Q3 2022 SmartRent Inc Earnings Call

Today's call is being recorded and all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one once again.

Thank you and I will now turn the conference over to on a lease laughter Vice President of Investor Relations you may begin.

Thank you operator, Hello, everyone and thank you for joining US today. My name is on a lease Laseter Vice President of Investor Relations for Smart rent.

I'm joined today by Lucas Haldeman, Chairman, and CEO , and Hiroshi aka Moto Chief Financial Officer.

They will be taking you through our results for the third quarter of 2022 as well as guidance for the remainder of the year. After today's market close we issued an earnings release and filed our 10-Q for September 32022, both of which are available on the Investor Relations section of our website smart rent dot com.

Before I turn the call over to Lucas I would like to remind everyone that the discussion today may contain forward looking statements that involve risks and uncertainties.

<unk> factors could cause our actual results to be materially different from any future results expressed or implied by such statements.

These factors are discussed in our SEC filings, including our annual report on Form 10-K.

<unk> report on Form 10-Q, and current reports on form 8-K, we undertake no obligation to provide updates with regard to the forward looking statements made during this call and we recommend that all investors view. These reports thoroughly before taking a financial position in smart rent also dirt.

Today's call, we will refer to certain non-GAAP financial measures a discussion of these non-GAAP financial measures along with a reconciliation to the most directly comparable GAAP measure is included in today's earnings release.

We'd also like to point out that we've added a third quarter earnings deck supplemental that illustrates our results which is available on the webcast portion of this call as well as the Investor tab on our website and with that let me turn the call over to Lucas to review our results.

Thank you on a lease good afternoon, everyone and thank you for joining our third quarter earnings call. My remarks today will cover three primary areas, our strong execution and results during the third quarter, our confidence that smart <unk> has the right strategy to continue growing in the current macro environment and an update on our ability to procure hardware.

Turning now to our financial highlights for the third quarter, we delivered $47 5 million in total revenue and deployed over 53000 units with bulk results fairing better than the guidance, we communicated last quarter the demand environment remains robust, which combined with our strategy and execution led to a record revenue for the quarter.

This top line strength in turn helped us improve our adjusted EBITDA by over $2 million compared to the prior quarter.

Our business is evolving favorably toward higher margin sources of revenue as demonstrated by our $8 million of SaaS revenue.

All of our primary SaaS measures <unk> of $31 8 million and <unk> of $3 50, <unk> continuing to grow and SaaS revenue is close to four times, what it was last year, demonstrating our success in increasing price and cross selling additional products.

Take a moment to highlight the significant milestone we reached as a company last month, we have now deployed over 500000 units an apartment and single family homes with smartphone technologies. According to available data that's more units deployed when all of our peers combined this accomplishment speaks to our scalability the power of our approach and having the right.

Strategy in place.

Committed units pipeline remains robust and we have reached an all time high and committed units with over 800000 units expected to come onto the platform in the next two years.

In addition to the high visibility pipeline, our current customers' own or operate more than six 5 million units because of where smartphone operates within the real estate ecosystem. We believe we are well positioned amidst the current macro backdrop based on several factors, we have strong relationships with the top multifamily owners and operators and demand is.

Stronger than ever.

The high ROI, our platform delivers to customers provides an ongoing incentive draw on our technology and our smart home platform and property operations software directly enable owners and operators to be able to centralize operations and overcome labor shortages.

I am pleased to report that during the quarter, we saw general easing in the supply chain constraints and an incremental improvement in our ability to procure hardware.

We anticipate it will take more time for the system to fully normalize, but we're generally encouraged with what we're seeing we now have fewer constrained product lines overall, and we have begun receiving some supply for nearly all skus I would now like to turn the call over to our CFO Hershey Okamoto, who will take you through the details of our financial performance of this quarter.

And provide an update to our 2022 full year guidance Hiroshi <unk>.

Thank you Lucas I will begin by recapping, our financial results for the third quarter of 2022.

Please note that unless otherwise specified all of the third quarter growth figures cited in my remarks today are quarter over quarter or sequential comparisons.

I'll now move on to the key financial highlights.

In the third quarter of 2022, we delivered another record quarter with total revenue of $47 5 million up 12% from $42 4 million in the second quarter.

Of the three revenue streams driving this double digit growth the two biggest hardware and hosted services grew at 28% and 8% respectively.

Professional services decreased 18% due to lower unit deployments during the quarter.

Cause by lingering supply chain constraints largely outside of our control.

As the opportunity to upsell and cross sell ancillary products grows the business is becoming less dependent on new unit growth alone.

This is evidenced by 19% sequential growth in <unk> per ship unit of hardware from 441 to $525.

Drilling further into hosted services SaaS revenue in the quarter increased 4% to approximately $8 million from $7 6 million in the second quarter of 2022.

Average organic SaaS <unk> across all 500000, plus deployed units increased six 3% from $3 29 to $3 50.

I'll note that this <unk> will generally continue to trend upward as new higher price deployments are added to the mix. We are also on track to achieve $10 million SaaS revenue contribution from the site plan. This year as we expected.

Total gross margin improved incrementally from two 3% to two 5% in the previous quarter due to improved unit economics and further scaling of the business.

This is the third consecutive quarter of improved gross margins and we believe that the company barring unforeseen events will remain in the black in terms of positive gross margins going forward.

In terms of our revenue streams hardware gross margins turned positive from negative 0.3% to four 7% while hosted services improved from 47% to 51, 2%.

As expected professional services were muted versus last quarter impacted by lower unit volumes in Q3.

Total operating expenses were essentially flat on a dollar basis totaling $27 8 million compared to $28 million in Q2, but includes a onetime asset impairment charge of $2 4 million, we booked in the current quarter.

However, even with the impairment as a percentage of revenue operating expenses declined from 66% to 58, 6%.

This can be attributable to improved operating efficiency, gaining economies of scale and practicing financial discipline.

Net loss for the quarter was $26 million compared to $25 6 million in the previous quarter adjusted EBITA loss, however, improved by more than $2 million versus the prior quarter to $17 6 million. Adjusted EBITDA has now improved by more than $5 million compared to the first quarter of 2022 and.

And we believe this general trajectory is sustainable providing a sightline into a path to quarterly profitability in 2023.

We ended the quarter with approximately $128 2 million of deferred revenue on our balance sheet up 2% from $125 4 million in the previous quarter and we expect to recognize 49% of the deferred revenue within the next 12 months as of September 32022, The company had approximately 200.

$17 4 million of cash and no outstanding debt and full access to a $75 million revolving line of credit our liquidity position provides us with sufficient capital to advance our organic growth plans as well as support any nonorganic growth initiatives, we choose to pursue turning to our outlook we have been pleased.

With our solid execution carrying into the fourth quarter, we are narrowing our previous 2022 full year guidance for revenues and unit deployment toward the high end of the range or.

Our updated guidance for revenue is $165 million to $180 million up from $155 million to $180 million previously we reaffirm adjusted EBITDA in the range of negative <unk> 75 to negative $70 million.

Although we now believe it is more likely we will land towards the lower end of that range.

Finally, our updated guidance for units deployed is 200000 to 220000 units up from 190000 to 220000 units previously.

We are committed to reaching positive adjusted EBITDA on an intra quarter basis next year.

We believe that we do not need to sacrifice growth in order to do so.

Our path to profitability and our long term growth potential remains on track.

I will now pass the call back to Lucas for closing remarks, before we open the call to questions Lucas.

Thanks, Archie our strong execution in the third quarter, including reaching the 500000 deployed unit milestone record revenue and double digit adjusted EBITDA growth would not have been possible without the incredible hard work and dedication from our team I'd also like to thank our customers for their partnership and trust and our shareholders for their continued support.

Sure.

Thanks, again to everyone for joining our call today, we look forward to seeing some of you over the next several weeks as we attend investor conferences operator, Please open the line for questions.

Thank you.

I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad and we will pause for just a moment to compile the Q&A roster.

Yeah.

And we will take our first question from Tom White with D. A Davidson your line is open.

Great. Thanks for taking my question two.

Two if I could just one curious if you could share an update on kind of the competitive front. Just curious whether you guys feel like there might be any kind of market share shifts going on.

Relative to your competitors that may or may not be impacted by kind of macro pressures or inflation.

More than more than new and then two maybe you could just talk a little bit just about the general resilience of your business you think should we be entering into kind of a sustained recession recessionary environment.

Just any color there thanks.

Thanks, Tom.

I think on the competitive front not really we haven't really seen anything change I think we're still are enjoying being in the whole position.

And our demand continue to grow all of the competitors out there.

All units they've deployed fewer than than we've deployed.

So I think we feel pretty good about about where we are.

On the resiliency of the business that they have an interesting question and as we look forward I'm not I'm not convinced that if we are not going to be a recession I'm going to opine on that today I will say why I think our business resilient is that.

The foundation of what we're providing to owners and operators.

Lowering their cost and lowering the number of people that are going to employ manage their properties. So when you look at that.

The theme that we're seeing centralization of some owners are compiling of we're trying to do more for with fewer resources.

Our platform really dovetailing into that and enables them to actually do that and then the other that points to is that.

The bulk of our business is retrofit existing apartments, and so we're not subject to some of those macro headwinds that we see a slowdown in building our delays in construction that we are seeing earlier.

A major impact on our business.

Okay.

Thank you.

Thanks, Tom.

We will take our next question from Erik Woodring with Morgan Stanley . Your line is open.

Hey, guys. Thanks for taking my question nice to nice to see a good quarter here from you guys.

Maybe my first question Lucas you made some pretty positive comments on demand it would be call. It robust you said demand is stronger than ever. So I'm. Just curious if there's any way you can help frame for us without some of the supply constraints that you've been facing if theres a way to think about either for the quarter or for the year. How many units you could have deployed I E.

What kind of how.

How much supply is actually holding you guys back and then I have a follow up thanks.

Yeah, Eric Thanks for the question.

The only thing that's really been holding us back a supply where we've seen already.

Rates go up but we have the ability to source labor. So it really is a direct correlation to the supply chain that's been affecting the entire world.

I don't know.

We.

As I said in the call we feel like we're seeing some some easier and positive step forward. So we're feeling good about that in a way that I look at it as the record backlog committed units is it really the profit.

But I look on crossing 801000 at a total now of over one three of deployed and committed those numbers continue to grow and then Georges we're.

We're hearing from a lot of owners anecdotally they want they want to be doing doing more and moving forward.

Okay. That's very helpful. Thanks, and then.

Maybe to that point again.

Supply chain has been a challenge I'd love. It if you could maybe just double click and talk about maybe in a little bit more detail.

Where it stands today I know there were challenges on the access control side, just any efforts you've taken to diversify or anything that you could just help us to give a little bit more confidence in terms of the supply chain improvements just a little more detail than maybe you provided in the.

In your prepared remarks, and that's it for me. Thanks, so much.

Thanks, Yes, sure little bit more detail.

Probably the best way to characterize it is we have peeled out FERC for thousands of orders and we're getting hundreds delivered so it's not we're not out of the out of the woods, but we're going into a direct than this time last quarter a lot of them were on this call. We were getting no supply. So I think we're feeling like it's starting to open up.

And as things start to come in without going into sort of specific excuse. It does remain the same issues that we're having with the supply chain are what the.

Skus, so whats still the semi custom locks in the access control boards.

That remains and it's starting to ease and move the right way.

And we're feeling good about it.

Alright, I appreciate that thanks Lucas.

Thanks, Eric.

As a reminder, the star one if you would like to ask a question. We will take our next question from Brian <unk> with Imperial capital. Your line is open.

Yes, thank you very much good quarter.

First question is on cash burn.

It looks like inventories were up can you talk about your cash burn in the quarter roughly $46 million as I do the back of the envelope and then what your cash burn is.

Projected to be in the fourth quarter.

Yes.

Brian Let me just jump in here.

For the quarter was about $46 million and that is.

And certainly higher than it was last quarter, but last quarter, we were very fortunate to have good collection.

This quarter, we actually ended up with accounts receivable higher by about $20 million.

<unk> to the previous quarter, so the cash burn look high.

But.

Kind of averaging out for the past three quarters, we are probably in the high $20 million.

Okay can you talk about just you just pay for fourth quarter.

For the fourth quarter, we should be kind of at the low or.

Part of that $3 million and I think I just want I'll, just emphasize that we feel very comfortable with our cash position.

Great and then as a follow up.

Can you give us any kind of glimpse into.

2023, Directionally, where youre looking at in terms of revenue or adjusted EBITDA or even reaffirm your last guidance of breaking even anything that you can give us in terms of forward looking.

Yes, let me just take that.

In terms of.

Becoming.

Corporate deposit in 2023.

Affirm that.

We believe that that is the case.

In terms of revenues and adjusted EBITDA were still kind of.

Bringing together our model right now and we will provide guidance I think probably earlier 2023.

Okay. Thank you.

Yeah.

And we will take our next question from Ryan Tomasello with <unk>. Your line is open.

Hi this.

This is Nick <unk> filling in for Brian Thanks for taking our questions.

Our first question is last quarter, you kind of noted countercyclical offsets at titled <unk>, Five from the fall business and home liquidity can you say, what the current mix of guidance, Kevin New XI between these countercyclical products.

Any finance purchase and how those have performed in the quarter I'm just like looking out to next year any color you can provide on expected titled <unk> device fulfillment and particularly margins video tank there is still excess capacity to take out to offset.

The volume decline basically.

Mikael I think we will have some audio issues.

The question was quite choppy.

We couldnt didn't understand.

Okay, Let me repeat.

Is this better.

Yes.

Okay. So what I was asking was last quarter, you kind of noted countercyclical offset that guidance of 65 from deferred business in home equity can you say what the current mix of guidance revenues are between these countercyclical product refinanced by chase and how those have performed in the quarter.

Yes.

I'm not sure that question is is the same for us.

But were not there in the title nor mortgage business.

Yeah.

I'm sorry.

Just give me one second there seems to be some sort of a mix up.

I can get back to you later on this year.

Yes.

Great. Thank you. Thank you.

Yeah.

We will take our next question from Brett Knoblauch with Cantor Fitzgerald. Your line is open.

Okay.

Hi, guys. Thanks for taking the question.

<unk>.

The SaaS revenue breakdown on the charter presentation kind of a decline in revenue from acquisition.

This quarter relative to last quarter.

Any.

Color as to why that is.

Thanks, Brett let me just take that one.

Yes.

Probably this but.

It really has to do with kind of the classification that we.

<unk> made between acquisition and organic.

But by the beginning of this quarter, we fully integrated IQ and we considered that as part of our smart rent organic revenue, whereas.

In the previous quarter, we had it was part of the acquisition so.

If you divide it up the acquisition Publix like it gets reduced total it had increased bye bye.

4%.

Got it so I guess.

To put it bluntly.

Site plan revenues this quarter increased sequentially versus last quarter.

It's out even if it's pretty much as we expected.

Quarter.

Quarter to quarter.

And then maybe on site plan going into next year, how do you kind of expected to add $10 million.

Turning to this year, how should we expect that to.

Developed in 2023 ratio you still expect <unk>.

From that.

Yes.

Quarter over quarter growth. It doesn't mean that we should expect going forward from that business.

Yes, but let me just let me give you a little color I think maybe just an overall site plan update on kind of give you give me a sense of our thinking but I think we are.

We consider that fully integrated in terms of the themes are there.

And just starting to really our entire sales force the ability to sell the entire suite of products and so I think we feel good about it'll opinion contribute revenue and continue to grow.

Im not giving any guidance.

For <unk> called <unk>.

Overall, feeling very good about the acquisition and where we're headed.

Perfect.

Thanks, guys.

Thanks.

We will take our next question from Jason Excuse me, Jason Weaver with Compass point LLC. Your line is open.

Hi, guys. Thanks for taking my question and congrats on the quarter great to see some of these issues.

Later this year.

Waiting a bit.

I just wanted to touch on the professional services business.

Hardware hardware availability work an issue today, where would you think how should I think about the sort of breakeven gross profitability for professional services in terms of unit deployment might look what that might look like and what would you say you're sort of maximum capacity for that unit to deploy.

Yes.

Per quarter, it looks like today.

Yes, Jason Thanks for the question I think.

Certain professional services.

As we've talked about in prior calls.

Fixed costs, we have a large installation team as part of our <unk>.

Benchmark of our white glove and implementation.

And it is subject to some fluctuations in gross profit based on the installs that we complete and so.

That's a different supplier.

Down.

More negative than what it was the previous previous to this quarter.

I think.

No we haven't we haven't pressed asset so its somewhat theoretical but we think the Max per order with this current theme was around 75000 adds as we continue to see the slides and he's continue to grow that team in order to increase capacity.

Does that answer.

Yes, that's actually helpful. Thank you.

Yeah.

We will take our next question from Ryan Tomasello with <unk>. Your line is open.

Hi.

This is nicole sorry, apologies about them, except to Manhattan today, Yeah, So coming back to a question do you expect the addition of new access control panel supply to alter your hardware margins at all or should we think of that as net neutral and kind of more broadly based on the visibility you have today can you say how much of an <unk>.

Improvement do you think is achievable in gross margins for hardware and professional services next year.

Alright.

I can answer thank you Mikael.

I think it would be net neutral in terms of.

Additional suppliers, our divisional products kind of thing and there's not a huge differences in cost between the component that's really what we're finding is the availability and.

So that's part of the question in terms of margins are you.

Youre going to continue to see them expand and improve and hardware and also professional services I think.

It was good to get the hardware.

Back into the positive gross margin territory this quarter and I think youll see professional services will take longer to get to that point.

Again hard to try to increase the number of units we do in a quarter, we'll actually have to increase the cost to bring on because we get them trained and up to speed. So there's there's a couple of different headwinds on the professional services market for Gen going forward, but I think youll see bolt will continue to improve as well the hub services margin.

Got it thank you and just as a follow up can you also provide an update on site plants run rate revenues and growth profile.

Yes, again reiterate it.

Sure.

I think Jayson are bright at it yet I think we're.

We are incredibly excited about how we've integrated <unk> and where we're going that that product set.

The first question is all of that.

The entire multifamily industry there.

Major trend around potash and centralization.

Partnering is is where we would have a two or three properties to buy by one set of employees. So you wouldn't have a property manager at each property.

Surfactant changed Robert Youll be able to to have labor efficiencies by utilizing.

Nearby properties and really well.

<unk> plan or sorry Margaret.

You can do either of those things, although the complementary nature of the products is just incredible and we're seeing a lot of positive response.

With the owners that are rolling apples.

Got it thank you.

Yeah.

And ladies and gentlemen, this concludes our question and answer session. Today I will now turn the call back to Mr. Lucas Hoffman for closing remarks.

Thanks, everyone for joining and I look forward to seeing some of you in the coming weeks at various investor conferences.

All for tuning in Dr. Soon.

Ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.

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