Knightscope Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 12 speakers on the call.

Operator

Hello, everyone. We've received a good amount of positive feedback from the Q1 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.

Operator

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 of 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.

Operator

Nightscope.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 deficiencies from NASDAQ and Knightscope is now back in good standing with the exchange.

Operator

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's the limit. 2nd, we are following through on our commitment to investors that we stated on the 18th 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.

Operator

To that end, we have begun the process of filing a formal complaint with the U. S. Securities and Exchange Commission in response to what we believe to be unethical and potentially illegal conduct against NightScope 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.

Operator

With that said, let's get to the numbers. Last year in 2022, we recorded $5,600,000 in aggregate revenue for the year, reflecting an over 60% growth rate from the prior year in 'twenty one. For the 6 months ended June 2023, we booked approximately 6 $500,000 of revenue, putting us on an over $12,000,000 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 robots is happening and it's happening now.

Operator

Additionally, as of 30th July '23, the company had a total backlog of approximately $4,900,000 comprised of $2,100,000 in new orders for related autonomous security robots or ASRs and $2,800,000 related to new orders for our portfolio of K1B products, switch, include the K1 blue light towers, e phones and call boxes. During the Q1 of 'twenty three, we recorded $2,900,000 in revenue for the 1st 3 months year, and I'm pleased to report that during the Q2, we increased our quarterly performance and booked $3,600,000 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 Q1 of 'twenty three of about $200,000 or negative 7 percent to now a gross profit for the Q2 of $9,000 or approximately 0.3%. Reaching slightly better than breakeven at gross

Speaker 1

profit level

Operator

marks a 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 would be accretive we are pleased with the financial results posted for the 1st 6 months of this year. Our continued focus on decreasing our costs contributed to producing and servicing ASRs has begun to yield results.

Operator

As we often stated, the machine as a service or mass business model creates a unique set of circumstances. While the subscription model provides Nightscope 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 we'll continue as part of our plan to reach profitability by end of 2024. And to reiterate, Knightscope delivers a recurring revenue business model for a recurring societal problem.

Operator

Comparing the first half of twenty twenty two through the first half of 'twenty three 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 $4,800,000 and our cash and cash equivalents at the end of the Q2 of 2023 was approximately 5,800,000 also as previously disclosed, the approximately $6,000,000 of convertible notes secured in connection with the acquisition of Caisse or fully extinguished by the end of the Q2 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.

Operator

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.

Operator

We've got almost couple of 100 people on a 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

Speaker 2

you need

Operator

me. 2nd, obviously, we're a publicly traded company. I'm an officer public company, and I won't be providing you any material non public information. And in compliance with our good forward looking statement disclaimers that were included in the video as well. And then to try to get the questions going, very simply at the bottom of your Zoom screen, there's a reactions button.

Operator

Just click on that and there's a raise hand. If you click on that and you raise your hand, then I know to call on you and we can get the questions going. 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 it 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.

Operator

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. If you have a camera, turn on and say hello.

Operator

Make sure to unmute yourself. Barry, you want to ask the first question?

Speaker 3

Sure. Thanks so much. 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 the 5.8 that you've got in hand right now, what the burn rate looks like? Thank you.

Operator

Sure. So obviously, if we're going to get to profitability by the end of Q4 of next year, that number needs to go down, 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.

Operator

If you missed the Annual Shareholder Meeting, the video is available at www.nightscope.com/rise. Go all the way to the bottom. And I think it's Episode 9, if 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.

Operator

I believe our CFO included there a rough burn rate for the coming months of about $1,000,000 a month. And we also have a bond offering that we're working on to that's non dilutive. You can learn a little bit more about that at bond. Nidoscope.com. We're going through the regulatory process to kind of move that forward.

Operator

Things are looking up. We were in a little bit of a difficult position earlier in the year, and I'm really excited that we clear 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.

Operator

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 gets a little bit much. It's just me. There's no moderator. It's just you, me and the telephone hole.

Operator

All

Speaker 3

right. Thanks. And Bonnie, congrats on all the orders. And just FYI, it's very helpful that you press release so we can kind of follow things and get a feel for how things are going. So appreciate it.

Speaker 3

Thanks.

Operator

Yes, absolutely. And then the next person will accuse us of sending out too many press releases. They can't win, but we will actually do that. Mr. Edward Wu got a hand up.

Speaker 4

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.

Speaker 4

I know it takes a lot of time. Congratulations on the quarter. My name is a general question. Obviously, the news coming out of Maui, the wildfires, emergencies is the 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.

Speaker 4

Is there opportunity for NightScope? Thank you.

Operator

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 like to be a little bit more direct with folks. I'm glad to hear that. We had one person from FEMA reach out.

Operator

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 NightScope set up today were much more suitable, lucrative for us to go to a location that's 20 fourseven 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 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.

Operator

And I think for our newer investors, it'd probably be good for me to just spend 60 seconds on long term strategy. So if 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.

Operator

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 courthouse. 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.

Operator

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 is looking for. In the shorter term, there are FEMA resources in our view that to be better deployed. 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 to be better deployed in emergencies.

Speaker 4

Gabriel? Thank you very much, Bill.

Operator

Of course.

Speaker 5

Thank you.

Operator

Can you hear me? Hello? Yes. All good. Perfect.

Operator

Well, I just wanted to say nice to meet you, William Lee. This is my very first or 2 kind of like a what would you call this? A town hall or a monster meeting that everyone told me not to do? Exactly. The town hall, exactly.

Operator

It slipped my mind. Maybe I'm nervous. I'm starstruck. Anyways, I have found a few notes just so that I Brian, stop laughing.

Speaker 6

I saw that.

Operator

All right. Okay. So here we go. I'm a new retail investor. I just recently put

Speaker 1

a little bit of money in. I'm glad

Operator

Guys, you're welcome. 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 technician jobs. I've worked with ADT and I've also I can help get accounts.

Operator

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. I'm just throwing that out there. Also, I've been team on the job site.

Operator

I'm here on nightscope.com. Let me just double check. The only three openings say 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 just some questions that I kind of had.

Operator

Sure. So, nightscope.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 lack of better way of saying it. We don't do that too often. We're the ones that are there, we have to fill like now.

Operator

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 engineer is kind of holding up the process. QA is troubleshooting, right? That's troubleshooting. So we just filled the position I think that what might have been suitable for you.

Operator

But I want to caution you on the positive and negative side. On the positive side, those job postings change often. So be sure to 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.

Operator

On the flip side, because we've got majority investors here, in order for this to scale and get to profitability quicker, we path to be highly sensitive to headcount, 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 The inexperience of being at ADT as an account manager, territory manager for 6 months, I believe, right in the 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 to 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.

Operator

What I told myself was I'm not going to be displaced. I'm just going to maintain these robotic security apparatus, whether they be a badging station or a camera system, whatever it is. So my thoughts is get into it now early. What would you say your run rate? I have a different view, Gabriel.

Operator

Again, we have a lot of new investors, which we're grateful for. Some quick math, the country has maybe 1,500,000 security guards of about 1,000,000 law enforcement professionals. So that's 2,500,000 humans running 20 fourseven. You can't triple shift to humans. So maybe you have 600 odd 1,000 humans at any given time trying to secure 332,000,000 Americans across 50 states.

Operator

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 terrorism has a $2,000,000,000,000 negative economic impact on the U. S. Every single year.

Operator

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. It's just it's that simple.

Operator

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'm in disagreement on this.

Operator

Well, could it be that there's not enough guards because they don't want to like at my most recent post at Adobe in San Francisco, which I have the schematics of right down. I can bring them over to you, 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.

Operator

So there are guards out there. They just don't want to do this robotic work. That one's a fair point, Gabriel. If you look at the employee turnover rates on the guarding companies, view, 100% to 400%. So every 90 days or every 12 months, you got a new team because everyone gave up.

Operator

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 human. So that's all I'm saying is I have the experience in the industry to know which jobs or Gabriel,

Speaker 1

I'm going to we're going to move on. We've got a lot

Operator

of investors that have investor questions. So thank you for spending the time and thank you for the kind interest. Brian?

Speaker 3

Hey, Bill. How's it going?

Operator

Long time no see. How are you, sir?

Speaker 7

Excellent. Stuart, excellent. First, I want to congratulate you on a very nice quarter, first half of the year. What people need to realize is NightScope, while you've had a long history, you're a start

Operator

up.

Speaker 7

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 you know what's funny, Brian?

Operator

Yes. Tesla and SpaceX are still called startups and it's mind blowing

Speaker 2

to me.

Operator

I don't know what year or what decade or what $1,000,000,000 we're going to have in the future of top line revenue that we still we call the start up. But point of view.

Speaker 7

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

Operator

there are 2 sides of

Speaker 7

the Knightscope business. There is the AI, autonomous, EV intelligent driven robot side and then obviously the case, cell tower. No, no, no. I'll stop using word case.

Operator

Okay. We call it K-1B.

Speaker 7

K-1B. We'll go with K-1B. But I mean, it's all security and it's all different layers. Any update on FedRAMP on government security Clearance approval?

Operator

Yes, hurry up and wait. All right. For the rest of the group, Brian, because I think some people don't know what Betterment is. So we're 2.5 years now into a nightmare cybersecurity review with the U. S.

Operator

Federal Government. And this frankly, not just the cyber review, it's loosely how you conduct business. Do you have the right controls, etcetera. The process itself is somewhat complex. The multitude of parties involved makes it more even more difficult.

Operator

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.

Operator

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.

Operator

S. Federal government is certainly a lot more than just the Department of Veterans Affairs.

Speaker 7

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 clearances is paramount. Real quickly because I know other shareholders want to ask questions. Anything on New York? Any preliminary thing on New York?

Speaker 7

Or I mean, it was phenomenal seeing the entrants coming into the city as a former New Yorker. That's the city that doesn't sleep and that's the city that needs some crime prevention.

Operator

Yes, 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 into 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.

Operator

We're all actively working on it. The machine that's due out to ship hopefully at 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 wait. But everyone there at City Hall, NYPD and the affiliated agencies are certainly all working on it. Are you still there?

Speaker 7

Yes. All right. And then real quickly, Two 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 Q3 or Q4?

Speaker 7

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? Thank

Operator

you. Thank you. 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.

Operator

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 up. For those of you 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, an 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.

Operator

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

Operator

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 through all 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.

Operator

So think of it as a wait list for those that would want to participate, and we'll certainly try to fill those orders first before sharing it with others. But literally the work is in process.

Speaker 7

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 and misleading information. I know that takes away from the team's focus, but you have a fiduciary duty to protect is meant to knock down the stock price. And again, you got to focus on being long night slope, surety the criminals and stay on our mission.

Speaker 7

So thank you very much.

Operator

Thanks, Brian. Thanks for the questions. Good to see you. Marco, next up. Bill, how have you been doing?

Operator

I'm vertical, so all is good.

Speaker 4

Offboard and onward, I guess. Yes. 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.

Speaker 4

We know what the rating was and what their price target was. Has there been any progress there with additional analysts covering the company?

Operator

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 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.

Operator

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 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 that doesn't look like anything else, but you need to fit in one of these 7 buckets.

Operator

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 1st 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 it should go into robotics.

Operator

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.

Speaker 4

That makes sense. It's just staying on point for long term as well too. And whatever you can't control, it is what it

Speaker 8

is at this point. So I guess part of

Speaker 4

my question, prior to the IPO, I know we've had commercials on CNBC and we've had guest spots on CNBC.

Operator

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 man, everyone that could yell at me would yell at me for doing that and I still would do it again.

Operator

So I would love to have the marketing's 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 2, 3 or 4 fold return on investment. Maybe you get a client, new client. Maybe you get to recruit. Maybe you get an investor.

Operator

Maybe you get a chance to build the brand, right? And it's not just, oh, let's just spend and did we get extra wide 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 many Zoom calls you can do.

Operator

There's only so many videos you can do. It's like how many PowerPoints 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 team is like, you want to do what?

Operator

I'm like, yes, we're going to get this huge aquarium and we're going to stick a bunch of robots on it and we're going to truck it around the country. There's 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 always have the right to go do some fun stuff in the future.

Speaker 4

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 the 2.

Operator

See, now you're trying to get me in trouble.

Speaker 4

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 and the robots too? I guess what are the chances on in this type of the robots could either be Disabled or shutdown 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 infrastructure?

Operator

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. 2nd, one of the reasons we have a machine as a service kind of approach is where those assets are ours. They're on our balance sheet.

Operator

We control them as opposed to someone has a robot that they didn't wand 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.

Operator

Every major corporation, big, small, governments, everybody's been hacked. So to say that will never ever happen is 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 institutions as clients. So you got to assume we've kind of got the basics, right? And then the last bit is the back to the FedRAMP question.

Operator

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 who are like, well, you need to fill out our and 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 it's not always going to work, but hey, listen, the U.

Operator

S. Federal government is using it. Exactly what other question are 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 probably are what I can say publicly.

Speaker 4

No, that makes sense. I just wanted just some clarification if you can. Of course, if you can't say anything that obviously makes No, I appreciate it, Bill. But yes, thank you again for all your hard work and the team is doing and looking forward to the rest of the year and going forward.

Operator

Andrew Bremer. You're going to have to come off mute though.

Speaker 5

Yes, sir.

Operator

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 or founder of any company is brutal.

Speaker 4

Absolutely. Sometimes

Operator

it's good to just talk to some normal humans and talk about the next

Speaker 5

Well, you have me. So I don't know if you know this, but I'm a huge fan of NightScope.

Operator

I've heard through the great Brian Andrew.

Speaker 5

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.

Speaker 5

The government is no small outfit. So The potential for every single aspect That from the Army, Navy and all the courts 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 front all of the cash.

Operator

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. I like that. And I think we can genuinely help.

Operator

I've 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.

Speaker 1

So it

Operator

just needs to be 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 will 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.

Operator

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 belt and all this 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?

Operator

Because you got to go order 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 5th generation K5. That one today, the current production machine, you probably heard me say, it takes 100, 120 hours to build 1.

Operator

The new one takes us less than 20 hours, and we're laying out a smaller assembly line to actually do this at volume. Hi, Elias. Have a good day. All righty. Sorry, if you're not

Speaker 5

Hey, this is Michael. Get off.

Operator

Yes. I'm going to mute everybody again. And Andrew, you've got to come off of 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 dropship me 1,000 robots tomorrow.

Operator

So I think we'll be fine. I don't worry about that too much.

Speaker 5

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

Operator

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.

Operator

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 less than 100,000 units a year is an anomaly. That's the weird thing to do, right?

Operator

Most plants, dollars 300,000 $500,000 is the normal thing to do. So if we get if and when we get to that part, that's well blazed travel well blazed path, I'll say.

Speaker 5

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 car says I solve. So And I have had that since about 1989. So

Operator

And what's the other plate say, Andrew?

Speaker 5

NYSCOPE, KNGHTSCP,

Speaker 2

NYSCOPE.

Operator

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

Speaker 8

work. Yes. And

Speaker 5

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

Operator

I have no idea what that feels like, Andrew.

Speaker 5

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

Operator

All right. Andrea or Andrea?

Speaker 6

Andrea.

Operator

Andrea, nice to see you.

Speaker 6

Nice to see you, Bill. So, it occurs to me and looking at what you I 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 courtroom, everything that needs a stationary

Operator

security

Speaker 6

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, 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-twelve on the freeways, that sounds like it's a much larger opportunity for the company. And if I'm understanding what you showed us, just in the last quarter, That's a new product line. It exceeded the gross revenue for the mobile units.

Speaker 6

Did I read that correctly? By about $300,000 right?

Operator

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 set 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 I think you're right. In the short term, one of the attractiveness of the acquisition was a very strong install base, 7,000 of these already in the network for us.

Operator

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 gets really exciting. The short term, yes, you're correct.

Operator

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

Speaker 1

of the existing ones that are out there is going to be

Operator

a very exciting thing, 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 radar in the autonomous security robots and then some other things that we have planned. And imagine if those 7,000 devices could tomorrow, I'm not saying tomorrow, but in the future, if all the 7,000 OLEDs 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 eyewear to pitch you today like, hey, we want to go put 7,000 of these devices across the country.

Operator

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. Like 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 it have that much more capability.

Operator

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 roadshow, the K1B, majority of those devices are also included in the robot roadshow. So we're not just running around with the mobile ones.

Operator

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. Spot. 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 of $30,000,000,000 company that in the end looks like a I don't know, looks like a defense contractor and less of security type of device company.

Speaker 6

So actually I had one more question on that front because that was exactly what I was thinking about is, does 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,

Operator

right? 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 and likely will continue to do so as we grow. And in a lot of cases, it's a really good fit. So we're continuing to be honored by having those that served continue to serve the country in a very different way.

Operator

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.

Operator

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, 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.

Operator

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.

Operator

Oh, look, they got a couple of dozen out in the VA. Yes, maybe we'll go and try them over in our department. That's likely what's going to happen, especially having spent a lot of time with these folks. But hopefully that more full answer gives you a better perspective.

Speaker 6

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

Operator

Yes. Right? You heard us right then, rate. And what's really weird is we give the soldiers, the 2,500,000 soldiers out there, every level of capability you might ever imagine. And there's a law of heat in Northrop of General Dynamics to build them whatever they a soldier needs in a theater of war.

Operator

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 a number 2p on a notepad, good luck. Like you would never tolerate that. Book.

Operator

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 $10,000,000,000 $20,000,000,000 $30,000,000,000 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.

Operator

Okay, now you've proven that this kind of stuff works. Now you got 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.

Speaker 6

Thank you very much. I really appreciate your answers.

Operator

Of course. Warrant.

Speaker 9

Hello. You've indirectly addressed the FedRAMP ATO. I'll just add another layer onto it. The implication has been We are framing it in terms of months, not years. Is that correct?

Operator

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.

Operator

Thank you. Okay. All righty. F. J.

Speaker 2

Hey, Emil. Hi, everyone.

Operator

Hi, Marty.

Speaker 2

Hi. Hey. I know when you're talking about, I mean, nice call. For me, the first thoughts that are around this kind of Robocop, Right, this kind of a magic Rollewood thing. And for me, man, you are the real deal for the men ops too, right?

Speaker 2

So Just wanted to acknowledge that if you come to Hollywood, you are the real deal. So you mentioned about the roadshow that people want Come, see and feel. This is one of notes that I took from your statement. Talking about feeling, okay, when it comes to public safety, Apart of all the fairly heavy cybersecurity process FedRAMP requires, My question is more how our upper level federal government feels about the NightScope product? My question is like, Do they have seen it?

Speaker 2

Do they did they touch it? How they react? And the last question is like, I'm not talking about the numbers itself in the process, but how they feel? Because at the end of the public, everybody will bleed with a Ball in her heart, right? So, question to be more straight, when I come about, for example, upper level federal government.

Speaker 2

Thus, for example, President Biden, he knows about NightScope mission. He knows about the product, the hub. I mean, how about this feeling with the upper level federal government. Do you have anything to share with us?

Operator

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 war at the keyboard that can actually stroke a contract, right? Having us go a lot and I've in my prior life, I've had more than enough people at cabinet level position advise me and help, and I spent way too much time in D. C.

Operator

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.

Operator

So Federal Protective Services, 15,000 officers and guards that try 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.

Operator

Actually, I think we might have done this twice. Twice, yes. Thanks, Stacy. And I can how do I express this? It was hilarious for me to see a bunch of very professional conservative in the kind of 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?

Operator

And not 3, 5 minutes later, they all turn into a bunch of little kids. It's like, oh, time for a robot selfie. I can't wait to show my family. I can't wait to show my kid. And that happens all across the country and that's why we keep doing this is because you might have heard me say or Hollywood has done us a service and a disservice over the last 30 years.

Operator

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.

Operator

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.

Operator

Oh, that makes sense. All in favor? Aye. Right? But if you don't do that step, you're going to cause all kinds of problems.

Operator

And so we get criticized for having this robot roach still 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 got to have a personal touch to this in order to affect change.

Operator

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 got 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.

Speaker 2

Well, Robert, thank you very much. I mean, I would have a few other questions, but in respect to the other colleagues here and also time, so I will cut myself here. Thank you very much.

Operator

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,

Speaker 3

Yes. Hi, Bill. First of all, may I Chicago, in the Chicago suburbs was my 1st year in the business. So I got a pretty good standing post education. Human guards are basically if you have a good human factor management, rest 20 minutes of every hour.

Speaker 3

They need that time to recover enough strength to get through an 8 hour shift or if need be a 12 hour shift or sometimes or even 24 hour shift if the relief doesn't show up. So 1 third of the time, they are not patrolling. Yes. If we got a standing guard post, this is not a problem. But what the K5 does is it controls.

Speaker 3

So the K5 has an inherent advantage over a human guard in that respect, but it cannot make a decision. It's not smart like we are.

Operator

Sorry, Francis. We've got a lot of folks with their hands up. Do you want to get to your question?

Speaker 3

You want a question? Okay.

Operator

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

Speaker 3

All right. Fine. What's happening with the SCOUT program?

Operator

What's happening with the SCOUT program. Actually, Stacy?

Speaker 10

I am here.

Operator

So Stacy, if Hoexhaven met is the Executive Vice President and Chief Client Officer and has joined the call effectively, but I'm going to pick on him to answer the question.

Speaker 10

Perfect. So, thanks for the question, Frank. It's 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. It gives 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.

Speaker 10

And so, we have had in excess of 100 people signed 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 Mallory 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.

Speaker 10

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? Did you get those robots yet?

Speaker 10

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 context that we can follow-up on, but it is not converted into a sale yet to my knowledge.

Operator

I think, and a lot of to be fair to those that are trying to help, the sales processes, 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.

Speaker 10

Actually, Bill, if I could real quickly. So just to put an exclamation point behind what you said. A lot, Frank, this 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.

Speaker 10

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.

Operator

I think to finish that up one thing that hopefully the numbers like we're 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.

Speaker 3

Darryl? Second question.

Operator

Sorry, go ahead.

Speaker 3

What's your next acquisition?

Operator

Not something that we would but nothing to announce at this time.

Speaker 3

Do you have

Operator

we have nothing to announce at this time. And the strategy remains the same as when we went public. 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.

Operator

I think a different way to answer the question would be what are we looking for. It's 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 possibility it could be an acqui hire type of situation. But we have nothing announced at this time.

Speaker 3

Thank you.

Operator

Thank you. Daryl? Yes. Good afternoon.

Speaker 4

Hi. In early July, we saw a very significant increase in the value of

Operator

the stock hitting a high of almost Or a

Speaker 4

little over $2 I think at one point. As an investor, I, of course, was very pleased with that. But in your opinion, what do you think drove that big spike?

Operator

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

Speaker 1

to go

Operator

to Go

Speaker 4

check it out.

Operator

Nightscove.com/rise. At the bottom, I believe it's Episode 9, whichever one it says the annual shareholder meeting that we had in the 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. And probably not a good idea for me to comment on what I think specifically made some changes for that particular time period.

Operator

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 $6,000,000 worth of convertible notes that or 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.

Operator

I think, us continuing like clockwork 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 least during the Q4, 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.

Operator

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 give you a little bit more detail.

Speaker 4

Great. Thank you. I was also really excited to see a K5 deployed in a local home improvement store I shop at. Ah. Yes, I was patrolling the parking lot and

Operator

I saw that now, I was like,

Speaker 4

I know what that is,

Speaker 6

but great. I appreciate that.

Operator

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 emails and texts and messages and what have you, people doing the robot selfies and what have you is invigorating. I mean, it's very cool.

Speaker 4

Yes. Great. Thank you. I appreciate your time.

Operator

Of course, sir.

Speaker 2

Tash C.

Speaker 11

Hi. Good afternoon. 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.

Speaker 11

So I wonder how you 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 multipurposed Into providing the similar products that you're providing. So how do you think about that?

Operator

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 emails, nothing went completely dark on us.

Operator

A few years later, I think it was in 2016 ish, I show up at a security conference and there is Sharp branded outdoor security robot. Sharp had invested over $35,000,000 to build a product to literally compete against us. I think after all that, they sold 1 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.

Operator

I think there are 2 complexities to think about. One is the technology. I often say this and maybe what I just said makes the point. What we do is technologically truly difficult. Go look up the Bloomberg article from earlier this year about self driving technology and autonomy.

Operator

$100,000,000,000 have gone 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 2,300,000 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 firsthand experience that this is not easy to do. Could it happen and someone successful?

Operator

Sure. It hasn't happened yet. There are a few smaller partial competitors that or trying some scale, 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.

Operator

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 an unarmed or an armed guard $85 an hour to patrol the area or would you rather have a remote monitoring set up with a robot to do for $7 or $9 an hour. In a small number of cases, sometimes people think that fixed cameras will fix problem and then they realize that that doesn't actually work. But right now, those are the primary kind of immediate competitors. Colorless come and try to do it, sure, be my guest. And I think the last comment, and I say this in all seriousness, we want to make the U.

Operator

S. The safest country in the world. I think every American should have the right to live in a safe community and a safe 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.

Speaker 11

Thank you.

Operator

Course.

Speaker 8

Murray Wiggins, you're up. Hi, Bill. Pleased to meet you. I've Missed on some previous town halls. This is my first one with my wife and I.

Speaker 8

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. We'd like

Operator

you to.

Speaker 8

Yes. Yes. My question to you is, is aerial surveillance in the cards at some point?

Operator

Or are you going to add drones?

Speaker 5

Yes.

Operator

So I think if you take the I'm going to annoy some people, the multi decade approach. The answer has to be yes, like you're going to have to do Air, Land, Sea. 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 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.

Operator

1, drones and have a flight time problem. Most of our clients want 20 fourseven. Depending on how much you want to pay, you're going to pay, it 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.

Operator

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 20 fourseven 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.

Operator

And then you want to make it worse, you want to do some AI or edge on computer 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.

Operator

So I think once all those get addressed, it is likely a drone would fly out of 1 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.

Speaker 8

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

Operator

I need aerial reconnaissance right now.

Speaker 8

Yes, exactly. Okay. Thank you for the insights. I appreciate it.

Operator

Of course.

Speaker 8

Continued success.

Operator

Thank you, sir. Brian is back for seconds.

Speaker 3

Hey, Bill, I just thought of a couple of things. Let's go.

Speaker 7

In the presentation, 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.

Operator

Basically, that's probably booked revenue once they're deployed.

Speaker 7

So where are you at on the backlog?

Operator

Yes. So 2 or 3 points. 1, 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.

Operator

You were like the what is it, the Lucille Ball, like at the with the chocolates or whatever. Like it doesn't stop, it just keeps coming. In theory, right, 1, 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.

Operator

But in this particular case, it would be so much better to have 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 sense 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 there's and we'll have a question about demand for what we're doing like we got 1,000,000 of dollars of orders waiting.

Operator

But from a cash from a term 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.

Speaker 7

And let me just follow-up. As kids have gone back to school or going back to school and will be going back

Operator

to school,

Speaker 7

K-twelve colleges and universities. I can't think of a parent that wouldn't 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? Overall,

Operator

what are

Speaker 7

some of the barriers to entry because you're not selling a $100,000 $200,000 machine. It's really a service. So, how

Speaker 3

do we get more schools,

Speaker 7

installs and what are some of the barriers in getting the product deployed?

Operator

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 like it breaks my heart to see like fundraisers like we need to go buy books. I mean, are you freaking kidding me, right?

Operator

So you

Speaker 8

can't pay the teachers properly.

Operator

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 NightScope 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.

Operator

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, we'll and if I get my way, we'll make an announcement and see if what we think could work to help the situation does work.

Operator

But to answer your specific question, it's a money problem. Just keep plugging away. Thank you, Bill. Of course. All right.

Operator

We're at the 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.

Operator

We're good to go. We're good to go. You handled all of

Speaker 10

them. Well, I told them to raise their hand or where I could, I answered questions.

Operator

Okay. Okay. Oh, FJ is back for seconds.

Speaker 2

Yes, yes, I am. We have room for more questions. So here I am. So we mentioned about

Operator

Where are you from?

Speaker 2

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

Speaker 4

Orangey.

Speaker 2

Oh, it's for this, Sao Paulo.

Operator

Sao Paulo, Paulista.

Speaker 2

Yes, yes. Last 10 years. I mean, I love the country, okay?

Operator

So, the opportunity that

Speaker 2

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 7,000,000 stock review, but I would say I'm almost closer to 500,000, Right. I thought, so it's a I mean, I truly believe and I want to support.

Speaker 2

But my point here, you mentioned about, I mean, maybe what the issue is really the money, right, the cash. I mean, you are in Silicon Valley, which I mean, California is in where it's really a rich state. There is a lot of 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 kids safe, Some kind of association that could be maybe funding the products that Nightstop can do.

Speaker 2

Is there any kind of a partnership going that maybe you guys are trying with people in Silicon Valley, other companies or even tax relief

Operator

for our further hunger. Anything that you

Speaker 2

can share about this, Sak?

Operator

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 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 to force the outcome that you want. And that's the difference between the Knights Guild team and everyone else.

Operator

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.

Operator

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 regulatory, legal, financial process and have a plan. We'll do a specific town hall on just that subject.

Speaker 2

Will be very appreciated, Bill. Yes, I'm looking forward to that. And anything, of course, I can help but myself on the way to support the Michels. God bless, man.

Operator

Thank you. Kevin Hines.

Speaker 1

Can you hear me?

Operator

There you are. Go for

Speaker 1

it. Okay. Sorry. Hey, guys. How are you all doing?

Speaker 1

I saw somebody ask the question And I remember hearing this mentioned or read it mentioned somewhere about a potential investigation on short activity. So I just wanted to Pass that along or see if you could touch base on that, if that makes sense.

Operator

I give you the professional answer and then the personal one.

Speaker 1

Okay.

Operator

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 what investigations for to kind of get to all the facts.

Operator

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. Sort of delve to the personal side of things. Today, it is legal to short a company. It is illegal to naked short a company, if you're naked shorting,

Speaker 1

not soft. Naked shorting. 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 naked or not.

Operator

Yes, that also is a problem with shorting in total. But the personal problem I have, Kevin, is listen, 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.

Operator

Like you need to make better life choices. Like is that really what you should be doing to help the effort? And that to me is I'm going to censor myself because if I go off on a tangent here, it would be nugget. But that to me is not appropriate. Is it legal to short a company?

Operator

Sure. I don't necessarily agree that's 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, this is like ridiculous type of financial instrument, but okay, fine, it's legal today to naked 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.

Operator

And if it's more than one party, we'll continue at it, but I'm not going to sit here and take a punch and not punch back.

Speaker 1

Yes. I appreciate you commenting 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.

Speaker 1

But yes, thanks for addressing that.

Operator

Of course. Of course.

Speaker 1

And that's yes, that's it for me.

Operator

Thank you, sir. Francis?

Speaker 3

Yes. Bill, I am a sort of a professional investor. It's illegal to sell stock you don't own. That's what naked shorting is. And you can tell in the morning volume when you get like Somebody dumping like 15,000,000 shares.

Speaker 3

I don't think there's that much out there in the float that isn't being held long term like mine. I now own 10 times the amount of shares I originally bought at NightScope 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.

Operator

Oh, yes.

Speaker 3

That goes down by more.

Speaker 4

It's a

Operator

part of the play all day long.

Speaker 3

Okay. Thank you.

Operator

Yes, sir. Spencer? Mute button is your friend or not your friend actually. There, how's that? That's much better.

Operator

Thank you, Spencer.

Speaker 10

Been with you guys

Operator

a long time, very excited about what you do. And so, my question is, is the complaint filed with the SEC publicly available? Can we look at it? The complaint has been filed. It is not publicly available and I don't believe counsel let us share that.

Operator

Okay. To be fair, it is an on it sounds too official. It's an ongoing investigation.

Speaker 4

No, but a lot of court records are

Operator

a public record. So I didn't know if the complaint with the SEC was a public record or it has an ongoing investigation, it's not yet available. Not at let me qualify that statement, not at this time. Right. Thank you.

Speaker 8

Murray Wiggins. Boy, 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 out kind of the reverse? I know there's an expectation of the shareholders for the company, but what can the shareholders do for you?

Speaker 8

I know there's a scout program, but what additional could be done to help you out?

Operator

So one of the things, Murray, I'm going to share something personal with you that drives me absolutely freaking crazy now being the CEO of a publicly traded company for almost 2 years, is 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. So the 2 things that 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.

Operator

The more we improve and grow the company, the financial market 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 anymore go out and say whatever I want to say. But I can say we're listed on NASDAQ.

Operator

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 Nightscope is trying to do and people can go make their own decisions as what they want. But the reason kind of go down that path is because as weird as it might sound to some of you who have been with us for a very long time, we think we spent 1,000,000 of dollars, grown the company, clients all over the country, and we think everybody knows who NightScope is. And I don't know how many investors I've met. I don't know how many public safety folks, law enforcement, purity of like, what do you do?

Operator

Never heard of you. Can you tell us what you do? Can you show me? Oh, cool prototype. When is it launching?

Operator

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 to your family, like we need to get the word out is probably and most regulatory compliant thing I can tell you. And hopefully that attempts to satisfy your answer.

Operator

Was that Spencer's old hand or new hand up? I've lost track now. No, I'm off, Bill. You answered my question. Thank you.

Operator

All right. Lower your hand. There we go. All right. We're coming up on almost 2 hours.

Operator

Anybody else got a question? 2 hours and over 100 people still on. Okay. Going once, going twice.

Speaker 1

FJ.

Operator

You want to come off from mute?

Speaker 2

Yes. Here, here. And with this, I say goodbye to you and everyone. Of course, thank you for your time And, Ross, really enjoy your time here with you all. So one thing that I captured from your statement was, sometimes it's good to talk with the human I mean, as long as I see You don't want

Operator

to talk to a robot?

Speaker 2

I'm like a friend. As much as I see you as a math So, Man, with all the pressure, what do you do, I mean, with the family, I mean, to enjoy life? What are your Three times, if you ever can call your name, looks like, I mean, maybe 2 minutes, 3 minutes, that's kind of, I would say, motivation for us that we are all fight some fights In light, I mean, how you enjoy your free time here, I can say, Desiree?

Operator

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 it I've got nightscope glasses ongoing. Oh, that looks like an interesting font.

Operator

Oh, that's an interesting piece of architecture. I wonder how we could use that. That's an interesting storyline. I wonder if we can use that for social media. Like I'm not watching the movie.

Operator

I'm now this ain't working. And I love what NightScope stands for. I love what we do. It's really freaking hard. I used to joke and I still do.

Operator

I guess, started the company, I was 7 feet tall and now I'm 4 foot 9. His job is brutal. I got punch 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.

Operator

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. Are you dealing with all these people? Do you have any idea who these people are?

Operator

You're like, oh, well, I don't see that XYZ huge institutional investors took a position. Like, yes, but there are former NYPD detectives, FBI, CIA, DHS, investors of ours. There are judges that are investors of ours. There are mayors. There are executives, CEOs, large family offices like there's a our team of investors are a bunch of hitters.

Operator

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 one somebody on this call decides like I'm going to go bug the city council member. I'm going to go bug the Chief of Police. I'm going to go annoy the hospital administrator.

Operator

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.

Speaker 2

I hope my colleagues hear. It's for the LoRa family, for the new ones that we are leaving at La Lagos. I mean, we are with you. Thank you.

Speaker 4

Thanks, Bill, for sharing. All right. I appreciate it.

Operator

All right, everybody. I'm going to call it because my butt's asleep.

Speaker 6

Anyway, thanks

Operator

everyone for the support. We'll get the 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 night scope, short to criminals and we'll see on the other side. Thanks everybody.

Speaker 2

Bye, everyone.

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Earnings Conference Call
Knightscope Q2 2023
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