the sky is the limit.

Second, we are following through on our commitment to our investors that we stated on the 18th of July. Market manipulation, disclosure violations and tortious interference are serious crimes, Knightscope is conducting an investigation and is considering legal action in support of our stockholders. To that end, we have begun the process of filing a formal complete with the U.S. Securities and Exchange Commission in response to what we believe to be unethical and potentially illegal conduct against Knightscope and its investors. It's unfortunate that we're working hard to make communities in our country safer, but now we have to also deal with bad actors in the financial markets.

Okay. With that said, let's get to the numbers. Last year in 2022, we recorded 5.6 million in aggregate revenue for the year, reflecting an over 60% growth rate from the prior year in '21. For the 6 months ended June 2023, we booked approximately $6.5 million of revenue, putting us on an over $12 million annual revenue run rate well over double last year. That's right, not only double-digit growth over 2022, but literally potentially doubling the company's revenue by the end of 2023. As I often say, the rise of the robot is happening, and it's happening now.

Additionally, as of 30th of July 2023, the company had a total backlog of approximately $4.9 million, comprised of $2.1 million in new orders for related autonomous security robots or ASRs, and $2.8 million related to new orders for our portfolio K1B products, which include the K1 Blue Light Towers, e-phones and call boxes.

During the first quarter of '23, we recorded $2.9 million in revenue for the first 3 months of the year, and I'm pleased to report that during the second quarter, we increased our quarterly performance and booked $3.6 million in revenue and over 20% quarter-over-quarter increase.

Our ongoing efforts to reduce costs and improve our gross margins has also begun to take effect. We reflected a gross loss during the first quarter of '23 of about $0.2 million or negative 7% to now a gross profit for the second quarter of 9,000 or approximately 0.3%. Reaching slightly better than breakeven at the gross profit level mark is significant milestone for the company as we continue to pave our path to profitability.

On a 6-month percentage basis from 2022 to 2023, gross margins moved dramatically from a negative 62% to a negative 3%. A significant driver of this improvement is due to healthy margins attributed to K1B product sales and continued maintenance services across our installed base of over 7,000 units nationwide.

As we communicated last year, we believe that the acquisition of Case Emergency Systems will be accretive and we are pleased with the financial results posted for the first 6 months of this year. Our continued focus on decreasing our cost contributed to producing and servicing ASRs has begun to yield results. As we often stated, the machine as a service or mass business model create a unique set of circumstances. While the subscription model provides Knightscope with a predictable revenue stream, the technology we produce is not only highly complex, it also requires a certain fixed cost basis to operate.

But as we scale, those fixed costs can be spread out over more and more units and eventually provide strong leverage for our recurring revenue business model. As the company continues to scale, we believe additional significant margin improvements will continue as part of our plans to reach profitability by end of 2024. And to reiterate, Knightscope delivers a recurring revenue business model for a recurring societal problem.

Comparing the first half of '22 to first half of '23 on a per share basis, we improved significantly from a $0.26 loss per common share to a $0.14 loss per common share. As we prior noted, we plan to continue growing the company and we believe our sales pipeline is healthy and increasing sales will allow us to grow, drive economies of scale and better leverage our fixed cost base. Although not yet completely addressed, some of the supply chain issues have begun to subside, which we also believe will aid in reducing lead times, enabling us to improve cash flow and recognize revenue in a much more timely manner.

Our cash on hand at the end of 2022 was $4.8 million, and our cash and cash equivalents at the end of the second quarter of 2023 was approximately $5.8 million. Also, as previously disclosed, the approximately $6 million of convertible notes secured in connection with the acquisition of CASE were fully extinguished by the end of the second quarter of 2023. We'll now transition to the live portion of the town hall for questions from our long-time investors, new retail investors, institutions and analysts. Thank you.

All right. Welcome, everyone, to the second quarter town hall. If you haven't been on one of these before, let me go over some rules. So we're not tripping all over each other. So first and foremost, thank you, everyone, for taking time out of your busy schedules. We've got almost a couple of hundred people on the call here, and I want to make sure we get to everyone's questions. So we'll be sure to do that, and I'll stay here as long as you need me.

Second, obviously, we're a publicly traded company, and I'm an officer of the company, and I won't be providing you any material nonpublic information. And in compliance with ROR, good forward-looking statement disclaimers that were included in the video as well.

(Operator Instructions)

And then lastly, in some cases, I may not be able to answer literally the question that you're asking me for whatever legal reasons or what have you. So I might switch out the question a little bit or try to adjust this so I can answer it. And likely, I'm going to give you little longer form answers for the benefit of the group as opposed to a Twitter answer. Hopefully, that all works for everyone. The video you just saw we will put on our YouTube channel here after we're done, and then we'll post it on our social media channels as well.

So with that, we see -- we've got a couple of folks. I'm going to call on Barry. (Operator Instructions) Barry, you want to ask the first question?

Sure. Would love to get any insight you can in terms of cash burn for the balance of the year and next year? Or maybe in terms of monthly rate or whatever you can do to kind of give us a feel for relative to $5.8 million that you've got in hand right now what the burn rate looks like?

Sure. So obviously, if we're going to get to profitability by the end of fourth quarter of next year, that number needs to go down, down, down, right? So how do you get it to go down? The sources of cash, obviously, equity, debt or revenue coming in. So we're working on all those angles.

If you missed the Annual Shareholder Meeting, the video is available at www.knightscope.com/rise go all the way to the bottom. And I think it's Episode 9, I'm not mistaken. And we actually go through like how you're going to handle cash going forward.

I would direct you to the SEC filings. I believe our CFO included there a rough burn rate for the coming months of about $1 million a month. And we also have a bond offering that we're working on to -- that's nondilutive. You can learn a little bit more about that at bond.knightscope.com. We're going through the regulatory process to kind of move that forward.

Things are looking up. We're in a little bit of a difficult position earlier in the year, and I'm really excited that we cleared the NASDAQ notices but there's still a lot more work to be done. But hopefully, that answers your question.

Also, I will prioritize people asking questions face-to-face. The chat sometimes gets a little bit difficult. So I would ask you to please ask me the question directly, otherwise trying to go through the chat and let people in and try to answer your questions. It gets a little bit much. It's just me. There's no moderator. It's just you me and the telephone poll. All right.

Congrats on all the orders. And just if I -- it's very helpful that you press release stuff, so we can kind of follow up things and get a feel for how things are going. So I appreciate it.

Yes, absolutely. And then the next person will accuse us of sending out too many press releases. So you can't win, but we will obviously do that.

Mr. Edward Woo, got a hand up.

Yes. Thank you, Bill, for doing this format for us. It's very useful. I find it myself very informative. So thank you very much. I know it takes a lot of time. Congratulations on the quarter. Mine is a general question. Obviously, the news coming out of Maui, the wildfires emergencies is a major, major disaster.

What opportunities are there for Knightscope to be able to have some type of involvement with emergency preparedness for government organizations or other business organizations for events like this. Is there opportunity for Knightscope?

Thanks, Edward. And I'm glad you like this format as opposed to the boring, dial in the phone, answer like 2 questions and hang up kind of stuff. I'd like to be a little bit more direct with folks. I'm glad to hear that.

We had one person from FEMA reach out. I think the way I think about it is, how could we have been part of the prevention. A lot of our technology actually has thermal cameras on it, and we should be able to send out alerts a little bit earlier than others.

The way Knightscope is set up today, we're much more suitable, lucrative for us to go to a location that's 24/7 and deploy it and leave it. We're not yet in the business of event-driven type of things, either be it something horrific like is going on in Hawaii or a convention or a stadium or these kind of things where you just want to drop in folks.

I think over time, we'll probably build some technology, I have in mind that will be a little bit more portable. And I think for our newer investors, it'd probably be good for me to just spend 60 seconds on long-term strategy.

So our long-term strategy is to make the U.S. the safest country in the world. Criminals and terrorists can be anywhere. If we're serious about the mission, we have to be everywhere. And that means the example I often use is securing the underpass of a bridge is very, very different than securing the inside of a U.S. Federal Court House. Both still need to be done. And I think along the x-axis, we're going to have an increasing number of form factors of small, medium, large, and extra-large robots and machines that can provide that physical presence or cover that indoor, outdoor location properly.

And then along the y-axis over time, want to do a huge upgrade to be able to have all the machines be able to see, feel, hear, smell and speak. And I think as part of that, over the long term, we would have something that's more event driven or more responsive to some of the things that FEMA was looking for. In the shorter term, there are FEMA resources in our view, that could be better deployed. I don't test -- don't quote me here, but I think FEMA has something like 9 major warehouses. Are we using the right taxpayer dollars for the right security measures at those locations to do the monotonous work? That likely those humans and those resources could be better deployed in emergencies.

Gabriel?

Can you hear me? Perfect. Well, I just want to say nice to meet you, William Li. This is my very first quarter 2 kind of like -- what would you call this?

A town hall or a monster meeting that everyone told me not to do.

Exactly -- the Town Hall. Exactly it's flipped my mind. Maybe I'm nervous, I'm star struck. Anyway, I have jot down a few notes just so that I would.

Ryan, stop laughing.

Right. Okay. So here we go. I'm the new retail investor, I just recently put a little bit of money in, and I'm hoping to be on the team soon. I've been inquiring on LinkedIn on several of your posts. You're probably going to think I'm a spammer weirdo but I am looking for a technician jobs. I've worked with ADT. And I've also -- I can help you in accounts, I can help with the tech side. That's pretty much where I'm at.

That said, I'm not looking for a response right now, just throwing that out there. Also, I've been seeing on the job site. I'm here on knightscope.com. Let me just double check. The only 3 openings, state development operations engineer, product -- production assembler and QA engineer. Am I missing something? As one of those -- one of the positions that I'm looking for, say, like a technician training -- open to entry-level training or do I have to have some sort of degree to say work on your products? That's for some questions I kind of have.

Sure. So knightscope.com/careers. We try to only post the ones that we immediately need. I think a lot of recruiters end up posting stuff and go fishing basically, for a better way of saying it. We don't do that too often. We're the ones that are there, we have to feel like now. We're one of the key ones that we really need to -- now we're kind of scaling up. We're really looking for a QA engineers who is kind of holding up the process.

QA is troubleshooting, right?

That's -- so yes, we just fill the position, I think, that might have been suitable for you. But I want to caution you on the positive and the negative side. On the positive side, those job postings change often. So be -- sort of everyone listening in who has a friend, relative or someone that things change over time. Like any other company, we have turnover or we're growing or we're setting up a new department. So it changes often.

On the flip side, because we've got a majority investors here. In order for this to scale and get to profitability quicker, we have to be highly sensitive to head count because adding more and more heads is just more cost that we have to cover. And so over time, we want to make sure that the resources that we have in place, we're getting as efficient as possible.

Yes. And I just wanted to add that in experience of being at ADT as an account manager -- territory manager for 6 months, I believe, right into pandemic 2020, that was right when I left because of the new robotic stuff that's coming out. DIY, cameras, everyone's basically now trying do things themselves. Having a security background, where it works physical security, your robots, maybe not yours exactly, but robots are already displacing our jobs -- what I told myself was, I'm not going to be displaced. I'm just going to maintain these robotic security apparatuses whether they be a [basin] station or a camera system, whatever it is. So my thoughts is get into it now early. What would you say your...?

I have a different view, Gabriel. Again, we have a lot of new investors, which we're grateful for. Some quick math. The country has maybe 1.5 million security guards, about 1 million law enforcement professionals. So that's 2.5 million humans running 24/7. You can't triple shift the human, so maybe you have 600-odd-thousand humans at any given time, trying to secure 332 million Americans across 50 states, the math doesn't work.

So I have a huge pushback on the media, society in general saying that all these security robots are going to displace all these humans. I'm sorry, but crime and terrorists has a $2 trillion negative economic impact on the U.S. every single year. As I often say, it's a hidden tax, we all pay in blood, tears and treasure. And -- we are in our 46 presidents, the country is well over 200 years old and no one's fixed the problem. And part of it, no one wants to say it, we don't have enough officers and guards to do the job, which is -- it's that simple.

What we need to do is give the officers and guards more eyes and ears and tools for them to actually do their job. So I'm not in the club of we're going to displace officers and guards. There just aren't enough. There are other parts of the kind of robotic world that, that actually would be truthful. But I am in disagreement on this.

I kind of agree with you that there's not enough guard because they don't want to -- like at my most recent post at Adobe in San Francisco, which I have the schematic of, right? I can bring them over to you to show you proof that I was there. They have guards getting paid $25 an hour to just simply stand and entry check people with their badges. I'm sitting there, a guard getting paid $25 an hour, thinking, "I just want to die. I hate this job." So there are guards out there. They just don't want to do this robotic work.

That one is a fair point, Gabriel. If you look at the employee turnover rates on the guarding, 100% to 400%. So every 90 days or every 12 months, you got a new team because everyone gave up. Why? Because you didn't give them the tools for them to do their jobs properly. Right?

Or their job was a job for a tool and not for a human. So that's all I'm saying is I have the experience in the industry to know which jobs or which...

We're going to move on. We've got a lot of investors that have investor questions. So thank you for spending the time, and thank you for the kind interest. Brian?

Hey, Bill, how is it going?

A long time, no see. How are you sir?

Excellent, doing excellent. First, I want to congratulate you on a very nice quarter. First half of the year, what people need to realize is Knightscope, while you've had a long history, you're a startup. And during that, you're going to hit your bumps and bruises, but it's nice to see a ramp-up trajectory in revenue and obviously, lowering the losses as you rise.

You know what's funny, Brian?

Yes?

Tesla and SpaceX are still called start-ups is mindblowing to me. I don't know what year or what decade or what $1 billion we're going to have in the future of top line revenue that still won't be called start up. But let me take it, thank you.

I thought the Zuckerberg-Musk cage match that got called off was going to decide that. Anyway, we'll move on. I'm just going to kind of rapid fire a couple of things because we have 2 sides of the Knightscope business. There's the AI, autonomous EV, intelligent-driven robot side. And then obviously, the CASE cell tower.

Got to stop using the word CASE. We call it K1B.

We'll go with K1B. But I mean, it's all security, and it's all different layers. Any update on FedRAMP on government security clearance approval?

Yes, hurry up and wait.

All right.

For the rest of the group, Brian, because I think some people don't know what FedRAMP is. So we're 2.5 years now into a nightmare cybersecurity review with the U.S. federal government. And this is, frankly, not just a cyber review. It's loosely how you conduct business. Do you have the right controls, et cetera?

The process itself is somewhat complex. The multitude of parties involved makes it more -- even more difficult. I think I can say that all parties involved are actively working on it. And I'm personally still hopeful we'll get the ATO or authority to operate before the year is out. But we've gotten indications before.

And now until it's done, I don't believe anybody or anything -- but the need is there. Our sponsor, the U.S. Department of Veterans Affairs is still there. We're working through it. And I think for our medium- and long-term investors, this is a huge opportunity because the U.S. Federal Government is certainly a lot more than just the Department of Veterans Affairs.

Right. And I think it's significant because you're already approved on the General Service Administration, GSA schedule, I believe, which streamlines the procurement process for government to enter into contracts with Knightscope. But obviously, getting the cybersecurity or security clearance is paramount. Real quickly, because I know other shareholders want to ask questions.

Anything on New York? Any preliminary thing on New York? Or I mean it was phenomenal seeing the interims coming into the city as a former New Yorker. That's the city that doesn't sleep and that's a city that needs some crime prevention.

Yes. I -- my team and I have killed ourselves building this company from scratch over the last 10 years, and we've had a lot of ups and downs, but I got to tell you that police escort into Manhattan with the NYPD having us bring in all the robots at Times Square a few months ago was certainly a highlight for me. I mean it's like it was literally surreal. I still can't believe it happened. I don't want to say similarly.

But in a lot of ways, the city, NYPD and other government agencies are involved. We're all actively working on it. The machine that's due out to ship hopefully yet this summer to our client in New York City is patrolling and going through all its testing, and we're just waiting for the go ahead.

So again, similar to the federal government, we are hurry up and waiting. But everyone there at City Hall NYPD and the affiliated agencies are certainly all working on it.

Hey folks if you're not speaking, if you need to go on mute please. I'm going to mute everybody on. Brian, you need to come up.

(technical difficulty)

Are you still there?

Yes. And then real quickly, 2 last things is on the Hemisphere. I saw that a pilot was launched on that. Do you expect those to be shipping and deployed in third quarter or Q4? And I also signed up for the bond offering from the last meeting, but I've not received anything on that. What can you update us on the status of that?

So we've built a lot of K1 Hemispheres. We've got a major global hotel chain take the first couple. We rightly so wanted -- it's a brand-new product. So we wanted to kind of go put it out in the wild and see what happens before we start shipping some other ones. So we're kind of in the last bits and hopefully, here, we'll get the green light soon to start shipping the balance of the orders that we have from multiple clients across multiple verticals.

And then we'll start kind of pushing hard on scaling that part of the business. So -- for those of you who are not familiar, the K1 Hemisphere is our lowest price point machine coming in at $0.75 an hour. It's going to be very difficult for community leader and administrator, a school principal or what have you to answer the question, "Hey, if your people are your most important asset, why aren't you using the latest technology to help secure them? " So we're working on it. We're excited.

On the bond. For those of you who haven't gone through this process of using a Reg A+ Tier 2. There is a feature called testing the waters or TTW and that allows an issuer to kind of say, "Hey, we're thinking of doing this. Here are roughly the terms or what the facet of what we're trying to do. Is there anybody interested? "

At the same time, there's a bunch of regulatory nightmare paperwork that needs to get filed and there's a whole SEC, FINRA type of review besides all our internal stuff. So we've gotten a good amount of interest. So we're in the process of getting to roll that regulatory work. And then once the offering is qualified, we will be reaching out with all the details to all the people that have expressed an interest thus far. So think of it as a waitlist for those that would want to participate, and we'll certainly try to fill those orders first before sharing it with others like that. But literally, the work is in process.

Okay. Well, I appreciate it, and it's good to see that you guys are going to go after companies that set up a website and spread potentially false or misleading information. I know that takes away from the team's focus, but you have a fiduciary duty to protect the shareholders and to go after very misleading, very old information that is meant to knock down the stock price. And again, you've got to focus on being long Knightscope shooting the criminals and staying on mission. So thank you very much.

Thanks, Brian. Thanks for the question. Good to see you. Marco, next up.

Bill, how you been doing?

I'm vertical. So all is good.

Upward and onward, I guess. Actually, a couple of my questions have already been answered, but I do have 2 additional ones. So first question I have is, have we had any other significant interest in other analysts covering the stock? Obviously, we had the one from Ascendiant. We know what the rating was and what their price [power was]. Has there been any progress there with additional analysts covering the company?

I got to be careful how I answer that. I think I can say that I've been keeping numerous analysts up to speed since the public listing, small shops, big shops. Some funny conversations that I think I -- that one I probably can share. Yes, there are people that I'm keeping up to speed and hopefully, and I don't control these, and we have no financial entanglements or arrangements or anything with anybody else. So it's up to them when they decide if they're going to write something.

But a couple of little anecdotes that I can share. One particular analyst I'm excited about. He spent a lot of time in public safety and security and I don't have to spend too much time explaining. So I'm hopeful that he ends up -- his firm ends up writing something. I think the funny one for me was a different analyst. I was having a hard time where to place Knightscope, and I always find it really humorous, highly sophisticated investors sometimes do the dumbest things like we want outsized returns. It doesn't look like anything else, but you need to fit in one of these 7 buckets and it's like if you want outsized returns like it shouldn't look like anything else, it shouldn't fit in any bucket.

In the first place, like you have a logic problem. But they were trying to figure out like, do we put you in autonomy? No, no, no. We should put you in security. No, it should be public safety. No, actually, you should go into robotics. Actually, it should be in drones. Like they can't figure out like where to place us, which I think is hilarious.

But hopefully, that firm ends up picking up a spot for us and ends up writing something. So Marco, I don't control these folks. All I can do is continue to improve the financial performance of the company with the team and can keep telling our story till we're blue in the face.

That makes sense. It's just staying on point for long term as well to whatever you can't control. It is what it is at this point. So I guess part of my question was prior to the IPO, I know we've had commercials on CNBC and we've had guest spots on CNBC. Are there any plans or anything to do that? I know we have to be mindful of spending and cash burn rate. But has there been any interest from there to try to continue to tell the story on a more of a platform like that?

Hot button. So internally, that's been extremely controversial. I try, not always successful, but I try to be a kind of consensus builder internally as much as I can. But sometimes you got to kind of overrule people and just go do stuff.

The first time we ever did that was, I think, in 2017 or something like that. And then, everyone that could yell at me, yelled at me for doing that, and I still will do it again. So I would love to have the marketing budget to go do that, but I also need to be careful with the dollars going out because we really need to get to profitability.

The one thing that a lot of folks fail to understand on advertising in our case. You can get a two-, three- or fourfold return on investment. Maybe you get a client, a new clients, maybe you get to recruit, maybe you get an investor, maybe you get a chance to build the brand, right? And it's not just, let's just spend and did we get extra wire or not.

I think one of the more successful things that has worked, Marco, is the robot roadshow. I think we're getting close to probably 100 stops across the country or somewhere near that, certainly over 80. And that's gone really well because there's only so many Zoom calls you can do. There's only so many videos you can do is like, maybe a PowerPoint that you're going to go through. People want to come touch, see, feel, get their questions answered. And that was another controversial one. Like the teams like, you want to do what? I'm like, yes, we're going to get this huge aquarium, we're going to stick a bunch of robots on it, and we're going to truck it around the country. They were like Bill's lost his mind. And thankfully, the team went along, and it's worked out really well.

So we want to continue that, and that's certainly much more, in some cases, effective. But I always have the right to go do some fun stuff in the future.

No, that makes sense. You can probably combine the 2 potentially with a larger platform such as CNBC or a larger national global platform with a robot roadshow. I don't see why you can't combine it too.

So now you're trying to get me in trouble.

I'm just throwing that out there. I mean this is a comment that's technically not a question. But last question I had was with additional devices being added to our network and with -- now with K1B devices being added. I guess, -- what do you see as there's always risk to either hacking or compromising security into robots too. I guess, what are the chances on -- in this hypothetically, robots could either be disabled or shut down or not work the way as intended and what security, I guess, strategy is in place for the company to prevent that as the network grows along with the infrastructure?

So 3 or 4 comments, Marco. One is we typically don't spend too much talking about cybersecurity stuff in public because that in and of itself can be a breach. Just think about it. Second, one of the reasons we have a Machine-as-a-service kind of approach is we're -- those assets are ours. They're on our balance sheet. We control them as opposed to someone has a robot that they didn't want that they bought, and then they stick it on eBay. And now what's the likelihood that someone is going to take it apart and start messing with it, right? If we've got control over the asset, you can minimize the risk.

Remember, everything is hackable. Every major corporation, big, small, governments, everybody has been hacked. So -- but to say that would never ever happen is just not reasonable.

I think the third thing is, if we didn't have the basics, there's no way we could have law enforcement agencies as clients, hospitals as clients, financial institution as clients. So you got to assume we've kind of got the basics, right?

And then the last bit is back to the FedRAMP question. I'm hopeful that once we do get the ATO, when and if that happens, the authority to operate with the U.S. federal government, that is going to help with that question and also help with the incoming clients were like, well, you need to fill out our -- this literally happened -- 2,500 questionnaire cybersecurity survey.

And almost every client that we come across has some sort of survey for us to go fill out. And we're hopeful not always going to work, but hey, listen, the U.S. federal government is using it, exactly what other question or you think you're going to ask us after we've been through probably by that time, more than 3 years working on it. And a pretty penny spend. But I think those are probably what I can say publicly.

No, that makes sense. I just wanted -- just some clarification, if you can. Of course, if we can't say anything that obviously makes more sense to not say anything. No, I appreciate it, Bill.

Now we got trouble. Andrew. You're going to have to come off mute though.

Yes, sir.

There you are. How are you?

I'm good. I'm good. I'm happy to meet with everyone because I think some people don't realize this job is -- being the CEO, founder of any company is brutal. Sometimes, it's good to just talk to some normal humans and talk about...

Well, you have me.

So I don't know if you know this, but I'm a huge fan of Knightscope.

I've heard through the grapevine, Andrew, I don't.

Yes. So just about every single question that I had was already answered. So I'm going to expand on one. When the ATO goes through, I am not saying if, I'm saying when. The implications behind that, I would think, are huge. The government is no small outfit. So the potential for -- for every single aspect of that from the Army, Navy and all the ports and the warehouses. How would you be able to cope with a really large order? And would you be able to get the government to invest in the manufacturing of that order, so you don't have to fund all of the cash?

I certainly agree with the premise of the question. As a number of senior folks have told me, getting your foot in the door with the federal government is nightmarish. But once you're in, it's kind of hard to get kicked out. And I think we can genuinely help. I spent a lot of time with a lot of agencies and a lot of senior officials. I know we can help.

I also want to caution that as we've seen, the federal government moves on a different time clock. It just needs to be a little caution there. Manufacturing and financing, I don't worry about. First thing is we have financing facilities to get orders funded and the like. So I don't worry about that too much. I even -- I'll go as far as to say that because we're publicly traded now, we have a lot more different access to different parts of the capital markets to finance that kind of stuff. So that doesn't worry me. It's just work.

Second, today, we do mostly light industrial assembly of the machines. So it's not like we have a bunch of heavy equipment and conveyor belts and all those other crazy stuff that we need to go back in Detroit, when we would -- when I was helping build cars or whatever, it would take forever to scale up something, right? Because you got to go order and whatever tool is 9, 12, 15, 18 months. We don't really have that. What we need is warehouse space and labor. So I don't worry about that aspect of it, especially with the new fifth generation K5 that one today, the current production machine, you probably heard me say. It takes us 100, 120 hours to build one. The new one takes us less than 20 hours, and we're laying out a smaller assembly line to actually do this at volume.

This is Michael, Bill.

I'm going to mute everybody again. And Andrew, you've got to come off from mute. So I don't have a big worry and then not to be funny about it. The federal government acts very differently than the private sector. So we likely would have time to ramp up as opposed to you need to drop ship me 1,000 robots tomorrow. So I think we'll be fine. I don't worry about that too much.

Okay. Well, if you're not worried, I'm not worried.

It's only -- it's not -- it's only because -- there was a point in time in the company growth where we didn't know how to get from A to B, like I don't know how to do that. I don't know what innovation is required to do that. I don't know how to build that. I don't -- all the stuff, all the problems that we have, including new problems that can come up, it's people, cash and time. It's not like -- it's not solvable. We've never done this before. I've never -- in Detroit building a plant at less than 100,000 units a year is an anomaly. That's the weird thing to do, right? Plants 300,000, 500,000 is the normal thing to do. We get -- if and when we get to that part, that's well-blazed travel, well-blazed pack, I'll say.

You can solve anything. All it is, is a matter of time and effort. As a matter of fact, the license plate on my -- the plate on my other cars say I solve. And I have had that since about 1989.

What's the other plate, say, Andrew?

Knightscope. KNGHTSCP. Knightscope.

So for those of you on the call that saw the social media post of who texted me their crazy license plate in New York is Mr. Andrew here. I don't know who else is in Jersey, Connecticut, Maryland, California, Texas, like everybody's got to get their own plate, otherwise we can't get to work.

And now I'm saying, well, stock price has either just go up or just not go under because I am going to have people abusing me, but in time.

I have no idea what that feels like, Andrew.

I'm sure you don't. Okay. All right. Well, that's it. So upward and onward.

Andrea or Andrea?

Andrea.

Andrea, Nice to see you.

Nice to see you, Bill. So it occurs to me in looking at what you showed us in the beginning, it sounds like the K1B opportunity is the stalwart, right? It's the one that can be enormous, like every freeway, every government, every court room, everything that needs a stationary security issue posting would be able to be in that realm. The robotics that actually move and you take around the company or the country, those are the little sexy ones, right? Those are the ones everybody wants to see, how they work, all those things. But these things that could be stationed in courtrooms, universities, K-12, on the freeways, that sounds like it's the much larger opportunity for company. And if I'm understanding what you showed us just in the last quarter, that's a new product line, they exceeded the gross revenue for the mobile units. Did I read that correctly? About 300,000, right?

Yes. So the way I look at it is kind of what I said earlier, criminals and terrorists can be anywhere. I think when we're all said and done, I don't know if it ends up being a dozen, 2 dozen or 3 dozen different kinds of devices of all shapes and sizes that need to be able to operate both indoors and outdoors. And I think you're right, in the short term, one of the attractiveness of the acquisition was a very strong installed base. The 7,000 of these already in the network for us; second, the continued growth and the associated margins.

We said that the acquisition was accretive and it's certainly proving out. I think there's a bigger step that where I'm focused is those 7,000 inclusive of the mobile robots that will continue to grow over time, we need to do a major overhaul and upgrade of those. And that's where to me it gets really exciting.

The short term, yes, you're correct. It's going to probably kind of outpace the ASR side of things in the short term. But I think in the long -- medium to long term, doing a massive upgrade of the existing ones that are out there is going to be a very exciting business for us to think about and it's kind of combining the AI capabilities that are in the autonomous security robots and then some other things that we have planned.

And imagine that those 7,000 devices could tomorrow, I'm not saying tomorrow, but in the future, if all the 7,000 devices and growing are able to see, feel, hear, smell and speak and not just make a phone call or alert someone, the acquisition in an odd way to look at it was a little bit of a land grab.

So imagine I were to pitch you today, like, hey, we want to go put 7,000 of these devices across the country. There's a bunch of Department of Transportation, city council, municipalities, permits and licensing that we need to go do to go stick that thing on the side of the road or at that location. Right? You would say, Bill, you're out of your mind. It's going to take you a decade to do that.

Well, it literally took the acquisition that we made a decade or more to go build all that stuff out. But what if we could upgrade it and have that much more capability? That's where to me that gets really exciting. So I want you to think about both growing. And yes, there are going to be changes here and there.

And also just to note, on the robot road show, the K1B majority of those devices are also included in the robot roadshow. So we're not just running around with the mobile ones. But I think overall, I just want you to think about being able to cover every aspect and then there's probably -- not probably, there are numerous things that we could be doing that we don't do today if we had additional form factors and additional types of products.

But that's why some folks get animated and some folks get really annoyed with me when I say that I've got 2 or 3 decades worth of workload in my head. There is a ton of stuff for us to be able to do and why I think long term, we can, if we work together, build a $30 billion company that, in the end, it looks like -- I don't know, looks like a defense contractor and less of just a security type of device company.

So actually, I had one more question on that front because that was exactly what I was thinking about. Is -- is the FedRAMP approval that whole process once that is approved, does that then lead you to be able to have more military application and connection and even allow training to be done with military people on how to become employees in your workforce to help deploy these things? I'm just trying to understand how you can -- you clearly need something that can help you mushroom out your ability to service, install, maintain, if you're trying to go -- that 7,000 goes to 15,000 goes to 100,000. That's a mushroom.

I think I need to parse your question into 2 different answers. So on the recruiting side of things, we do have a lot of veterans on our team and likely will continue to do so as we grow. And in a lot of cases, it's a really good fit. So we'll continue to be honored having those that served -- continue to serve the country in a very different way. But I think that's complete and separate than the scaling sales side of things.

So to parse what you said, let's say, we get the FedRAMP ATO tomorrow. So obviously, our sponsor is where we're going to be focused first, the U.S. Department of Veterans Affairs. Each federal agency and all the alphabet soup folks each have the authority to either accept what the VA did with us or ask us to do something completely different.

So I'll go out on a [limb] and say, I don't know, the U.S. Postal Service, the Social Security Administration and maybe the Department of Interior, maybe NASA, maybe Customs and Border Protection, maybe the GSA and maybe the federal protective services likely, I won't say 100%, likely would consider at least accepting what the VA did with us.

Completely separate I think if we go spend some time with the Pentagon, FBI, NSA, CIA, they're likely to put us through a completely different process or have us amend what we did. But I think the first step is just to get your foot in the door because remember, a lot of government officials are, they're not risk-taking entrepreneurs, for those of you that are a little bit older generation, like it was always the safe bet to hire IBM, right, because you're not going to get fired because of that.

Well, it sounds funny, but it's kind of a little similar. I know that there are folks sitting there going, let's see how it goes over at the VA. Oh, look, they got a couple of dozen out in the VA, yes, maybe we're going to try and move in our department, that's likely what's going to happen, especially I haven't spent a lot of time with these folks. But hopefully, that more full answer gives you a better perspective.

Yes. I think Honestly, I see you as a nascent Lockheed Martin just in a different way in the security world. But Lockheed doesn't exist without government contract.

You heard it is right.

And what's really weird is we give the soldiers, the 2.5 million soldiers out there, every level of capability you might ever imagine and there's a Lockheed and Northrop with General Dynamics to build them whatever they -- a soldier needs in a theater of war. But on our own soil, we don't do that, and it's infuriating to me. Like you would never dare take a soldier out of combat, put them on some city street here and go, here's the number depends on (inaudible) pad, good luck, right? You would never tolerate that but that's literally what happens today. That's what we do to officers and that's what we do to guards. We don't give them the capability.

And what's really messed up is the Department of Homeland Security and the Department of Justice don't have processes and don't have federal jurisdiction over all these law enforcement agencies, there's 19,000 of them and 8,000 private security firms, and there's no equivalent of Lockheed going to build a bunch of crazy new stuff for these officers and guards. And that's the company that I believe personally is likely to be worth $10 billion, $20 billion, $30 billion, but we need -- it was a nightmare to get this company built over the last 10 years just to get it to this point but it's literally the first inning.

Okay. Now you've proven that this kind of stuff works. Now you're going to start scaling up and growing and with all the growing pains that go with it. But long term, I think the analogy is correct.

Thank you very much. I really appreciate your answers.

Of course. [Warren].

You've indirectly addressed the FedRAMP ATO. I just had another layer on to it. The implication has been that we are framing in terms of months, not years. Is that correct?

From what I know right now and what we've told the public markets, and we put in all our regulatory filings, we are still hopeful that we get the ATO during 2023. I don't have any other information that I could or would dissuade me from thinking that. However, I will put my own personal footnote on there. Because we've been through up and down left and right and everything else, like a deal is not a deal until it's done. So I'll believe it when it's done. But right now, that's our best planning assumption is legally the best way to answer your question.

Thank you.

Okay. All right. [FJ].

I know we've have talking about, I mean, Knightscope, for mainly, the first thoughts that are around this kind of Robocop, right, this kind of a masked Hollywood thing. And for Verhoeven, you were the real deal for the mask to, right? So just on a (inaudible). If you come to Hollywood, you are the real deal. So you mentioned about the robot road show that if people want to come, see and feel. This is on the notes that I took from your statement. Talking about (inaudible), okay? When it comes to public safety, a part of all these fairly heavy cybersecurity process FedRAMP requires -- my question is more, how are upper level federal government feels about the Knightscope product? My question is like, do they have seen it, did they touch it, how they react?

And the last question is like -- I'm not saying about the numbers itself in the process, but how they feel, how they (inaudible) public safety, everybody will bleed with have (inaudible) head, right? So question to be more straight when I talk about, for example, upper level of federal government does, for example, President Biden, he knows about Knightscope mission, he knows about the product hub. I mean, how is about this feeling with the upper level Federal government? Do you have anything to share with us?

I can tell you a story, but I'd like to caution with cabinet members or people in the White House don't make these decisions. So you need not kind of be focused there. You need to focus on the person with the pen or at the keyboard that can actually stroke a contract, right? Like this having us go a lot -- and in my prior life, I've had more than enough people like cabinet-level position advise me and help and I spend a way too much time in D.C. So I kind of know how it works to an extent.

Probably the best way to answer your question is with a little story. So we spent more than 2 years talking to alphabet soup of federal government agencies, Chief Procurement Officers, Chief Security Officers, people and facilities, TSA, FBI, the Pentagon, Customs and Border Protection, U.S. Postal Service, Social Security Administration, federal protective services. So Federal Protective Services, they have 15,000 officers and guards that tried to help secure the 10,000 federal buildings that the GSA manages. And this is not like one conversation like we've spent a lot of time.

And to me, the most humorous part that happened, but also answers your question was after spending a couple of years with all these folks on Zoom calls and talking and e-mails and this that and the other thing, we literally sent the robot roadshow to Washington, D.C., put at the Ronald Reagan building and had a bunch of folks from Congress and several agencies come and touch and feel. Actually I think we might have done this twice.

Twice. Yes.

Thanks, Stacy. And though I can -- how do I express this. It's hilarious for me to see a bunch of very professional, conservative in the kind of a normal use of the term, buttoned up, ties, everything, all very serious come into the pod, see the robots, and we're on the screen. So we can, hey, nice to see you again, what do you think? And not 3, 5 minutes later, they all turn into a bunch of little kids. It's like, oh, time for robot selfie. I can't wait to show my family. I can't wait to show my kid and it happens all across the country, and that's why we would keep doing this is because you might have heard me say before, Hollywood has done as a service and a disservice over the last 30 years. People's expectations of what the robots can do or what they will do to us is up here somewhere. Reality is like down here somewhere. And the easiest way for this to go well is to just simply introduce yourself properly. Hi, this is what we do. This is why they're here. Do you have any questions?

And when I had the discussion with the folks in New York City, probably the strongest counsel we could give them was you can't just drop a bunch of robots in the city and think it's going to go well, you're going to need to introduce the concept to the media, to the community leaders, to the folks in government and other agencies and to the officers on the ground. And then once people get a chance to meet the robot, like, okay, it's not going to bite me, it's not going to attack me. Oh, I understand what it actually does. Oh, that makes sense. All in favor, right? But if you don't do that step, you're going to cause all kinds of problems. And so we get criticized for having this robot road show going around the country and people don't understand this because they've never -- no one in the history of mankind has ever done this before at scale, ever. We're in uncharted territory, you're asking an entire country to change the way the entire public safety, law enforcement and security apparatus works.

You're not going to undo that with like a PowerPoint and a Zoom call. And so long-winded way of saying you've got to have a personal touch to this in order to effect change. And that's literally what we're doing on this call today, right? Most publicly traded companies, microcap, nano cap companies. You do an investor call like this, you get 10 people show up, 15, 20. When we started this call, we had 200, 300 people sign in, like you have to be able to communicate and answer people's questions so they can better understand and change how they feel exactly what you said about the technology.

Well. I mean I would have 2 other questions, but in respect to the other colleagues here and also the time, I'll put myself here.

Absolutely. I've done dozens of these. So there's never a last question. I will stay here as long as it takes. So [Francis] can go next. And thank you, [FJ].

First of all, may I explain the difference between human guards and robot guards to the audience. I used to run 200 guards in Chicago, in the Chicago suburbs was my first year in the business. So I got a pretty good stand in post education. Human guards are basically, if you have a good human factor management last 20 minutes of every hour, they need that time to recover enough strength to get through an 8-hour shift or if need be a 12-hour shift or some time, say, 16 or even 24 hours shift if the sleep doesn't show up. So 1/3 of the time, they are not patrolling -- for standing guard persons this is not a problem. But what the K5 does is it patrols. So K5 has an inherent advantage over a human guard in that respect, but it cannot make a decision. It's not smart, while we are.

Right [Francis] We've got a lot of folks with their hands up, do you want to get through with your question?

You want a question? Okay.

Yes, if you can get to your question, would be great.

All right. What's happening with the Scout program?

What's happening with the scout program? Actually, Stacy?

I am here.

So Stacy, if folks haven't met, is the Executive Vice President and Chief Client Officer has joined the call unexpectedly, but I'm going to pick on him to answer the question.

Perfect. So thanks for the question, [Francis] you and I converse quite a bit actually on a regular basis. So for the rest of you who are unaware, the Scout Program is essentially a referral program against anybody who has contacts in places where they may be of influence to an end user, gives you the opportunity to capitalize on that to the tune of $1,000. If the connection with that person leads to an actual contract. And so we have had in excess of 100 people sign up for the Scout Program. I'd say probably a couple, 2 dozen of them have provided leads that we can actually follow up on and to date, to my knowledge, unless I think Mallorie is also on, unless she knows of one that I don't, we've not yet closed one of those sales. So what happens is, it's not a sales program.

We're not looking for people to go out and cold call people and communicate what the Knightscope mission or goal is or what our products do. It's, hey, I've got a friend, he's the Chief Security Officer over at X Shopping Mall or business, I was telling them about you, I'd like to make the introduction. And then you sit there and continue to poke your friend and say, "Hey, did you get those robots yet, you get those robots yet until they decide, Okay, fine, I'll give it a try, and we'll sign a contract. But that's kind of where we are with the Scout Program. It has actually yielded some leads and some contracts that we can follow up on. But it is not converted into a sale yet, to my knowledge.

I think in order to be fair to those that are trying to help the sales process is kind of normal B2B enterprise processes. I don't want to say, on average, but you're probably in the 3, 6, 9, 15-month type of time frame to get a deal done. And there's a lot of things that go into that. But for those of you that have signed up those additional warm leads helps us continue to grow. So we're thankful for that.

Actually, Bill, if I could, real quickly, so just to put an exclamation point behind what you said. A lot, [Francis] and you, in particular, have given us some of the bigger institutions to follow up on. We just had our second big major meeting with a large city, and that relationship actually originated in 2014 and we have gone through now literally 2 generations with that city because the person who brought us originally, his son is now leading the effort now in that potential client. So those bigger opportunities take vastly longer, especially if you get into governments or city governments, local governments and the like. So they will take some time, but again, those leads are incredibly valuable.

I think to finish that up, one thing that, hopefully, the numbers reflect were gotten more into a rinse and repeat mode in terms of the overall marketing and sales process where years ago, that was not the case. So we're fine-tuning and things are starting to pick up as you've seen through the numbers.

All right. [Darryl] ?

Second question, second question?

Sorry, go ahead.

What's your next acquisition?

Not something that we would but nothing to announce at this time. We have nothing to announce at this time. And the strategy remains the same as when we went public. And we think over the long term, the company in order for us to reach our goals is going to need to grow organically but also through acquisition. So I've now bought probably 2 dozen companies in my life. The first one that we did last year has proven to be a good solid one, and we're always shopping. I think a different way to answer the question would be what are we looking for, certainly top line revenue that's going to be exciting for us to accelerate our client development. It could be a technology in some cases, rarely, but a possibility it could be, I don't know, an acqui-hiring type of situation, but we have nothing announced at this time.

[Darryl]?

Yes. In early July, we saw a very significant increase in the value of the stock hitting a high of almost -- or a little over $2, I think, at one point. As an investor, of course, I was very pleased with that. But in your opinion, what do you think drove that big spike?

I think if you missed it, I would encourage you to watch the Annual Shareholder Meeting. I think I spent maybe a little bit too much time explaining what goes into a stock and what may or may not contribute to things. So if you haven't seen that, I'd encourage you to go check it out. knightscope.com/rise at the bottom, I believe it's episode 9, whichever one it says the annual shareholder meeting that we had last month. And I literally go through in detail because a lot of investors of ours don't know how this works or what could provide pressure and what can provide upward support, so I'd encourage you to go watch that. Its probably not a good idea for me to comment on what I think specifically made some changes for that particular time period.

But in general, I think it would be okay for me to say that kind of what positive things happened. Well, roughly during the summer, what happened? Well, we paid off extinguished $6 million worth of convertible notes that were somewhat controversial for a lot of folks. And in our view, those conversions were putting significant downward pressure on the stock. I think having our first analyst cover the stock also helped. I think us continuing like clock work every week, I think almost every week, 1 or 2 material announcements I think we probably made well over 50 major announcements in 2023 alone, probably did some good announcing new deals or technology. We announced the automated gunshot detection capability that we're hoping to release during the fourth quarter certainly contributed and I think we're spending frankly a lot of time through these town halls, communicating what's going on and having support from our investors, the simple math is more people buy shares, less people sell the price goes up. I mean, it's not that complicated, but it also can be very complicated.

So not commenting on that particular period, but in general. I would encourage you to watch that video and it will give you a little bit more detail.

Great. I was also really excited to see K5 deployed in a local home improvement store I shopped at. I was patrolling the parking lot and I saw that it was like, I know what that is, but...

That happens a lot more these days, which is, I think, exciting for all of us because in a lot of cases, we haven't met personally or you haven't seen a robot in real life and then to make an investment and then see that in the real world like holy cow. And I love getting those e-mails and texts and messages and what have you, people doing the robots selfies and what have you is invigorating. I mean it's very cool.

Great. Thank you. I appreciate your time.

Of course, sir. [Tash C]

I have a question about competition. So I'm not super familiar with the securities tools industry, but I know that there are several larger technology companies. They're also working on robotic solutions for different purposes, some -- including some very well-known companies. So I wonder how you think about your -- think about your competition, both current and future because would -- could that be -- could there be a scenario where other companies with larger resources have a robotic product that can be -- even though they are not currently deployed in the securities industry that can be also multipurpose into -- into providing the similar products that you are providing. So how do you think about that?

It's already happened and they failed. That is the easy answer. So back in -- I'll give you a story just to make the point. Back in 2013, when we started the company, we pitched our hearts out to have Sharp Electronics, the TV maker actually be a strategic investor of ours. After the meeting, they didn't return any phone calls, no e-mails, nothing, went completely dark on us. A few years later, I think it was in 2016-ish, I show up at a security conference and there is a Sharp branded outdoor security robot. Sharp had invested over $35 million to build a product to literally compete against us. I think after all that, they sold one to the Indianapolis Motor Speedway. In 2018, they fired everyone, shut the division down, weren't able to get it done. And then my inbox at the time was full of Sharp resumes.

There's been 1 or 2 more other corporations that have attempted and have failed. I think there are 2 complexities to think about. One is the technology, like I often say this and maybe what I just said makes the point. What we do is technologically extremely difficult. Go look at the Bloomberg article from earlier this year about self-driving technology in autonomy, $100 billion going into the sector, 200-plus companies working on it and no one shipped anything. Like literally 200 teams working on something and nothing came out. Maybe it's hard.

We've now operated more than 2.3 million hours out in the field and across an entire nation, probably 7 winters and 7 summers or something like that. So we've got a lot of experience, and we can tell you from first-hand experience that this is not easy to do.

Could it happen and someone successful? Sure, hasn't happened yet. There are a few smaller partial competitors that are trying some sale, but have been unable to. I think a different way to answer your question is what primary competition do we see today as opposed to something in the future. In a weird way, depending on the location, sometimes it's manned guarding is probably the one we're up against most of the time, which is do you want to pay the guard $15 to $35 an hour or unarmed or an armed guard $85 an hour to patrol the area? Or would you rather have a remote monitoring setup with a robot to do that for $7 or $9 an hour.

In a small number of cases, sometimes people think that fixed cameras will fix the problem and then they realize that, that doesn't actually work. But right now, those are the primarily kind of immediate competitors. Could others come and try to do it or be my guest. And I think the last comment and I say this in all seriousness, we want to make the U.S. a safest country in the world. I think every American should have the right to live in a safe community and the same country. We, as Knightscope, with that mission should applaud, support and certainly not speak ill of anyone else trying to work on security, public safety or law enforcement.

[Murray, Wiggans] you're up.

Hi, Bill. Pleased to meet you. I've missed on some previous town halls. This is my first time with my wife and I, we both invested I believe it was with StartEngine a few years ago, and I'm glad that we did. We have the good opportunity to see actually one of the robots in action at a parking lot in New Jersey about a year ago.

Looks like we too.

Yes. My question to you is, is aerial surveillance in the cards at some point? Or are you going to add drones?

I think if you take the -- I'm going to annoy some people, the multi-decade approach, the answer has to be yes, you're going to have to do air, land, seas. In the short term, I'm pretty pessimistic about that. I'm going to spit out a bunch of issues, and there are folks working on this. So I don't think that they're not working on it. But until these following issues are addressed, it's unlikely that we'll have that kind of approach. One, drones have a flight time problem. Most of our clients want 24/7 depending on how much you want to pay, you're going to pay -- can stay up in the air 5 minutes or 50 minutes, but that's a problem. Autonomous recharging consistently with a low-cost profile folks have worked on still need some work.

Data transfer issues can be problematic. A lot of our devices are stationary and still have telecom issues. How many times are you on the phone? Like can you hear me now? Can you hear me now? -- imagine running a robot 24/7 needing access to consistent telecommunications. Sensor payload is a problem. Like maybe you can put a camera at best. There's not enough energy on the device to be able to handle anything more than that. And then you want to make it worse. You want to do some AI or edge on compute at the edge. Again, you don't have enough juice to keep the thing up in the air. You're not going to process much there.

And then lastly, in most cases, it's illegal to fly. So other than that, it's all good to go. So I think once all those get addressed, it is likely a drone would fly out of one of our machines when needed, as opposed to -- to me, I might be wrong here, but to me, it's not a product or a company that to me is a feature.

Yes. That's what I was thinking is not, say, flying full time but getting scrambled if there's an indication from the ground robot saying, okay.

I need aerial reconnaissance right now.

Yes, exactly.

Okay. Thank you for the insights. I appreciate it.

Of course.

Continued success.

[Brian] is back for seconds?

Bill, I just thought on a couple of things. Let's go. In the presentation, you -- you talked about having a backlog of orders, which is actually a positive thing. So it's basically unearned income. Are you guys kind of cutting through that as supply chain issues ease up? Basically, that's all be booked revenue once they're deployed. So where are you at on the backlog?

Yes. So 2 or 3 points. One, yes, we're making progress on the backlog of getting stuff out. Some of the supply not all. Some of the supply chain stuff has gotten a little bit better. But the sales team keeps putting more in, you were like what is it the Lucile Ball like at the -- with the chocolates or whatever, like it doesn't stop, it just keeps something. In theory, right, one -- unless we do the following, the backlog could end up increasing, right? Because if you want the revenue to keep growing over time, having a significant backlog could be great.

I think one strategic move we'd like to do and why the balance sheet is important is I really would love to, I hate inventory for lots of reasons, quality issues, accounting issues, whatever. But in this particular case, it would be so much better to have the financial wherewithal to build a month ahead, 2 months ahead because then we would have the ability to recognize revenue that much faster, right? Why have a client waiting months for their machine.

But I spoke during the Annual Shareholder Meeting about the negative impacts of not raising enough capital during the public listing. And that was one thing that took a hit which is we're having this backlog situation, which in a lot of ways is a great thing, like the -- I won't have a question about demand for what we're doing, like we've got millions of dollars of orders waiting, but from a cash -- from a turn standpoint, from a rev rec standpoint, it would be -- I want to get us to eventually an ability to get an order shipped in a couple of weeks instead of a couple of months.

And let me just follow up. As kids have gone back to school, are going back to school and will be going back to school, K through 12, colleges and universities, I can't think of a parent that would not want to protect their children at all costs when they're at one of these institutions. How do we get more installs in schools and higher education? And overall, what are some of the barriers to entry because you're not selling a $100,000, $200,000 machine. It's really a service. So how do we get more schools installs? And what are some of the various barriers to getting the product deployed?

This is definitely a hot button for me. Similar to the Department of Justice and Homeland Security, I've known federal jurisdiction over the law enforcement agencies and the security companies. The Department of Education, they all have obviously some relationship and what have you.

But as a country, I don't think anyone on this call would ever dare raise their hand and say, yes, we pay our teachers properly and every school has all the supplies that they need. Like it breaks my heart to see like fundraisers like, we need to go buy books. I mean are you freaking kidding me, right? So you can't pay the teachers properly. Some of the schools are falling apart, you don't have enough supplies, but you should buy like this 6-figure or 7-figure security solution. The system is kind of broken.

So we can sit here as Knightscope and whine about the situation and complain and go lobby Congress and the Department of Education or maybe we take it into our own hands and see if we can show some leadership and drive the tens of thousands of supporters that we have to go make a big difference.

And to answer your question, Brian, to me, my personal view, the fundamental problem is cash. How if a school can't meet their budget, are you going to show up there and go. Yes, we should put like 10 K1 towers and 3 K5s in the parking lot and every floor should have a K3 and there should be a hemisphere at every single entrance. Like where are they going to get the money to go do that?

So I've given the team an assignment, I have a particular view on how to fix the problem. And if I can get the lawyers and accountants to play ball, and if I get my way, -- we'll make an announcement and then see if what we think could work to help the situation does work. But to answer your specific question, it's a money problem.

Just keep plugging away.

All right. We're at 95 minute mark. I'll keep going if you want to keep going, but anyone else have any other questions? I'm scared to look at the chat. Stacy, let me know if I need to answer something from there.

We're good to go.

We're good to go, you handled all alone.

I tell them to raise their hand or where I could I answer questions.

[FJ] is back for seconds.

Yes. Yes, I am. As you have room for more questions, so here I am. So you mentioned about...

Where you're from?

Well, I'm here in Houston, Texas. Yes, but originally I'm from Brazil.

[Foreign Language].

[Foreign Language].

[Foreign language).

Past 10 years. I mean I love the country, okay? So fortunate that I have here, also have a newborn coming next week. So I mean, the mission, the company mission is very tied to my heart. I mean I have a bunch of money. I don't have 7 million stocks (inaudible) although I would say I'm almost closer to 0.5 million, right -- of stock. So we say, I mean, I truly believe, and I want to support. But my point is here, you mentioned a lot, I mean, maybe one of the issues is really the money, right, the cash. I mean you actually combined, which I mean California is a rich state. There is a lot of tech big companies. What about partnership with maybe philanthropist companies? That, I'm talking about more in the education what Brian mentioned, right? I mean, get the kid safe, some kind of the association that could be maybe finding the products that Knightscope can do? Is there any kind of a partnership going on that maybe you guys are trying with people in Silicon Valley, other companies? So even tax relief for further. Anything that you can share about this one?

Not just yet. But if what I have in mind works, then maybe what you're considering or suggesting, what I get set up could facilitate that. But nothing we can announce yet until the study is done, and we actually do a test or 2. But I -- I think it's incumbent upon us to not just show technological leadership. If you're, again, serious about the mission, you're going to have to do sometimes the irrational, illogical, dumb looking or stupid things to do, just enforce the outcome that you want.

And that's the difference between the Knightscope team and everyone else like we're serious about this. We put 10 years of our life into this. Like if you want to doubt our intentions, like it's not a good place to go. So it may not work or I might not be able to get it through the lawyers and the accountants and we'll figure it out. But I hope that what we have planned works and then if it does, we're going to need everybody on this call and all our supporters to help us scale it and make it work.

But we'll do I'll promise you this, how about this? If I get it through the relief regulatory, legal, financial process and have a plan, we'll do a specific town hall on just that subject.

Will be very appreciated. I am looking forward and anything that, of course, I can help put myself on the way to support the missions.

[Foreign language). [Kevin Heinz].

Can you hear me?

There you are. Go forward.

Okay. Sorry. I saw somebody ask the question and I remember here in this mentioned or [Brad] had mentioned somewhere about the potential investigation on short activities. So I just wanted to pass that along or see if you could touch base on that. If that makes sense?

I give you the professional answer and then the personal one. Professional answer is, as we stated in the presentation earlier, we have filed a complaint with the United States Securities and Exchange Commission. And we hope that the SEC takes action. We believe some party or parties have conducted themselves certainly unethically possibly illegal. And if it is the person that we believe it is, they're in serious trouble. But that's one of investigations for it to kind of get to all the facts. We have tens of thousands of investors. I work for you, and I need to protect you and I'm not going to have on my watch, that kind of nonsense going on.

So to delve to the personal side of things, today, it is legal to short a company it is illegal to make a short a company if you're...

That's part of what I was wondering if that's what it was. Just out of curiosity, I don't even know if there's a way that you can tell whether it's make it or not, but...

Yes. That also is a problem with shorting in total. But the personal problem I have, Kevin, is listen, whereas -- I hope everyone takes us at face value that we're trying really hard to fix a really difficult problem for all the communities across the country for all Americans, red, white and blue, left, right, middle, upside, down, it doesn't matter. And so you're -- not you, but that person or parties or fund or anyone out there shorting the stock, make it or not for a company that's building products in America for Americans and is in the national security interest of the United States of America, you're literally placing a financial bet against the company. Like you need to make better life choices. Is that really what you should be doing to help the effort?

And that to me is, I'm going to censor myself because I go off on a tangent here would be not good. But that, to me, is not appropriate. Is it legal to short a company? Sure, I don't necessarily agree. That's a great thing to do. Like if you don't like the price of something at Target, do you just not buy it and walk out the door? Or do you try to burn the place down? I mean it's like ridiculous type of financial instrument, but okay, fine, it's legal today to make it short, and you don't have the shares borrowed properly and then you go do this kind of nonsense like you're going to get caught. And so we may or may not be successful in our investigation, but I owe every single one of you, at least the decency to attempt to act in your interest and if it's more than 1 party, we'll continue at it. But I'm not going to sit here and take a punch and not punch back.

Yes. I appreciate your comment on that. I know there's probably not a whole lot you can do. And I agree. I think it's a pretty dirty and unethical way to make money, but I know people have always, you've always had bulls and bears and whatnot. But yes, thanks for addressing that.

Of course, of course. Francis?

Yes, Bill, I am a sort of a professional investor. It's illegal to sell stock, you don't own. That's what make it shorting is. And you can tell the morning volume when you get like somebody dumping like 15 million shares, I don't think there's much out there in the float. That isn't being held for long term like mine. I now own 10x the amount of shares I originally bought in [Maxpro] and I haven't sold any yet. The last time I bought I was buying at $0.38 a share, and I think I'm feeling pretty good about that. So -- it's called dollar cost averaging.

Oh yeah, stock goes down buy more...

It important that stay all day long.

Spencer?

Been with you guys a long time. Very excited about what you do. And so my question is the complaint filed with the SEC publicly available, can we look at it?

I'am going to mute everybody Spencer and then if you can come off the mute. The complaint has been filed. It is not publicly available, and I don't believe Counsel will let us share that. To be fair, it is an -- it sounds too official. It's an ongoing investigation.

No. So a lot of court records are public record. So I didn't know the complaint with the SEC was a public record or it's as an ongoing investigation, it's not yet available.

Not yet -- let me qualify the statement -- not at this time.

[Murray Wiggins].

Second time today. Bill, my question is maybe a little bit off the wall. What can the shareholders do to help you and the team at kind of reverse?. I know there's an expectation of the shareholders for the company, but what can the shareholders do for you? I know there's a scout program, but what additional could be done to help you out.

So one of the things, Murray, I'm going to share something personal with you. It drives me absolutely freaking crazy now being the CEO of a publicly traded company for almost 2 years because I'm sitting here having to censor myself of what I actually want to say with friends, families, investors, partners, clients like this is so freaking annoying. I can't actually say what I want to say. So I got to be careful how to answer your question.

And so the 2 things at Knightscope that we can do to improve the share price, I think, are limited, primarily twofold. One, improve the financial performance of the company, whichever way we get there. Organic growth, acquisitions, cost reduction, revenue, balance sheet stuff. The more we improve and grow the company, the financial markets should over time, recognize that. So that's kind of on us.

The second thing that we can do that maybe we can share is continue to tell the story to anyone and everyone that will listen. So I can't any more go out and say whatever I want to say, but I can say we're listed on NASDAQ, feel free to take a look at the tickers KSCP and you can make your own decision if you might want to consider investing in the stock. And you and all tens of thousands of investors can do the same with your friends and family and spread the word about the good that Knightscope is trying to do, and people can go make their own decisions as what they want.

But -- the reason I kind of go down that path is because as weird as the life sounds to some of you who have been with us for a very long time, we think we spent millions of dollars, grown the company, with clients all over the country, and we think everybody knows what Knightscope is. And I don't know how many investors I've met. I don't know how many public safety folks, law enforcement and security are like, what do you do? I never heard of you. Can you tell us what you do? Can you show me all cool prototype, when is it launching right? Just trying to get the word out is probably the most important thing you can do.

So if you're in social media on X, repost, reshare, comment, share with your friends, if we put out a cool video, send it around your family, like we need to get the word out is probably the most regulatory compliant thing I can tell you. And hopefully, that attempts to satisfy your answer.

Was that Spencer's old hand or new hand up? I've lost track now.

No, I'm off, Bill. Your answered my question.

All right. Lower your hand -- all right. We're coming up on almost 2 hours. Anybody else got a question, 2 hours and over 100 people still on, okay? Going once, going twice. [FJ] Do you want to come off from you?

Yes, here. And with this, I say goodbye to you and everyone, of course, thank you for the time and the [Foreign Language] I enjoy your time here with you. So one thing that I capture from your statement was sometimes it's good to talk with the human to human, right? I mean...

Do want to talk to a robot? I'm like offended.

As much as I see you as (inaudible), -- so I mean, with all the pressure what do you do? I mean, with the family? I mean to enjoy life. What are your free time, if you ever can call your name, looks like? I mean you maybe 2 minutes, 3 minutes, that kind of I would say, motivation for us that we are all despite some fights in life. I mean, how you enjoy your free time here, I can say this way.

I'll tell you what my wife says. She says I'm possessed. And I try to play a little guitar once in a while behind me, but if I'm watching a movie I'm thinking I've got Knightscope glasses on going, "Oh, that looks like an interesting font. Oh, that's an interesting piece of architecture. I wonder how we could use that. Well, that's an interesting storyline. I wonder if we can use that for social media. Like I'm not watching the movie. I'm working. And I love what Knightscope stands for. I love what we do. It's really freaking hard. I used to joke, and I still do. I guess we only started the company 7 feet tall and now I'm 4 foot 9. This job is brutal. I get punched in the face kind of almost every hour on the hour, and the team is working hard.

But if they can't solve a problem like the toughest decisions come to me. And sometimes you have to make tough decisions that are unpopular and everyone's mad at you. But -- that's the job. And part -- it's 2 hours of my day that I spent with all of you and part of this is fuel for me to have the support, to understand what you guys see and what I don't see and that sort of thing is important, and we can't do this by ourselves. And a lot of bankers and a lot of investors like, Bill, you're out of your mind. How are you dealing with all these people.

Do you have any idea who these people are. You're like, "Oh, well, I don't see that XYZ huge institutional investor took a position. Mike, yes, but there are former NYPD detectives, FBI, CIA, DHS investors of ours. There are judges that our investors of ours. There are mayors. There are executives, CEOs, large family offices, like there's -- our team of investors are a bunch of hitters. And if you think that like we're going to change the country with like 4 institutional investors sitting in some ivory tower, like you're delusional. It's not going to happen. It's going to be because somebody on this call decides like I'm going to go above the City Council member. I'm going to go above with Chief of Police. I'm going to go annoy the hospital administrator. I'm going to go talk to the principal. Like we can't do all this by ourselves, right? And so what motivates me and keeps me going is you guys.

[Foreign Language] I hope my colleagues here. As for the love of family for the new ones that we are leaving at the legacy, I mean we are with you.

I appreciate it. [Foreign language) all right, everybody. I'm going to call it because my butt's asleep. Anyway. Thanks, everyone, for the support. We'll get to video posted and make sure to share with everyone, and thank you for sticking with us all this time as I will always continue to say long Knightscope, Inc., short the criminals, and we'll see you on the other side. Thanks, everybody.