Knightscope, Inc. Q1 FY2026 earnings call

Corporate Strategy Shift

• The company is transitioning to become a unified managed security service provider, delivering the U.S.'s first autonomous security force that combines hardware, software, AI, and human security agents.
• The service uses a 7-layer, 3-stage escalation model: AI/robots resolve routine alerts (addressing the industry's 92-93% false alert problem), escalate uncertain cases to remote monitoring teams, and escalate critical events to physical armed/unarmed agents or law enforcement.
• This combined model lets the company pursue large integrated requests for proposals that pure technology security firms cannot bid on, and enables a land-and-expand strategy to become a trusted client advisor.
• The company targets a $230 billion total addressable market with this new offering.

Acquisition & Integration

• The Event Risk (NYSCOPE Security Force) acquisition closed on February 27, 2026, for a total fair market net present value purchase consideration of ~$18 million, including $5 million cash at closing, $1.1 million seller debt repayment, $7.2 million in Class A common stock, and deferred/contingent consideration.
• The acquisition is accretive from day one, adding all required pillars (autonomous machines, remote monitoring, orchestration software, licensed agents) to complete the company's autonomous security force vision, and is running slightly ahead of integration schedule.
• The acquired business has a 6% annual employee turnover rate, far below the 100-400% industry average for security staffing firms.

Product Development

• The company is developing 3D digital twin orchestration software that combines data from all sensors, robots, and agents to give remote analysts a full omniscient view of client facilities, planned for internal release in Q4 2026.
• The K7 high-speed autonomous security robot designed for large perimeter patrolling is in active development, with a limited client deployment scheduled for late summer 2026.
• The company is developing wearable augmented technology for security agents to integrate their on-site data into the central orchestration platform, and partnered with Carnegie Mellon University on a 5-year national security robotics collaboration for next-gen product development.

Overall Q1 2026 Performance

• Consolidated Q1 2026 revenue hit $6.0 million, up 106% year-over-year (YoY) from $2.9 million in Q1 2025: service revenue was $4.2 million (up 98% YoY), product revenue was $1.8 million (up 128% YoY). Excluding the acquisition, core revenue grew 26% YoY.
• This is the first positive consolidated gross margin in recent company history: $465,000 (7.7% margin), a $1.13 million YoY improvement from a $668,000 gross loss (-22.9% margin) in Q1 2025.
• Core technology margin inflected to positive 1.5% from -23% YoY.
• Cash and cash equivalents stood at $11.4 million as of March 31, 2026, down from $20.6 million at end-2025 due to acquisition-related cash outlays and growth investments. The company's at-the-market equity facility remains active to support liquidity.

Nightscope adopted two reportable segments following the Event Risk (NYSCOPE Security Force) acquisition closed in late February 2026: 1. Core Technology: $3.67 million in Q1 2026 revenue, with $54,000 in gross margin, representing 61.2% of total consolidated revenue. 2. Acquired Security Force: $2.4 million in Q1 2026 revenue (contributed over 32 days post-acquisition), with $400,000 in gross margin at a 17.5% segment margin, representing 38.8% of total consolidated revenue. Once full integration is complete, the company plans to shift to a single integrated reporting framework aligned with its managed service provider model.

• Gross margin improvement is expected to come from operational scale, better manufacturing fixed cost absorption, supply chain normalization, managed services integration, and cross-selling higher-margin software/technology to acquired security clients, though the current positive margin is not yet a sustainable run rate.
• Full internal release of the 3D digital twin orchestration platform is planned for Q4 2026, with a public unveiling of the full unified autonomous security managed service at the GSX security conference in September 2026.
• The company will host an in-person investor day at its Silicon Valley headquarters in Q4 2026.
• The company expects to continue making significant long-term investments in product development, integration, and operational infrastructure through 2026, with operating leverage and reduced cash burn expected to materialize over time as scale grows and higher-margin recurring services attach to client contracts.
• Management is hopeful that federal policy action on a national U.S. robotics strategy will advance in 2026, though the outcome is not controlled by the company.

• Forward-looking statements are subject to material risks including ongoing operating losses, substantial doubt about the company's ability to continue as a going concern, need for additional future capital, acquisition integration risks, customer concentration, supply chain and labor market disruptions, competition, and compliance with NASDAQ listing requirements.
• Gross margin remains vulnerable to supply chain variability, and near-term investments in growth will continue to drive net losses and cash burn in the near term.
• Additional integration-related expenses will be incurred in the near term following the acquisition.
• There is no guarantee that federal policy action on a national robotics strategy will be passed or that it will benefit the company even if advanced.

Q: How does management expect gross margin to improve over time?

A: Gross margin will improve through a combination of larger operating scale that spreads fixed manufacturing and infrastructure costs across higher volume, normalization of global supply chains that lowers input and logistics costs, and integration of the unified managed services platform. Cross-selling higher-margin software and autonomous technology to the acquired security force's existing client base will also lift overall margins over time, as AI-driven orchestration makes combined human-technology operations far more efficient than traditional fragmented security models.

Q: What is the current status of the NYSCOPE Security Force acquisition integration?

A: Integration is progressing slightly ahead of the original schedule. Work is well underway on financial/regulatory reporting, combining IT and HR systems, and aligning go-to-market strategies. The acquisition brought a mature, experienced management team with deep industry knowledge, and the low 6% employee turnover demonstrates the strength of the acquired business's culture and operations. The team is already testing cross-selling: adding technology to existing security service clients and adding human security elements to existing technology clients, with strong alignment on the shared strategic vision.

Q: How should investors think about cash burn, capital needs, and long-term strategy for scaling?

A: The company will continue investing heavily in 2026 in product development, AI/software capabilities, integration, and operational infrastructure to build long-term scale and competitive positioning. Near-term, large client deployments will include meaningful human services costs as relationships are established, but over time operating leverage, better technology utilization, and increased attachment of higher-margin recurring services will reduce cash burn. Management is targeting long-term annual recurring revenue of $1 billion, which requires these upfront investments to build out the platform and team.

Q: What are the company's plans for M&A, government opportunities, and broader commercial strategy?

A: The U.S. security industry is highly fragmented, with many small regional firms owned by retiring owners, so the company will pursue selective, quality-focused acquisitions to grow. Future targets include remote monitoring businesses for bolt-on acquisitions or carve-outs. On the government side, the company is re-architecting its entire technology portfolio to meet federal cybersecurity standards for all public and private clients, creating a long-term competitive advantage. Management is advocating for a federal policy that would require all government agencies to allocate 1% of their operating budgets to commercially available robotics/automation to improve efficiency, which would act as a major demand catalyst if passed. The company has also launched a 5-year partnership with Carnegie Mellon University for advanced robotics research.