Q1 2025 SmartRent Inc Earnings Call
Operator: Thank you for standing by.
Thank you for standing by my name is that and I will be your conference operator today at this time I would like to welcome everyone to the smart threat quarter, one blended 25 earnings release conference call.
Operator: My name is Van and I will be your conference operator.
Operator: And this time, I would like to welcome everyone to the SmartRent Quarter 1 2025 Earnings Release Conference. All lines have been placed on mute to prevent any background noise.
Speaker Change: 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 Press Star. One again. Thank you I would now like to turn the call over to <unk>.
Operator: After the speaker's 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 1 on your telephone keypad. If you would like to withdraw your question, press star 1. Thank you.
Kristen Lee: I would now like to turn the call over to Kristen Lee, Chief Legal Officer, please go ahead. Hello and thank you for joining us today. My name is Kristen Lee, Chief Legal Officer for SmartRent. I'm joined today by our Interim Chief Executive Officer, John Dorman, and Daryl Stemm, Chief Financial Officer. Thank you for joining us.
Speaker Change: Suddenly chief legal officer. Please go ahead.
Okay.
Kristen Lee: Hello, and thank you for joining US today My name is Kristen Lee Chief legal officer for Smart rent.
Speaker Change: I'm joined today by our interim Chief Executive Officer, John Dorman, and Darryl stem Chief Financial Officer.
Kristen Lee: Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which will be available on the Investor Relations section of our website, SmartRent.com. Before I turn the call over to John, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainty. Various 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 and quarterly reports on Form 10-Q.
Speaker Change: Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC both of which will be available on the Investor Relations section of our website smart rent dotcom.
Speaker Change: Before I turn the call over to John 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.
Speaker Change: These factors are discussed in our SEC filings, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.
Kristen Lee: We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent.
Speaker Change: We undertake no obligation to provide updates regarding forward looking statements made during this call and we recommend that all investors review. These reports thoroughly before taking a financial position in smart rent.
Kristen Lee: 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.
Speaker Change: 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, we would also like to highlight that our fourth quarter and full year earnings presentation will be available on the investor relation.
Kristen Lee: We would also like to highlight that a fourth quarter and full year earnings presentation will be available on the Investor Relations section of our website.
Speaker Change: Section of our website.
John Dorman: And with that, I will turn the call over to John. Good morning, and thank you for joining SmartRent's first quarter 2025 earnings call. We appreciate your continued engagement as we execute a focus plan designed to position SmartRent for long term sustainable growth and value creation.
John Dorman: And with that I will turn the call over to John.
John Dorman: Good morning, and thank you for joining smart <unk> first quarter 2025 earnings call.
John Dorman: We appreciate your continued engagement as we execute our focused plan designed to position smart rent for long term sustainable growth and value creation.
John Dorman: I've been a board member for over three years, chairman of the board for the past year, and now interim CEO. Given this unique position, I thought it would be helpful to use my time this morning to give investors some perspective on the evolution of SmartRent, our plan to drive the company toward meaningful and sustainable long term value creation, and where we are in executing that plan. The SmartRent story really isn't all that complicated, and I hope to make it a little clearer this morning. SmartRent was founded with a unique vision to deploy IoT technology to transform property operations and resident experience.
John Dorman: I've been a board member for over three years Chairman of the board for the past year and now interim CEO.
John Dorman: Given this unique position I thought it would be helpful to use my time. This morning to give investors some perspective on the evolution of rent.
John Dorman: Our plan to drive the company toward meaningful and sustainable long term value creation.
John Dorman: And where we are in executing that plan.
John Dorman: The smart rent story really isn't all that complicated and I hope to make it a little clearer this morning.
John Dorman: <unk> was founded with a unique vision to deploy Iot technology to transform property operations and resident experiences.
John Dorman: Because SmartRent was built on the foundation of experience from the multifamily and single-family rental operating businesses. The company's solutions were built with a very deep understanding of the needs and challenges of our customers. Three key and distinct elements differentiated our initial solutions, drove our early success, and still largely distinguish our platform today. Number one, integrating IoT hardware devices through an enterprise-scale software platform to fully deliver and maximize the ROI potential for property owners while enhancing the resident experience. Number two, designing the software platform to fully and seamlessly integrate with existing systems in third party hardware devices.
John Dorman: Because smart rent was built on the foundation of experience from the multifamily and single family rental operating businesses. The Companys solutions were built with a very deep understanding of the needs and challenges of our customers.
John Dorman: Three key and distinct elements differentiated our initial solutions drove our early success and still largely distinguish our platform today.
John Dorman: Number one integrating Iot hardware devices through an enterprise scale software platform to fully deliver and maximize the ROI potential for property owners, while enhancing the resident experience.
John Dorman: Number two designing the software platform to fully and seamlessly integrate with existing systems and third party hardware devices, rather than constraining solutions to our own branded hardware.
John Dorman: rather than constraining solutions to our own branded hardware. And number three, delivering solutions with the unique expertise to deploy them in a retrofit environment, rather than limiting them to new build or major renovation. This focus addresses the needs of the largest portion of the addressable market. The power and clear differentiation of these core products launched SmartRent on an initial phase of high growth, during which we successfully deployed our platform with 15 of the top 20 multifamily owners and operators in the country, as well as several of the largest single-family rental operators and iBuyers. These early customers are still with us today.
John Dorman: And number three delivering solutions with a unique expertise to deploy them in a retrofit environment, rather than limiting them to new build or major renovations.
John Dorman: This focus addresses the needs of the largest portion of the addressable market.
John Dorman: Power and clear differentiation of these core products launched smart rent on.
John Dorman: Initial phase of high growth.
During which we successfully deployed our platform with 15 of the top 20 multifamily owners and operators in the country.
John Dorman: As well as several of the largest single family rental operators and I buyers.
These early customers are still with us today.
John Dorman: This early and rapid success enabled the establishment of first mover advantage in a massive TAM. However, the company's operational processes and infrastructure, including in its sales organization, did not adapt quickly enough to the size the business had become. They reflected a culture that was too siloed and dependent on a small number of individuals and was therefore neither scalable nor sufficient to enhance our market leading position and best serve our customers. Over the past nine months, we have made significant progress in redesigning an organization that we believe will enable sustained growth as we move to the next stage of the company's evolution.
John Dorman: This early and rapid success enabled the establishment of first mover advantage in a massive Tam how.
John Dorman: However, the companys operational processes and infrastructure, including in its sales organization did not adapt quickly enough to the size the business had become.
John Dorman: They reflected a culture that was too siloed and dependent on a small number of individuals and was therefore, neither scalable nor sufficient to enhance our market leading position and best serve our customers over the past nine months, we have made significant progress in redesigning and organization that we believe will enable sustain.
John Dorman: And growth as we move to the next stage of the Companys evolution.
John Dorman: This includes the addition of seasoned leaders across sales and customer success, most notably Chief Revenue Officer Natalie Cariola, who are leading the build out of a scalable customer centric sales organization and a high impact customer success function to support long-term growth. While CEO changes are not actions that any board takes lightly, they are often necessary. I'm pleased to announce we are now in the final stages of our search. We have found multiple highly qualified candidates to assume the permanent CEO role and expect to be able to make an announcement in the coming weeks. Over the past year, in addition to completing internal organizational changes, we've strengthened the Board of Directors by appointing three highly experienced and proven leaders.
John Dorman: This includes the addition of seasoned leaders across sales and customer success, most notably Chief revenue Officer, Natalie carry Ola who are leading the build out of our scalable customer centric sales organization and our high impact customer success function to support long term growth.
John Dorman: And while CEO changes are not actions that any board takes lightly they were often necessary.
John Dorman: I am pleased to announce we are now in the final stages of our search we've found multiple highly qualified candidates to assume the permanent CEO role and expect to make be able to make an announcement in the coming weeks.
John Dorman: Over the past year. In addition to completing internal organizational changes we've strengthened the board of directors by appointing three highly experienced and proven leaders.
John Dorman: Collectively, they bring a strong track record in operating financial and technology leadership at scale. experience that is directly relevant to guiding SmartRent through our next phase of growth. Enhancing board strength and ensuring we have a fit for purpose board remains a priority as we continue to position SmartRent for long term value creation.
John Dorman: Collectively they bring a strong track record in operating financial and technology leadership at scale.
John Dorman: Experience that is directly relevant to guiding smart rent through our next phase of growth.
John Dorman: Enhancing board strengths and ensuring we have a fit for purpose board remains a priority as we continue to position smart rent for long term value creation.
John Dorman: Now pivoting to today and what we are executing. First, we are well into the process of addressing the company's go-to-market strategy and capabilities with our new sales organization and approach. Second, we initiated a significant restructuring by breaking down silos and ensuring our infrastructure is scalable. We're also refocusing our operations organization around the needs of our customers. We believe our customers will begin feeling the benefits of these changes in the near term. And third, we have shifted our focus and technology investment away from developing and selling our own branded hardware components, and are executing a strategy based on our four strategic pillars.
John Dorman: Now pivoting to today and what we are executing.
John Dorman: First we are well into the process of addressing the company's go to market strategy and capabilities with our new sales organization and approach.
John Dorman: Second we initiated a significant restructuring by breaking down silos and ensuring our infrastructure is scalable.
John Dorman: We're also refocusing our operations organization around the needs of our customers. We believe our customers will begin feeling the benefits of these changes in the near term.
John Dorman: And third we have shifted our focus and technology investment away from developing and selling our own branded hardware components and are executing a strategy based on our four strategic pillars.
John Dorman: which are first sustainable and predictable ARR groups. Our value will be built by focusing on our hardware-enabled SaaS model, not on selling our own hardware. Second, platform superiority. The ROI of our solutions for customers will be maximized by delivering a fully integrated enterprise scale software platform. Third, Operational Excellence. As a SaaS company, our success will be highly dependent upon the success of our customers in deploying and maintaining our solutions. And finally, collaborative innovation, rapid and continuous innovation in building out our software platform will be critical to maintaining our position as market leaders. We announced these strategic pillars in the third quarter of 2024, along with $10 million in strategic investments to accelerate our change.
John Dorman: Which are first sustainable and predictable or our growth.
John Dorman: Our value will be built by focusing on our hardware enabled SaaS model not on selling our own hardware.
John Dorman: Second platform superiority.
John Dorman: ROI of our solutions for customers will be maximized by delivering a fully integrated enterprise scale software platform.
John Dorman: Third operational excellence as a SaaS company, our success will be highly dependent upon the success of our customers in deploying and maintaining our solutions.
John Dorman: And finally collaborative innovation.
John Dorman: Rapid and continuous innovation and building out our software platform will be critical to maintaining our position as market leader.
John Dorman: We announced these strategic pillars in the third quarter of 2024, along with $10 million in strategic investments to accelerate our change.
John Dorman: We believe the fruits of that focus and investment became visible to our customers in the most recent quarter with meaningful enhancements to our smart operations solution. We also started to deliver more focused customer engagement as we began to build a more robust customer success organization. As we have proceeded with our operational reorganization and refocusing of technology investment, we have been successful in completing over $10 million in annualized cost savings that we believe will improve cash flow and produce a more rapid return to profitability. Quite simply, we believe we can operate more efficiently and more effectively at the same Our conviction remains unchanged.
John Dorman: We believe the fruits of that focus and investment became visible to our customers in the most recent quarter with meaningful enhancements to our smart operations solutions.
John Dorman: We also started to deliver more focused customer engagement as we began to build a more robust customer success organization.
John Dorman: As we have proceeded with our operational reorganization and refocusing of technology investment we have been successful in completing over $10 million in annualized cost savings that we believe will improve cash flow and produce a more rapid return to profitability quite simply we believe we can operate more efficiently and more.
John Dorman: We're effectively at the same time.
John Dorman: Our conviction remains unchanged the challenges we faced are largely execution related and solvable.
John Dorman: The challenges we've faced are largely execution related and solvable. Over the past nine months, our work has enhanced the board's belief that improving operating effectiveness and maturing our organization will unlock scalable long-term growth and value creation.
John Dorman: Over the past nine months, our work is enhance the board's belief that improving operating effectiveness and maturing our organization will unlock scalable long term growth and value creation.
John Dorman: Our confidence is grounded in several levers. First, SmartRent's IoT platform solution has a long-term moat due to our hardware-enabled SaaS offering. We've sustained a customer retention rate above 99.9% over the past three years. While our hardware and hardware implementation revenues have declined over the past year, our SAS revenues grew by more than 17% and our net revenue retention exceeded 100%. Number two, SmartRent has unrivaled scale and product advantage. We believe that the unique product advantages that drove our initial wave of success and rapid growth remain. With over 800,000 units deployed, we remain the market leader.
John Dorman: Our confidence is grounded in several levers first smart rents Iot platform solution has a long term moat due to our hardware enabled SaaS offering.
John Dorman: We sustained our customer retention rate above 99, 9% over the past three years.
John Dorman: While our hardware and hardware implementation revenues have declined over the past year, our SaaS revenues grew by more than 17% and our net revenue retention exceeded 100%.
John Dorman: Number two smart rent has unrivaled scale and product advantage.
John Dorman: We believe that the unique product advantages that drove our initial wave of success in rapid growth remain with over 800000 units deployed we remain the market leader.
John Dorman: Number three, the TAM is large and underpenetrated, with secular tailwinds driving smart home adoption in the long term. The total market opportunity is estimated to be at least $11 to $13 billion, and even our current target of Class A and B buildings owned and operated by larger companies is a $3 to $4 billion opportunity. As first mover and market leader, we seek to continue to capture a large share of this market opportunity. Number four, our customers see real business ROI from adopting SmartRent. While our execution challenges have impacted relationships with our customers, they remain committed to SmartRent and want us to succeed.
John Dorman: Number three the Tam is large and underpenetrated with secular tailwind driving smart home adoption in the long term. The total market opportunity is estimated to be at least $11 billion to $13 billion and even our current target of class a and b buildings owned and operated by larger companies is a $3 billion to $4 billion of opera.
John Dorman: <unk> as first mover and market leader, we seek to continue to capture a large share of this market opportunity number for our customers see real business ROI from adopting smart rent.
John Dorman: While our execution challenges have impacted relationships with our customers. They remain committed to smart rent and want us to succeed.
John Dorman: In a recent survey, 96% of property managers indicated that SmartRent has had a positive impact on their customer experience, and 90% view actual realization of NOI expansion as a key driver of continued investment in smart home adoption. And number five, SmartRent is executing a plan to accelerate the return to delivering sustainable growth combined with profitability. While our performance in 2025 will continue to reflect that we are building our foundation for future growth, we remain confident that we will be able to show evidence of continued progress in coming quarters. Looking forward, we remain focused on scaling the business with greater efficiency while maintaining the strategic flexibility required in a dynamic market.
John Dorman: In a recent survey 96% of property managers indicated that smart rent has had a positive impact on their customer experience and 90% view actual realization of NOI expansion is a key driver of continued investment in smart home adoption.
John Dorman: And number five smart rent is executing a plan to accelerate the return to delivering sustainable growth combined with profitability. While our performance in 2025, we will continue to reflect that we are building our foundation for future growth. We remain confident that we will be able to show evidence of continued progress in coming quarters.
John Dorman: Going forward, we remain focused on scaling the business with greater efficiency, while maintaining the strategic flexibility required in a dynamic market.
John Dorman: Our aim is to achieve non-gap adjusted EBITDA profitability without sacrificing long-term growth. The strategic foundation we've laid, anchored by a growing base of high margin SAS revenue, a more streamlined cost structure, and operational focus, gives us confidence in our ability to deliver sustainable progress toward that goal. As always, execution discipline remains key.
John Dorman: Our aim is to achieve non-GAAP adjusted EBITDA profitability without sacrificing long term growth the strategic foundation, we've laid anchored by our growing base of high margin SaaS revenue.
John Dorman: A more streamlined cost structure.
John Dorman: Operational focus gives us confidence in our ability to deliver sustainable progress toward that goal as always execution discipline remains key.
John Dorman: To close, the last nine months have resulted in significant change at SmartRent that has strengthened our conviction that we are on the right path. We appreciate investors' active engagement with us as we continue to execute this plan. Our North Star is unchanged. to deliver long-term shareholder value by scaling a high-quality recurring revenue business that drives meaningful ROI for our customers and long-term value for shareholders. The work underway is intentional, the pace of change is accelerating, and we look forward to updating you on our continued progress.
John Dorman: To close the last nine months have resulted in significant change of smart rent that has strengthened our conviction that we're on the right path. We appreciate investors active engagement with us as we continue to execute this plan. Our Northstar is unchanged to deliver long term shareholder value by scaling our high quality.
John Dorman: The recurring revenue business that drives meaningful ROI for our customers and long term value for shareholders. The work underway as intentional the pace of change is accelerating and we look forward to updating you on our continued progress with that I will turn it to Daryl to take you through our financials and key results.
Daryl Stemm: With that, I will turn it to Daryl to take you through our financials and key results. Thank you, John, and good morning. We appreciate you joining our call today to discuss our first quarter 2020. I'll now walk through the financials and provide some additional context on how we're balancing execution, margin management, and strategic investment across the business. Total revenue for the first quarter was $41.3 million, down 18% when compared to the same period in the prior year. Hardware revenue was $18.8 million, down 35% year over year, which is a continued reflection of our strategic decision to reduce reliance on hardware sales as we focus on expanding our annual recurring revenue.
Daryl: Thank you John and good morning, everyone.
Speaker Change: We appreciate you joining our call today to discuss our first quarter 2025 results.
Speaker Change: I'll now walk through the financials and provide some additional context on how we're balancing the execution margin management and strategic investment across the business.
Speaker Change: Total revenue for the first quarter was $41.3 million down 18% when compared to the same period in the prior year hardware.
Speaker Change: Hardware revenue was $18.8 million down 35% year over year, which is a continued reflection of our strategic decision to reduce reliance on hardware sales as we focus on expanding our annual recurring revenue.
Daryl Stemm: SAS revenue grew 17% year over year to $14 million, supported by improved ARPU, expanded platform utility, and continued strength in customer retention. In terms of unit economics, SAS ARPU increased to $5.69, up 5% from the prior year, and up slightly on a sequential basis. Units booked SASRPU reached $10.28, which was a 44% increase year over year. We believe these trends validate the value proposition of our platform and our strategy of placing the customer at the center of how we deploy, engage, and grow revenue. Gross margin in Q1 was 32.8% compared to 38.5% in the prior year.
Speaker Change: SaaS revenue grew 17% year over year to $14 million supported by improved our pool expanded platform utility and continued strength in customer retention.
Speaker Change: In terms of unit economics, SaaS, our pool increased to $5 69 up 5% from the prior year and up slightly on a sequential basis.
Speaker Change: Units booked SaaS, our pool reached $10 28, which was a 44% increase year over year.
Speaker Change: We believe these trends validate the value proposition of our platform and our strategy of placing the customer at the center of how we deploy engage and grow revenue.
Speaker Change: Gross margin in Q1, with 32.8% compared to 38, 5% in the prior year.
Daryl Stemm: This compression of roughly 570 basis points was expected and driven primarily by lower hardware volume and a shift in customer and product mix as we move away from bulk hardware. SAS Gross Margin remains strong at 70.7%, and we continue to believe SAS margins can expand over time with scale and further infrastructure optimization. Operating expenses were $29.9 million, including a $5 million legal accrual, compared to $29.6 million in the prior year. Net losses increased to $40.2 million compared to $7.7 million in the same period prior year, primarily due to a non-cash goodwill impairment charge of $24.9 million.
Speaker Change: This compression of roughly 570 basis points was expected and driven primarily by lower hardware volume and a shift in customer and product mix as we move away from bulk hardware sale.
Speaker Change: SaaS gross margin remained strong at 77% and we continue to believe SaaS margins can expand over time with scale and further infrastructure optimization.
Speaker Change: Operating expenses were $29 $9 million, including a $5 million legal accrual compared to $29 $6 million in the prior year.
Speaker Change: Net losses increased to $40 2 million compared to $7.7 million in the same period prior year, primarily due to a noncash goodwill impairment charge of $24 $9 million during the quarter. The company experienced a sustained decline in stock price result.
Daryl Stemm: During the quarter, the company experienced a sustained decline in stock price, resulting in a significant decrease in market capitalization. As a result, the company conducted an interim impairment test on its goodwill, utilizing the qualitative approach, and determined that an impairment is more likely than not. As a result, the company then performed an interim quantitative impairment test in accordance with GAAP. The resulting impairment charge reflects a gap accounting adjustment based on a mix of income approach and market-based approach and does not represent a change in the company's view of the intrinsic or long-term value of the business.
Speaker Change: In in a significant decrease in market capitalization.
Speaker Change: As a result, the company conducted an interim impairment test on its goodwill utilizing the qualitative approach and determined that an impairment is more likely than not.
Speaker Change: As a result, the company then performed an interim quantitative impairment test in accordance with GAAP.
Speaker Change: The resulting impairment charge reflects the GAAP accounting adjustment based on the mix of income approach and a market based approach and does not represent a change in the company's view of the intrinsic where long term value of the business.
Daryl Stemm: Adjusted EBITDA was negative $6.4 million, a year-over-year decline of $6.8 million, reflecting lower unit volume. We have executed over $10 million in cost. as part of a broader initiative to simplify our structure, reduce cash burn, and reorient the organization around customer value. These actions are enabling us to invest in critical areas, including go-to-market capability, implementation efficiency, and post-sale engagement without expanding our costs. We also remain disciplined in capital allocation. During the quarter, we repurchased approximately 1 million shares for $1.2 million, leaving $20.4 million authorized under our existing buyback program. We ended the quarter with $125.6 million in cash, no debt, and $75 million in undrawn credit, a strong balance sheet that gives us the flexibility to continue executing from a position of strength.
Speaker Change: Adjusted EBITDA was negative $6.4 million a year over year decline of 6.8 million, reflecting lower unit volumes.
Speaker Change: We have executed over $10 million in cost savings as part of a broader initiative to simplify our structure reduce cash burn and reorient the organization around customer value. These actions are enabling us to invest in critical areas, including go to market capability.
Speaker Change: Implementation efficiency and post sale engagement without expanding our cost base.
Speaker Change: We also remained disciplined in capital allocation.
Speaker Change: During the quarter, we repurchased approximately 1 million shares for $1 $2 million, leaving $20.4 million authorized under our existing buyback program we.
Speaker Change: We ended the quarter with $125 $6 million in cash no debt and 75 million in Undrawn credit a strong balance sheet that gives us the flexibility to continue executing from a position of strength.
Daryl Stemm: Net cash used in operating activities in the first quarter was $12.2 million, which as we've noted in prior years, tends to be seasonally higher in Q1. Looking ahead to Q2, we do not expect a significant improvement in cash use as the benefits of our cost reduction efforts will be offset by severance payments and other one-time items. That said, we do expect to see meaningful improvement in that cash use in the second half of the year, driven by the full benefit of these cost savings actions and improved operating laws. We're not yet free cash flow possible.
Speaker Change: Net cash used in operating activities in the first quarter was $12 $2 million, which as we've noted in prior years tends to be seasonally higher in Q1.
Speaker Change: In ahead to Q2, we do not expect a significant improvement in cash use as the benefits of our cost reduction efforts will be offset by severance payments and other one time item.
Speaker Change: That said, we do expect to see meaningful improvement in net cash use in the second half of the year driven by the full benefit of these cost savings actions and improved operating leverage.
Speaker Change: We're not yet free cash flow positive, but we believe we're taking disciplined steps to get there.
Daryl Stemm: But we believe we're taking disciplined steps to get there. Reducing Expenses, Improving Efficiency, and Aligning the Business to a More Durable Recurring Revenue Model. We continue to monitor our cash position closely and remain confident in our ability to execute our plan while maintaining sufficient balance sheet flexibility. We're balancing discipline expense management with targeted reinvestment in areas aligned to long-term growth and profitability. While we're not providing a sales outlook at this time due to a number of macro factors impacting customer purchasing decisions, we remain focused on building long-term customer value and strengthening recurring revenue. Finally, I want to note that recently announced tariff developments could present cost pressure in the second half of 2025.
Speaker Change: Reducing expenses, improving efficiency and aligning the business to a more durable recurring revenue model.
Speaker Change: We continue to monitor our cash position closely and remain confident in our ability to execute our plan, while maintaining sufficient balance sheet flexibility.
Speaker Change: We're balancing disciplined expense management with targeted reinvestment in areas aligned to long term growth and profitability.
Speaker Change: While we're not providing a sales outlook at this time due to a number of macro factors impacting customer purchasing decisions. We remain focused on building long term customer value and strengthening recurring revenue.
Speaker Change: Finally, I want to note the recently announced tariff developments could present cost pressure in the second half of 2025.
Daryl Stemm: We're actively assessing the potential impact and working through mitigation strategies to address exposure. We remain confident in our strategy, our market position, and our ability to execute with discipline.
Speaker Change: We're actively assessing the potential impact and working through mitigation strategies to address exposure.
Speaker Change: We remain confident in our strategy, our market position and our ability to execute with discipline. Thank you for your continued support and we'll now open the line and take your questions.
Operator: Thank you for your continued support, and we'll now open the line and take your questions. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A room.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Ryan Tomasello: Your first question comes from the line of Ryan Tomasello from KBW, please go ahead. taking the question. Starting on the restructuring actions... Do the 10 million of savings you called out represent the full benefit that you ultimately expect to realize there or? Are you expecting to drive more efficiencies? on top of that, and then how much of that 10 million is run rating through your adjusted EBITDA and 1Q results, and if not, the full benefit. When should we expect that to flow?
Speaker Change: Your first question comes from the line of Ryan Tomasello from K B W. Please go ahead.
Speaker Change: For taking the questions.
Speaker Change: Starting on the restructuring actions.
Speaker Change: Do the $10 million of savings you called out represent the full benefit that you ultimately expect to realize their R. R.
Speaker Change: Are you expecting to drive more efficiencies.
Speaker Change: On top of that and then how much of that $10 million.
Speaker Change: Run rating through your adjusted EBITDA, and <unk> results and if not the full benefit.
Speaker Change: When should we expect that to flow through.
Daryl Stemm: Hi, Ryan.
Darrel: Yeah, Hi, Brian This is darrel.
Daryl Stemm: This is Daryl. The $10 million annualized savings are actions that we've taken, but we took them in April. So you're not seeing any adjustments for severance or any of the one-time charges related to these actions in the Q1 results. From a cash flow perspective, it'll be relatively neutral in Q2, as we just noted. You'll start to see a little bit of the benefit on adjusted EBITDA during Q2, but you won't see the full effect until Q3. Okay, thanks.
Speaker Change: $10 million annualized savings or actions that we've taken.
Darrel: But we feel.
Darrel: So youre not seeing any adjustments first step rents or any one time charges related to these actions.
Darrel: Q1 results.
Darrel: From a cash flow perspective.
Darrel: It will be relatively neutral in Q2 as we just noted.
Darrel: Starting to see a little bit of a benefit on adjusted.
Darrel: During Q2.
Darrel: Let's see the full effect until Q3.
Darrel: Okay. Thanks, and then.
Unknown Executive: And then In terms of the sales organization build out that you've been executing, do you feel like you're in a good spot to support scalability? Or do you think there's still more to go in terms of hiring needs?
Darrel: In terms of the sales organization build out that you've been executing do you feel like you're in a good spot to support scalability or do you think there's still more to go in terms of hiring needs.
Unknown Executive: And on the broader operational changes you highlighted, can you just put a finer point around what those entail in areas like customer success? and I guess technology operations that you called out in your prepared remarks.
Darrel: On the broader operational changes you highlighted can.
Darrel: Can you just put a finer point around what those entail in areas like customer success.
Darrel: And I guess technology.
Darrel: Operations that you called out in your prepared remarks.
Darrel: Al.
Unknown Executive: Thanks Ryan. First on the sales buildup, we think we've completed the The initial wave of build-out of the organization, but as you know, new salespeople take time to ramp up, so there's a little bit of a lag effect there, but we've done the initial build-out of the sales organization. We're still adding some talent in the customer success organization, but a great deal of that shift has come from the operational reorganization where we've, as I mentioned in the script, we concluded we were overly siloed and we've broken down those silos and we've collapsed a lot of the customer-facing operations into the customer success organization, giving us more scale in the customer success organization and making a lot of our operational touch points with our customers much more customer-centered.
al: Thanks, Brian is first on the <unk>.
Darrel: <unk> build out.
Darrel: We think we've completed the.
Darrel: The initial wave of build out in the organization, but as you know.
Darrel: New salespeople take time to ramp up so there's a little bit of a lag effect there, but we've done the initial build out of the sales organization.
Darrel: So, adding some talent in the customer success organization, but a great deal of that shift has come from the operational reorganization, where we are.
Darrel: Ill.
Darrel: As I mentioned in the script.
Darrel: We were only five mode.
Darrel: We've broken down the silos that we've collapsed a lot of big customer facing operations into the customer success organization.
Darrel: Giving us more scale in the customer success organization, and making a lot of our operational and touch points with our customers much more customer centered.
Unknown Executive: So, we're quite excited about both. It is a continuing effort. We're not declaring victory or anything close to that, but we've made enough changes to this point that we're confident that we're going to start seeing the results as we move forward.
Darrel: So we're quite excited about both.
Darrel: It is a continuing effort.
Darrel: Declaring victory or anything close to that but we've made no changes at this point.
Darrel: That we're confident that we're going to start seeing the results as we move forward.
John Dorman: And then I'll squeeze into one final one just just considering the ongoing CEO surge. How much of the broader organizational and strategy changes are you kind of hitting pause on and reserving? for, you know, the time when the new CEO onboards and can take their own kind of fresh look. at how to evolve the strategy going forward. Yeah, we're really not. We're not hitting pause on anything right now.
Darrel: And then I'll squeeze in one final one just just considering the ongoing CEO search.
Darrel: How much.
Darrel: Of the broader organizational and strategy changes or you're kind of hitting pause on in reserving.
Darrel: For the time, when the new CEO on board and can take their own kind of fresh look.
Darrel: Part of it.
Darrel: All of the strategy going forward.
Darrel: <unk>.
Darrel: Yes, we're really not.
Darrel: We're not hitting the pause button being taken right now.
John Dorman: This is a different phase than the previous search phase when we didn't have an opportunity for somebody to step in as interim CEO, largely because of me being the logical one and constraints on my own availability at that point in time. So we did have more things on hold during that period while the board was coming to a greater understanding of the business. through the search process. But over that period of time, over the past nine months, I and the board have become very deeply engaged with the company on both strategy and execution. And that allowed us, even with the recent quick turnover, to really start using that as a catalyst to accelerate our change and execute some of these organizational changes and cost cuts.
Darrel: This is a different phase.
Darrel: <unk>.
Darrel: Previous search phase when we didn't have.
Darrel: An opportunity for somebody to step edit interim CEO.
Darrel: Largely because of <unk>.
Darrel: <unk> being the logical one and constraints on my own available only at that point in time.
Darrel: So we did have more things alcohol during that period, while the board with colleague to a greater understanding of the business.
Darrel: Turning to the search process, but over that period of time over the past nine months I and the board become very deeply engaged with the company.
Darrel: On both strategy and execution.
Darrel: And that allowed us even with the recent quick turnover.
Darrel: To really start using that as a catalyst to accelerate our change and execute some of these organizational changes and cost cuts.
John Dorman: And the strategy is pretty well evolved that's mapping out our plan for returning to growth and profitability.
Darrel: And the strategy is pretty well of all this.
Darrel: <unk> out our.
Darrel: Our plan for returning to growth and profitability.
Ryan Tomasello: And our engagement on that with our finalist candidates is deep enough to the point where we're really confident that the handoff is going to be as smooth without having to pause anything. Great, thanks for taking the questions. Again, if you would like to ask a question, press star, star 1 on your telephone.
Darrel: Our engagement on that with our with our.
Darrel: Finalists candidates.
Darrel: Deep enough to the point, where it really.
Darrel: We're really confident that the NOI is going to be a smooth.
Darrel: Having a positive thing.
Speaker Change: Great. Thanks for taking the question.
Speaker Change: Again, if you would like to ask a question press star.
Speaker Change: One on your telephone keypad. Our next question comes from the line of fully.
Yifu Li: Our next question comes from the line of Yifu Li. and Cantor Fitzgerald. Thank you for taking my question. I just want to follow up on the CEO change from the last caller, the last analyst. Why, like John and Daryl, why the quick change again? And what are the qualities? You say you're in the final stages in finalizing the CEO search. What are the qualities you are looking to seek for? Well, I think I've answered the first part of your question. I believe we answered that to the extent we could when we made the announcement, but I'll I'll repeat that, you know, that that quick change had nothing to do with misalignment of strategy, nothing to do with any fraud or malfeasance, and said nothing to do with current financial performance.
Speaker Change: From Cantor Fitzgerald.
Fully: Please go ahead. Thank you for taking my question.
Speaker Change: I just wanted to follow up on the CEO change from the last caller the last analyst.
Speaker Change: Hi, Jonathan about why though.
Speaker Change: Quick change again, and what are the qualities you say you are in the final stages.
Speaker Change: In fact, the CEO search what are the closets you are looking to seek for.
Speaker Change: All right.
Speaker Change: I think I'd add to that.
Speaker Change: First part of your question.
Speaker Change: I believe we answered that to the extent, we could when we made the announcement.
Speaker Change: But al.
Speaker Change: I'll repeat.
Yes.
Speaker Change: That that quick change had nothing to do with misalignment of strategy nothing to do with it.
Speaker Change: Broader malfeasance or nothing to do with current financial performance.
John Dorman: It was initiated by the board, as was evident in our disclosures about the transition arrangements with with the the then CEO, and it was just one of those tough decisions the board has to make. But as I hope we've conveyed on the call this morning. It really wasn't a significant event in terms of affecting our execution of our plan. And also, as I believe we implied at the time we made that announcement. We were. Because we were just coming off a very robust search process, we were engaged enough with multiple candidates that we've been able to move very, very quickly.
Speaker Change: It was initiated by the board.
As was evident in our disclosures about the transition arrangements.
Speaker Change: <unk>.
Speaker Change: With the.
Speaker Change: I've been CEO and I was just one of those tough decisions the board of SMA.
Speaker Change: But as I hope we've conveyed on the call. This morning.
<unk>.
Speaker Change: Yes, it really wasn't a significant event in terms of affecting our execution of our plan.
Speaker Change: Also as as I believe we implied at the time, we made that announcement.
Speaker Change: We were.
Speaker Change: Because we were just coming off a very robust search process, we are engaged with multiple candidates.
Speaker Change: We've been able to move very very quick.
John Dorman: As I said in my comments this morning, we do expect to be making an announcement in coming weeks on and so we're moving ahead full speed with that. As to what the qualities are we're looking for, they remain the same. We want a CEO who has proven track record of executing operationally in a recurring revenue business at scale. A lot of the problems that we face. When we launched this path of CEO transitions were related to not having matured the organization fast enough. And we're addressing all of those, but we're looking to bring in a CEO who has very strong included ability of operating and executing a high recurring revenue business at scale.
Speaker Change: And as I said in my comments this morning.
Speaker Change: We do expect to be making an announcement in the coming weeks not months.
Speaker Change: And so we're moving ahead full speed with that as to what what the qualities are we're looking for.
Speaker Change: The same we want athene.
Speaker Change: Oh, who has proven track record.
Speaker Change: Executing operationally.
Speaker Change: Recurring revenue business at scale a lot of the problems.
Speaker Change: We face.
Speaker Change: When we launched this path of CEO transitions were related to.
Speaker Change: Not having matured the organization fast enough and we are addressing all of those but we are looking to bring in a CEO who has.
Speaker Change: Very strong ability of operating and executing.
Speaker Change: High recurring revenue business at scale.
Yifu Li: Thanks for that. And the follow up, it could be Daryl or you, John, it's, you know, you guys have a great, you know, NRR and very low term in your business. I'll ask them both at the same time, right? Daryl, you mentioned about you're trying to minimize the tariff impact. Can you explain how SmartRent is able to do so, considering, you know, you know, the situation is so fluid. And like, with the, you know, hire of Natalie and the fill out of the go to market team, and you talked about, you know, there's still more work to be done in terms of how to hire for, you know, customer success.
John Dorman: Thanks for that and a follow up I Couldnt dialogue you John.
Speaker Change: Have a great.
Speaker Change: And very low churn rate of business.
Speaker Change: I'll ask them both at the same time.
Speaker Change: You mentioned about you tried to minimize the tariff impact can you explain how that is.
Speaker Change: It's able to do so considering all the.
Speaker Change: The situations.
Natalie: Hi, Natalie.
Speaker Change: Go to market team and you've talked about.
Speaker Change: So more work to be done in terms of high for your customers to SaaS.
Daryl Stemm: When do you believe that, you know, the fruits of this, you know, I guess the build out of go to market team will, will inflect more positively, like in terms of the timeline. And that's it from me. Thank you. Yeah, thank you for the question. Why don't I start by addressing the tariffs and then hand it back over to John to address the sales worry. The tariffs are nothing new. SmartRent has historically sourced the vast majority of its hardware devices from overseas, and there's nothing new about that. So there's been obviously significant developments recently. We believe, from a kind of maximum exposure standpoint, that we have potentially about a $2 million exposure in the back half of this year related to tariffs.
Speaker Change: Do you believe that the fruits of this.
Speaker Change: I guess the build out of our go to market team will will inflect more positively.
Speaker Change: In terms of the timeline.
Speaker Change: Thank you.
Speaker Change: Yes. Thank you for the question why don't I start by addressing the tariffs and then hand it back over to John.
Speaker Change: The address the sales org.
Speaker Change: The terrorists tariffs are not nothing new smart has historically source.
Speaker Change: The jewelry hardware devices from overseas.
Speaker Change: There is nothing new about that so there has been.
Speaker Change: <unk> significant developments recently we.
Speaker Change: I'll leave.
Speaker Change: From a from a.
Speaker Change: Maximum exposure down boy.
Speaker Change: You have potentially about a 2 million dollar exposure in the back half of this year related to tariffs.
Daryl Stemm: That's subject to a couple of things that one would be the simple changing of the tariffs yet again, but also we began addressing the potential for tariff increases by changing where we do our own manufacturing of our own devices. Also, with regards to third-party source devices that come from overseas, Because of the lack of clarity, most of our suppliers have not committed to a particular path, like passing along the cost to SmartRent. That may or may not happen in the future. And then the last point that points to potential mitigation is we are evaluating changing some of our own manufacturing locations, again, to lower tariff nations.
Speaker Change: That's subject to a couple of days.
Speaker Change: One would be the simple changed the tariffs again, but.
Speaker Change: Also we began addressing the potential for tariff increases by changing where we do our olive manufacturing of our own devices.
Speaker Change: Also with regards to third party source devices that come from overseas.
Speaker Change: Because of the lack of clarity.
Speaker Change: Most of our suppliers have not committed to a particular pathway passing along the cost.
Speaker Change: Smart grid that may or may not happen in.
Speaker Change: In the future and then the last point.
Speaker Change: Two potential mitigation.
Speaker Change: We are evaluating.
Speaker Change: Changing some of our owned Manny.
Speaker Change: Manufacturing locations again lower tariff.
Speaker Change: Nations.
Daryl Stemm: And regarding the timing of evidence of the build-out of the go-to-market function, I wouldn't be specific on pinpointing a quarter when that's going to be compellingly evident for a number of factors. First of all, as you understand, new people in sales take time to ramp up. We also have, which we have done, our demand creation and lead generation organization, and that's early days. We're also facing some macro factors still in the capital investment cycle of the multifamily market. and as well as just the broader economic uncertainty right now. Then our products, as we discussed many times before, have a long sales cycle that is tied in with the capital investment cycle of our major customers.
Speaker Change: Thanks, and good morning.
Speaker Change: Evidence.
Speaker Change: The.
Speaker Change: They build out their go to market function.
Speaker Change: I wouldn't be specific on.
Speaker Change: Pinpointing a quarter win with us going to be.
Speaker Change: Tellingly evident.
Speaker Change: For a number of factors first of all.
Speaker Change: Yes.
Speaker Change: As you understand new.
Speaker Change: New people in sales take time to ramp up.
Speaker Change: We also had.
Speaker Change: Which we have done our demand creation and lead generation organization.
Speaker Change: That's early days.
Speaker Change: We're also facing some macro factors still.
Speaker Change: The capital investment cycle of the multifamily market.
Speaker Change: And as.
Speaker Change: As well as just the broader economic uncertainty right now.
Speaker Change: And then our products as we discussed many times before.
Speaker Change: It's a long sales cycle that is tied in with the capital investment cycle of our major customers.
John Dorman: Given all those factors, there remains some degree of uncertainty as to the timings for this year. What I would characterize is that 2025 will be a year that is primarily foundation building. With some expectation of growth, we're going to continue showing strong growth in our SAS rep. But with that foundation building, we expect to be able to show, you know, evidence of good points along the way that will lead to more sustainable growth as we enter 2026. I guess, what are those proof points, like, John, is it like, you know, like, SAS revenue as a percent?
Speaker Change: Given all those factors.
Speaker Change: We made.
Speaker Change: Some degree of uncertainty as to the timing for this year, what I would characterize that.
Speaker Change: 2025 will be a year that that is primarily foundation building with some expectation of growth we're going to continue showing strong growth in our SaaS revenue.
But with that foundation building, we expect to be able to show.
Speaker Change: Sure.
Speaker Change: Evidence of proof points, along the way that will that will lead to more sustainable growth as we entered 2020.
Speaker Change: I guess, what others proof points that John is it like.
Speaker Change: Like SaaS revenue as well starting right now.
John Dorman: I know, like, one story right now, obviously, Beryl could chime in on this, right? What are the proof points that would make, you know, the board and yourself and the management team be more positive throughout the year?
Speaker Change: Chime in on this right, whether the proof point that would make the Florida and yourself and the management team be more positive.
Speaker Change: The year.
Unknown Executive: The principal one would be the beginning of a sustainable path of acceleration. Okay, thank you very much.
Speaker Change: Yes.
Speaker Change: So first of all one would be.
Speaker Change: The beginning of a sustained.
Speaker Change: Sustainable path of acceleration in bookings.
Speaker Change: Okay.
Speaker Change: Okay. Thank you very much.
John Dorman: Since there are no further questions, I will now turn the call back over to Interim CEO John Dorman for closing remarks. you and thanks for joining us today.
Speaker Change: Since there are no further questions I will now turn the call back over to interim CEO, Jon <unk> for closing remarks.
Speaker Change: Thanks for.
Speaker Change: Joining us today.
John Dorman: As we wrap up, I will leave you with a clear message. We both believe SmartRent is a very compelling long term opportunity for value creation. This is a company with unmatched scale, real product differentiation in a massive addressable market that's still largely untapped. We have over 800,000 units deployed, net retention rates north of 100%, and recurring SAS revenue that grew 17% year-over-year while we were in the midst of fixing execution challenges. We faced some near-term execution challenges, but the fundamentals haven't changed. In fact, they've gotten stronger. We streamlined the business, realigned leadership, and refocused the organization around a disciplined SaaS strategy that prioritizes recruitment, platform superiority, and customer success.
Speaker Change: As we wrap up I will leave you with a clear message.
Speaker Change: We both believe smart grid is a very compelling long term opportunities for value creation.
Speaker Change: This is a company with unmatched.
Speaker Change: Unmatched scale real product differentiation.
Speaker Change: Asset addressable market is still largely untapped.
Speaker Change: We have over 800000 units deploy net retention rates north of a 100% and recurring SaaS revenue that grew 17% year over year.
Speaker Change: While we were in the midst of fixing our execution challenges.
Speaker Change: We faced some near term execution challenges, but the fundamentals haven't changed.
Speaker Change: They brought in strong we streamlined streamline the business realignment bigger ship and refocus the organization around a disciplined SaaS strategy that prioritizes.
Speaker Change: Platform superiority and customer success.
John Dorman: The work we've done over the past nine months is not just about fixing what wasn't working, it's about laying the foundation for something much bigger. The Smart Rent of Tomorrow is more focused, more efficient, and more ambitious.
Speaker Change: But what we've done over the past nine months is not just about fixing what wasn't working it's about laying the foundation for something much bigger.
Speaker Change: The smart remote tomorrow is more focused more efficient and more ambitious.
John Dorman: So for those watching us closely, here's what I'll say. We believe the opportunity ahead of us is significant. We're executing with urgency and clarity, and we believe the value of creation potential from here is real, durable, and meaningful.
Speaker Change: So and those watching us closely here's what I'll say.
Speaker Change: We believe the opportunity ahead of US is significant we're executing with urgency and clarity and we believe the value creation potential from here its real durable and meaningful.
Operator: Thanks again for your time, your engagement, and your continued Ladies and gentlemen, that concludes today's call. Thank you all for joining.
Speaker Change: Thanks again for your time your engagement and your continues.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Please wait, the conference will begin shortly.
Speaker Change: Please wait the conference will begin shortly.
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