SmartRent(SMRT) - 2024 Q1 - Quarterly Report

PART I - Financial Information This part presents the company's unaudited financial statements and management's analysis of financial condition and results of operations Item 1 - Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2024 Condensed Consolidated Balance Sheets This statement details the company's assets, liabilities, and stockholders' equity as of March 31, 2024 Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $204,701 | $215,214 | | Total current assets | $319,477 | $340,340 | | Total assets | $485,453 | $509,756 | | Total current liabilities | $106,990 | $117,309 | | Total liabilities | $152,366 | $167,308 | | Total stockholders' equity | $333,087 | $342,448 | Condensed Consolidated Statements of Operations and Comprehensive Loss This statement outlines the company's revenues, costs, and resulting net loss for the first quarter of 2024 Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Hardware Revenue | $29,077 | $37,325 | | Professional Services Revenue | $3,458 | $12,769 | | Hosted Services Revenue | $17,954 | $14,985 | | Total Revenue | $50,489 | $65,079 | | Total Cost of Revenue | $31,066 | $55,964 | | Total Operating Expense | $29,582 | $24,409 | | Loss from operations | $(10,159) | $(15,294) | | Net loss | $(7,692) | $(13,215) | | Basic and diluted net loss per common share | $(0.04) | $(0.07) | - Total revenue decreased by 22% year-over-year, driven by declines in hardware and professional services, partially offset by a 20% increase in hosted services revenue[21][193] - Net loss improved by 42% year-over-year, from $(13,215) thousand in Q1 2023 to $(7,692) thousand in Q1 2024[21][193] Condensed Consolidated Statements of Stockholders' Equity This statement shows changes in stockholders' equity during the first quarter of 2024 Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Stockholders' Equity | $333,087 | $342,448 | | Accumulated Deficit | $(297,601) | $(285,512) | | Stock-based compensation | $3,281 | N/A | | Repurchases of Class A common stock | $(4,397) | N/A | - Stockholders' equity decreased by $9.36 million from December 31, 2023, to March 31, 2024, primarily due to net loss and share repurchases[19][24] Condensed Consolidated Statements of Cash Flows This statement details cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,337) | $(10,290) | | Net cash used in investing activities | $(956) | $(1,169) | | Net cash used in financing activities | $(6,462) | $(1,854) | | Net decrease in cash, cash equivalents, and restricted cash | $(10,761) | $(13,286) | | Cash, cash equivalents, and restricted cash - end of period | $204,948 | $204,427 | - Net cash used in operating activities significantly decreased by 67.6% year-over-year, from $(10,290) thousand in Q1 2023 to $(3,337) thousand in Q1 2024[29][224] - Net cash used in financing activities increased by 248.5% year-over-year, primarily due to $4.37 million in Class A common stock repurchases in Q1 2024[29][224][228] Notes to the Condensed Consolidated Financial Statements (Unaudited) These notes provide additional detail and context for the unaudited financial statements NOTE 1. DESCRIPTION OF BUSINESS This note describes the company's core business as an enterprise real estate technology provider - SmartRent, Inc is an enterprise real estate technology company providing comprehensive management software and applications for property owners, managers, and residents[32] - The company's suite of products includes smart building hardware and cloud-based Software-as-a-Service (SaaS) solutions, offering visibility and control over real estate assets[32] NOTE 2. SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and policies applied in the financial statements - The company restated its Q1 2023 Consolidated Statement of Cash Flows to reclassify $1.14 million of capitalized software costs from operating to investing activities, deemed immaterial to previously issued financial statements[36][37] - Management believes currently available resources will provide sufficient funds for at least one year, but may need additional capital through equity or debt financing[39] - The company adopted ASU 2016-13 (Credit Losses) effective January 1, 2023, with no material impact on consolidated financial statements[86] NOTE 3. FAIR VALUE MEASUREMENTS AND FAIR VALUE OF INSTRUMENTS This note provides information on the fair value measurement of the company's financial instruments Fair Value of Financial Instruments (in thousands) | Instrument | March 31, 2024 | December 31, 2023 | Level | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $204,701 | $215,214 | 1 | | Restricted cash | $247 | $495 | 1 | | Acquisition earnout payment | $2,800 | $4,250 | 3 | - The fair value of the acquisition earnout payment increased by $80 thousand in Q1 2024, primarily due to a decreased payment term[90] NOTE 4. REVENUE AND DEFERRED REVENUE This note details the disaggregation of revenue by type and changes in deferred revenue balances Revenue by Type (in thousands) | Revenue Type | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Hardware | $29,077 | $37,325 | | Professional services | $3,458 | $12,769 | | Hosted services | $17,954 | $14,985 | | Total Revenue | $50,489 | $65,079 | - Total revenue decreased by 22% year-over-year, primarily due to a $15.4 million decrease in Smart Apartments solution revenue[93][195] Deferred Revenue (in thousands) | Metric | March 31, 2024 | January 1, 2024 | | :--- | :--- | :--- | | Deferred revenue balance | $119,568 | $123,159 | - 59% of total deferred revenue is expected to be recognized within the next 12 months[95] NOTE 5. OTHER BALANCE SHEET INFORMATION This note provides further details on inventory, intangible assets, and warranty allowances Inventory (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Finished Goods | $30,509 | $41,206 | | Raw Materials | $390 | $369 | | Total inventory | $30,899 | $41,575 | - Inventory decreased by $10.68 million from December 31, 2023, to March 31, 2024, with write-downs of $96 thousand in Q1 2024[98] Intangible Assets, Net (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Customer relationships | $18,433 | $18,989 | | Developed technology | $7,321 | $7,689 | | Trade name | $526 | $571 | | Total intangible assets, net | $26,280 | $27,249 | - Warranty allowance decreased to $1,570 thousand as of March 31, 2024, from $2,215 thousand as of December 31, 2023[56] NOTE 6. DEBT This note describes the terms and status of the company's Senior Revolving Facility - The company has a $75 million Senior Revolving Facility with a five-year term, maturing in December 2026[110] - No outstanding principal amount under the Senior Revolving Facility as of March 31, 2024, or December 31, 2023[115] - The company believes it was in compliance with all financial covenants of the Senior Revolving Facility as of March 31, 2024[114] NOTE 7. CONVERTIBLE PREFERRED STOCK AND EQUITY This note details the company's equity structure and stock repurchase program activities - No shares of preferred stock were issued and outstanding as of March 31, 2024, or December 31, 2023[116] - The Board authorized a stock repurchase program in March 2024 to repurchase up to $50 million of Class A common stock[118] - During Q1 2024, the company repurchased 1,595 shares of Class A common stock for $4.37 million, with $45.64 million remaining available[119] NOTE 8. STOCK-BASED COMPENSATION This note outlines the expenses and unrecognized costs related to stock-based compensation plans Stock-Based Compensation Expense (in thousands) | Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Cost of revenue | $298 | $251 | | Research and development | $961 | $978 | | Sales and marketing | $131 | $236 | | General and administrative | $1,891 | $2,215 | | Total | $3,281 | $3,680 | - Total stock-based compensation expense decreased by $0.40 million (10.8%) year-over-year[136] - As of March 31, 2024, unrecognized compensation expense for stock options was $9.65 million (weighted-average period of 3.4 years) and for RSUs was $17.73 million (weighted-average period of 2.4 years)[127][130] NOTE 9. INCOME TAXES This note explains the company's income tax expense, effective tax rate, and deferred tax assets Income Tax Expense (Benefit) (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Income tax expense (benefit) | $45 | $(7) | | Effective tax rate (ETR) | (0.59)% | 0.05% | - The company maintains a full valuation allowance for net deferred U.S. federal and state tax assets, including net operating loss carryforwards[138] - As of December 31, 2023, gross federal NOLs were $204.6 million and state NOLs were $193.4 million[209] NOTE 10. NET LOSS PER SHARE This note details the calculation of net loss per share and excluded potentially dilutive securities Potentially Dilutive Shares Excluded from EPS (in thousands) | Security Type | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Common stock options and restricted stock units | 16,346 | 19,395 | | Common stock warrants | - | 3,664 | | Total | 16,346 | 23,059 | - Potentially dilutive securities were excluded from diluted net loss per share calculations because their inclusion would have been anti-dilutive due to the reported net loss[139] NOTE 11. RELATED-PARTY TRANSACTIONS This note discloses transactions with a significant customer affiliated with a board member Related-Party Transactions (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue from a significant customer | $680 | $1,016 | | Receivables due from this customer | $481 | $1,352 | - A member of the Board serves on the board of directors of a SmartRent customer, with all dealings conducted on arm's-length terms[141] NOTE 12. COMMITMENTS AND CONTINGENCIES This note discusses legal accruals related to a settlement offer with a supplier - The company recorded a legal accrual of $5.30 million as of March 31, 2024, related to a substantive offer to settle a dispute with a supplier[143][144] - The settlement offer involves returning $4.96 million of product inventory and paying a portion of the supplier's costs and fees[143] NOTE 13. SUBSEQUENT EVENTS This note describes stock issuances and repurchases that occurred after the reporting period - In April 2024, the company issued 80 shares of Class A Common Stock related to vested RSUs[146] - In April 2024, the company repurchased an additional 765 shares of Class A common stock for $2.01 million, leaving $43.64 million available under its stock repurchase program[146][147] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and results of operations for Q1 2024 Overview This section provides a high-level overview of the company's business and market position - SmartRent is an enterprise real estate technology company offering smart building hardware and cloud-based SaaS solutions for property owners, managers, and residents[152] - As of March 31, 2024, the company had 749,401 Units Deployed and 639 customers, representing approximately 16% of the U.S. institutionally owned multifamily and single-family rental market[154] Our Business Model This section explains how the company generates revenue from hardware, services, and subscriptions - Revenue is primarily generated from direct sales of smart home hardware devices, professional installation services, and monthly subscription fees for Hosted Services (software applications)[155] - Subscription arrangements for Hosted Services range from one month to eight years, with a median recurring revenue contract term of one year[155] Key Factors Affecting Our Performance This section discusses key operational factors like supply chain, R&D, and market adoption - The company has experienced incremental improvements in global supply chain challenges, reducing backlogged Units Deployed for Access Control and made-to-order locks[157][158] - Performance is dependent on continuous investment in research and development to introduce innovative software services and hardware products, including new offerings like Community WiFi and Smart Package Room[159][160] - Future growth relies on continued consumer adoption of smart home products and potential expansion into international markets[161] Basis of Presentation This section confirms the financial statements are prepared in accordance with GAAP - The consolidated financial statements and accompanying notes are prepared in accordance with GAAP[162] Key Metrics This section presents key operating and financial metrics used to evaluate business performance Key Operating Metrics | Metric | March 31, 2024 | March 31, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Units Deployed | 749,401 | 602,556 | 24% | | New Units Deployed | 29,710 | 55,360 | (46)% | | Units Shipped | 51,744 | 58,659 | (12)% | | Units Booked | 46,290 | 65,108 | (29)% | | Bookings (in thousands) | $38,761 | $37,305 | 4% | | Annual Recurring Revenue (ARR) | $47.6 million | $36.0 million | 32% | | Hardware ARPU | $561.94 | $636.30 | (12)% | | Professional Services ARPU | $221.43 | $249.66 | (11)% | | SaaS ARPU | $5.41 | $5.21 | 4% | | Units Booked SaaS ARPU | $7.16 | $5.40 | 33% | | Customer Churn (Smart Communities) | 0.02% | 0.01% | 100% | | Net Revenue Retention | 105% | N/A | N/A | Components of Results of Operations This section breaks down the key components of the company's revenue and expenses - Total revenue decreased by $14.6 million (22%) year-over-year, primarily due to a $15.4 million decrease in Smart Apartments solution revenue[195] - Hardware revenue decreased by $8.2 million (22%) due to a 12% decrease in Units Shipped and a 12% decrease in Hardware ARPU, driven by a product mix shift to Alloy SmartHome hardware[196] - Professional services revenue decreased by $9.3 million (73%) due to a 46% decrease in New Units Deployed and an 11% decrease in Professional Services ARPU[197] - Hosted Services revenue increased by $3.0 million (20%) due to a 24% increase in Units Deployed and a 4% increase in SaaS ARPU[198] - Total cost of revenue decreased by $24.9 million (44%), primarily due to a favorable product mix in hardware and a decrease in third-party direct labor costs for professional services[201][202][203] - Research and development expenses increased by $1.1 million (16%), mainly due to higher personnel-related expenses[205] - General and administrative expenses increased by $4.6 million (39%), primarily due to a $5.3 million legal accrual related to a supplier dispute[207] Results of Operations for the Three Months Ended March 31, 2024 and 2023 This section provides a detailed comparison of operating results between Q1 2024 and Q1 2023 Consolidated Results of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $50,489 | $65,079 | $(14,590) | (22)% | | Total Cost of Revenue | $31,066 | $55,964 | $(24,898) | (44)% | | Total Operating Expenses | $29,582 | $24,409 | $5,173 | 21% | | Loss from operations | $(10,159) | $(15,294) | $5,135 | (34)% | | Net Loss | $(7,692) | $(13,215) | $5,523 | 42% | | Interest income, net | $2,409 | $2,016 | $393 | 19% | | Income tax expense (benefit) | $45 | $(7) | $52 | 743% | Non-GAAP Financial Measures This section reconciles net loss to non-GAAP measures like EBITDA and Adjusted EBITDA Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(7,692) | $(13,215) | | EBITDA | $(8,555) | $(13,984) | | Legal matter | $5,300 | - | | Stock-based compensation | $3,281 | $3,680 | | Compensation expense in connection with acquisitions | - | $1,625 | | Severance charges | $231 | - | | Other acquisition expenses | $140 | $205 | | Adjusted EBITDA | $397 | $(8,474) | - Adjusted EBITDA turned positive at $0.40 million in Q1 2024, a significant improvement from a loss of $8.47 million in Q1 2023[217] Liquidity and Capital Resources This section analyzes the company's cash position, cash flows, and available credit facilities - As of March 31, 2024, the company had $204.7 million in cash and cash equivalents[218] - The company has an undrawn $75 million Senior Revolving Facility and believes its current liquidity is sufficient to fund operations for at least the next 12 months[219][220] - Net cash used in operating activities decreased to $3.34 million in Q1 2024 from $10.29 million in Q1 2023, while net cash used in financing activities increased to $6.46 million, primarily due to stock repurchases[224][225][228] Critical Accounting Policies and Estimates This section highlights accounting policies that require significant management judgment and estimates - Revenue recognition involves significant judgment in estimating standalone selling prices for multiple performance obligations (hardware, professional services, Hosted Services)[237] - Inventory valuation requires significant judgment in forecasting future demand and assessing obsolescence, which can materially impact financial results[238] - Stock-based compensation relies on estimates for fair value using the Black-Scholes model for options and grant date fair value for RSUs, with various assumptions[239][240] Emerging Growth Company Status This section discloses the company's status as an emerging growth company under the JOBS Act - SmartRent is an 'emerging growth company' under the JOBS Act and has elected to use the extended transition period for complying with new or revised financial accounting standards[242] - This status provides certain exemptions but may make it difficult to compare financial results with other public companies[243] Recent Accounting Pronouncements This section discusses recently issued accounting standards that may affect the company - The company is evaluating the potential effects of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) on its consolidated financial statement disclosures[84][85] Item 3 - Quantitative and Qualitative Disclosures About Market Risk This section discloses the company's exposure to interest rate and foreign currency market risks - Primary market risks include interest rate fluctuations and foreign currency exchange rates[246] - A hypothetical 10% change in interest rates could increase annual interest income by $20.5 million or decrease it by $2.4 million, based on cash position as of March 31, 2024[248] - Foreign currency exchange rate risk is not currently material but may increase with international operations; no hedging strategies are currently employed[249] Item 4 - Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and internal financial reporting controls - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[250] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[251] PART II - Other Information This part provides additional information on legal proceedings, risk factors, equity sales, and other corporate matters Item 1 - Legal Proceedings The company is involved in various legal proceedings not expected to have a material adverse effect - The company is subject to various legal proceedings and claims arising in the ordinary course of business[252] - Management does not believe that the outcome of these matters will have a material adverse effect on the company's business, financial condition, results of operations, or prospects[252] Item 1A - Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[253] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's Class A common stock repurchases during the quarter Share Repurchase Activity (in thousands, except per share amounts) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | March 1 - March 31, 2024 | 1,595 | $2.74 | | Total (Q1 2024) | 1,595 | $2.74 | - The repurchases were part of a $50 million stock repurchase program authorized in March 2024[255] - As of March 31, 2024, approximately $45.64 million remained available for stock repurchases under the program[255] Item 3 - Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[257] Item 4 - Mine Safety Disclosures This item is not applicable to the company's business operations - This section is not applicable to the company[258] Item 5 - Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements in Q1 2024 - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024[259] Item 6 - Exhibits This section lists all exhibits filed with or incorporated by reference into the Form 10-Q - The report includes exhibits such as Amended and Restated Bylaws, Non-Employee Director Compensation Policy, Executive Incentive Compensation Plan, and certifications (31.1, 31.2, 32.1, 32.2)[261] Signatures The report was officially signed by the Chief Executive Officer and Chief Financial Officer on May 8, 2024 - The report was signed by Lucas Haldeman (Chief Executive Officer) and Daryl Stemm (Chief Financial Officer) on May 8, 2024[266]