Knightscope, Inc. (KSCP) Earnings Call Transcript & Summary

Welcome, everyone, to Knightscope's 2022 Annual Shareholder Meeting. We're excited to be here with all of you today. We'll start the meeting with information about the company in this video. And after the video, we'll move to the business portion of the annual meeting. Please be sure to stay on for the entirety of the annual meeting. You're not going to want to miss a bit. Knightscope certainly has come a long, long way on our journey writing the first chapter in a very long book over the last 9 years. We remain laser-focused on our mission to make The United States of America the safest country in the world. Now that we've gotten our groundbreaking technology funded, built from scratch, made in The U.S.A., operating across the country and proven ourselves with real-life crime fighting wins that have started to make a positive impact on society. It is time to talk about the future and that is where we'll spend the time today. We begin writing Knightscope's second chapter today with you. To scale up a company, there are numerous key factors that need to be in place. And after a significant and sustained effort over many years, I'm pleased to report that we're finally at that stage. As I've often said, we're at a point with the company where we can fix pretty much every issue in the building with people, cash and time. So let's break that down for you with some specifics on each one of those. None of this would have been possible without our dedicated and relentless team. And I mean it. We've been fortunate enough to continue to recruit some of the best talent across the country. But we've also been blessed with unbelievable in-house talent that we continue to support and develop. These people have given their all through the toughest of times and didn't crumble, but instead persevered and grew stronger and wiser. We have the honor and privilege of waking up every morning here in Silicon Valley and focusing on solutions for some of our nation's most daunting challenges. Oh and by the way, the team has grown so much that we actually have teammates across now 15 states, across every functional area of the company. Also, as promised during our town hall earlier this year, we announced a significant expansion of the management team to help leader growth, 100% of which we're proud to say were internal promotions. Lastly, our independent Board of Directors have been digging in, helping us with critical issues, opening doors, working with our auditors and providing unique business insights. They are all smart, dedicated people focused on an incredible mission. Most recently, we noted that after closing our recent offering in January, we had the highest cash balance since inception after successfully completing our public listing on NASDAQ under ticker symbol KSCP. Additionally, we executed an agreement for up to $10 million with Dimension last year to allow us to better manage working capital, which is actually working rather nicely. This year, we announced a $100 million committed equity facility with B. Riley. We believe we're on the path to have the financing in place to genuinely grow the business systematically and methodically. We'll talk about how to put these resources to work in a little bit. With resources on hand, we now need to take the time, put the people and cash to work. So what does that actually mean in terms of growing a company? Well, it can mean acknowledging and addressing the significant amount of time needed to recruit and train new teammates. Despite what some folks may think, we cannot just download humans from the cloud and have them trained and ready to go overnight. But great people attract great people, especially those that are engaged and excited about the mission. It can mean investing in resources for an improved client development process or improving processes we have already started like the ever popular robot roadshow. By the way, how many pod landings have we done with the robot roadshow across the country so far in 2022? Excellent. It can mean carefully examining the costs associated with our products and looking for ways to make the production of our ASRs much, much more cost effective, but they focus on improving our gross margins. It can mean evaluating and refining our deployment processes and product performance in an effort to accelerate and improve our ability to recognize revenue. It can mean taking our time to stop everything and we architect a technical process that was working fine towards dozens of machines in network, but would never work for hundreds or thousands of machines in network. By the way, how many new deployments did we get done and are underway so far for 2022? Awesome. It can mean taking the time in research and development to completely re-architect a new technology or a feature that isn't where we want it to be, but come up with an all-new capability. Actually, on that last point, let's do a little sneak peek at the fifth generation Knightscope K5 under development. Prototypes have been completed. Now we're going into the testing and refinement phase for the balance of the year. Now that we've patrolled over 1.5 million hours in the field autonomously with our machines that are in production, which is a key competitive advantage in the marketplace. We learned a thing or 2 because we've seen a thing or 2. With the new K5 machine, there are a few key highlights that we're really excited about. A new wheel and suspension architecture to allow the machine to handle slightly more difficult terrain, including those pesky parking speed bumps, improved sensor and camera placement to improve detection and evidence gathering, and all new battery architecture to maximize the run time and minimize the charge time. Our design for assembly process is helping us cut the assembly time for this machine by over 80% and having just as much of a positive impact on our service calls. And we'll be shipping later in 2022 as planned. So when you ask me, what does long-term focus really mean and not running the business on a quarter-by-quarter basis? It is the willingness to invest the time and resources to do things properly over a few months, a few quarters or years to make sure in the long run, we're able to achieve our mission, even if we get criticized for not growing fast enough from 1 quarter to the next. We believe we're at the cutting edge of technology, and we need to minimize the execution risk. The level of difficulty of what we're doing is not the same as Tesla and SpaceX, but at least in the same quadrant. We're trying to fix a national problem of crime and terrorism that is over 200 years old with 4 extremely difficult technologies all rolled into 1; autonomous self-driving technology, robotics, artificial intelligence and electric vehicles. It is a daunting challenge. But we've got it working, which motivates us to begin the methodical scaling up of the business. What said, we consistently announced 1 or 2 meaningful pieces of growth news pretty much every single week [indiscernible] and I feel confident we'll continue to do that and perhaps build on that pattern moving forward. So let's talk about the future and how we will potentially deploy our resources over the next 24 months to grow Knightscope. This is pretty exciting for all of us, and I think about it, probably the biggest impact is around 5 key initiatives: number one, new teammates. People work hard to grow businesses and finding the right, smart, humble, mission-driven, relentless folks. With the appropriate skill mix, it takes time. But when you get the right people together with a clear goal, magic can happen. We're looking to nearly triple the size of the team in the coming couple of years. Our pitch to new recruits is quite compelling. You get to work on some of the most advanced technologies in the world, but in the actual real world, not as a science project and some lab somewhere. And you can dedicate your life's best work making a positive impact on society. Oh, and you get to work on robots with a bunch of crazy people, like [ what's done to love ]? Be sure to visit our careers page on our website because we're always looking for those willing to serve the country in a very unique way at Knightscope by building technology that will help make safer the places you live, work, study and visit. Number two, new facilities. As we expand, we'll be assessing our options for Knightscope headquarters, otherwise known as KHQ here in Mountain View, California during 2023. We have already announced our planned presence with Knightscope Development Center in Washington, D.C. during that same time frame. We're also assessing the possibility of an additional Knightscope Development Center in Texas, possibly in the future as well, even 1 more, and I'll cover that a little bit later today. Number three, new capabilities. Over the next decade, we need to work relentlessly on adding more and more detection capabilities, enabling machine to do 100x more than a human could ever possibly do providing the officers and guards unprecedented capabilities, almost superhuman powers at their fingertips, so they can do their jobs in the order of magnitude more effectively. And that can include expanding our Knightscope+ offering for more advanced remote monitoring and human-in-the-loop advancements, acoustic level and event detection capabilities, improve video analytics and even the use of augmented reality on our KSOC user interface. To be absolutely clear, there are not enough officers and guards across the country to properly deliver a safe and secure society. And we, as a country, need to stop fighting about it and work the problem. And that point has proven by the fact that crime has a $2 trillion negative economic impact on the U.S. every single year. A [indiscernible] tax we all pay in blood, tears and treasure. 0.5 million humans at a given time cannot possibly secure 332 million Americans across 50 states. So the concept that security robots are coming to take everyone's job is just not credible and reflects a complete lack of understanding of the realities on the ground. Our communities are hurting, and we need to stop arguing about the problems and start fixing them. We need as a country to start treating our brave law enforcement officers and security guards as we would treat a soldier with deep, deep respect. We provide them the actual tools and resources and capabilities so they can actually keep you and your loved ones safe. And with your continued help and support, we'll be able to achieve that mission. New machines. Criminals and terrorists can be "anywhere." And therefore, if we're serious about making the U.S. safest country in the world, Knightscope needs to be everywhere. And that means adding 1 million machines in network to help the estimated 1 million law enforcement professionals and 1 million security guards. But these cannot possibly be all the same size and same form factor. For example, securing the ATM vestibule at a bank is not exactly the same as securing the underpass of a bridge. Corporate high-rise building can be very different than a manufacturing plant or a school from a public safety standpoint. I can imagine a very large portfolio of machines from extra small incognito mode version that can help better secure our federal court house to a solution we can present to a mayor for an entirety of a city, a governor for a statewide comprehensive solution and showing the Secretary of the U.S. Department of Transportation, how we can better secure our highways, airports, seaports and rail systems. The task is daunting and exciting, but I'm confident with the right resources in place now and a strong foundation to build upon. We, with the other security professionals and law enforcement, are up to this multi-decade task. And yes, when I say long term, I mean long term as in multi-decade. Remember, Tesla and SpaceX took about 2 decades to build to give you a flavor for otherwise known as a forward-looking statement, the next decade could look something like this, K1 [ Orb ], K1 Hemisphere, K1 Tower, K3 Indoor, K5 Outdoor, K7 Multi-Terrain, K9, K10 City, [ K15 ]. There are numerous products and services we see in our future and that will be just part of the story. New clients. We continue to learn about new environments where we can help new types of clients and whole new verticals to tackle, but 1 massive challenge is certainly the U.S. Federal Government. Our team has poured their souls into the effort for about 1.5 years now working through the cybersecurity approval process. Our sponsor, the U.S. Department of Veterans Affairs, has been consistently supportive, patient and enlightening on how to work through the FedRAMP process. I am pleased to announce that the Knightscope team has submitted our full application inclusive of numerous initial audits and now it is in the hands of the federal authorities for the balance of the year as they work through their very rigorous process. This will take some time. And even once we have the authority to operate for the ATL, it will take time to ramp up. But we're certainly excited about putting to practice all we have learned in the private sector and applying it to the public sector in helping our country at the same time. We cannot be more deeply honored to have that possible opportunity and privilege. All of what we just covered, the people, the facilities, the capabilities, technologies, new clients and client expansion is what is ahead for us to grow at Knightscope and continue to build the company to be a force for good, a powerful force for good than I deeply, deeply believe it can be. And as we did to get here, we will just have to continue to have our laser focus on innovation and operational excellence. We look forward to the continued and unwavering support from our investor base focused on long-term results, and we're grateful to have you on our side. You are a force for good. To the end, we are announcing today a unique and pointed challenge to every single mayor across the country. What would you be willing to do working with Knightscope to make your city 1 of the top 10 safest cities in the nation? If you read about today's Top 10 safest cities though, they roughly seem to have 3 characteristics: number one, much, much smaller in populations, perhaps 40,000 range or so, a median income in the 6 figures and for whatever reason, likely to be in the Northeast part of the country. We believe the first role of government is to protect its citizens and all of you have a fundamental basic right to live in a safe city in safe communities. And that right should not be held exclusively by a tiny portion of our population. It should be enjoyed nationwide. We are looking for an innovative and driven mayor who is willing to make a massive change and work hand-in-hand to establish a public/private partnership with Knightscope, jointly driving city officials, community leaders, local businesses, schools, your respective governor, your state and federal officials as well as the insurance companies, local businesses, law enforcement authorities and putting an overarching plan in place to make a massive difference from a holistic citywide view. This initial initiative is focused on cities that could properly utilize more than 100 machines in network across the city as a start. So force the likelihood of a positive and successful outcome to happen, here's what we are prepared to do, jointly develop a comprehensive public safety and security architecture for the city with you and our professionals, dedicate a Knightscope development center in your city, creating new high-tech jobs in your community, establish a Knightscope public safety fusion center to properly integrate all the new capabilities across the city, including importantly, community involvement, create a robotics club for your schools with direct access to our team. And as importantly, just before public listing on NASDAQ, we had over 35,000 investors backing Knightscope. We established a massive cross section of the nation to rally together for our efforts and we can help do the same for a specific city. So apply or learn more, please visit knightscope.com/innovate, and let's work together to innovate public safety. We've been so humbled by the tens of thousands of supporters of Knightscope who are cheering us on. We're often asked what can I do to help? Well, one interesting study we recently had conducted was around how did you hear about Knightscope when engaging prospective new clients? Shockingly, in a number of cases, the answer that came back was when Knightscope contacted us. Basically, that meant they had never heard about Knightscope nor knew that our cutting-edge crime fighting technology even existed. To remedy that problem, we're pleased to announce today the Knightscope Scout program. This is effectively a referral program for new business, clean and simple. You introduce this properly with a bit of homework done on your side with our guidance to a prospective client and we end up signing a contract that will be $1,000 in your pocket per machine once it is deployed. Yes, you heard me right $1,000 per machine deployed anywhere in The United States, subject to certain terms and conditions. You want to help make The United States of America become one of the safest countries in the world? This is your chance to make that positive impact. You can learn more and sign up at knightscope.com/scout. Let's go. Well, thank you, everyone, and that will wrap it up for today. We're announcing today that we're accepting free orders for the upcoming release of the K1 Hemisphere. [Presentation]

This all new machine includes a majority of the capabilities our clients enjoy today with our suite of technologies, but in a much, much more compact size and affordable subscription price. Well, I wonder if we should price it similar to our price ranges today or I wonder if it's something crazy like less than $1 an hour. The K1 Hemisphere is a perfect entry point for commercial property owners, residential, bank, ATM vestibules, truck stops, lobbies, loading docks, ports, rails, schools, and pretty much everywhere. We can help improve the security and safety profile over the places you work, live, study and visit. It has 3 cameras, providing a 180-degree eye-level high-definition video, strobe light, automatic license plate recognition, facial recognition, automated broadcast announcement and intercom capability running on 4G or 5G wireless. So the actual introductory price will be $0.75 per hour, making it much easier for leaders to answer the question. If your students, employees, tenants, patients or visitors are your most important asset, then why are you not using the most advanced technologies to help keep them safe and secure? Adding our optional Knightscope+ remote monitoring services for an extra $2 per hour is a natural fit. And yes, you heard me right. I said $0.75 per hour for the K1 Hemisphere. We'll begin shipping later this year and you can place your preorder today for this new entry in Knightscope's portfolio of technologies at knightscope.com/hemisphere. Another important announcement today. Our technology is now available on single, double or triple shifts to better accommodate our clients' needs and budgets. Where some clients may need the graveyard shift covered on weekdays and 24/7 on weekends as an example, this means that you can have the power of Knightscope technology at your fingertips for 8 hours, 16 hours or 24 hours on an annual contract. Our seasoned professionals are happy to work with our clients to tailor an autonomous security program just for them. You can schedule free demo on security assessment at knightscope.com today, and let's go change the world together. Thank you, everyone, for tuning in, and we hope you found the session today informative and invigorating. But before I sign off, here are 7 specific ways you can help with our mission to make The United States of America, the safest country in the world. Number one, get your mayor to sign up for the safest city challenge. Number two, sign up to host the robot roadshow in your city. Number three, sign up for the Scout referral program. Number four, send over some awesome recruiting candidates. Number five, place that preorder for the K1 Hemisphere. Number six, sign up for a demo, and let's work together to see how we can help. And number seven, visit knightscope.com and follow us on social media. All the links are at the bottom of the page. We have a massive amount of work ahead for us, a grieving nation we hope to help, a daunting mission but we are up to the challenge. But the real question is, are you? Join us and be a force for good [indiscernible]. [Presentation]

Gentlemen, and welcome again to the 2022 Annual Meeting of stockholders of Knightscope, Inc. We hope you enjoyed the video presentation just shown, and we will now move forward with the business portion of the annual meeting. I am William Santana Li, CEO and Chairman of the Board, and I will preside over this meeting. We appreciate your attendance, your interest and most importantly, your support of Knightscope. I now call the meeting to order, and we'll turn the time over to Mallorie Burak, our Chief Financial Officer, who will lead the rest of the meeting.

Thank you, Bill, and good morning, ladies and gentlemen. We will conduct this meeting in accordance with the agenda. For your reference, the agenda and rules of conduct have been posted on the online annual meeting portal. We ask that you please follow these rules so we may have an orderly meeting. Note that you may also submit written questions during the meeting and cast your vote via the online portal. Before we start the formal business of the meeting, I would like to introduce our directors and executive officers joining us on this webcast annual meeting today. Present are our directors: Linda Keene Solomon, Jackie Hernandez Fentanez, Patty Watkins, Trish Howell and Suzanne Muchin Also present at the meeting are the following executive officers of the company: Bill, myself, Stacy Stephens, our Chief Client Officer; Mercedes Soria, our Chief Intelligence Officer; Aaron Lehnhardt, our Chief Design Officer, and Peter Weinberg, our General Counsel. Peter Weinberg will act as Secretary of the meeting. Miguel Aguila, a representative of Computershare has been appointed to act as the inspector of election for this annual meeting. Rich Bellucci, a representative from BPM LLP, our independent auditor, is also present today. As noted in the agenda, we will now conduct the official business of the annual meeting. Any questions submitted through the Annual Meeting portal will be answered by our Investor Relations team after the meeting as specified in the rules of conduct. We will now proceed with -- to the business portion of this meeting. As stated in the notice of meeting and proxy statement previously provided to you, the record date for voting at this meeting was the close of business on April 28, 2022. The Secretary has delivered an affidavit of distribution to show that notice of this meeting was properly given. The inspector of election has examined the proxies received and stockholders present at this meeting and reports that more than 57% of the votes, which could be casted by the holders of all outstanding shares of stock entitled to vote at the meeting are represented at this meeting. Therefore, a quorum is present, and we will now proceed with the business. Please note that a list of stockholders entitled to vote as of the record date is available for inspection during the entire time of this annual meeting on the annual meeting website. The time is now 9:30 a.m. Pacific Time, and I declare the polls now open for each matter to be voted on at this meeting. All stockholders entitled to vote at this meeting have the ability to do so online. If you are a stockholder entitled to vote and have not yet voted or if you want to change your previously casted vote, please do so via the online portal for this meeting. Please remember that if you have already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters on the agenda, we will close the polls. There are 3 matters for consideration by stockholders at this meeting. The first matter to be voted upon is the election of 7 directors nominated by our Board of Directors to serve until the 2023 Annual Meeting of Stockholders and until their respective successors are elected and qualified. The director nominees are: William Santana Li, Kristi Ross, Linda Keene Solomon, Jackie Hernandez Fentanez, Patty Watkins, Trish Howell and Suzanne Muchin. The Board of Directors recommends the election of each director nominee. The second item of business is the ratification of BPM LLP as a company's independent audit firm for the fiscal year ending December 31, 2022. The Board of Directors recommends that the stockholders approve this proposal. The third item of business is a vote to approve the Knightscope, Inc. 2022 equity incentive plan. The Board of Directors recommends that the stockholders approve this proposal. No stockholder proposals or other director nominations for consideration at the annual meeting were received and, therefore, there are no other items to be considered at the meeting. I will now pause to allow stockholders to submit their votes. If you have not already done so, please vote by clicking on the voting button on the web portal and following the instructions. Please also submit any questions which will be addressed after the meeting by our Investor Relations team. [Voting]

I declare the polls now closed at 9:33 a.m. Pacific Time and ask that the inspector of election collect and tabulate the votes. Based on the preliminary tabulations of the inspector of election, we are happy to announce that all director nominees have been duly elected. The appointment of BPM LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2022, has been ratified and the Knightscope, Inc. 2022 equity incentive plan has been approved. Within 4 business days, the company will file a current report on Form 8-K with the SEC disclosing the specific voting results for the matters voted on at this meeting.

As there is no other formal business to be addressed, our program for the day has concluded, and I declare that the 2022 Annual Meeting of Stockholders is hereby adjourned. Thank you all for attending today's meeting and for your continuing support of the company.

This concludes the meeting. You may now disconnect.