KSCP earnings call analysis

NASDAQ:KSCP Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Bill | CEO: Welcome everyone to Nightscope headquarters here in Silicon Valley. Excited to walk you through our first quarter financials for 2026. But before we do that, we're going to get into the overall corporate strategy as we move to becoming a managed service provider. But before we do that, report.

Lepore | CFO

Thanks, Bill. This presentation contains forward-looking statements with the meaning of the Private Securities Litigation Reform Act of 1995. including statements regarding night scope strategy, event risk acquisition and integration, expected revenue, gross margin, operating expenses, addressable market, and the company's ability to fund operations and continue as a going concern. Actual results may differ materially due to risks including operating losses and substantial doubt about the company's ability to continue as a going concern. the need for additional capital, integration of event risk, customer concentration, supply chain and labor conditions, competition, and NASDAQ listing requirements. Please see risk factors in the company's SEC filings at the SEC.gov website. Proforma information is illustrative only. Forward-looking statements may speak only as of today. The company undertakes no obligation to update them except as required by law. Please refer to the Q1, 2026, Form 10-Q for the complete disclosure. With that, Bill?

Bill | CEO

All right, let's get into it. We're really excited to talk about building the nation's first autonomous security force. That is a unique combination of hardware, software, and humans in an orchestrated format. So let's talk a little bit about the escalation levels and the model behind that managed service provider. Most folks may not know this, but 92%, 93% of alerts and the like are false in the security industry. So you're dealing with the teams are inundated with a massive amount of noise. So what we want to do is put that into a very thoughtful, let's call it seven-layer take, which has three pieces, autonomous, remote command, and a physical response. So let's see if we can, on the autonomous layer, basically have AI agents, autonomous robots, autonomous machines, and the like resolve ongoing items that humans really shouldn't be having to deal with. And then when and if a decision needs to be made, then you can move on to having that escalated to the remote monitoring team. The remote monitoring then can review, approve, deny whatever changes need to be made, and if needed, then escalate it to the human agents, be them armed, unarmed, or law enforcement. So we want to provide one managed service provider, again, combination of hardware, software, and humans. in an orchestrated format, and that's going to be a new profound opportunity for us to provide positive outcomes, improved outcomes, and hopefully lower costs for our clients that seek an integrated solution and dealing with a lot of fragmented items today. So visually what that looks like is basically what I just said. Hardware, software, and humans. So you've got stationary devices, autonomous machines and robots that patrol without remote control, and then augmented security agents that can then complement that entire solution. So one of the really exciting things about not only the financial impact of the acquisition of Rentverse is just designing and strategizing what that next generation security agent might look like. So we have a small team working on a very exciting technology to take some of the capabilities that are on our robots today and actually put them on person exclusively for our security agents to be able to not only have them do their jobs much, much more effectively, but then also provide that data into a really interesting piece of unique software that we're developing to get all of that combined into one field of view. And one of the other items similarly, not just on the human side, but the team is actively working on making very good progress on the K7 autonomous security robot. This is intended to patrol much, much larger environments at higher speeds and be able to really secure that perimeter. So all of that gets combined into one field of view. So one of the things that if you've ever had a ring doorbell camera or the like and you're looking at the app, you actually can't see to the left of you, you can't see to the right of you, you don't know what's behind. And that's what you're asking a remote monitoring security analyst to do. They've never been to the location, they've never walked the premises, and somehow they're supposed to secure the facility with one single field of view. And what that signals platform that the team is developing is to provide an eye in the sky view of the entire facility in three dimensions. So you're combining video gaming technology, digital twins and then all the significant amount of data coming out of the stationary devices, the robots and our augmented security agents to keep that digital twin up to date as much as possible so you can actually secure the facility and have that analyst be omniscient and omnipresent, know everything and be everywhere and we can be more profoundly excited about uh this orchestration software that we intend to release for our internal use here during the fourth quarter of this year moving on uh for the 2026 highlights uh thus far we're uh uh very exciting time uh we were able to put up some pretty serious numbers uh on the filing last week uh we've got revenue up 106 to six million dollars for the quarter and we're just getting started uh one of the other Wonderful opportunities with the acquisition is it now has all four pillars of what we want that autonomous security force to be all included and in place. So you've got everything from autonomous machines, remote monitoring, orchestration software, as well as armed and unarmed licensed agents. And all that integration is underway so we can have one single unified force. And the image that you have there was a celebration there for Autonomous Security Force Day, our first annual. So hopefully we can do that every year going forward on our annual corporate birthday. And the team is now very strong and growing. We're well over 400 employees. And that toast from that image was one team, one force. Very excited for what we hope to be a Blockbuster 2026. So building that first, the nation's first autonomous security force, this is intended to address that $230 billion total addressable market. And the strategic logic is basically add the increase the capabilities because technology can't do everything. Humans can't do everything, but that combination is extremely powerful, and this is that unlock for us to go after requests for proposals that normal technology-only companies would not be allowed to do. And this also is a very unique land and expand where we hope to become a trusted technical advisor to our clients and be able to implement additional technologies, again, to improve their outcomes and reduce their costs. So early validation, revenues up, we've got positive gross margins, and the strategy has a lot of traction. It's very interesting when the industry is excited, the team is excited, the board is excited, all our incoming recruits are excited. We're off to a very, very solid 2026. So with that, I'm going to turn it over to our trustee CFO.

Lepore | CFO

Lepore, do you want to take it away? Thanks, Bill. Good afternoon, everyone, and thank you for joining us. I'll walk through the financial detail behind the highlights Bill just mentioned. We'll cover the risk acquisition, the economics, and the operational performance of the business as a whole. Please note that the figures on our financials are unaudited and presented in millions unless otherwise noted. For complete financial detail, please refer to the Q1 2026 Form 10Q file last Friday. Now, again, you guys are moving. I don't know why it's moving. Can you put it here so we can see?

Bill | CEO

No, but it says slide 13. I think he moved too early. When are you supposed to have the acquisition stuff up?

I think there's an error. Lepore | CFO

recording on progress absolutely thanks thanks bill uh can you hear me okay yep very good hey uh good afternoon everyone and thank you for joining us i'll uh walk through the financial details behind the highlights bill just shared uh we'll cover the event risk acquisition economics and the operational performance of the business as a whole uh Now, as we announced, the event risk acquisition, it closed on February 27, 2026. To remind our investors, we wanted to provide the purchase consideration. So the total purchase consideration in fair market net present value is approximately $18 million, comprising $5 million in cash at closing, the repayment of $1.1 million of seller debt, approximately $7.2 million in Class A common stock, representing 1.7 million shares issued. The balance is future deferred cash in contingent consideration. A working capital and non-compute adjustment of $1.4 million is reflected as an offset to the deferred purchase price. Now, on the top right-hand side, we've provided the accounting allocation of the purchase price. Important to note that this is preliminary and subject to measurement period adjustments. Client relationships of $15.5 million represents the largest component and amortizes over about 10 years of life. From a financial performance perspective, at the bottom right of the screen, in its first 32 days of contributions, the NYSCOPE Security Force delivered $2.4 million in revenue. $400,000 in gross margin at a 17.5% margin, and $100,000 of net income, accretive from day one. In addition, the acquisition resulted in about $1 million of one-time transaction costs to SG&A in the quarter. We do expect to continue to incur additional expenses related to the integration in the near term. Also happy to note that on a pro forma combined basis, the Q1 revenue would have been approximately $10 million versus the $7.2 million in Q1 2025, a 39% year-over-year increase. Turning to cash position, cash and cash equivalents stood at about $11.4 million as of March 31st. compared with $20.6 million at year-end 2025. This decline reflects approximately $6.1 million of cash outlay to fund the eventless transaction, closing payment and debt repayment, and the $1 million in direct transaction costs, as well as continued investment in the security force operations. Our at-the-market facility remains active and continues to support our liquidity and operational flexibility. Now, turning to the NiteScope combined company performance. Q1 2026 consolidated revenue was $6.0 million, up 106% year-over-year from $2.9 million in Q1 of 2025. This is a record quarter and the strongest in company history. Service revenue was $4.2 million, up 98% year-over-year, driven primarily by $2.4 million of contribution from the acquisition. Product revenue was $1.8 million, up 128% driven by fulfillment of ECD orders that had been constrained, if you recall, by supply chain conditions in the second half of 2025. Excluding the acquisition, the core technology revenue grew 26% year-over-year from $2.9 million to $3.7 million. Gross margin turned positive in Q1 2026. This is the first positive consolidated gross margin in recent history. Consolidated gross profit was $465,000, or 7.7% of revenue. This compares with a gross loss of $668,000, or negative 22.9% in Q1 2025, a $1.1 million year-over-year improvement in gross profit. The acquired security force segment contributed $400,000 of gross margin at a 17.5% segment margin on its $2.4 million of Q1 revenue. Core technology, the margin inflected to a positive 1.5% from a negative 23% a year ago, driven primarily by volume and mix. A note of caution, service costs do include 1.8 million of new contracted labor associated with the acquired business. This point forward, this is expected to continue to be a recurring cost line. While the inflection is encouraging, we are not yet at a sustainable run rate, and gross margin remains subject to supply chain variability. Total operating expenses in the quarter were $10.8 million. R&D expense was $4.7 million, up $2.6 million, or 120% year-over-year. This investment is primarily directed at new product development, including the K7 and the next-gen K1 portfolio. SG&A was $6.1 million, up $2.1 million, or 51% year-over-year. Approximately $1 million of that increase represents one-time transaction costs related to the acquisition, legal, accounting, and evaluation services. Other drivers include approximately $400,000 of additional investor relations, advertising spend, $400,000 of professional services, $300,000 of acquired company G&A, and $200,000 related to the new Sunnyvale headquarters. Normalizing for $1 million of non-recovering acquisition costs, operating expenses were $9.8 million in the quarter. 59% above prior year run rate, reflecting our investment in future growth. Now, on to net loss. The net loss for the quarter was $10.3 million, compared with $6.9 million in Q1 2025. The widening primarily reflects the higher operating expenses I just described, partially offset by the gross margin improvements and lower interest expense. On a per share basis, the loss improved to 74 cents from $1.28 in Q1 2025, reflecting a 42% improvement per share. Despite a 156% year-over-year increase, in weighted average share count. Excluding the $1 million one-time acquisition transaction costs, the quarter's normalized net loss would have been approximately $9.3 million. Following the acquisition, we adopted two reportable segments in Q1, 2026. The table on this slide summarizes our Q1 revenue, gross margin, and gross margin percentage by segment. These include core technology development and operations, which yielded about $3.67 million in revenue and $54,000 in gross margin, and the acquired security core segment, which added $2.4 million in revenue and approximately $400,000 in margin. Now, it is important to note that the two segments reported in Q1 are a gap requirement triggered by the acquisition. They do not reflect how Knight Scope is managed and plans to be managed in the future. As Bill described, once fully integrated, we plan to operate the company as a single integrated autonomous security force that provides managed services. We expect our reporting structure to evolve toward a product and services framework that better reflects how the business is run. For a complete segment disclosure, please refer to Note 9 of the Q1 2026 10Q filing. Bill, that concludes the financial review. Back to you for a forward look.

Bill | CEO

Sure, and what's next? All right, so looking ahead, the team has been burning the candle on both ends. On the K7 side of things, we've got a lot of great work accomplished still a lot ahead of us. We're looking at deploying a limited release of the K7 to select clients we have identified later this summer and to get some real-world deployment experience as another feed into the product development cycle. So we're making good progress there. The integration of This is probably my 25th company I've bought. The deal, as I often say, is the easy part. The hard part is the integration, the day one and thereafter. Fortunately, we have very like-minded folks and teammates. We're all getting to know each other. We've primarily been focused on a few key areas, but so far, so good. And in some cases, I think if you ask Eric or myself, we might be a little bit ahead of schedule of where we wanted to be. but still a lot of work yet for the balance of the year. GSX, we're going to be there in force. GSX is a major, one of the top two major security conferences here in the U.S. September, mid-September in Atlanta. We're going to unveil the autonomous security force as one team and one force with one contract. as a single managed service provider, literally something all new for the industry that's never been done before. So we're very excited about that. And then towards the fourth quarter, we're looking to have an investor day here physically at Nightscope headquarters. You can come feel, touch, see, talk to the team, see the technology up, up close. And obviously we'll invite all of you as well as our, bankers and analysts and the like. So look forward to doing that. We had a good amount of questions come in. For purposes of being a little bit more efficient, we condensed them down to a few key items. And I think the first one was to pour was around gross margin. How do you see that improving over time or what kind of pieces go into the puzzle here?

Lepore | CFO

Absolutely, Bill. I think, you know, obviously the goal is growth margin improvement. And we believe that growth margin improvement will primarily come from a combination of operational scale, improved manufacturing absorption, supply chain normalization, and continued integration of our managed services platform. On the technology side, we expect better utilization of fixed manufacturing and support infrastructure as volume increases, while the addition of the security forks capabilities allow us to pursue larger, more comprehensive customer engagements. especially as we think about a land and expand strategy that combines technology, monitoring, and human response over time. We believe that the ability to cross-sell higher margin software and technology in addition to monitoring and the autonomous solutions into the broader managed services relationships can help improve overall customer economics and margin profile.

Bill | CEO

I think the combination of humans and technology literally with AI is going to rewrite the economics for the industry and for us. There's all the stuff that you just spoke of, but there's also the not glamorous part of how do you get a security operation to run that much more efficiently? And us building an all new effectively operating system for humans to be profoundly more effective and in combination with a good amount of AI agents and hardware, autonomous hardware, I think is going to make for some margin expansion over time. But we need to build all that stuff out and then obviously integrate and deploy it. But we're heading in a very exciting direction. So that covers the first one. I think you had one on your side.

Lepore | CFO

That's right, Bill. I think, you know, kind of expanding on what you just mentioned about the integration of the humans and technology, you know, a lot of analysts ask about the night scope security force integration. Where do we stand? How do you see it kind of coming to fruition in the short term as well as the long term?

Bill | CEO

I think there's a – likely kind of three steps. I think we wanted to do them in sequence over a much longer period of time, but they've gotten the life of their own. So, there's the obvious, you know, financial accounting audit related items that are key for us to do our regulatory reporting and managing of the company. That has certainly been more than underway. We have a component of information technology and human resources. And how do you combine systems? How do you think about recruiting profiles, employee handbooks? There's a lot that needs to be done. And then the last piece, which isn't actually last, is the go-to-market. We've been experimenting on how do you propose something to a prospective client? How do you spend time with an existing client on the security force side that could benefit greatly from the technology and vice versa? Someone that's already a technology client of ours, how do we add the human element to, again, improve overall outcomes and hopefully over time reduce costs? We have like-minded folks, a lot of work ahead of us, but things are going a little bit ahead of schedule. I would say we wanted to take the entire balance of the year And there's some bits and pieces. There's always going to be issues, but we're working through it. So feeling good. I think to put it in Wall Street parlance, if we were a private equity shop, what we bought was a platform company, a really strong management team that's grown the business from scratch, knows the economics. knows the recruiting process, knows how to think about culture and recruiting the right team. I mean, if you think about it, most of these staffing companies, call them staffing companies, they're supposedly security companies, are 100 to 400% employee turnover rates. You've got to ask the question, like, why is our security force at 6%? Maybe we recruited properly. Maybe we trained them properly. Health benefits, stock options, and what we intend to overlay is a significant amount of technology we are going to end up with a superior and elite team to deliver all of this. So we're in good spirits, a lot of work ahead, but so far so good. That's a good idea, Bill. Go ahead. And I think the other question was around capital formation and cash burn and kind of long-term view, how should we be thinking about the business?

Lepore | CFO

Absolutely. You know, we expect to continue investing through the remainder of the year in areas that we believe are critical to long-term scale and competitive positioning, right? This includes product development, AI and software capabilities, operational infrastructure, and integration initiatives associated with the broader autonomy security force platform. In the near term, some larger customer deployments may also include a meaningful human services component as we establish and expand those relationships. However, I think that over time, we should expect operating leverage, improved utilization of our technology platform, and increased attachment of higher margin recurring services to help normalize and reduce that cash flow.

Bill | CEO

I think, put a different way, we're if we're shooting for a billion dollars of annual recurring revenue, you're going to have to make some key long-term investments in order to get there and kind of work with a few hundred employees, not going to work with a few thousand. Um, so we're making the right long-term bets on both the external technology that's out in the field, as well as our technology, uh, in-house to basically run the, the company. Um, our, uh, chief intelligence officers very much, uh, pushing the organization to become a fully agentic organization in the next few years, and that is literally rewriting not only the economics for the industry, but rewriting the economics and standard operating procedures and the like of what we do internally. Think about how one would go about building effectively an operating system for an all-new security provider that has – I've got a blog I'm working on called One Throat to Choke, Can you get one vendor to focus on hardware, software, remote monitoring, licensed armed and unarmed agents in one package so you can actually deliver what a chief security officer is looking for? And that is the groundbreaking corporate strategy change that we're really excited about so that we can, as one hedge fund said to me on a call, is, Oh, so you're basically almost like a Trojan horse. You're coming in with the normal type of security operation that most of your two securities would be accustomed to seeing, and then you're going to build, basically try to be a trusted advisor, a technical advisor, to then look at those operations, audit them carefully, site by site, not by client by client, and then prescribe the right technical solution regardless of if it's It's hardware, it's software, it's sensors, it's some other capabilities so that we can actually deliver on what the client's looking for. And that'll be the best marketing and client experience dollars we ever spend is to actually fix the client's problems.

Lepore | CFO

That's absolutely right, Bill. And I think, you know, we've talked about how, you know, clients, the fragmented solution model makes it extremely difficult for clients to get the outcomes they seek, which is I want to secure my perimeter. I want to promote safety. But I've got to cobble together, you know, different solutions from different vendors to make that happen. And I think this approach allows us to do so in a unified way.

Bill | CEO

Exactly. I mean, if you're a chief security officer, likely. you spent a significant amount of time in law enforcement, maybe SFBI or ex-military. You're really focused on physical security. And then one vendor shows up and says, hey, would you like this radar? Another vendor shows up and says, do you want this LIDAR? Do you use, you should use this robot? You should use this AI agent. Do you think this sonar is appropriate? And you're kind of only trying to sell your widget to that person who really is not necessarily fluent in the latest technologies for physical security and getting them all to work together. Your single point solution might actually work for this one little thing, but what they really need is support and help. If CFOs continue to cut expenditures on the security side of things and not giving the team the tools to be able to reduce incidents and the incidents keep climbing, there's literally a huge problem here, which we hope to be part of that solution. So I think the strategy sounds teams excited. We just need to focus on execution.

Lepore | CFO

The question came in, you know, based on this strategy and this path to revenue and margin growth. As you think about the broader, you know, strategic outlook, can you talk a bit about, you know, both commercial opportunities and how that's changed with this acquisition as well as in the new economy security force dynamic, government opportunities, and then M&A?

Okay. Bill | CEO

I'll take those in a slightly different order, but M&A. So I've done a roll-up in a past life, and usually a roll-up, if you don't know what a roll-up is, you basically buy the same type of company over and over again and make one big one. And so you look at a very, very fragmented industry. I think there's maybe 6,000 gardening companies in the U.S. that have more than 100 employees. Most of them are owned by boomers that are retiring here in short order. and perhaps the kids don't want to take over the business. Perhaps those are too small for the larger three staffing companies to buy them. So that becomes an interesting kind of dynamic. But we want to buy quality over quantity. So it's going to have to pass the Smith test more than just the Smith test of what we just went through with our first acquisition, and that's intended to be the platform to set that standard so that we can go after customers repetitive additional acquisitions. I think other acquisitions that we're contemplating and looking at, and we've said this publicly before, is on the remote monitoring side of things to see where instead of growing something organically, it might be better for us to do a bolt-on or a carve-out, so working through that. So we want to continue that inorganic growth and be very careful and methodical about how we go doing that. I think on the government side of things, probably a couple, two different aspects. One is, you know, we cut a deal with Palantir last year. The overall corporate strategy is I want cybersecurity to be actually not the cost center, but an opportunity for us to market things better. So, you know, long story short, can we get all our private sector, local, state, government to all have federal-grade cybersecurity? So there's one standard across the nation, and that's what we're looking at, not only looking, actively investing in, is why the expenditures for R&D have gone up and will continue, is to re-architect that technology portfolio and hardware software and how we operate into something that is federal-grade for the entire nation. I think that then brings cybersecurity to the forefront of... a long-term sustainable competitive advantage over anyone else in the marketplace. I think a second is the really hard one. I've been trying for a very long time to see if we can pass a national robotics strategy. I think there's enough interest in the administration and in Congress that I'm hopeful, and I don't control this, I am hopeful that something will happen this year. My controversial proposal which some people get really excited about and some people get annoyed, is the U.S. federal government has within its own authority to fix the problem. No one in Congress or the administration wants to lose the robotics war like we effectively lost the drone war. So what do we need to do? We need to kind of fix a lot of things. Some of them just simply have to do with demand. And so what I've been proposing is for the federal government to dictate slash mini mandate to force every department and agency that thou shall take 1% of your operating budget and you will use robotics and automation to stop wasting taxpayer dollars. All we're asking, we're not asking for the government to spend more money. We're asking you to use commercially available technology to improve the efficiencies in your own operations. If you do that catalyst, then likely you could, with one felt swoop, fix the supply chain issues and all these other issues that several different committees are all working on independently with, you know, one paragraph that I've already written and given to staff over there of how you would actually cure the problem. Big ask. I think there's enough interest that something will happen. I'm not sure what will end up coming out the other side, but at least the conversations are ongoing. So, And on that last point, maybe the eternal optimist, but in advance of hopefully that happening, we partnered with Carnegie Mellon University, one of the top robotics school of higher education in the entire world, to build a national security robotics lab here at Nightscope. And we signed a five-year deal with CMU. And we've already got five graduate students working on some cool whiz-bang stuff for the upcoming K7. But we're in this for the long haul, and we're making those long-haul, long-term bets. And we're in a very good position. I've never been literally this excited about the company's future. And so more to come, as Apoorva often says.

Lepore | CFO

Thanks, Bill. That's all the questions that we have today.

Bill | CEO

All right. Sorry, everyone, again, for the small technical mishap. We will be sure to get you a properly recorded version of this so you have it for your files. And thanks for tuning in. I'm looking forward to seeing you next quarter because there is more good stuff coming. Thanks, everybody. Thanks, Bill. Thanks, everyone. jsPDF 3.0.3 D:20260606090210-00'00'

NASDAQ:KSCP Q4 2025 Earnings Call Transcript Generated on 6/6/2026 William Santana Lee | Chairman and CEO of Nightscope: All right, let's get going. My name is William Santana Lee, Chairman and CEO of Nightscope and here with our trustee CFO, Apoorv Devedi. We're going to do a little bit of a different format today. First, an announcement regarding this Thursday, then Apoorv will go through the 2025 financial results that we filed on Form 10-K. And then we aggregated a bunch of questions that have come in, including from the three equity research analysts, and we'll try to put that in a much more efficient approach to answering questions. So with that, I'll start it off with... We're going to have our first annual Autonomous Security Force Day and also celebrate our 13th year anniversary in business. I often like to say we're here in Silicon Valley. There are 22,000 startups here. 95% of them failed despite having unbelievable ambition, financing, and the like. And for us to be able to start the company, get it funded, grow it, take it public, buy two companies, and still be at it 13 years later is really a testament to the relentless nature of the Nightscope team. And I couldn't be more excited about our future as we build out the nation's first autonomous security force. So this Thursday, we're going to have several VIP private sessions for previews as to what we're building during 2026 and intentionally to get some market feedback. And then we're going to have an open house presentation. in the evening here in Sunnyvale at our new headquarters, and there's rumors flying around there's going to be an ice cream truck and a bunch of other stuff. So hopefully if you haven't RSVP'd, please be sure to check our social media channels or newsletters, and you can grab a spot there. So that will be at 6 p.m. this Thursday. All right, with that, I'll turn it over to Apoorv. We'll walk you through history, meaning 2025, and kind of what happened then. Then we'll talk a little bit about the acquisition and the questions and why all the excitement for 2026 and beyond. So with that, Apoorv.

Apoorv Devedi | Chief Financial Officer of Nightscope

Thanks, Bill. Good afternoon, everyone, and thank you for joining. I will begin with a review of our financial performance, first for the Q4, and then the full year 2025, followed by commentary on liquidity and capital strategy. With that, let's jump right in. Q1, sorry, Q4 revenues declined approximately 9.8% year-over-year product shipments primarily driven by supply chain constraints, which we've talked about in the past, that resulted in delays of VCD product deliveries. The services business remained materially unchanged. gross loss of 1.6 million reflects ongoing margin pressure driven by elevated material and other input costs for production and by under absorption of fixed manufacturing overhead these factors were consistent with full year trends and underscore the need for improved scale and supply chain normalization to drive margin recovery for the company Our operating expenses of 9.7 million in the quarter increased approximately 3.8 million year over year, driven by higher investment in both R&D and SG&A functions. R&D spending reflects the company's deep commitment to continued advancement of our next generation platforms, such as the K7, the K1 capsule, and the signal software. SG&A increased primarily due to targeted investment in talent and organizational capabilities, which are critical to positioning the company for future scale and growth. Overall, the cost structure reflects a deliberate investment phase to support long-term expansion. Q4 2025 net loss of $11 million. widened versus prior year due to a combination of lower revenue, continued gross margin pressure, and sustained operating investment. The quarter reflects a near-term financial impact of scaling the platform while revenue growth remains uneven. With that, moving on to full year. 2025 full year revenue grew approximately 4.9% to $11.3 million. driven primarily by the services revenue expansion in both the machinism service ASR offerings and our full service maintenance plans on the ECD install base. However, growth in the product revenue was modest due to the uh already discussed supply chain related constraints and shipment timing issues discussed earlier million increased by approximately 1.1 million versus prior year reflecting higher bill of material costages and production variability The lack of scale continues to pressure unit economics, reinforcing the importance of driving higher volume and utilization as we continue to grow. Full year operating expenses increased approximately 12.1% year over year, driven primarily by a $5.4 million increase in R&D investment compared to 2024. This reflects continued focus on platform development and next generation products to support future scalability. The increase was partially offset by cost savings in SG&A, expenses of approximately $1.8 million, as well as the absence of half a million in restructuring charges incurred in the prior year. This demonstrating progress in optimizing the company's cost structure while investing in growth. Full year loss increased to approximately 33.8 million. This reflects a combination of modest revenue growth, continued gross margin pressure, and elevated investment levels, consistent with the company transitioning to growth. Voted average loss per share of $4 decreased by approximately 63.5% year over year. Finally, From a balance sheet and cash flow perspective, we used approximately $30.3 million in operating activities during 2025, reflecting a continued investment in Apoorv Devedi | Chief Financial Officer of Nightscope: scale.

Apoorv Devedi | Chief Financial Officer of Nightscope

Importantly, we raised 42.2 million through financing activities, allowing us to strengthen our balance sheet and support ongoing operations. We ended presenting a significant increase from the 11.1 million of the 83% year over year improvement in cash position. Looking ahead, our focus remains actively on managing liquidity through a combination of capital markets access, operational discipline and strategic initiatives designed to improve cash generation over time. In summary, 2025 was a year of foundational investment. We strengthened the liquidity position, continued to grow revenue modestly, and made critical progress in evolving our business model towards a more integrated and scalable platform. While near-term financial performance reflects that investment phase, we believe the combination of our technology, software, and now human-enabled delivery capabilities position Knight Scope to pursue larger opportunities and improve financial performance over time. With that, I'll turn the call over to Bill as you go through the questions provided by our analysts.

William Santana Lee | Chairman and CEO of Nightscope

Yeah, of course, I think there's some connectivity issues, so if you want to kill the PowerPoint and turn your video back on, it would be great. So while he does that, let me put things in context a little bit. We've been at this problem and tackling this issue of trying to see if we can make the U.S. the safest country in the world, utilizing technology, AI, robotics, electric vehicle technology, telecommunications, the whole gambit. And after working on the problem for over a decade, it's become obvious to me that the nation's addicted to CCTV cameras, security guards, and video management systems running on Windows and are unwilling to change or willing to change at a snail's pace. And so we wanted to try to be helpful to our clients to build a managed service provider that can take a lot of the technological burden, complexity, regarding the technology itself, installation, IT, cybersecurity, keeping things up to date, making sure it's all operating off of a chief security officer's hands and go to market with a complete full solution instead of having this disparate set up widgets all over the place that don't talk to each other and the like. And an accelerant and catalyst to do that was the acquisition of EventRisk that we recently announced. And that's a transformative and strategic acquisition so that we can go to market as a managed service provider to actually fix a client's problems instead of doing the mix and match. And that's one of the reasons we're extremely excited about our future. You know, we've been at this for a very long time. I've never been this excited to get around with the team here. It's like I couldn't sleep before because all kinds of problems and stuff. Now I can't sleep because I'm too excited. So the future looks genuinely bright. We have a lot of contracts signed and just focused very much on execution, both operationally and technologically. We've got a lot of new technologies that we're developing, and we're going to showcase some of that this Thursday. And these coming years are going to create literally a new kind of entity that has never existed before, a managed service provider that can be that nation's first autonomous security force. So with that, we got a bunch of questions in from a variety of folks, including our research analysts. So, Paul, if you want to read off the first easy question, we can get on it.

Apoorv Devedi | Chief Financial Officer of Nightscope

Absolutely. All these questions are easy. Excellent. The first one was basically, can you provide visibility on timing of supply chain issues clearing up? And basically, you know, are any supply chain disruptions anticipated due to the, you know, due to all the global conflicts happening across the Middle East and Europe?

William Santana Lee | Chairman and CEO of Nightscope

I think there's volatility prior in the system, still in the system, and I would forecast going forward we'll continue that volatility. So we need to better manage the volatility. Some of it has to do with tariffs, geopolitical instability, et cetera. Some of it has to do with an end-of-life component. And some of it has nothing to do with, hey, can you get the NVIDIA chip? It's the one specific resistor or button or what have you that ties up the whole thing, and it's not one strategic component. So this continues to be a whack-a-mole kind of problem that we're working through. We now have a supply chain manager and a team that's proactively working the issue. So we're starting to plan better, buy in advance, replace components, outright replace suppliers if needed. But to be on a cautionary note, we've had our struggles. I think we can try to minimize the damage, but a lot of it is not necessarily directly in our control.

Apoorv Devedi | Chief Financial Officer of Nightscope

um so so we're working through the problem uh for poor vieta different take on that no agreed bill i think you know the the the volatility you know is is driven primarily by macro events and i think we're doing a lot of things internally to to mitigate as much as possible right the broader electronics market in particular continues to be volatile there's longer lead times tighter availability and items like compute modules networking hardware memory etc so I think those are some things that are just outside of control or control directly but we are putting in place a mitigation steps so things like you know making sure we're not relying on single source for expanding our relationships to multiple vendors, making sure that we identify items that have the highest risk and making sure that we have enough of those in stock, which is an investment in inventory. So there's a lot we're doing and we've been able to learn over the last few months that we're working through. I would say, you know, keeping supply chain production in sync is important for us and we'll continue to adjust as we things progress. We do expect that versus prior year, this year will have slightly better, if not much better outcomes as you continue to invest in supply chain and our relationships. All right, next. Next question was on the move. Is the move to Sunnyvale facility complete and up to operational efficiency?

William Santana Lee | Chairman and CEO of Nightscope

Mostly. Mostly done. We have a little bit of a challenging landlord situation with less flexibility than we want, but we're working through it. One of the reasons we're having this Autonomous Security Force Day here is to showcase the progress that we've made since we've moved into the building. Still a lot more that we want to complete, but things are looking pretty good. I will confess that some of us are nervous that we're going to run out of space a lot sooner than we were planning, but that's a good problem to have in the coming months.

Apoorv Devedi | Chief Financial Officer of Nightscope

Next one is on the recent acquisition. Following the event risk acquisition, can you give us an estimate of how much your potential market has expanded? Do you have an estimate around the new TAM?

William Santana Lee | Chairman and CEO of Nightscope

I've been wanting to do an acquisition like this for five years, so the TAM that we actually put in the investor presentation, if you haven't seen the latest one, it's at nightscope.com slash America. That $230 billion there is the TAM that we're going after and remains unchanged because this was kind of the overall plan. I think this is an unlock or a catalyst for us to be able to go to market much more efficiently and much more aggressively. So I think one of the enticing things that's going to happen in the coming quarters is just to see genuine accelerated growth versus the less than optimal growth that we've seen to date. And the idea is to be able to... maybe two different steps here. One, we have existing clients between the acquisition and our legacy clients. And there's a significant amount of opportunity to cross-sell technology or security agents back and forth. So there's that kind of literal synergy. And then there's the, once that's done, let's go to market together in a in specific verticals for us to be able to, again, bring a total solution. So the TAM doesn't change the amount that we can go grab after the TAM and do it in an accelerated fashion has, I think, dramatically increased. If you haven't heard, the team's well over 400 employees now, and we're on a pretty serious pace of growth.

Apoorv Devedi | Chief Financial Officer of Nightscope

Yeah, I agree, Bill. I think, you know, the way to think about it is not whether the TAM has increased, but more our ability to penetrate and grab a larger piece of that market share faster is definitely accelerated. You know, we've talked about this in the past where we've said, you know, Generally, when there are RFPs and RFQs out for security guards only, we were, for example, excluded from those because we don't have guarding services, we don't have humans, we're only technology. And then when we would try to go after technology, only RFPs and RFQs. Again, we didn't have a full-on solution, so it kind of limited us a little bit. Now, with the acquisition and being able to go to market in a way that allows us to provide that fully managed services or fully managed security services, it just allows us to go to market faster.

William Santana Lee | Chairman and CEO of Nightscope

Yeah, and a little bit more context for those newer to that conversation. There are I think rough numbers, more than 6,000 guarding companies in the U.S. that maybe have more than 100 employees, plus or minus. Our friends over at Lake Street helped us vet the first hundred and we came across Event Risk and Eric Rose and a lot of special things about why we got so animated and excited. Having a combination of a serious operator who's been more than around the block has been able to work in large established guarding companies, helped train the Navy SEALs, Marine, law enforcement, and been able to grow and bootstrap an entire company unto himself with the team. It was an accomplishment in and of itself. If you add the growth, the continued double-digit growth that he's been able to enjoy over the past few years is another important bullet point. But another one that's very interesting, the industry's 100% to 400% employee turnover rates. The Nightscope security force is at 6%, very laser-focused on recruiting employees. Recruiting the right people, providing them health benefits, providing them the appropriate training. And in our case, we're going to be adding a few more things. The board of directors kindly approved stock options for the entire team so we can also attract more people and keep the people employed and engaged and have them be part of the winning solution here. And we're working on some new technologies to add. to those security agents. So in the future, you'll be hearing us talk about ASAs or augmented security agents that really don't exist today. And that allows all of that combined with The stationary technology, the autonomous robotic technology, the augmented security agents all having that data fed into our upcoming new signals software platform and our remote monitoring team is going to give an unprecedented capability to properly secure a facility. And our security analyst that's remotely operating then now has machines to do things autonomously. They can escalate things to a different risk level to have some humans involved. And then there's a response element, both armed and unarmed. and that's unprecedented in the industry and one of the reasons why we're in good spirits and more than rather excited about the future.

Apoorv Devedi | Chief Financial Officer of Nightscope

A question on the sales forces and how we mesh them together. Two questions, and I'll combine them here. What is the overall sales pipeline expected for the ASR, the ECD, and the event risk, or now known as the Nightscope Security Force businesses? And then what is the timing around being able to sell legacy Nightscope with the Nightscope Security Force services together?

William Santana Lee | Chairman and CEO of Nightscope

I'm going to want Wall Street media and our own team internally to really stop focusing on selling widgets. How many of these units did you sell? How many of this standard stationary device did you sell? What we really need to focus on is aggregate total revenue growth of providing an actual solution to our clients. And that is the overall strategy for us to deliver a managed service provider and try to focus on fixing the client's problem improving outcomes, improving quality, improving service levels, and hopefully there's some cost reduction in there for a client depending on the location. But overall managed this much, much better than it's being done today and not focused on did you sell an agent or 10 agents or 100 or 300 agents with that contract or did you sell? The important part is are we fixing the client's problems? And that is a bit different now. and why the change in strategy is to force that change in adoption that's needed across the country. Most humans and most large organizations don't want to change. I told the Pentagon, DHS and Congress the same thing. This whole country does not want to change. uh even when you know sitting here silicon valley is a bunch of engineers like you hand them uh electricity fire and the internet uh in in terms of ai is like no no i'm good i know what i'm doing like i don't know uh i think we need to find a different path to to make those changes and give some relief uh to the chief security officers if you really put yourself in their shoes In this day and age, it was different 30 years ago. But when, you know, if you're ex-law enforcement, ex-military, you're here to secure a property, that's kind of your go-to skill mix. this day and age, hey, you know, can you please talk to me about, you know, 4G and 5G versus private LT versus industrial Wi-Fi? And then I don't know about the drone. And then is this cybersecurity compliant? But does the DOD accept the impact level five or is it a FedRAMP thing? And you want the robot to work with the guard, and it's just too much. You're asking a CSO to be the chief technology officer, the chief information officer, the chief information security officer, the head of facilities, purchasing, and everything else, and then we're wondering why it's not working and it costs too much money. So I really want the whole team, external and internal, to be focused on top-line revenue and bottom-line profitability as we get there.

Apoorv Devedi | Chief Financial Officer of Nightscope

From a modeling perspective, will UB breaking event risk into its own reporting line item, or will it be included within the services revenue? I can answer that one, Bill. Really, TPD, we're assessing the right way to reflect the NISCOPE security force. revenues and line items in the business. Most likely, though, we do consider it to be a service, and we would want to include that in the services line. However, there are some gap rules that we're, you know, evaluating along with our auditors to make sure that we not only provide the right level of disclosures, but the right level of visibility as we go forth and draft up our 10 Qs and 10 Ks.

William Santana Lee | Chairman and CEO of Nightscope

I don't think we missed part of the answer to the other question. The pipeline is rather healthy, let's put it that way. And we're intentionally focused on execution as primary drivers. So changing the recruiting profile of the team, setting the standards of the team differently, changing processes, figuring out appropriate uses of AI implementation for specific areas, building new technologies. Everything's very much focused around execution because the pipeline's rather healthy.

Apoorv Devedi | Chief Financial Officer of Nightscope

Absolutely. Next question is, will you be announcing the contracts of the NYSCOPE security force when they are won?

William Santana Lee | Chairman and CEO of Nightscope

I think that's also a TBD. As we mentioned during the sit down with Eric, if you haven't seen the interview, go on our YouTube channel. We want to take a thoughtful balance of the year process to Think through the branding, through IT, through HR, through finance, accounting, audit, technologies, et cetera, instead of rushing decisions. So that also applies to press releases, public relations, external affairs, government relations. and investor relations. So some will ponder and think through as the company continues to mature as a premium managed service provider.

Apoorv Devedi | Chief Financial Officer of Nightscope

Next question kind of tails right into that, Bill. Can you provide a timeline for integration? How is the process so far? And are there any notable items to call out?

William Santana Lee | Chairman and CEO of Nightscope

So this is probably my... I've lost track, 24th, 25th, or 26th acquisition. And as I often say, doing the deal is the easy part. For those that have been around the block, it may not seem that way for people that participate, but it is actually the easy part. The hard part is day one after you close a transaction. I will say it has gone a lot more smoothly than all of us expected. We have willing folks who want to work together, who want to make changes, who need additional support and changes. But as I just stated, the integration plan is try to get everything sorted in a reasonable timeframe over the balance of the year. In terms of priorities, let's call it finance, accounting, audit-related stuff first. probably dovetail HR and IT kind of the same time. And then the last is the go-to-market branding, marketing, and that sort of thing. We are planning to be at GSX in Atlanta in September so that you'll start getting a good – more than a sneak peek then as to how the integration is going.

Apoorv Devedi | Chief Financial Officer of Nightscope

Yeah, I think, you know, being super deliberate in how we merge the two organizations, primarily around culture, around go-to-market strategy, and obviously the back-end support needed to Support the growth of the combined organization are things that we're looking at. From a timeline perspective, I think, you know, it will take a couple of quarters, if not more, for us to kind of get our hands around how we want to move forward as a combined company. We are looking at internally some of the things you talked about, for example, finance first, just integrating finance functions first. then looking at HR IT, and then finally as we move into the client-focused or public-focused face of the combined company. Any outlook for any more M&A over the next year?

William Santana Lee | Chairman and CEO of Nightscope

So we continue to look. for accretive opportunities. Typically, probably around two or three subjects. One is on the technology side. Again, living here in Silicon Valley, there's always some interesting items that might be easier to buy than to build. So, we continue to look on the coal, just coal technology front. Those often may not be, you know, top-line revenue focus. It's more the nugget of talents or technology that we want. Another would be on the remote monitoring side of things. So we want to continue to build up the RTX capabilities as we build out the security force. So we're actively looking there. I think the growth on the security force itself is, as I said, healthy. So I'm not sure we want to do a bolt-on just yet, but we have a lot of activity going on. So M&A, open for business, but always want to make sure it's going to be helpful for our shareholders and the overall growth of the company. And be mindful and careful and make sure we get a good deal.

Apoorv Devedi | Chief Financial Officer of Nightscope

Last question, Bill. What are some key milestones should investors watch out for in 2026?

William Santana Lee | Chairman and CEO of Nightscope

I can start. Maybe you want to finish. But I think the 10-Q that we filed in the second quarter that will reflect part of the activity from the Security Force side of things would be, one, the following 10-Q and then the following 10-Q. So I think keeping an eye on the regulatory filings starting mid-May. would be important uh maybe there are folks on the in the audience that don't realize this but usually when you have make an acquisition there's like this 71 day rule i'm sure i'm going to screw this up but within 71 days you need to file the uh kind of overall impact so we're working on that um and so that'll occur in uh in the coming weeks um probably in the in the may time frame um So that to us is going to be really important because that will show is the strategy working or not and is the company growing and heading towards profitability. Second, technology. This all gets very exciting if you can have a – pretty serious competitive advantage in a very large marketplace with capabilities that no one else can do. So, we probably want to keep an eye on the beta prototype testing actually occur in the second half of the year for the K7, which we're spending a lot of time on. When the board's excited, the management team's excited, the team's excited, our suppliers and vendors are excited, and all the recruits that we're hiring. Oh, by the way, go to nightscope.com slash careers. We've got a lot of openings. Are all excited and dying to work on the K7. Like, hey, maybe we're onto something. So keeping an eye on the K7 progress important. On the stationary side, we're unveiling the K1 capsule in Supertower here this Thursday. So progress there is important. And then also on the signals platform, I think those three things. that we can publicly talk about um or things to to keep an eye on so uh basically two answers to the question like is night scope uh doing well or not is the revenue going up yes or no and not based on press releases or anything else i want to see the regulatory filing is are the numbers going up yes or no and then or you're making uh serious progress on technology uh development that'll give us a sustainable competitive advantage i think those probably should be the two key items to keep an eye on almost before you've got another one?

Apoorv Devedi | Chief Financial Officer of Nightscope

No, Bill. I think, you know, at the end of the day, it comes out to, you know, improvements in execution and how does that reflect in the company's financials and the way we are perceived in the market and by our investors and customers and clients and vendors. It's really our ability to go out and, you know, grow revenue, And with the combined company, we have a theory that this will actually accelerate this. So look out for the second half to see some of that proof. Obviously, product launches and commercialization of our new product development that the team is working really hard on, that's going to be important. And overall, just watching, hopefully, as we do these things the right way over the next few quarters, especially going into the latter half of 2026 and then 2027, you should see improvements across all of our P&L line items, both on the revenue side as well as the cost mitigation side. And that's going to be the sum of all things we do from an execution perspective. If we do that right, it will show up in the financials.

William Santana Lee | Chairman and CEO of Nightscope

And then I've gotten a lot of questions asynchronously here on – Hey, what does Bill and Apoorv and Mercedes know about running a guarding business? Well, keep in mind that the idea and how we approach this is very similar to how a private equity firm would look at it, which is basically we want to go buy a solid business that's run by stellar management. And then we give them the tools and support and technology for them to grow and give them the autonomy, frankly, to be able to do that. And we found that in event risk. The management team is very strong. They've been growing very quickly. The client retention rates are astronomically good. The employee retention rates are astronomically good. And we've got real hitters that we're betting on to continue to grow the business. And then what we're going to come with is technology then that will ensure that it's not a commodity staffing business of headcount the way it's kind of the industry has been run today. So, we're reimagining and re-architecting how physical security gets delivered to a client. And our initial interactions with folks that are in the know or prospective clients or in a pipeline, we know we're on the right path. Our focus right now is just heads down on execution. So the balance of the year to kind of wrap this up is focus on technology development, focus on growth, finish up the integration so that 2027, 28, 29 are hopefully some epic years for us. And again, we're in great spirits. The market, I think, is trying to understand what we just did. both on Wall Street and in the security industry. But the proof is going to be in the pudding. And I'm betting on this team, and we're highly confident that the future is bright. So, Paul, did you have any last remaining thoughts?

Apoorv Devedi | Chief Financial Officer of Nightscope

No, same, Bill. I echo both your sentiment and the team's sentiment in that, you know, we have a lot to do. We have a lot going on, and, you know, we just have to keep our heads down and focus.

William Santana Lee | Chairman and CEO of Nightscope

Lastly, I want to publicly thank our board of directors and the management team for the support in doing this strategic acquisition. Again, I've been wanting to do this for half a decade and finally got the brave pill to do it. And now I'm just kicking myself that we didn't do it five years earlier. But this is going to be a lot of fun. So hopefully for those of you that can join, we'll see you Thursday night for our first annual Autonomous Security Force Day. Please be safe. Thanks, everybody. jsPDF 3.0.3 D:20260606090212-00'00'