Knightscope's Q3 2025 Earnings Call: Contradictions Emerge on Inventory Strategy and Macro Uncertainty Outlook

Date of Call: None provided

Financials Results

• Revenue: $3.1M, up 23.5% YOY
• EPS: -$0.98 per share, compared to -$3.58 prior year
• Gross Margin: Gross loss $1.6M, driven by $0.6M inventory write-off identified during move and higher material costs
• Operating Margin: Loss from operations $9.5M, compared to $7.7M prior year

Guidance:

• Limited series production of the K7 targeted to start in the second half of 2026.
• Transitioning toward building finished-goods inventory to enable faster shipping and convert bookings to revenue faster.
• Company will not disclose pre-order figures now; will prioritize deployments then report results.
• Continued investment in R&D (noted $2M YOY increase) and selective M&A targeting software/AI and human/remote-monitoring capabilities to accelerate scale.

Business Commentary:

• Revenue Growth and Product Development:
• Knightscope reported total revenue of $3.1 million for Q3 2025, which grew 23.5% versus the prior year.

• The growth was driven by an increase in both sides of the business, with services revenue growing modestly by 2% and product revenue increasing by 82%, primarily due to higher production to meet component shortages.

• Operational Challenges and Cost Management:

• Knightscope experienced a temporary dip in gross loss driven by a $600,000 write-off of slow-moving inventory and recognition of higher material costs to meet production demands.

• These challenges were due to the deep dive into manufacturing operations and the move from Mountain View to Sunnyvale.

• Investment in R&D and Innovation:

• R&D investment increased by about $2 million compared to the previous year.

• This investment was focused on the next-generation four-wheeled K7 robot and AI capabilities, aiming to drive innovation and competitive advantage.

• Shareholder Value and Strategic Focus:

• Knightscope is focused on executing to deliver shareholder value through organic growth, new product development-led growth, and inorganic growth through mergers and acquisitions.
• The company emphasizes the importance of delivering growth through innovation and product development to enhance shareholder value.

Sentiment Analysis:

Overall Tone: Positive

• "I’ve never been this excited about the company’s future" (CEO); revenue grew to $3.1M (+23.5% YOY); net loss improved to $10M vs prior year; cash up to ~$20.4M from $5.3M last year; announced K7 limited series production H2 2026—management emphasizes execution, scaling manufacturing, and product-led growth.

Q&A:

• Question from Greg (Unspecified): Is the company building first, then selling the inventory, or building inventory and then selling products?
  Response: Shifting toward building finished-goods inventory to reduce backlog and enable faster shipping and revenue conversion; backlog down to about $2M.

• Question from AnonymousShareholder (Unspecified): The stock’s down over 99% from the IPO price. How can you justify C-level salaries with such dismal performance?
  Response: Compensation is set by the board; management says stock-price volatility doesn't reflect operational progress and board-determined pay reflects expectations for future execution.

• Question from Attendee (Unspecified): What are the capabilities of the new K7?
  Response: K7 will top ~10 mph, support four-wheel steering, handle light off-road/rough terrain, include multi-LiDAR/camera/RTK sensors, loud PA, and work toward off-grid/autonomous charging for larger environments.

• Question from Attendee (Unspecified): Are you working on any M&A opportunities?
  Response: Yes — targeting acquisitions or partnerships in software/perception/audio AI and human/remote-monitoring capabilities to combine hardware, software and human augmentation.

• Question from Attendee (Unspecified): Do you have government contracts and is the K7 applicable for border security?
  Response: Have local, state and some federal stationary contracts; federal engagement slowed by shutdowns; K7's light-off-road and off-grid charging roadmap makes it a candidate for border/CBP use.

• Question from Attendee (Unspecified): Will you share K7 pre-order numbers in future quarterly reports?
  Response: Not at this time — company traditionally won’t provide forward-looking pre-order figures; will focus on deployments first and then disclose results.

• Question from Greg (Unspecified): If expenses (R&D) exceed income, how is that sustainable?
  Response: Acknowledged as an execution challenge — must scale manufacturing and operations to improve gross margins; company has ~$20.4M cash and plans to drive margins via scale and cost management.

• Question from Attendee (Unspecified): Why haven't you reached the goal of 100+ K5s in the field; what are the obstacles?
  Response: Primary obstacle is uneven adoption; company reports >112 ASR devices deployed and relies on renewals and time-in-market to drive broader adoption.

Contradiction Point 1

Sales and Inventory Strategy

It involves a change in the company's sales and inventory strategy, which could impact cash flow and operational efficiency.

Is Knightscope building first and then selling inventory, or building inventory and then selling products? - Greg (Investor)

2025Q3: Wetraditionally, we've sold products first, then built them. However, as we move forward towards scaling, we want to figure out how to build the stock and then sell the inventory as demand comes in. - Apoorv(Dwivedi), CFO

How is the current macroeconomic uncertainty affecting your discussions with potential customers? - Scott Buck (Analyst)

2025Q1: In terms of sales, it's kind of two sales processes. One is the traditional short order transactional process where somebody comes in and says, I want to buy 10 units. I want to buy 100 units. - William Li(CEO)

Contradiction Point 2

Macro Uncertainties Impact

It highlights differing perspectives on how macro uncertainties are affecting the company's operations and pricing strategies.

What other news is in the earnings release besides the K7 announcement? - Alison Schwanke (VP of Marketing, Knightscope)

2025Q3: Macro uncertainties impact financial matters like tariffs. Some impacts on suppliers who outsource components from foreign companies. Remains uncertain how tariffs might affect pricing and lead times, but we are actively managing these challenges. - Apoorv(Dwivedi), CFO

Was the per-share loss improvement mostly due to the reverse split? - Dane Jones (Investor)

2025Q1: We're focused on areas like hardware, software, and humans. Potential acquisitions in perception AI and audio AI could improve our analytics capabilities. We're also looking at integrating human teams to support our machines. - Apoorv(Dwivedi), CFO