Knightscope, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. Knightscope develops and deploys autonomous security robots (ASRs), related software, and emergency communication devices (ECDs). Its ASR subscriptions are generally offered under a 12-month Machine-as-a-Service model.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $2.254 million | $2.897 million |
| Gross loss | $1.445 million; gross margin approximately -64% | $0.213 million; gross margin approximately -7% |
| Operating expenses | $6.835 million | $6.308 million |
| Operating loss | $8.280 million | $6.521 million |
| Net loss | $7.592 million; $0.08 per share | $2.444 million; $0.06 per share |
| Cash used in operating activities | $8.611 million | $6.483 million |
| Cash used in investing activities | $0.894 million | $0.767 million |
| Cash provided by financing activities | $9.710 million | $4.915 million |
At March 31, 2024, cash and cash equivalents were $2.487 million, with an additional $0.100 million of restricted cash. Working capital was approximately $3.4 million. Debt obligations were $3.898 million, all classified as non-current; the company issued approximately $2.8 million in Public Safety Infrastructure Bonds during the quarter. Preferred stock had an aggregate liquidation preference of $35.174 million. Total liabilities were $16.616 million and stockholders’ deficit was $26.638 million.
Material changes versus the prior comparable period
- Revenue fell 22% year over year. Service revenue was nearly flat at $1.691 million versus $1.748 million; product revenue declined to $0.563 million from $1.149 million, primarily due to ECD organizational changes that delayed sales, production, and installations.
- Gross loss widened to $1.445 million from $0.213 million. Service costs rose by approximately $0.8 million, including costs related to quality and servicing problems with version 3 K5 robots, a roughly $0.4 million write-off of obsolete inventory, higher depreciation, and third-party field services.
- Net loss increased despite lower interest expense. Other income fell to $0.688 million from $4.077 million, chiefly because the favorable fair-value change in warrant and derivative liabilities was smaller ($0.770 million versus $4.622 million). These fair-value movements are not a measure of recurring operating performance.
- Operating cash outflow increased by approximately $2.1 million. Financing included $7.067 million of net ATM equity proceeds and $2.644 million of net Regulation A bond proceeds; cash increased by $0.205 million over the quarter.
- Class A shares outstanding rose from 80.189 million at December 31, 2023 to 93.748 million at March 31, 2024, primarily from 13.513 million shares sold through the ATM program.
Outlook, management commentary, and key risks
- Management stated that it is implementing a roadmap to profitable growth, including consolidating manufacturing from three facilities to one primary site, reducing K1B facilities, streamlining the organization, outsourcing field services, and replacing version 3 K5 robots with improved version 5 units. Management expects 2024 to be a transition year with fluctuating results; it provided no numerical revenue or earnings guidance.
- Management reported backlog of approximately $4.3 million as of May 14, 2024: $1.9 million of ASR orders and $2.4 million of ECD orders. Backlog is not necessarily equivalent to recognized revenue.
- The filing states that recurring losses and negative operating cash flows, an accumulated deficit of approximately $169.1 million, and dependence on additional fundraising raise substantial doubt about the company’s ability to continue as a going concern over the next 12 months. Management expects to seek additional equity and/or debt financing; availability and terms are not assured. Failure to raise sufficient capital could require significant reductions or discontinuation of operations.
- Nasdaq issued a delisting determination after the company failed to meet the $1.00 minimum bid-price requirement by April 23, 2024. The company appealed, staying suspension and delisting pending a Panel decision; a hearing was scheduled for June 11, 2024. Management said a reverse stock split might be considered, subject to required approvals; continued listing and restoration of compliance are not assured.
- After quarter-end, the company sold additional ATM shares and reported approximately $1.8 million of net proceeds through May 10, 2024. It also increased authorized Class A shares from 114 million to 228 million on April 5. Additional share issuance may dilute existing holders.
- Key operating risks include customer acquisition and retention, contract renewals, competition, product quality and deployment performance, cash needs, and potential sales-tax exposure. The company recorded a $0.4 million use-tax liability and said sales-tax claims could potentially be material, although it did not then expect a material effect.
Most important facts for investors to verify
- Cash runway, near-term financing needs, bond terms and obligations, and progress toward the company’s going-concern funding plan.
- Whether ASR replacement and service-cost initiatives improve gross margin, customer satisfaction, and cash burn; also monitor ECD installation timing and the conversion of backlog into revenue.
- Nasdaq Panel outcome and any reverse-split proposal, approvals, or effect on continued listing.
- Actual dilution from ATM sales and other securities. The filing gives post-quarter ATM share totals of 4,132,855 in one section and 4,123,855 in another; clarify the correct figure. It also reports remaining ATM capacity of approximately $4.5 million as of May 11.
- Potential sales-tax exposure and the assumptions supporting the recorded $0.4 million use-tax liability.