Knightscope, Inc. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed April 1, 2024. Knightscope designs, manufactures, and deploys autonomous security robots (ASRs), emergency communication devices (ECDs), and related software and services. ASRs are sold through annual Machine-as-a-Service subscriptions; ECDs are generally sold as products and related services. 2023 results include a full year of the CASE emergency-communications business acquired in October 2022.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $12.8 million | $5.6 million |
| Gross loss (gross margin) | $2.0 million (15.8% negative) | $3.3 million (58.9% negative) |
| Operating expenses | $24.3 million | $28.6 million |
| Operating loss | $26.3 million | $32.0 million |
| Net loss | $22.1 million | $25.6 million |
| Net loss per share | $0.34 | $0.72 |
| Cash used in operations | $24.2 million | $24.1 million |
| Cash used in investing | $5.1 million | $9.9 million |
| Cash provided by financing | $26.8 million | $28.0 million |
Revenue increased 127%, driven largely by the CASE acquisition: service revenue rose 39% to $7.2 million, while product revenue increased to $5.6 million from $0.5 million. Gross loss narrowed by $1.3 million, but revenue still did not cover cost of revenue. Operating expenses fell 15%, mainly from lower R&D and sales and marketing spending; G&A increased 8%.
Net loss improved by $3.5 million, but included $4.9 million of noncash income from changes in fair value of warrants and derivative liabilities, versus $20.9 million in 2022. Interest expense declined to $0.6 million from $9.2 million, partly because prior-year convertible-note discount amortization and debt costs did not recur. These items make reported net-loss comparisons less indicative of operating performance.
At year-end, cash and cash equivalents were $2.3 million ($2.4 million including restricted cash), working capital was $1.3 million, accumulated deficit was $161.5 million, and stockholders’ deficit was $26.6 million. Debt obligations were $1.2 million, representing the carrying value of unsecured bonds; the 2022 convertible notes and CASE seller note had been fully repaid. Preferred-stock warrant and derivative liabilities totaled approximately $6.2 million and are not debt obligations.
Material changes and operating developments
- Backlog was approximately $3.4 million at December 31, 2023 ($2.3 million ASR MaaS agreements and $1.1 million K1B orders). Management reported approximately $2.8 million as of March 24, 2024.
- Class A shares outstanding increased from 28.0 million at year-end 2022 to 80.2 million at year-end 2023, reflecting equity issuance and conversion of $6.075 million of convertible-note principal into 10.4 million shares. The company reported 93.3 million Class A shares outstanding on March 29, 2024.
- 2023 financing included $25.9 million net proceeds from equity sales and $1.2 million net proceeds from bonds. The company issued an additional $2.8 million principal amount of bonds after year-end, receiving approximately $2.6 million net proceeds, and raised approximately $6.9 million net through its ATM offering from January 1 through March 26, 2024.
- The 10% unsecured Public Safety Infrastructure Bonds issued in 2023 and early 2024 mature five years after initial issuance; interest is payable annually beginning December 31, 2024. Total principal issued through March 14, 2024 was approximately $4.2 million.
Outlook, risks, and unusual items
- Going concern: The auditor’s report states that recurring losses, available cash, and operating cash use raise substantial doubt about the company’s ability to continue as a going concern. Management says additional financing is needed within 12 months from the report date; financing availability and terms are uncertain. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Management outlook: The company aims to grow orders and deployments, streamline production, control overhead, and improve gross loss through scale and efficiency. It did not provide quantified revenue, margin, or earnings guidance. Management cites long and unpredictable sales cycles and continuing exposure to supply-chain and inflation pressures.
- Government opportunity: Knightscope received FedRAMP Authority to Operate in January 2024 and says it can begin deployment processes for its first VA K5 GOV contract. Timing, contract economics, and realized revenue are not specified in the provided filing text.
- Liquidity and dilution: Continued operations depend on further equity and/or debt financing. The company sought stockholder approval to double authorized Class A shares from 114 million to 228 million; the special meeting was scheduled for April 5, 2024. Further financing could substantially dilute existing holders.
- Listing risk: Nasdaq had notified the company of a minimum-bid-price deficiency. The filing stated a deadline of April 23, 2024 to regain compliance or pursue an additional compliance period; delisting remained a risk.
- Other risks: Key exposures include limited deployments and market acceptance, contract loss or non-renewal, competition, privacy and AI regulation, cybersecurity, autonomous-robot incidents, government-contract requirements, and supplier or customer disruption. The company also disclosed short-seller litigation; it stated it believed the short reports’ claims were without merit, but litigation outcome is uncertain.
- Accounting and controls: The company corrected an immaterial prior-period CASE acquisition accounting error by increasing goodwill and deferred revenue by $578,000. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2023; the auditor did not audit internal control effectiveness.
Most important facts for investors to verify
- Current cash runway, operating cash burn, and whether subsequent bond and ATM proceeds are sufficient to fund operations; assess progress toward resolving the going-concern uncertainty.
- Whether revenue growth converts into positive gross margin and reduced cash burn, particularly given continuing service costs above service revenue.
- Actual backlog conversion, customer renewals, deployment timing, and the economics and status of the VA contract.
- Share count and potential dilution from further ATM sales, preferred securities, warrants, options, and any approved increase in authorized shares.
- Current Nasdaq bid-price compliance and the status and cost of short-seller litigation.