Knightscope, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Knightscope sells and supports autonomous security robots and related subscriptions, as well as blue-light emergency communication products. The October 2022 acquisition of CASE Emergency Systems expanded the business.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $2.897 | $0.944; up about 207% |
| Gross loss | $0.213; approximately -7% margin | $0.549; approximately -58% margin |
| Operating expenses | $6.308 | $7.654 |
| Operating loss | $6.521 | $8.203 |
| Net loss | $2.444; $0.06 per share | $9.597; $0.30 per share |
| Operating cash flow | -$6.483 | -$8.352 |
| Investing cash flow | -$0.767 | -$0.805 |
| Financing cash flow | $4.915 | $19.503 |
- Service revenue was $1.748 million and product revenue was $1.149 million. Product revenue was zero in Q1 2022. Product sales generated an approximate $0.281 million gross profit, while services generated an approximate $0.494 million gross loss.
- Cash and cash equivalents were $2.375 million at March 31, down from $4.810 million at year-end; restricted cash was another $0.100 million. Working capital deficit was approximately $0.6 million. Accumulated deficit was $141.8 million and stockholders’ deficit was $35.4 million.
- Debt obligations were $4.978 million, down from $8.698 million at December 31, 2022, primarily reflecting convertible-note conversions. The company reported $0.866 million current and $4.112 million noncurrent debt.
- Deferred revenue was $2.386 million. Backlog as of April 28 was approximately $4.7 million: $2.7 million of ASR orders and $2.0 million of blue-light device orders.
Material changes versus the prior period
- Revenue growth reflected CASE-related blue-light products and services, plus higher ASR revenue. Management said supply-chain delays that affected Q1 2022 had eased, while remaining unpredictable.
- Gross loss narrowed, but the company remained gross-loss-making. Operating expenses fell 18%, with lower sales and marketing and research and development costs partly offset by higher general and administrative costs and $0.144 million of restructuring charges.
- Net loss improved substantially, but results included $4.622 million of noncash income from revaluing warrant liabilities and $0.043 million from convertible-note fair-value changes. Q1 2022 included $8.878 million of debt-discount amortization within interest expense; therefore, the year-over-year net-loss comparison is not solely a measure of operating improvement.
- Class A shares outstanding rose from 28.0 million at year-end to 37.3 million at March 31. The company raised capital through an at-the-market offering and also issued shares upon debt conversions.
Outlook, risks and contingencies
- Going concern and financing: Management said the company needs additional fundraising to sustain operations and that substantial doubt exists about its ability to continue as a going concern for the next 12 months. It projected operating losses and negative cash flows of about $1.0 million per month for the next several months. The company reported approximately $2.9 million cash as of May 1.
- The $20 million ATM program generated approximately $3.4 million net proceeds through March 31, with about $16.5 million capacity remaining then. Separately, the company sold shares under its B. Riley purchase agreement for $1.3 million net proceeds in the quarter. From April 1 through May 11, it raised about $3.2 million net under the ATM program.
- Management described a growing sales pipeline and demand across product lines, but noted that enterprise sales cycles can take months or years. Its objectives include scaling deployments, improving production efficiency and reducing support, repair, maintenance and overhead costs; no quantified revenue or profitability guidance was provided.
- Principal risks include dependence on new capital, limited market acceptance and deployment history, competition, privacy and client-policy restrictions, supply-chain disruption, inflation and execution risk. Management also noted that scaling and achieving gross profit depend on reaching sufficient volume and improving efficiency.
- Nasdaq notices after quarter-end identified noncompliance with the market-value-of-listed-securities requirement, with a September 25, 2023 deadline, and the minimum bid-price requirement, with a November 7, 2023 deadline. Failure to regain compliance could jeopardize continued listing.
- The company recorded a $0.5 million use-tax liability and disclosed potential sales-tax exposure. It reported no legal proceedings believed likely to have a material adverse effect. No material changes to the annual-report risk factors were reported.
Most important facts for investors to verify
- Cash runway, monthly cash burn, and the amount and terms of future financing needed to address the stated going-concern doubt.
- Whether revenue growth and the reported backlog convert into deployments, collections, and improved service economics; backlog is not guaranteed revenue.
- How much of the net-loss improvement reflects operating progress versus noncash fair-value movements and prior-period debt-discount charges.
- Further share issuance, debt conversions, and potential dilution, including post-quarter ATM sales and remaining financing capacity.
- Progress toward both Nasdaq listing-compliance deadlines and the potential impact of noncompliance.
- Whether sales-tax assessments, supply-chain issues, or competition create material additional costs or delays.