Knightscope, Inc. (KSCP) on Q1 2023 Results - Earnings Call Transcript
William Santana Li: All right. Welcome everybody. We have a very large gathering. So let me do some ground rules first. But first and foremost, thanks everybody for taking time out of your busy day to talk about all things Knightscope. For those of you gone through this with me a few times just bear with me. I need to put the forward-looking statements disclaimer, and looks like it might be too long, so I might need to do it in a couple of shots here, but we need to put that in there just for safekeeping. And then the video that you just saw will be on our YouTube channel here shortly. And you’ll be able to grab that and we can go over today again to answer any questions. And I need to talk to counsel to stop making these disclaimers so long. But anyway so a few ground rules before we get going as I let people in here. This is intended to be questions from almost every angle. But in some cases, obviously I’m an officer of a publicly traded company. I may not be able to answer your question exactly the way you asked it, so I might rephrase it or I’ll tell you I can’t answer it, but I will try to be as responsive as possible, as long as we can answer it, most likely I will. Obviously, we wouldn’t be sharing any MNPI, or material non-public information. So we want to be mindful of that. And then Henry has already got his polite, hand raised, beat me to the punch here. But because we have such a large group the easiest way to do this the chat gets a little bit too much. It’s just me on this side. So the easiest way to ask a question, if you go all the way to the bottom of your Zoom there, you can click on the little reactions button. And on that little reactions emoji thing, there’s a raise hand. If you click on raise hand, then I know that you’ve got a question. And let’s try to do this kind of one at a time. So we’re not talking over each other. I will stay here as long as you need me. I want to make sure everyone’s questions are answered. So we’ll just keep going through the easy softball questions, and I’m sure somebody has got a zinger in there or two, which is fine, which is why we’re doing this. So with that, I’m going to prioritize the people with the hands up. And then if we have a lapse there, I’ll go through the chat. But why don’t we start with Henry since he was first in line there. So go for it.
Q - Unidentified Analyst: Hi. Thank you so much for what you’re doing. Really appreciate the work you’re doing. I think it’s so important for our communities. I was a little late tuning in. Sorry if I missed any of the initial information on family stuff happening. So…
William Santana Li: No, worries.
Unidentified Analyst: …for that. But thank you so much for the work you’re doing. I think that’s really – that’s what I wanted to lead off with. My question is – my – let me introduce myself. I’m Henry Schueler, I’m an investor, early investor. And I’m also a Founder and CEO of Myself. I’m curious if you’re interested in working with local communities, if you’re already working with towns and governments I’m sure that’s part of your order backlog. And how would I sit on as a trustee on the city council in my city. So how would a trustee go about engaging with Knightscope and helping to make our community safer in the places we live and take care of our families?
William Santana Li: So appreciate the support and the question. The easy-peasy is for me to share my screen. If you go to Knightscope.com, for that particular question, we do have something a little controversial that we started and I’m trying to find it here. If you go to innovate public safety at the bottom, there’s a literally a mayoral challenge if you want to read about that. The concern I’ve got is a lot of the safest places in the country are really low population, are kind of higher income, medium income, six figures and for whatever reason, maybe it’s the weather likely in the Northeast. If you want to read through that, that’s probably the best and easy way to engage. And every city in municipality is very different. In some cases, sorry, let me let some people in here. Some cases it’s the mayor that really wants to drive something home. It might be the city council member, a single member who decides, okay, we need to do this and that’s literally has happened. It might be the Chief of Police. It might be the Sheriff. It might be a hospital administrator. Again, every town and city is so different. It’s really difficult, Henry, to just say, do X, Y, Z, and then everything happens exactly right. But getting the dialogue going is probably the best thing. And getting a decision maker or two to sit with our team. And now that we’ve done this a lot more than 2 million hours across the country, I don’t know, six, seven winters and summers, like we’ve learned a thing or two. So, usually, it’s best to have a dialogue and be able to assess the situation and go. I don’t think we can help you because you asked for this, this, and this, and we don’t do that and just be super frank. In some cases, it might be a perfect fit, and then we can have an initial use like what are you trying – what is the problem that we can potentially solve and then we can get the decision makers in the process going. Honestly, some cities and municipalities have shocked us how fast they can move, and some are complete opposite, and it doesn’t necessarily correlate to small, medium, or large, like what you would think, hasn’t been our experience thus far, but I appreciate that, Henry.
Unidentified Analyst: Great. Yes. Thank you so much. Well, thank you so much for all you do. I appreciate the answer and I’ll start digging deeper and bring it to the right people.
William Santana Li: Awesome. Very much appreciate it. Thank you. Yvonne?
Unidentified Analyst: Hi, Bill. First of all, thank you so much for being such a hands-on guy. We love that.
William Santana Li: I’m trying, I’m trying.
Unidentified Analyst: Hey, I hope you never outgrow being hands on. Maybe I missed it. I’m a little concerned about this backlog. Is there a timeline for catching up or being further along?
William Santana Li: So this is good and bad and a little bit of humor. If you remember the old I Love Lucy episode where they’re making chocolates…
Unidentified Analyst: Bananas, yes, the chocolates…
William Santana Li: And then they stopped to start eating them because there’s too many coming at the same time. It’s been good news and bad news. So years ago we would be sitting there going, will we get a sale? Do will anything happen? And now we’re getting closer to rinse and repeat. So on the positive side we have a backlog, right, to have multimillion dollars worth of pending or potential revenue is wonderful. The team has started shipping stuff, but the sales team keeps putting more stuff in, right? So there is this attention. The primary root cause of the problem, I would say the primary one is the supply chain issues and it’s – I’ve covered ad nauseum either it’s a wiring issue problem, it’s a chip problem, it’s a resin problem, it’s a trans resistor problem or something that holds things up. So it’s very lumpy. We are we are shipping. It’s just not as kind of consistent that we want. And frankly, you want the backlog growing, but you want to make sure you’re realizing the revenue. So one big thing that we mentioned in the video that we’re doing is to change the production process itself, how we manufacture the robots at Knightscope headquarters here in Silicon Valley is, I’ve said this before, our current machines take 100 hours to 120 hours to build one or crudely speaking, one a week, which is not good. The new machine that we’ve now started building with big asterisks on the supply chain issues, targeting to build one or two a day. And that’s going to make a big difference. Staffing also makes a big difference, needing to hire some additional folks once we make those big changes. The board, myself, the team, everyone is scrambling to try to get these out as fast as possible. I share your concern, Yvonne, because that’s revenue that we want to recognize. I think the last point if you didn’t catch it in the video, we did $5.6 million of revenue last year. We hold north of from the figures that we shared about $5.2 million in the backlog. So it’s a little crazy to be ending the first quarter with almost the same amount of revenue that we had the entirety of all last year. So that’s another – a more positive way to look at it, but it’s a top of mind for all of us. We’re working through it. We’ve hired a senior supply chain manager. We’re out recruiting a plant manager and we’re working on it, but it’s certainly a concern.
Unidentified Analyst: Thank you.
William Santana Li: Of course, John Patrick.
Unidentified Analyst: Yes. Hi, Bill.
William Santana Li: Hi.
Unidentified Analyst: Hi. I wanted to ask you about social media.
William Santana Li: Oh…
Unidentified Analyst: Yes. Well – I know it’s top of mind for you to get the buzz going and you’ve done a great job in communicating with investors and a lot of the graphic and art and communications work looks really good to me. I thought…
William Santana Li: All right, folks, if you’re not – if you’re not on speaking, please – kindly please mute would be great. All right. Sorry, John Patrick.
Unidentified Analyst: Yes, I’m back. So with the social media, a lot of it might be fun, but not necessarily helpful to Knightscope. But LinkedIn, as you know, is more of a professional kind of a social media network.
William Santana Li: Were you saying the others are unprofessional, John?
Unidentified Analyst: Well, there’s – there are some signs of it. We’ll see what’s going to happen at Twitter, but LinkedIn is pretty serious stuff.
William Santana Li: Yes.
Unidentified Analyst: And I took a look there today, and I did find Knightscope, but the latest post there from yourself was, I think, seven months ago. And so, it looked like it was dormant. And also – but…
William Santana Li: But you there – if we can connect offline and you can show me like, I post probably personally once a week, if not – if not more, the company posts literally every day. So I’m not sure where you were looking.
Unidentified Analyst: Okay. Well, the intersection then must be the company and you at the same place. So if you’re posting to your own page as opposed to the Knightscope page, I’m speculating on that, but it definitely did say it was seven months since there was a post. So I have somebody take a look to see why it’s saying that. But actually my suggestion, my point is if you do a search on public safety on LinkedIn…
William Santana Li: Yes.
Unidentified Analyst: There’s a lot of stuff there, companies and people, and there’s a section I found that says people that are talking about public safety. And there’s about a dozen of them and they’re very senior people some in local governments, some in industry connecting with some of them might be helpful to try to spread the word because those people in turn are connected to people who are reporters.
William Santana Li: Yeah. So if we go here to the vis-à-vis admin view for LinkedIn, you can see that we’re posting literally every day. So I’m not sure where the – where the issue might be. If you look at mine, I’ve got 11,000 almost followers and…
Unidentified Analyst : Right, I did see that.
William Santana Li: Posting there all the time. So must have been some disconnect. But our lead generation team certainly focuses on getting as many people engaged as possible, both offline and online. Some of our team is pretty astute on the LinkedIn side of things.
Unidentified Analyst : Yes.
William Santana Li: But take your point. From what we found, it’s never one thing I always get challenged internally from my team, like, what’s the one thing we should be doing to, like, it’ll all work. And I often go back to my days in Detroit where if you are trying to sell a car, you probably marketed it 17 times before you literally sold it. Like, you got to think about the regional dealer, the local dealer, the automaker, the leasing finance company, the brand, the nameplate, and then they have offline, online, and the number of permutations though. So, to me, in order to be effective, it’s got to be, “all the above”. And we’ve got to be as within reason everywhere as much as possible to get the word out. And part of it’s today just engaging with our supporters and our investors to help get the word out.
Unidentified Analyst : I was thinking the announcement about Rutgers that’s a very positive announcement. So on LinkedIn, every university is on LinkedIn.
William Santana Li: Yes.
Unidentified Analyst : So, a blurb, a short article, kind of like that mayoral challenge you showed a little bit ago, if you could start posting that on university pages…
William Santana Li: Yes.
Unidentified Analyst : And, public – people get that intersection of public safety universities, there’s got to be a lot of opportunity there.
William Santana Li: Yes. And I think that goes the same with if you go under, like what we do here this is all new as well. And you can see the different verticals that we’ve got. And for example, having a major airport involved and then being able to have that blog there to be able to showcase kind of what we think should happen with a requisite client can also be helpful. But one of the key things I would like to convey is us making that announcement, then our sales team and our marketing team for all the leads that they’re working on, they can use that content.
Unidentified Analyst : Yes.
William Santana Li: It doesn’t have to be online. It’s like, I’ve been talking to so and so university, look what probably a different way to say it is landing our first hospital, our first casino was really hard. Getting the second one was a little bit easier, the third one, a little bit easier on and on and on, and then it becomes a little bit rinse and repeat. But yes, Rutgers is a huge deal for us through the acquisition of CASE Emergency Systems, I think, that thesis of having some cross selling over time because we’re literally talking to the same folks is going to be a benefit. But it takes some time to get through the whole process.
Unidentified Analyst : Right. Okay. You’re on the case.
William Santana Li: We’re on it. We’re on it. Not perfect, but we’re doing the best of what we can with the resources we have.
Unidentified Analyst : All right. Keep up the good job.
William Santana Li: Thank you, sir. Mark [ph].
Unidentified Analyst : Hello, William.
William Santana Li: Hi.
Unidentified Analyst : Thank you for doing these calls for us. We really appreciate it. My question is about the ATM, how many shares have we issued under it and at what price? And what’s the current total outstanding versus when we came public?
William Santana Li: You are going to test my memory here. Hopefully I get these roughly right? If I get them wrong, I have to refer you back to the regulatory filings at ir.knightscope.com to get the actual correct numbers, but just from memory here.
Unidentified Analyst : Yes, rough estimates
William Santana Li: Recent filings, so the ATM for the rest of the benefit of the group is an at the market facility. And it’s to draw down capital as efficiently as possible to kind of avoid a large, huge financing that’s highly diluted. Remember, my entire net worth is in the company, I’ve got seven million shares, I don’t want to see dilution as much as anyone on this call. But the company does need capital to continue to grow. So we need to do it as efficiently as possible. If I’m correct, I believe the recent 10-Q filing we did on Friday for the first quarter, 2023, I think, we drew down during the first quarter about $3 million-ish or maybe a $1 million a month or so. And then in terms of outstanding shares, again, from memory, I think, we’ve got 44 million shares, common outstanding. There is probably ten million shares of Class B stock that doesn’t trade. That’s kind of the Founder’s shares. And then there’s probably another ten million of preferred stock that never converted as part of the public listing. Just a refresher because we didn’t do an underwritten S1 IPO like a normal company would have. We didn’t have an automatic conversion for all those preferred shares to convert to common. So some people decided to keep their preferred shares, which basically hold a 1x liquidation preference, but there is no other dividend or any other kind of financial benefit. And some people just decided not to put the shares at their broker or what have you. So, that’s 44 plus 20, 64 million. I don’t know the answer off the top of my head on the where were we 15 months ago. But hopefully that’s enough to get you started.
Unidentified Analyst : Yes, appreciate that. So, a million a month are we actually getting at the money? So today we would get $0.57 or whatever it was, or…
William Santana Li: If we drew down on it.
Unidentified Analyst : [Indiscernible] for the broker. Yes.
William Santana Li: If we drew down on it, it’s at our discretion when we do it, how much we do it. And we try to obviously minimize the amount versus doing the opposite, which would be like, let’s go raise $10 million or $20 million at these share prices.
Unidentified Analyst : Sure.
William Santana Li: It’s not something I get all too excited about. So we’re trying to – we’re trying to be careful. Trying to be careful with it. But back to some of the earlier questions on the backlog, do you think it would be smart for us to draw down a little bit of capital so we could hire two more production technicians so we can get the backlog out faster? I think if everyone knew what I knew, you would go like, why are you even asking me this question? Just go do it. And so, we’re trying to be very careful on how we go about doing it. And you know remember that the last part of the video there were kind of seven key aspects to be able to improve the cash position. And it’s not just the ATM. So a bunch of people joined before after the video. So let me just go through this, if that’s okay, Mark.
Unidentified Analyst : Of course, sure.
William Santana Li: So, the cash position needs to get improved, right? So there are seven things that we’re working on. One is just the sales growth. Obviously you’ve seen that we’ve been putting out good positive news, almost like clockwork on a weekly basis. So just continuing the sales growth and momentum. Remember that we have financing partnerships with both Balboa and Dimension funding. And how this works is for some of the orders that’s appropriate, we would get that financed. So we actually have the cash in hand for obviously a fee, but it helps the cash flow side of things. Obviously we need to buy materials to get through the backlog. There is deployment times and everything else. So that can help the cash position. We need to deliver on the backlog itself, right? Wherever we’re at, $4 million or $5 million or more dollars that’s cash coming into the company. The ATM we just spoke of, Mark [ph]. Cost reductions, remember we announced a 20% reduction in force at the beginning of the year. And some of those cost reductions and actions that we took there will continue to help us in reducing the amount of cash that we utilize. We also announced that we’re targeting to get to profitability here in the next 24 months, and part of that’s improving all our margins and getting our costs down. So, the good news here on the telecom side is our clients are using the service and using it a lot, which means they’re eating a lot of data. We’ve been taking a lot of actions to reduce – whatever we can control from a software standpoint to reduce those expenditures. And then we’re also very hard pushing on getting the private LTE and lower types of cost for us to reduce that expenditure outright. The service costs need a good amount of work in terms of parts, and logistics and the amount of maintenance and service. But remember, if you drove your car 24x7 for 30 days in a row and never stopped, we took care of your fuel, you probably would need some service at the end of the month. And if you did that for six or twelve months, you definitely would void the automaker’s warranty. So, that’s a level of duress that these machines are going through. So, you got to have some maintenance, and service and support. And then there’s obviously cloud costs. And then we’re looking at a non-dilutive debt offering. So the ATM is not – the point here, Mark [ph], is that the ATM is not the sole source to fix everything. We want to look at this kind of systemically.
Unidentified Analyst : I appreciate all the conscious thought that you’re giving to it. In a related question, a whole lot of chatter in the chat about delisting. Are we going to be able to avoid that, do you think?
William Santana Li: So delisting, so we actually two things for Nasdaq, where Knightscope is required to meet two of financial metrics. One is you have to have a $50 million market cap which we did get a notice for. And then we also have to have a share price that’s over a $1. That is also an important point. If we are able to – so a few points here, if we’re able to get above a $1 or above $50 million market cap for 10 trading days in a row then that gets it cured. So NASDAQ gave us a notice of them, us and several hundred companies, because obviously the economy is not doing all that great in some aspects of the markets. So we have 180 days from the day we got the notice to cure the problem. Typically, not always, but typically if you are not unable to cure the problem within those 180 days, you can ask NASDAQ and petition as to why you should get another 180-day extension. So whichever way you want to look at it, we have plus or minus six to 12 months to fix the problem. We don’t control, I get a tons of emails and text messages like, Bill, you need to fix the share price. I don’t control the market. That’s frankly, not to be funny, but that’s everyone on this call and not me. And supply and demand, what I can do and what my team and I can do together is improve the financial performance of the company, keep it growing, keep telling the story to whoever will listen. But the rest of it’s kind of up to the market. We don’t control pandemics or bank failures or interest rates or inflation or the like, but, I think, we have more than a reasonable chance that over the next six to twelve months that continued performance, call it financial performance and getting to profitability and the company growing. It’s kind of, I don’t know, from a personal standpoint, it’s really hard for me to understand a company is growing double digits at the intersection of four important technologies. AI, autonomy, robotics and artificial and electric vehicle technology that we wouldn’t have the eyes and ears of a good amount of investors so we just need to kind of continue to prove ourselves. But we’ve got a shot to fix it, but this is a two-way street, and we don’t control everything. Part of it’s the market, which frankly, Mark, you and the rest of the investors on here represent.
Unidentified Analyst: Thanks very much for taking the tough questions, Bill. Really appreciate your straightforwardness.
William Santana Li: Of course, of course. What we’re doing is technically extremely difficult, and if we’re not willing to engage with people and have a frank discussion like this is not going to – it’s not going to happen by itself. So appreciate you taking the time, Mark. So let’s go on to [indiscernible].
Unidentified Analyst: Yes, thanks for taking my call. So if I look at the – we raised on the before public, I think the cost base is on that was around $8 or so, just – and the current price is around 57, and just want to figure out is, was there any like split or something that changed the cost basis, or am I misreading how the previous investments worked? And I have follow up question on that.
Unidentified Company Representative: Of course. So the number $8 is one off, we had numerous rounds, so again, don’t quote me here, make sure to go back to the regulatory filings, but notionally speaking, the seed round was done at, I don’t know, I want to say $0.33 a share. We did something at $0.80-something a share. There was a buck something and then there was $3, there was $8 and there was $10. So you got to, and you’ve got just before the public listing, we had about 35,000 investors, all the way down from $0.33 up to $10. So I wouldn’t say that eight is the number one. Two, there has not been any stock splits or the like, I guess for the benefit of the group, I’m going to give you a slightly longer answer because I think a lot of people might have a similar question. So first and foremost, I just want to reiterate what I said earlier. We or Bill does not – we don’t control the stock price. It’s literally supply and demand what’s out in the marketplace. So if a bunch of investors that bought in at $0.33 a share decide to dump 0.5 million, 1 million, 2 million shares into the market, and there isn’t a counterparty on the other side to buy a bunch of shares, well, what’s going to happen? The share price is going to go down, right? So that’s one thing to consider. Another thing to consider is the overall market is especially for micro caps or small cap companies, anything under $1 billion has been – hurt pretty hard from the tech downturn. Frankly, you can almost watch it the interest rates go up and share prices go down. It’s kind of almost tied directly together, feel that way. You’ve got inflation, you’ve got a bunch of issues, and then you got a bunch of short sellers. They’re putting pressure on the stock. We don’t control any of that. And I haven’t sold, we took the company public. I didn’t sell a single share, I haven’t sold a single share, don’t plan on selling a single share. So all the pain and suffering that a lot of people are feeling, I’m literally on your side, financially aligned. So I don’t want anyone ever thinking that, we’re doing something odd that would be not in the best interest of the shareholders in the long-term. It’s really frustrating. I mean, we’re trying to do something positive for the country and for someone to be out there shorting the stock, like, okay, you legally have the right to do that, but you’re probably going to end up on the wrong side of history for doing it. So all we could do is keep telling the story, get the financial performance, and the way to cure it is you got to have more buyers for the stock and sellers. I mean, it sounds to almost too simple, but that at the end of the day is what ends up happening. So hopefully I answered your question. Probably not what exactly what you want to hear, but it’s kind of.
Unidentified Analyst: That’s fine. A follow up question is if the valuation pre-IPO was pretty high rather than trying to go through this listing and de-listing process or whatever, it looks like the public markets are not valuing the stock as high as it was in the private market. Can you just take this back private?
William Santana Li: So I guess, there’s two answers. One, as an officer of the company, I legally have a fiduciary responsibility to look at everything regardless if I personally like it or not. I don’t know how to do that basically. You would have, in order to take it private, like if I’ll put myself, so not to use you as an example. Let’s say I invested at $10 a share, and then we took the company private at $1 a share, $2 a share, $0.50 a share like I’d be pretty cranky. I don’t know how to physically do that transaction and then you’d have to go raise some capital to go along with it. Like everything has to be on the table. Like, I don’t think I’m speaking at a turn here. I don’t know how that cures the problem. Unless you had a large financing source that would be willing to give the shareholders an appropriate price, right. And then have enough capital when you’re private to grow the company. So, as I said, everything needs to be on the table. I don’t know exactly physically how to do what you were suggesting that would be in the best in – I’m sorry, I need to caveat that, that would be in the best interest of the existing shareholders, that footnote is kind of really important, right.
Unidentified Analyst: Yes. Got it. Yes. Thanks.
William Santana Li: Of course. [Indiscernible]
Unidentified Analyst: Yes, hi, bill. Thank you. I want to echo the sentiments of everyone else. Thank you for your availability. It’s refreshing to invest with the company where the CEO is so available to the shareholders. I did purchase in 2019, I believe it was Series S preferred. And considered a long-term investment, had it been up to me, and I’m making a statement, and then I do have a question. I would’ve loved to have seen the company stay private if it perfect world, right. Grow and grow and grow like you’re doing as fast as you’re able, you’re pulling on the supply chain, you’re doing as much as you can. I appreciate that and from the whole team. Grow under the radar and fill Wall Street bags for you to go public perfectly. Perfect world that’s what I would’ve loved to have seen. So my question is I’ve kept the preferred, I have not converted. I don’t know what that exchange rate or even what that process would look like. I had never seen the type of public raise that you had where common shares were sold to the public. Could you maybe inform us how, how was that beneficial initially and long-term to both the company and to us as shareholders for having that last phrase or common shares were issued.
William Santana Li: There was a public, three words that got cut off, and then I missed the sentiment of the question. Can you re-ask the question one more time?
Unidentified Analyst: Sure. What is – okay, what is the benefit initially and long-term to the company and to shareholders for having the common share public fundraise kind of make it listed?
William Santana Li: All right. So a different way to ask the question is like, why the hell did you take the company public?
Unidentified Analyst: Without saying that, because I figured it…
William Santana Li: That’s fine. That’s fine, that’s fine, that’s why we’re here. So at the time we had a few things to consider. One is the – we had been private for nine plus years and had raised, I don’t know how much money through, well, I do know right before the public listening, a total, probably north of $120 million. I didn’t think it was possible or viable for us to do another Reg A offering. And what we really needed was to raise the $40 million, while we were private on our – don’t quote me here, probably would’ve been our fourth or fifth Reg A. And I just – running a Reg A is really expensive. It may or may not have gotten done. It was one thing to consider. The second thing to consider is because we had been doing Reg A since 2016, we had all the costs of being publicly traded without any of the benefits. Like we couldn’t – there’s some kind of debt and debt offerings that we weren’t able to do. We didn’t have access to the wider capital markets. And you got to think through the whole aspect. So at the time, not knowing, you can never time the markets as much as people think you can. That path was viable for us to raise some additional capital and listing it was kind of one way to do it. We do have access to monies that probably we wouldn’t have before. But now you’re under the scrutiny of the public markets every day, which is I guess on a personal, it’s a little weird, right. Like you’re selling a house and everyone in – every day is in your face going, this is how much your house is worth. This is how much your house is worth. This is – by the second, it’s like kind of weird situation to be in, it is what it needs to be. There are some brand aspects. There are some companies that rather client – prospective clients that could prefer to work with a publicly traded company. Yes, rewriting history, I don’t know, would we have done it again? Probably, but because at the time I didn’t have confidence of doing another Reg A would get done is probably the crux of the question. But we’re here now.
Unidentified Analyst: Okay, good. And one quick statement and I appreciate the time. I’m going to channel a precious middle investor called Rick Rule and kind of speak to the rest of the investors. The delta between a stupid low stock price and the reality of a high growth company is where fortunes are made. Thank you so much for the time.
William Santana Li: Thanks for that. I don’t think I could say that, but you can. Oh my god, Sam, been a long time. Sam, are you there?
Unidentified Analyst: I’m here. How are you, Bill?
William Santana Li: I’m hanging in there, Sam.
Unidentified Analyst: Yes, so am I, original investor at less than the dollar it go all the way up and come back down. But that’s not my question. That is as it is. My question, which I’ve asked you every year is why are we not selling more of the K3, K5 robots, which are revised, working very well, problems all sorted out. It seems like the sales folks are not just telling the story to the right people or there is no demand for it for some other reason.
William Santana Li: Sam, I appreciate you being on the call and thank you for being a long, long, long time investor. And yes, Sam asked me this question religiously almost every year. Like, why aren’t the sales going up faster and higher? If I just step back just objectively Sam, I think there’s probably a few different factors. There isn’t one thing. So the first one, I would say that the premise is a little bit off because we’re sitting on, I don’t know, somewhere near $3 million of backlog of orders. So that’s – to say that we’re not selling anything is not good. Are we delivering? That’s a separate problem. But we are selling I think the second issue is I got taught this by my Co-Founder some time ago. He’s an ex-Law Enforcement Officer, as you know, Sam, and he warned me, and I think he’s been right for all this time was the law enforcement and security market is not – and I’m going to try to do this as politely as possible, not the most technologically progressive sector in the world. And it takes a really long time to convince people that changing is kind of the right way. So I think we’ve got the little selling against the grain, Sam, which investors, and people don’t want to hear that, but you’re having to educate a market, which is in a lot of cases not good. And then a third, Sam, to be fair to the team, we’ve been strapped for resources up until recently we never had a proper full sales marketing team. Not that we’re fully completely staffed right now, but we have enough people that are generating enough leads and enough demand that we’ve got the qualification process sorted out. We kind of know how to do this and we’ve got the right contracting, we’ve done enough legal and cyber and everything else. So I think it’s three things that have not helped us. But that is to say this is not – should not be viewed as the same conversation Sam, that we’ve had for a few years back when like are we going to sell anything this month? Is anything going to come in? That’s not the case now. Now the problem is the shipping and delivering side of things, should it go faster and hire? Yes, that’s a little bit of frustration, Sam, because we’ve got clients that have renewed four years, five years, six years, seven years. You don’t get a client to pay you full price for seven years, or more than half a decade and you’re not creating value for them. So I think it’s a combination of all those, Sam and we’re working the issue, but that’s kind of my viewpoint, Sam.
Unidentified Analyst: Okay. I hope the government steps in and fills the offers.
William Santana Li: Well, I think another way to look at it, Sam, if we want to look forward without me getting at a step here, I think the federal government is a very large opportunity that’ll take some time. I think us landing New York City and NYPD 10 years in the making and we’re really excited to be deploying that machine, hopefully here during the second quarter that opens up another large avenue. And I don’t want to say it’s sheep because it’s not, but having the federal government and New York City as a client will help us with other clients. That’s no doubt. And I think if you look at, having several publicly traded companies as clients is a big deal. Lowe’s is a client of ours. PG&E is a client of ours. PENN Entertainment is a client of ours, ABM is a client – these are all multi-billion dollar companies and some may be able to scale as they have more and more time. But Sam, I’m frustrated as well, but we’re working as hard as we can to try to pick up the pace here.
Unidentified Analyst: Okay. Good luck.
William Santana Li: Thank you, Sam. Barry Haynes [ph].
Unidentified Analyst: Yes. Hi, Bill. Thanks so much for doing this. So I had a couple questions relating to the gross margin because the solving this the stock price problem requires kind of getting a free cash flow neutral and kind of starts with the gross margin. If you have a negative gross margin, you can’t never get there. So I’d love to just drill down on that a little bit and maybe you could talk first of all about you mentioned the production movement from cells to assembling line how much could that adds the gross margin? What are the other key steps you see to get the gross margin up and what’s sort of the goal? If you go out two, three, four years, whatever, where do you think you can get to on the gross margin? Thanks.
William Santana Li: Okay. So the gross margin for us as a company is a little convoluted. So the gross margin, as you can see in our regulatory filings for product related sales like through the acquisition for all our stationary stuff, it’s more like a product sale. Like, you had – you sell the product, you may sell a service contract or something that go along with it, but there’s a margin on that product kind of like when I was back in Detroit, you sell a car to the dealer, you have a margin. There’s variable costs, there’s fixed costs, and it’s abundantly clear. In our case, with the Machine-as-a-Service, it’s a little odd, right? We don’t sell the machine outright. We don’t sell the software outright. We don’t sell the data transfer outright and everything else. You have a bill of material for the machine that gets depreciated over three, four, possibly five years at some point. And you are using that to calculate the gross margin of which the revenue is obviously a part of that. The telecom cost, the service cost, the labor associated with the assembly of the machine and then the cloud costs, right? And so it’s a little weird because you need some scale for this to work. And a good example might be the KNOC, the Knightscope Network Operations Center. You need to run, let’s say you have a staff of four people that can run 168 hours a week, right? They need to run 24/7. Just because you added the third, fourth, fifth, or 60th or 70th machine, it’s not like we’re adding additional people to monitor those machines. So you need a little bit of scale, Barry, and that’s the thing that doesn’t always come across. And then the assembly portion also makes a huge difference. If us taking 120 hours and you can pick your hourly rate and we can build something with less than 20 hours, you can do the math real quick and go, okay, that’s going to be material, but it’s not going to be one thing. You’re going to have to keep the revenue going up. You need to get the telecommunications costs down, which are material. You need to get the service costs down. You need to get the cloud costs down, and you need throughput. You need to get these things out the door faster. And because we kind of see how we could there’s possibility to get there is why we had the nerve, I guess, to say that we can get the profitability in the next 24 months. And obviously, at the end of the day, it’s also the fixed cost, right? You need to keep the team as small as possible, as efficient as possible, so that we’re generating a good amount of revenue. And you start getting there. Like if you go, if you multiply by four, our first quarter annual run rate, and you annualize it, you’re about $11 million and we’ve got maybe 90 employees on staff. You can start seeing that If we can keep the team efficient and lean and get our costs down, we can get there. And then in terms of what it could look like longer-term, in the interest of time, I want to make sure that everyone has a chance here. If you go to knightscope.com/rise, R-I-S-E, the investor deck – the updated investor deck is there, and there’s literally a slide there that shows our target of what we’re trying to get at.
Unidentified Analyst: Okay. Great. Thanks so much. Appreciate it. Thanks for the lot of work.
William Santana Li: Thanks, Barry. Thank you. Mr. Matthew Miller.
Unidentified Analyst: Hey Bill, you hear me?
William Santana Li: I can hear you.
Unidentified Analyst: All right. Sounds good. Okay. Before I get into my question, I just want to make a comment on the whole, I see a lot of chat going on about reverse splits and de-listing. The first thing I want to say is I’m unequivocally, I’m sure NASDAQ will give you a more time, the 180-day extension if needed. I’ve been trading for a long time, and I’ve never – I’ve seen companies do reverse split after reverse split, and I just want to make the point that Knightscope has never needed an extension or asked for an extension beyond what they already had. So if it came down to the point where you did need an extension, I don’t ever see them giving you a problem doing that. So I just wanted to kind of point that out, just so there’s not going to be that fear that two months or three months down the line that we’re going to be looking at a reverse split or if you listing. So I just kind of wanted to get that out of the way first. Hold on one second. Okay. So I’m going to start off my question just with a statement. So, prior to myself becoming a full-time investor, I was actually in operations and management for one of the largest security companies in the world, which is kind of why I have an authentic [indiscernible] for Knightscope. So while there are plenty of hardworking qualified human security guards, I firsthand know the challenges, costs, and inefficiencies in the security guard industry with constant pullouts turnover, folks-ready training for new hires, which then translates over to level of service. The average cost for a human security guard for a company outsourcing security measures is anywhere from $35 to $100 per hour, depending on whether the guard is armed or not. Knightscope is a cost saving efficient alternative to existing security measures. And any company looking to cut down on costs without degradation of security efforts should look to Knightscope as a solution. So any narrative contributing to a non-favorable economic climate, kind of like we are now, should actually be beneficial to Knightscope as an investment. So my question is, what can Knightscope leadership do to communicate this message to existing and potential shareholders? So basically, Knightscope is something you want to invest in as companies can save money on their existing security measures and crime obviously isn’t something going away no matter what the economic climate were in.
William Santana Li: Here, here. Was there a question in there, Matthew?
Unidentified Analyst: That was basically my question. I apologize. So let me – I know that was kind of a long-winded statement, but there was a question in there. So what can Knightscope leadership do to communicate this message that basically, you’re investing in something that is going to be saving companies, is it – crime is going to go on no matter what, and companies are going to be looking to be saving money, and currently they’re existing security measures are probably outsourcing a company for anywhere from $50 to 4100 per hour, but investing in Knightscope, you’re getting a superior service for a fraction of a fraction of the cost. And this is why it’s a beneficial, this is why it’s an investment, or this is what’s – why you want to invest in Knightscope.
William Santana Li: So I think I’m going to do all the above kind of guy. If you want something done, the Colin Powell’s doctrine of overwhelming force usually is the one I want to go towards, which is, you need to spend time on everything. You need to spend time on calls here with our investors and supporters. You need to take every podcast opportunity that you have, you need to post on social media, you need to be on the robot roadshow. You need to have some of our existing clients be able to speak to a prospective client. You need to write white papers. You need to get a board member to write a blog. You can issue press releases. Basically, you got to do everything. And one of the reasons why we did the financings the way we did is I think it would be very foolish to think that a company by itself with a handful of large institutional investors is going to make this massive change for the country. We’ve gotten so lucky with so many of our investors who’ve introduced us to a possible recruit, who’ve made a phone call to a Mayor, who called sitting congressman, who’ve been able to get a Mayor engaged, who got a school administrator to take a call to get a health – hospital administrator to engage as a client. And we can’t do this by ourselves. And I think it’s not just what management can do, it’s what can our supporters do to get the word out. There’s some things that – I would love to say that you should do, but I can’t. And all I can do is continue to improve the financial performance of the company and communicate and communicate and communicate and communicate. And that’s why I’m willing to put the inordinate amount of effort in answering questions online, offline, text, voicemail, whatever it is. And our CFO, our Co-Founder, everyone who has been tried to be as responsive as possible and we can try to just continue to get the message out, but part of its delivering on results, and we said, we’re going to continue to grow the company, and I hope the graphs we put up this afternoon show that we are. Do we want to accelerate that? Yes, absolutely. But at this point, it’s – we need to put numbers on the board and we need everyone’s help to do it.
Unidentified Analyst: Thank you so much, Bill.
William Santana Li: Okay. Is that Brian? He’s back.
Unidentified Analyst: Hey, Bill. I’m back. I’m back. How you doing? How are you?
William Santana Li: I’m good, I’m good.
Unidentified Analyst: Okay. Well, I’m going to hit you with some questions here. So…
William Santana Li: All right. Well, all right. So full disclosure, I kind of threw out my back over the weekend. So don’t freak out, but I got to stand up here for whatever jaw-dropping nightmare questions you’re going to ask me go for it.
Unidentified Analyst: Well, you’re ruining my image. So inquiring minds want to know, are you – do you identify yourself with the Millennium Falcon in the background or the Empire Fighters?
William Santana Li: You’re going to ask me that, Brian. Despite of its evil, good against evil. It’s – I mean, technologically, the fire fighters are really cool, but it – you got to be the Han Solo Millennium Falcon guy.
Unidentified Analyst: Okay. Well I know that you can’t control the stock price and what you – I’m being an advocate for you here, and I’m not a financial advisor, but Knightscope went public right at the tail end of what I would call the great bull market and the qualitative easing, and then the market turned. And if you looked at a lot of high tech companies, like you mentioned, their valuations have been crushed over the past six months. I mean, it’s never good to see, for example, bank stocks go under, it’s never good to see bank stocks swing 50% in the day, 20% in the day. Were you guys caught up in the Silicon Valley Bank failure at all?
William Santana Li: Yes, we’ve disclosed this. That was a horrifying weekend. We had all our money tied up there. Fortunately, it got resolved after the weekend. We have since pulled our – the funds over to a different bank. But yes, and it sets up, investors want confidence, right? If there’s that kind of stuff going on, does not instill confidence instilled a lot of stress on us. But fortunately, we came away unscathed and stuff like that where – we don’t control. But we can’t sit here and whine and complain either, like, it’s a problem, all right. How do we fix the problem? And you just got to move on to the next issue. We can’t woe is me the market, woe is me the short sellers, woe is me. And it’s like, listen, nobody cares. Put the numbers up, get the work done, get the revenue up, get the cost down, the rest of the stuff, like, it’s entertaining, it’s interesting, it’s what have you. But the markets can be pretty rough and what they want to see as results and growth, and that’s what we’re working on.
Unidentified Analyst: I think I’ve mentioned previously, I think your case acquisition was very timely and a very long-term strategically well-planned acquisition based on the synergies that you have with the customer base, existing customer base, the potential for upsells. Obviously, acquiring a new customer in the public studies to realm is the hardest thing. Case had a set of customers where you could go back to and refurbish or do new installs like your [indiscernible] announcement today. A question I always get from people is, well, don’t you have a cell phone? And I’m like, well, if unfortunately you’re in a situation where you’re in an – you get attacked or someone steals your cell phone from you or you’re disoriented. The first thing you’re looking for is that call. And I think the case offers that solution. And then it also offers Knightscope, the opportunity to offer the K5 or the Hemisphere or other product lines. Are you seeing that opportunity starting to grow?
William Santana Li: I think there’s a lot of cross synergies, because we’re basically going after the same clientele, a lot of cases, I guess, pun intended. I think first and foremost, the folks working on blue light towers will tell you, part of the solution is literally the physical presence of having that light there in the first place can stop some negative behavior. Second, your phone isn’t always charged. Your phone isn’t always have connectivity and just having the GPS location, we know exactly where that call came from, not, I think it’s over here. Can be really helpful? And I think selfishly for Knightscope and our – and through the acquisition, there’s a lot of synergies for us to grow together and likely some product pipeline, new things for us to do in the future. But if you look at it, 7,000 devices that are out there in the field, what happens when you’re able to do a massive nationwide upgrade and add all the AI capabilities that we have and in the long-term be able to have all these machines moving or not moving, see, feel, hear, smell and speak, like there’s inherent value creation. And it’s a little bit of a land grab. It’s not like in some of these places where these devices that case had installed over the years, it’s not like it’s easy to just show up and I’m going to go stick this on the highway somewhere. Like, it’s a pretty intense process. And yes, it’s a long-term play. It’s also – I think if you reflect on the financials that we just put up, we asserted those an accretive transaction and you can see the positive impact it’s had and the team there has been doing rather well growing. And there’s a lot more growth to be had.
Unidentified Analyst: And then I’ll just finish up here. I mean, I think having a backlog is fantastic as long as you’re able to get the products out the door and then recognize that revenue, because you really have two parts of the business, a subscription model as a service, and then, like the case model looks more of a point of sale type of service. Any update on the government security review and also the Hemisphere product launch?
William Santana Li: The ATO with the U.S. Federal Government, we’re a little in the dark here, so we’re – we don’t know anything more than what you already know. And I’m going to need to put somebody on mute here. And in terms of the Hemisphere, we’re working through some last minute supply chain and technical stuff, but we’ve got orders have come in and hopefully we’ll start the shipping that one soon.
Unidentified Analyst: All right, Bill. Well, again, I know everyone asked you about the stock price and if you’re successful in growing the company, growing the top line as well as getting cash flow positive, and it’s all about getting the number of installs. And if this economy can just kind of just – kind of trend along, I think you’ll be in a good position. You’ve been very transparent. Finally, on that non-dilutive offering that you kind of had on your slide there. Can you give any details of what that might entail? Because typically companies when they want to raise money, they issue more stock, it becomes diluted to existing shareholders or they’ll do a convertible type of offering of preferred shares that get converted to comment. Anything that you can elaborate on that?
William Santana Li: I think I can – hey, folks, if you’re not speaking, if you can go on mute, kindly would be great. I think one thing that I’ve learned without commenting directly on a possible offering or anything like that. On the private market side of things, prior to the JOBS Act, from 1930 whatever till 2015-ish, it was illegal for the general population to invest in a startup. Like, you can go to Vegas and do whatever the heck you wanted, but it was literally illegal for you to participate in a Reg A offering or Reg CF or anything like that, because none of it existed. And it was kind of an injustice where the general population couldn’t invest in promising startups, some cause that they were behind, some entrepreneur they wanted to back or what have you. And as I reflect generally on the markets – on the public markets, you look at a lot of micro-cap, small cap companies that are dealing with larger institutional investors with some – whichever way you want to look at it, highly lucrative for them or obnoxiously expensive for the issuer. And the general public typically doesn’t have access to that. So to me that feels like a little bit of an injustice. So we’re exploring to see if there’s an opportunity for our supporters and for the company. Obviously, we’re growing, obviously we need the additional capital. So to see if there’s an interesting way for us to do something non-dilutive, which remember, again, I don’t want any dilution either. So be abundantly clear here. So we’ll see, we’re still an exploratory phase.
Unidentified Analyst: Well, obviously you have the route of credit investors, you have those preferred shares sitting over in the sidelines. There’s different things you can do. But unfortunately, crime’s not going anywhere. So you’re a public safety company. Your mission is to make America the safest country. It breaks my heart every time I see something happening at schools, impacting families and children in our communities. So you’re right on mission long Knightscope, short the criminals and may the force be with you.
William Santana Li: Thank you, Brian. I appreciate that. I appreciate that. Kevin Hines.
Unidentified Analyst: Hi, Bill. Can you hear me?
William Santana Li: Yes, go for it.
Unidentified Analyst: First off, yes, thank you for your time. I’m going to try to be shortened to the point here, so some of the other people can get their questions in. So as far as Blue Towers versus K5s it seems to me that the sales on the Blue Light Towers have sort of been ramping up a little quicker than those of the K5s. I was just wondering if maybe you could touch on sort of that trend and do you think that that trend may reverse on the side of K5s anytime soon, or if that makes any sense?
William Santana Li: Yes, I understand the question, Kevin. I think because CASE was a private company and no one heard when they got their sales. Now all of a sudden, because we give it some due publicity, then it looks like it’s a big trend. I mean, I think the easier way to look at it and this is roughly speaking, so don’t quote me here. If you look at the backlog, it’s – I don’t want to say it’s 50-50, but it’s pretty close to split. So if it was like 90% backlog on Blue Light Towers and the rest were autonomous security robots, then it’d be different. But that’s not the case. So long-term, that’s a great question. How does this play out over time in terms of either quantity, which is very different. That’s the other thing to think about, Kevin. Quantity, per unit revenue for an autonomous security robot is materially different than a Call Box or an E-Phone. So we’re an uncharted territory. No one in the history of mankind’s done this before. So for me to sit here Kevin, and tell you, yes, we know exactly what’s going to happen, it’s like there’s no credibility there. I think we just need to keep pushing forward. I think the positive thing I can share is it’s green lights on both sides. And in a lot of cases, I’m looking for synergies across the portfolio. And we want to be able to tell a client yes, as much as we can, as opposed to, no, we don’t do that. So I think things are looking up and the numbers reflect it.
Unidentified Analyst: Okay. And just a couple more quick things. I think you already mentioned maybe and I just want to make sure that there’s no new update on the FedRAMP process yet, or the federal government status?
William Santana Li: Yes, I wish. Unfortunately, Kevin, I don’t have anything to share. It’s not the most – you got to be polite here.
Unidentified Analyst: I know the government…
William Santana Li: It’s not the most transparent process. How about that?
Unidentified Analyst: Yes. The government moves slow. I know. It irritates me. I deal with them all the time too. And then my last little piece of my question was just, are we seeing any release in terms of parts supply and manufacturing on producing additional units to get out in the field?
William Santana Li: Yes, no, and maybe. I mean, Kevin, I’m not there, it’d be funny. But every day is like a new drama. We thought we were good over here, and then all of a sudden it’s a problem. Or we have an intermittent problem, it’s for two weeks, we’re going to be stuck here. I’m hoping it starts leveling out. We did hire – I think I mentioned earlier, a full-time supply – senior supply chain manager who can keep a closer eye on it and try to plan ahead better. Stuff that we never thought we’d have a supply chain issue ends up being a massive problem. It could be a wiring harness, it could be a connector, it could be a resistor. I mean, it’s all over the map. We’re working through it, obviously you can see that we’ve been shipping and reflecting it on the revenue side of things. But I don’t – I wouldn’t want to say that, yes, it’s all green lights going ahead. I think the best thing we can say it’s going to be choppy. And that’s not necessarily healthy for us or the clients to have a mad rush of stuff come in. It doesn’t help on the production, quality, deployment, client experience type of things, but we’re going to just need to work through it.
Unidentified Analyst: Okay. So we don’t necessarily expect any drastic improvement to that, like within the next, I don’t know, 12, 24 months or anything like that. I mean, do we expect it to be an ongoing issue for a while?
William Santana Li: I hope it’s not Kevin. I can’t forecast that. And the problem, Kevin, is that we get caught by surprise. It’s not that it’s something we internally did and it sometimes it’s a Tier 3 supplier, the guy who gave another part to another part and then ends up affecting us. And we don’t have visibility. And it’s happening across, it’s not just us across a number of sectors. And I don’t know if the next 12 or 24, I’m hoping the next 12 or 24 months are going to be a lot better than what the hell we just went through. But I can’t promise that, Kevin.
Unidentified Analyst: Okay. Well, I appreciate your time. I’ll let you move on to the next one. Thanks, Bill.
William Santana Li: Yes, sir. Thank you, Kevin. Alan Stone.
Unidentified Analyst: Yes. Hey, Bill, how are you? It’s been a couple years since we last spoke.
William Santana Li: Yes.
Unidentified Analyst: And you might recall we did a webinar with you a couple of years ago.
William Santana Li: Yes, been some time.
Unidentified Analyst: Yes. But yes, I’ve been following your progress and congratulations on your growth. And I’ve just got to say, you’ve probably been the best person ever in the U.S. under raising money under Reg A. I can’t think of any company that’s been more successful in raising money under crowdfunding or Reg A than you. I always tell people when they’re considering a Reg A look at Knightscope, how well they did. So wanted to say that. And then congratulations on building the business and thanks for the town hall. I think it’s very transparent what you’re doing, and it’s good for your shareholders, I guess. People are asking a lot of questions about the stock price. I didn’t hear you address the potential for a reverse split. Is that something you’d consider? I guess, obviously you’d prefer not to have to do it, but…
William Santana Li: Yes. I think Alan, one important point that you may have missed where we sit on the Nasdaq Exchange, we actually have two requirements, a $50 million market cap requirement and $1 share price. A reverse would not cure a market cap issue.
Unidentified Analyst: Okay. So, yes, so right now your market cap seems to be about $25 million or so.
William Santana Li: Someone one day needs to explain to me, like, if I go to five different sources of the market cap, you have five different numbers, but yes, it’s not the $50 million.
Unidentified Analyst: Yes. So I guess we got to double the price to get there.
William Santana Li: Sorry, if you’re not speaking, can you kindly go on mute?
Unidentified Analyst: Yes. So it looks like at least I’m just looking at the Yahoo Finance, but Yahoo Finance thing, you have a $25 million market cap. So the share’s outstanding times the price of stock.
William Santana Li: Yes. I think you could go on Robinhood or somewhere else that’s exactly the same.
Unidentified Analyst: Yes. So you’ve got what 30 – how many shares are outstanding now?
William Santana Li: That trade about – don’t quote me again this, you need to refer to the filings as you know 44 million off the top of my head on Class A common. And then there’s plus or minus 10 million of Class B common that does not trade, and then another 10 million of preferred that does not trade.
Unidentified Analyst: Right. Yes, I think they just look at the offset.
William Santana Li: Class A common that trades, correct.
Unidentified Analyst: Right. So yes, so basically you got to double the price of the shares to get to that $50 million number, and that would get you over the dollar also. So yes, I mean we have some ideas that could help you. Certainly, we could help you with a research report and circulation to our subscribers. We have 200,000 subscribers to Wall Street Research, and we’d love to help you by doing a report and distributing to our global investors.
William Santana Li: Always happy to take a look. So if you want to connect offline, we’re happy to do that.
Unidentified Analyst: Okay. Yes, let’s follow-up on that and again, congratulations for taking questions.
William Santana Li: Thank you, Alan. I appreciate it. Cheers. Oliver?
Unidentified Analyst: Yes, can you hear me?
William Santana Li: Yes, go ahead.
Unidentified Analyst: Yes. I’m sorry I came quiet late, I had some emergency, but I missed quite a lot. But I wanted to ask if granting a lot of issues going on with crimes with schools. I don’t know if the leadership has a particular plan to market now
