Q1 2024 SmartRent Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
We'd like to welcome you to today's conference.
This is the smart rent in Q1 2024 conference call 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question.
<unk> simply press the same keister.
Keystroke Star followed by the number one.
I would like to start our call and turn our call over to Kristen, We general counsel for Smart rent Kristen you may begin.
Kristen Lee: Hello, and thank you for joining US today My name is Kristen Lee General Counsel Firstmerit I'm joined today by Lucas Haldeman, Chairman and CEO and Daryl Stan CFO, who will be taking you through our financial results as well as discussing guidance.
Before the market opened today, we issued our earnings release and filed our 10-Q with the SEC 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 certain forward looking statements that involve risks and uncertainties various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors.
Lucas Haldeman: Are discussed in our SEC filings, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.
Lucas: We undertake no obligation to provide updates regarding forward looking statements made during this call and we recommend that all investors review reports thoroughly before taking a financial position in smart rent.
Lucas: Also during 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.
Lucas: We would also like to highlight that our first quarter earnings presentation is available on the Investor Relations section of our website.
Lucas: And with that I will turn the call over to Lukas.
Lukas: Good morning, Thank you to everyone for joining us today.
Lukas: Morning, we reported revenue of $55 million for the quarter with nearly $12 million coming from SaaS recurring revenue products, our SaaS business improved by 32% year over year, driven by a combination of increased total deployed units as well as continued gains in our cross selling strategy.
Lukas: We reported positive adjusted EBITDA of almost $400000 meeting our guidance and marking our second consecutive quarter of positive adjusted EBITDA. Additionally, we ended the quarter with almost 750000 deployed units a 24% increase from the previous year we.
Lukas: We continue to see increasing demand in the market for community Wi Fi and as we previously announced we are taking advantage of our strong financial position by investing in projects aimed at significantly expanding our community Wi Fi offerings. This initiative involves onboarding, new talent as well as developing advanced technologies aligning with our vision to dominate the early stage multifamily.
Lukas: Community Wi Fi market.
Lukas: As we looked at the future our strategy remains steadfast and scaling our solutions to meet the growing demands of the rental housing industry. The scalability is facilitated by our deep understanding of our clients' needs as demonstrated by the launch of a new software feature in the quarter that allows self guided tour customers take advantage of key functionality and answer automation, making it easier for.
Lucas: Our residents to tour properties and savings significant time for leasing teams.
Lucas: We prioritize innovations and SaaS that encourage deeper adoption of our solutions and facilitate cross selling amongst our portfolio of offerings.
Lucas: Beyond our innovative software features a key differentiator for smart ramp and a critical purchasing factor for our clients is our commitment to creating true integrations with leading property management systems integrations are essential for our customers because they ensure smooth data flow between their existing systems and the smartphone platform driving automation and saving time we.
Lucas: Offer an extensive array of integrations and similar to new products, we have a roadmap of integrations, we plan to add an enhanced to better serve our customers are.
Lucas: Our approach to deeply integrating with leading rental housing platforms reduces vendor fatigue automates processes and delights residents ultimately leading to increased adoption of our solutions as we progress through 2024, our strategic vision remains sharply defined in our approach resilient, we're not merely participants in the market, but at its forefront spirit.
Lucas: Adding innovation and consistently delivering substantial value now.
Lucas: Now I'll pass the discussion to Darryl who will provide detailed insights into our financial performance and share our outlook.
Darryl: Thank you Lucas.
Darryl: First quarter marked another period of significant progress for smart rent.
Darryl: We continue to demonstrate strong SaaS revenue growth expansion in our gross margins and sustained adjusted EBITDA profitability amidst the complex dynamics of the markets we serve.
Darryl: Total revenue for the quarter reached $55 million, which reflected a strategic realignment from last year's record Q1 with revenue streams diversifying further into more sustainable recurring sources by.
Darryl: By revenue stream hardware revenue was $29 1 million professional services was $3 5 million and hosted services was $18 million for Q1 of 2024.
Darryl: Hardware and professional services revenue were both down year over year.
Darryl: The decrease in hardware revenue was almost equally attributable to a decrease in hardware <unk>, primarily driven by the change in our product mix, which was more heavily weighted towards alloys smart home hardware and a decrease in the number of units shipped.
Darryl: The decrease in professional services revenue was primarily attributable to a decrease in new units deployed.
Darryl: <unk> increased to $47 6 million in Q1 from $36 million in Q1 of 2023, an increase of 32% year over year. The primary drivers of SaaS growth. We're at 24% increase in total units deployed and Upselling and cross selling our comp.
Darryl: Prehensile platform solutions, South <unk> was $5 41 in Q1, a 4% increase year over year.
Darryl: During the first quarter of 2024, we increased our total deployments to nearly 750000 units with about 30000 new units deployed.
Darryl: Shipments for the quarter were just under 52000 units. Additionally, our smart operation solution is servicing roughly one 3 million units.
Darryl: Bookings for the quarter were approximately $38 $8 million, including more than 46000, new units booked bookings a R. R was $4 million and units booked <unk> was $7 16 per unit, leading us to believe SaaS, our pool will continue to increase.
Darryl: In the first quarter of 2020 for gross margin increased to 38, 5% from 14% in the same quarter of the previous year.
Darryl: This substantial improvement can be attributed to a favorable change in our product mix, which was more heavily weighted towards alloys smart home hardware gross profit increased by over $10 million in Q1 to $19 4 million from $9 1 million in the same period of 2023 hardware.
Darryl: Gross profit more than doubled to $10 4 million from $4 8 billion as product mix drove expanded margins.
Darryl: Within our SaaS business gross margin improved to 75, 1% from 73.4% a year ago.
Darryl: Hosted services gross profit increased to $12 million from $9 2 million last year and continues to be our most profitable revenue stream.
Darryl: Professional services gross loss narrowed to $3 million from $4 9 million in the same quarter of the previous year.
Darryl: Total operating expenses were $29 $6 million in the first quarter of 2024, increasing from $24 4 million in Q1 of 2023. The 'twenty 'twenty. Four results included a one time accrual of $5 $3 million, resulting from an ongoing contractual dispute with.
Darryl: Supplier as disclosed in our filings.
Darryl: $5 million of which is attributable to our expected return of inventory, which we believe is not satisfactory for our customer needs and a cash payment of approximately $300000.
Darryl: Excluding this accrual our operating expenses were similar to last year's first quarter.
Darryl: Proved gross margins and continued cost controls helped us achieve positive adjusted EBITDA for the second consecutive quarter and are an improvement from a loss of $8 $5 million in Q1 2023.
Darryl: At the end of Q1 2024, our total cash balance was $205 million a reduction of $11 million from the prior quarter. The decrease in cash this quarter was primarily due to the repurchasing of approximately $4.4 million in stock and the payment of <unk>.
Darryl: Annual cash bonuses to our employees.
Darryl: Our guidance for the second quarter and full year 2024 are as follows Q.
Darryl: Q2 guidance for revenue in the range of $49 million to $55 million and adjusted EBITDA in the range of negative 500000 deposit of $500000 full year 2024 guidance is unchanged with revenue in the range of $260 million to $290 million.
Darryl: And adjusted EBITDA in the range of $5 million to $8 million.
Darryl: Our financial strategy is designed to secure a durable and resilient future for smart rent, ensuring stable long term earnings to create shareholder value.
Darryl: And I'll now pass the call back to Lucas for closing remarks.
Lucas Haldeman: Thank you Darryl before we turn the call over to questions I want to provide some color on the macro trends. We are seeing in the rental housing industry factors, such as persistently higher interest rates slowing rent growth and increasing supply are creating headwinds for many of our customers' customer.
Darryl: Customers are taking markedly different approaches to navigate the landscape on the one side, we see a group of customers who are seizing the opportunities to accelerate their investments and leveraging our technology to gain a competitive edge in challenging times.
Darryl: Conversely, we are also seeing a segment of our customer base, taking a more cautious stance cutting back on investments and focusing on cash preservation.
Darryl: For those customers focused on cost savings smart <unk> is uniquely positioned to provide asset protection solutions to safeguard against potential water damage and lower insurance premiums. In addition, our self guided tour platform has allowed our customers to significantly reduce the number of onsite employees, one customer publicly stated they reduced leasing staff by more than 40%.
Darryl: Another client who is investing a center space, who recently piloted 10 communities with our smart apartment solutions, including smart locks thermostats leak sensors, and our resident mobile App all powered by the smart rent manager platform. The pilot yielded such positive results that center space of implementing our solutions and 38 additional communities in its next phase.
Darryl: And they have shared with investors and expect to generate an additional $3 million or more in cash flow due to rent premiums and savings on water leaks.
Darryl: Center Space is just one example of why smart rent stands out as a leader shaping the future of the rental housing industry, our unique position stems from being the only provider to deliver purpose built hardware software and end to end implementation and support these competitive advantages are deeply embedded into the experience of our customers offering the most <unk>.
Darryl: <unk> solution that is unmatched in the market.
Darryl: As we look to the second half of 2024, our outlook is reinforced by the durable scalable nature of our offerings and our proven track record as a trusted provider to the top names in real estate this positions us exceptionally well to capture significant market share and sustain our growth.
Speaker Change: Before we conclude I want to extend my deepest thanks to our dedicated team at smartphone you can.
Speaker Change: <unk> and commitment our pivotal in driving our success in continuing to innovate solutions that create connected communities our customers our proud to manage thank you to everyone for joining today's call. We will now open the line and take your questions.
Speaker Change: Thank you, ladies and gentlemen at this time I would like to remind everyone that in order to ask a question you simply need to press star plus the number one on your telephone keypad.
Speaker Change: Our first question for today comes from the line of Erik Woodring with Morgan Stanley.
Erik Woodring: Your line is live.
Erik Woodring: Great. Thank you so much for taking my questions. This morning, maybe.
Erik Woodring: Maybe Lucas I just wanted to touch on those those last kind of macro comments that you made.
Erik Woodring: I realize that your solutions can provide long term cost savings obviously the center Space example is a clear example of that.
Erik Woodring: But if an operator is focused on the bottom line today, you know I guess I would think that they are there.
Erik Woodring: There would be risk to them pulling forward spend and making investments in your solutions, even if that that long term.
Erik Woodring: Our our pans out so can you maybe just dig into that comment a comment a bit and help us understand kind of what gives you the confidence that some of these operators will put aside maybe these near term investment concerns and focus more on the long term IRR even in the environment that you described today and then I have a follow up please.
Erik Woodring: Hey, Eric Thanks for the question.
Eric: That kind of illustrates the dichotomy that we're seeing and so there is sort of that pushing Paul just two notes I want to make clear, though is it's not so much. They are preserving cash as these expenses come out of Capex and so they're going to spend the dollars on something it's just a matter of their spending the minimum amount of capex dollars they need to spend as opposed to in some.
Eric: Here's when rents are growing fast and we're having good times, we will see them pull forward and put more towards investments. So now it's just making sure we get our portion of that that capex at that Theyre spending it on.
Eric: But it is definitely a tougher environment, especially around new customers and bringing on new logos a lot of and that's why we brought up the center space they've been they've been in pilot they understand the value. They see the value all of our customers, who we have been rolling out what are kind of falling in that both are continuing to rollout.
Eric: But it definitely is a challenging macro environment.
Speaker Change: Okay. That's helpful.
Speaker Change: And then my second question was you know there is a clear positive relationship between units deployed professional services revenue and professional services gross margin.
Speaker Change: In past quarters.
Speaker Change: You've talked about PFS gross margins kind of breaking even by the end of 2024, I realize that that journey might not be completely linear but I.
Speaker Change: I guess, if that's kind of the north star that we're looking for it would imply a fairly material step up in units deployed PS revenue through the year, just making sure that that's the right way to be thinking about these kind of three different line items as we look towards the end of the year and using that kind of professional services gross margin comment.
Speaker Change: As the Northstar so to speak thanks, so much.
Speaker Change: Yes, Hi, Eric This is Darrell and you hit the nail on the head with that one the north star is that.
Darrell: We expect to breakeven.
Darrell: On a margin basis on the professional services stream by the end of this year, we have made over the course of the past year and we continued to make further changes to our standard operating procedures, making.
Speaker Change: Better use of technology to reduce the fixed level of our expenses and part of the dynamic that occurred during Q1.
Speaker Change: Was that more.
Speaker Change: More of the deployments were done by the customers themselves as opposed to what we often refer to as full deployments. So the revenue number came down a little bit, but I think the key thing is.
Speaker Change: Focused on the North Star and we continue to reduce the fixed cost. So we feel like we're on track to achieve breakeven by the end of the year.
Speaker Change: Great. Thanks, so much for the color there.
Speaker Change: Thanks for your question.
Speaker Change: Our next question comes from the line of Ryan Thomas shallow, which K VW. Your line is live.
Ryan Thomas: Hey, everyone. Thanks for taking the questions I wanted to hone in on some of the SaaS metrics you reported.
Ryan Thomas: If you could just provide some clarification on why SaaS revenue growth slowed pretty materially on a sequential basis.
Speaker Change: There was anything to call out there from a churn perspective or just mix.
Speaker Change: And also what drove the sequential decline in SaaS <unk>.
Speaker Change: And then as a follow up on that in terms of the guidance I hate to sound like a broken record, but have you considered providing more explicit guidance for SaaS revenue.
Speaker Change: Many investors would agree that is.
Speaker Change: One of the most if not the most important driver for the stock.
Speaker Change: Color you provided there previously I think is that SaaS revenue will grow in excess of consolidated revenue growth, which is helpful. But certainly a bit vague, so and any additional guidepost there would be appreciated. Thanks.
Ryan Thomas: I do want to reiterate that we do expect the SaaS revenue will continue to grow faster at a faster rate than total revenue with regards to some of the specific metrics for the quarter.
Ryan Thomas: Oftentimes if you compare sequentially you can see a little bit of an aberration and it has to do with the timing of that.
Ryan Thomas: Deployment, so we had a quarter that had heavier deployments on the back half of the quarter, you're going to see may be just one full month of SaaS.
Ryan Thomas: Implement incremental SaaS revenue as opposed to a quarter, where the deployments are a little more heavily.
Ryan Thomas: Weighted on the first half of the quarter. So certainly some of that happening Q1 January has typically been.
Ryan Thomas: Relatively slow month for us coming out of the holiday season.
Ryan Thomas: I guess, the only color I'd add to that Ryan This is Lucas.
Lucas: We're definitely looking at how we can enhance the guidance, we're giving on SaaS, we're trying to do.
Ryan Thomas: Internally that's been a lot of discussions that we here, we hear the feedback and we are taking under consideration.
Speaker Change: Okay. That's helpful and then second.
Speaker Change: Second question here just on on Wi Fi any update you can provide on the initial projects that were shipped I think in the fourth quarter.
Speaker Change: Are those installations going according to plan and any early indications of demand from those customers intention to sign additional projects or.
Speaker Change: The pipeline of new logos that are showing interest in Wi Fi and how you expect that to ramp through the balance of the year and into 2025.
Speaker Change: Yes ill answer that one Ryan so I think we're continuing to see robust demand for Wi Fi throughout the entire multifamily rental housing segment, it's actually an area, where we're seeing more interest with new customers than Iot today, and I think part of that goes to the start of the question that Eric with us about the macro there is actually a quicker payback.
Ryan Thomas: On Wi Fi in terms of IRR basis, and so we're seeing capex dollars being tilted that way.
Ryan Thomas: <unk> is a great thing and update on the projects all the projects that were shipped.
Ryan Thomas: Q4 have been either started or are nearing completion, and we're continuing to have robust demand.
Speaker Change: Thanks for taking the questions.
Speaker Change: Thanks for taking my questions.
Speaker Change: Ladies and gentlemen, once again, if you would like to ask a question for today remember its star plus the number one on your telephone keypad and we will take your call. Our next line is our next question is from the line of Tom White with D. A Davidson.
Tom White: Your line is.
Tom White: Great. Thanks for taking my question, just I guess on the on the guidance. So no change to the consolidated revenue outlook for the year I was hoping maybe you could just maybe provide a bit more color on maybe some of the different scenarios that might result in you guys kind of only getting to the low end of that versus the high end.
Tom White: Like it's a Wi Fi maybe it gets delayed for some reason can you get to the low end kind of just mostly on the on the core business and then just a follow up on the core Iot bus and then just a follow up I think last quarter you talked about.
Tom White: Some customers kind of deferring some Iot implementation until the Wi Fi stuff happens can you help maybe quantify.
Tom White: The number of units of Iot units that are that are kind of tied or attached to.
Tom White: Two a Wifi project.
Tom White: Yes, Hi, Tom This is Seth this is Darryl and.
Darryl: The two primary factors that are going to impact the back half of the year.
Speaker Change: Actually let me take a step back we talked on our previous call about some of the tailwind items that.
Speaker Change: We're expecting to.
Speaker Change: Positively impact the second half of the year like the upgraded hardware upgrade cycle and some SaaS renewals as well as.
Speaker Change: The expanding Wi Fi market I think the two primary factors, though that are going to impact where we land in the range will be that macro conditions, the macro headwind conditions that Lucas referred to as well as how fast Wi Fi <unk>.
Speaker Change: <unk>.
Speaker Change: Tom Thanks for your question any follow up from your side.
Speaker Change: Maybe just a little color on.
Speaker Change: And you're trying to get a sense of how many Iot kind of implementations are.
Speaker Change: Tied to Wifi deployments, Anthony you touched on that last quarter.
Anthony: Yes, Tom we're seeing that continue but not at the rate we saw in the first quarter. So I think we're actually working through a number of those pilots right now and feel like next quarter. We can give a more granular update on on exactly how that's progressing but it's definitely it's still the case or if an owner is interested in doing.
Anthony: Iot and Wi Fi they definitely want to do them together and so we will see that continue to be a.
Anthony: Little bit of a headwind on the Iot, but ultimately the total revenue is so much greater we think it's a good tradeoff.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you for your questions.
Speaker Change: Ladies and gentlemen, once again and last call. If you do have a question for today remember at Star plus the number one on your touch tone.
Speaker Change: Phone and we'll bring you in.
Speaker Change: Do have a follow up question from the line of Ryan Tomasello back again, which K BW Ryan Your line is less.
Ryan Tomasello: Thanks for taking the follow ups just on the hardware gross margins came in very very strong in the quarter.
Ryan Tomasello: I think around 35% off of memory here is that a sustainable run rate going forward.
Ryan Tomasello: And if you can just give us some handholding on how we should be modeling.
Ryan Tomasello: Gross margins for the balance of the year.
Ryan Tomasello: And into 2025, given the changing mix of the.
Ryan Tomasello: The in house hardware that you are deploying today.
Ryan Tomasello: Yes.
Ryan Tomasello: The changing you are seeing is the increase in the number of hubs less devices that were shipped in Q1. So hubs plus is a flip reminder, is a combination of both our traditional habits and also includes now thermos.
Ryan Tomasello: That which means that we have one third party device fewer that we're selling.
Ryan Tomasello: So the margins.
Ryan Tomasello: Significant margin difference between when we're shipping hardware that is third party versus the alloy smart home brand.
Ryan Tomasello: The hub plus went from about 10% of the total shipments in Q4 to about 30% in Q1.
Ryan Tomasello: We do expect that that percentage will increase over the course of the year. So from that standpoint, a low we expect that it's a sustainable gross margin improvement however, as Wifi business picks up.
Ryan Tomasello: You can expect that to have a muted impact on the hardware margins.
Speaker Change: Okay. That's helpful color. Thanks Darryl.
Speaker Change: And then just another follow up here.
Speaker Change: The outlook going back to the puts and takes around the high and low end of the guidance are there any meaningful customer concentration is driving.
Speaker Change: Expected new unit deployments for the year.
Speaker Change: That again could maybe swing in our results for the year towards the higher low end of the range.
Speaker Change: No Ryan there is no real customer concentration there that would affect the higher low end of the range. We have a we have a pretty wide diverse base that we're rolling out with right now.
Speaker Change: Got it okay. Thanks for taking the follow ups.
Speaker Change: Thank you for your questions. We have a final call here today back again from the line of Erik Woodring with Morgan Stanley. Your line is slash.
Erik Woodring: Great. Thanks, So much guys just one last clarification question for me.
Erik Woodring: I'm just trying to think about the relationship between units booked in units deployed.
Erik Woodring: I guess in the last two years or I guess, maybe this is nine quarters, you've booked over just over 500000 units done.
Erik Woodring: That same time, you have only deployed a little over 400000 units can you just help me understand the mismatch where that where that 100000 kind of missing units.
Speaker Change: Would that effectively one just just just had to explain that mismatch that would be helpful. For me. Thank you so much.
Speaker Change: Yes, sure let me, let me give you a little color on it it's not really a mismatch in my mind is that when we talk about units being delayed and units being pushed out that bucket that those fall into so we've always got a tranche of units that are signed that are going to be deployed but are not currently scheduled for deployment of our scheduled in the period further out like we have.
Speaker Change: 100000, we know is going to be Q2, Q3 of next year, even and so it's just a matter of all of those units will be deployed we just don't know the exact timeline on those.
Speaker Change: Got it yes, Lucas mentioned earlier, some macro impact and in some cases not only is it a delay in the customer booking the order to begin with but in some cases and this is what he was just referring to the booking has already occurred but the actual deployment is being deferred.
Speaker Change: Got it thank you guys.
Eric: Thanks, Eric.
Speaker Change: Thank you for your question and gentlemen, I'll turn it back over to you for any closing comments.
Speaker Change: Thanks, Erin and thanks, everyone for joining our Q1 call and look forward to speaking with you all very soon have a great day.
Speaker Change: Have a great day, everybody take care.
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