Knightscope's Q3 2025: Contradictions Unveiled on K7 Production Timelines, Border Security Capabilities, M&A Strategy, and Tariff Impact

Date of Call: None provided

Financials Results

• Revenue: $3.1M, up 23.5% YOY (services +2% YOY; product +82% YOY)
• EPS: Net loss of $0.98 per share, improved vs loss of $3.58 prior year
• Gross Margin: Gross loss of $1.6M, driven by $600k inventory write-off and higher material costs
• Operating Margin: Loss from operations $9.5M, compared to $7.7M prior year; OpEx $7.9M, ~+13% YOY

Business Commentary:

* Revenue Growth and Product Development: - Knightscope reported revenue of $3.1 million for Q3, up 23.5% compared to the prior year. - This growth was driven by increased product revenue by 82%, due to higher production to catch up from prior component shortages, and modest growth in services revenue by 2%.

• Margin Challenges and Profitability:
• Knightscope incurred a loss from operations of $9.5 million, up from $7.7 million in the prior year, primarily due to a $600,000 write-off of slow-moving and obsolete inventory and higher material costs.

• The loss was attributed to challenges in scaling manufacturing operations and building scale economics.

• R&D and Investment Strategy:

• Knightscope's R&D investment increased by $2 million compared to the prior year, primarily for the development of the next-generation K7 robot.

• The investment is aimed at driving innovation and growth through product development and improving operational efficiency.

• Expansion and Strategic Focus:

• Knightscope announced the start of limited series production of the K7 robot in the second half of 2026.
• Expansion plans focus on entering new markets and penetrating existing ones, leveraging innovation to drive growth.

Sentiment Analysis:

Overall Tone: Positive

• "I've never been this excited about the company's future," management said; cash increased to $20.4M vs $5.3M a year ago; announced limited series production of K7 targeted for second half of 2026 and emphasized product and execution focus as catalysts for growth.

Q&A:

• Question from Greg (Individual Investor): Is the company building first, then selling inventory or building inventory and then selling products?
  Response: Historically sold first then built; shifting toward building finished-goods inventory to reduce backlog and accelerate shipments.

• Question from Alison Schwanke (Moderator): What are the capabilities of the new K7?
  Response: K7 is a faster, more rugged design—up to 10 mph, 4-wheel steering and light-duty off-road capability—with off-grid charging R&D and limited series production planned H2 2026.

• Question from Robert (Individual Investor): Are you working on any M&A opportunities?
  Response: Yes; targeting acquisitions/partners in software (perception/audio/sense AI) and human/remote-monitoring capabilities to complement hardware.

• Question from Alison Schwanke (Moderator): Do you have government contracts or plans for border security use?
  Response: Have local/state/federal stationary contracts; federal progress slowed by government shutdown; K7 roadmap includes off-road/off-grid features relevant to border use.

• Question from Greg (Individual Investor): If expense is greater than income, how is that sustainable?
  Response: Long-term not sustainable; management says scaling manufacturing and operational execution will improve margins and cites $20.4M cash balance to fund the plan.

• Question from Nathaniel (Individual Investor): Why haven't you reached the goal of 100+ K5s in the field—what are the obstacles?
  Response: They report >100 ASR devices deployed but the main obstacle is uneven customer adoption; focus is on proving value to drive renewals and expansion.

• Question from Anonymous (Individual Investor): Who will be the customer of the K7 and are red/blue lights restricted to law enforcement?
  Response: Initial customers likely existing clients via beta deployments; no blanket restriction on lights and will follow applicable regulations.

• Question from Anonymous (Individual Investor): The other side of the business is ~2/3 of revenue—please clarify composition.
  Response: ECD devices account for ~60% of revenue (transactional sales); robots are recognized over time (subscription/recurring); company is expanding services to increase recurring revenue.

Contradiction Point 1

K7 Production Timeline

It directly impacts expectations regarding the production timeline of a key product, potentially influencing company revenue and investor expectations.

What other news is included in the earnings release? - Alison Schwanke (Knightscope)

20251114-2025 Q3: Literally behind us is the all new K7 autonomous security robot. ... Plans to start limited series production in the second half of 2026. - William Li(CEO)

Are there any other news items in the earnings release besides the K7 launch? - Alison Schwanke (Knightscope)

2025Q3: The all-new K7 autonomous security robot is the main news. ... It's a significant advancement that will enhance security capabilities and handle larger environments, with plans to start limited series production in the second half of 2026. - Bill (Chairman and CEO, Knightscope)

Contradiction Point 2

K7 Capabilities and Market Application

It involves differing statements about the K7's capabilities and its applicability for border security, which impacts the company's market strategy and potential revenue streams.

Is the K7 rugged enough for border security applications? - Alison Schwanke (Knightscope)

20251114-2025 Q3: Light-duty off-road is really important. The other reason we're looking at the off-grid charging, autonomous charging is also important because you don't necessarily have power infrastructure. - William Li(CEO)

Will the K7 be used for border security? - Unnamed Caller

2025Q3: The K7 is designed to handle large environments, including border security. The Department of Homeland Security plans to request proposals for autonomous technologies to support CBP. - Bill (Chairman and CEO, Knightscope)

Contradiction Point 3

M&A Strategy and Focus Areas

It highlights the inconsistency in the company's focus areas for potential mergers and acquisitions, which can impact strategic direction and resource allocation.

Have you pursued any M&A opportunities? - Alison Schwanke(Knightscope)

20251114-2025 Q3: So we are absolutely looking at M&A opportunities. There are 2 primary areas that we're focused on. One is do we ... how do we develop the hardware? On the software side, we're looking for partners and/or companies to acquire that allow us things like perception AI or audio AI or sense AI. - Apoorv Dwivedi(CFO)

When will the company start generating profits? - Anand

2025Q1: We prioritize scaling our ability to deliver and scale our own technology. We continue to assess potential external technology and talent for integration into our autonomous security robots. - William Li(CEO)

Contradiction Point 4

Tariff Impact and Financial Uncertainty

It highlights the inconsistency in the company's communication regarding the impact of tariffs and financial uncertainty, which can influence strategic planning and investor expectations.

Can you explain how current macroeconomic uncertainty is affecting customer discussions? - Scott Buck(Unknown)

20251114-2025 Q3: Macro uncertainty is impacting discussions, mainly through tariffs affecting component costs. There's uncertainty regarding the financial impact of tariffs on the supply chain and component lead times. - Apoorv Dwivedi(CFO)

What incremental changes in Blackwell GPU affect revenue and customer reactions? - Vivek Arya(Bank of America Securities)

2025Q1: The focus on security and national safety is positive for the business, and there's potential to mitigate the impact if tariffs persist. - Apoorv Dwivedi(CFO)