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spk01: Good evening, everyone. Thank you for joining us to discuss Smart Rents results for the quarter end of June 30th, 2021. Joining me on the conference call today are Smart Rents Chief Executive Officer Lucas Haldeman and John Walter, Smart Rents Chief Financial Officer. I would like to begin by reminding everyone that the discussion today may contain forward-looking statements, including with regard to the company's future performance and prospects. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated by any such statements. We describe some of these risks and uncertainties in the sections entitled Risk Factors in the final proxy statement filed with the SEC on August 6th, pursuant to Rule 424B3 in connection with our recent business combination. A copy of the final proxy statement is available on the SEC's website at sec.gov. Smart rent undertakes no obligation to update or publicly revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In today's remarks, we will also refer to certain non-GAAP financial measures. Reconciliation of these non-GAAP substantial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings release, which can be found on the investor relations section of our website. I will now turn the call over to Lucas to review our results. Lucas?
spk05: Thank you, Evelyn. Welcome, everyone, to Smart Rent's first earning call as a public company. We are very excited to have completed our business combination with 5thWall. Our merger, which closed just last week, provided us with approximately $450 million of cash to accelerate our growth strategy, including the pursuit of strategic acquisitions that will complement our organic growth engine and expand our reach as a category leader in the enterprise smart home solutions industry. Before we continue, I want to acknowledge and thank our partners, including Fifth Wall, our directors, and our preexisting and new shareholders for their support and capital. We are excited about our prospects and look forward to sharing our growth story with you. Before discussing our results, I wanted to provide an overview of our company strategy and business model. I will also be sharing some recent business developments as well as our progress on some key performance metrics. John Wolter, our Chief Financial Officer, will then discuss our financial results in more detail. SmartRent was founded in 2017 in response to our experience as both technologists and frustrated real estate operators. As a former chief technology officer of Colony Starwood Homes, now part of Invitation Homes, my team and I saw firsthand that there was a void of integrated, technology-driven solutions that could address and solve operational challenges for real estate owners. Our owner-operator background influenced our decision to develop and design a fully integrated, hardware-agnostic smart home software platform. SmartRent's IoT operating system enables property owners, operators, and developers to decrease the complexities of property management, lower costs, mitigate risk, and increase revenue, all while helping them achieve their sustainability goals. We provide solutions that not only enhance economic value for our customers, but also elevate the resident or user experience. SmartRent has over 211,000 residential units installed across the country, which we believe to be more than all of our enterprise smart home competitors combined. We have pursued a land and expand strategy focused on penetrating the portfolios of the largest institutional residential property owners and managers to accelerate our scale and market share. In fact, 15 of the 20 largest residential owners, as ranked by National Multihousing Council, are SmartRent customers. Further, many of our largest customers also became investors in our company after implementing our smart home platform. In addition to multifamily residential owners, our customers include some of the leading home builders, single-family rental owners, and iBuyers in the United States. We believe that we are the preferred partner to large institutional landlords because our comprehensive service offers to make the entire apartment community smart. Our open architecture approach provides customized solutions that can be delivered via Wi-Fi, cellular data, or Bluetooth as required by our customers. Our flexible approach maximizes our total addressable market since we can deploy our systems to both retrofit and new construction. Today, retrofit comprises greater than 90% of our revenue and provides us with a shorter lead time for booking to revenue generation as compared to new build. Our emphasis on the retrofit market is a key differentiator in the industry and mitigates revenue disruption related to macroeconomic risk factors that can impact the delivery of new builds, such as dislocation in the financial markets, rising interest rates, labor shortages, and construction delays. Our value proposition is attractive to all owner-operators, from Class A new construction to workforce housing, as our product offering helps increase revenue reduce operating costs, and expand operating margins for our customers, which in turn increases the value of their properties and their portfolios. We also offer predictive tools to help avoid material damage and unplanned capital expense. Our robust range of products and solutions can all be managed from one interface and include smart device options for apartments and homes, access control for buildings, common areas, rental units, asset protection and monitoring, parking management, self-guided tours, and community and resident Wi-Fi. With a key focus on data security and strict user privacy, our systems generate actionable data that allows property owners and managers to make informed decisions and impact property performance and resident satisfaction. In addition, our smart home operating platform enhances our customers' ability to measure, monitor, and reduce energy consumption, which has a direct and positive contribution to our customers' sustainability initiatives. Our go-to-market strategy is another key point of differentiation. Customer connectivity and best-in-class service is crucial to our success. We have a professional services team of approximately 200 employees deployed in 31 states across the country. We use a direct sales approach and deploy in-house teams to manage installations and training. Upon completion, our installations are backed by an award-winning customer support team that is available 24 hours a day, seven days a week, 365 days a year to both our customers and their residents. The multitude of customer touchpoints throughout the planning and installation process and our culture of accountability ensure strong customer satisfaction. We are focused on constantly innovating and enhancing our service offering with the goal of remaining the enterprise smart home technology partner of choice. Adoption of our smart home platform is an additive capital investment for property owners and managers with subscription agreements typically ranging from five to seven years. This makes our customer base sticky and provides visibility into our revenue stream. We have a growing base of predictable recurring revenue through our pipeline of committed units. Remarkably, we have not experienced any customer churn, meaning that no customer has removed and installed Smart Hub, and we believe we have an opportunity to generate up to $1.8 billion in annual revenue over time from our existing customer base alone. The record revenue we generated in the second quarter is indicative of our current customer satisfaction and continued strong demand for our operating system from new clients. Our growing customer base, which collectively control approximately 3.5 million units in our combined portfolios, has given us the confidence to invest in scaling our workforce. We're attracting highly talented professionals from Apple, Google, Amazon, and Comcast. In many cases, experienced software engineers, sales representatives, and field technicians are seeking out SmartRent as a potential employer. We have the personnel required to deliver planned units throughout the remainder of the year, and our ability to attract top talent remains critical as we continue to appropriately staff to meet our growing demand. We recently launched several new complementary products. Among them is Alloy Access Solo, a single-door access control solution that can be retrofitted on nearly any door or perimeter gate using Wi-Fi or cellular connectivity. We also launched Smart Intercom, our proprietary in-house intercom offering that can be installed on any building entry point, such as lobby doors or perimeter gates. Smart Intercom provides smart rent-enabled properties an additional layer of security and accessibility to the broader apartment community. Earlier this year, we also deployed our complimentary alloy parking solution, which helps keep properties safe by limiting unauthorized parking and allowing residents to readily access their designated parking spaces. These launches demonstrate our commitment to providing relevant and timely solutions for our customers that can also encourage the adoption of more of our services. Our go-to-market strategy of creating beachheads with larger owner-operators and leveraging their portfolios to grow our business is working well. SmartRent is fast becoming the industry standard solution. Our organic growth from existing customers as they roll out smart rent solutions across their portfolios and their influence or impact is instrumental to accelerate our penetration of the next tier of landlords and residential and facilitating our penetration of other real estate asset classes like student housing. We're making progress in building out the team. In the second quarter, we entered into agreements with 21 new customers that collectively represent ownership of approximately 539,000 units. Year-to-date, we've added 40 new customers, bringing our total number of customers to 182. For the second quarter, our committed units grew to over 606,000. As a reminder, we define committed units as the aggregate number of smart hub units that are subject to binding purchase orders from customers, together with units that existing customers who are parties to a smart rent master services agreement have informed us on a non-binding basis that they intend to order in the future for deployment within the next two years. Total booked units, which represent the aggregate number of smart hubs associated with binding orders executed during the period, increased 302% over the prior year period to 38,000. Units deployed, which represents the aggregate number of smart hubs installed, including customer self-installations in the second quarter, rose 243% over last year to approximately 24,000. As previously communicated on our first quarter call, units deployed were down on a sequential quarter basis from 32,000 in the first quarter, reflecting previously disclosed delays related to supply chain bottlenecks. While we believe we have addressed these supply chain issues, we continue to operate in a very fluid environment. Units deployed year-to-date increased to approximately 56,000, up 126% over the same period last year. This level of deployments is in line with our expectations, and we remain on track to achieve our 161,000 deployed unit forecast for 2021. Our aggregate number of units deployed as of June 30th, 2021 was 211,425, up 119% from the prior year. With our business combination now complete, we're looking forward to accelerating our units deployed for the remainder of the year, and are actively pursuing strategic acquisitions that will further enhance our comprehensive and differentiated product offering. We're extremely excited about what lies ahead for SmartRent. We believe we are very well positioned to create value for our customers and our shareholders in the months and years ahead. With that, I will now turn the call over to John to review our financial results. John?
spk03: Thanks, Lucas. I am pleased to share our progress with you this evening. and I'm particularly pleased with our results for the second quarter. Smart rent increased total revenue for the second quarter to $21.7 million and year-to-date to $40.8 million, representing a growth of 274% and 83%, respectively. This revenue growth was driven by the increase in the volume of installations of our smart home hardware devices and the 159% improvement in annual recurring revenue for the quarter. Total deferred revenue, which reflects the growth in our business and provides visibility into our future revenue, was approximately $74.5 million at the end of the second quarter, growing from $64 million at the end of the first quarter and by 133% from $31.9 million a year ago. As of June 30, 2021, we expect to recognize 47% of total deferred revenue within the next 12 months, 28% of total deferred revenue between 13 and 36 months, and 24% between 37 and 60 months. Deferred revenue expected to be recognized beyond five years is immaterial. Annual recurring revenue, or ARR, which we define as the annualized value of our recurring SAS revenue earned in the current quarter, was $7 million for the second quarter of 2021, up 31% on a sequential basis, and up 159% compared to the second quarter of last year. It is important to note that our ARR does not contemplate revenue that could be attributed to committed units, which represents additional upside. Operating expenses in the quarter totaled $10.3 million, 29% from $8 million in the prior year period, reflecting expenses related to the expansion of our sales, marketing, and R&D teams as we position the company for continued growth. Additionally, and although not included in the operating expenses, we have expanded our field installation, quality assurance, and customer care teams to support our current and anticipated growth and to execute on the conversion of our total units booked into deployed units that will generate additional recurring revenue. The company continues to invest for growth and has increased total headcount by approximately 93 percent since the end of June 2020 and by approximately 36 percent since the end of March 2021. Adjusted EBITDA was a $9.3 million loss in the second quarter driven by previously communicated lower deployments as a result of supply chain delays and increased operating expenses largely related to new hires to support our anticipated growth. Net loss for the second quarter was $10.1 million as compared to a net loss of $10.4 million in the same period a year ago. With respect to our outlook, we are seeing continued momentum in our business in the third quarter to date, and we believe we are on track to achieve our total revenue forecast for 2021 of $119 million. and approximately 161,000 units deployed. We continue to believe that we will achieve EBITDA-positive operations by the end of 2022. SmartRent is well positioned to continue to expand its market position and now has the capital to further strengthen and enhance its breadth of product offerings through select strategic acquisition opportunities. We believe we have the go-to solution for IoT as it relates to real estate and look forward to keeping you apprised of our progress as we move ahead. We will now open the call for questions. Operator, please go ahead.
spk02: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Tom White of DA Davidson. Please state your question.
spk09: Great. Good evening. Thanks for taking my question, and congrats on your first earnings call as a public company. You guys have clearly built a strong business here that's penetrated many of the largest multifamily owners in the U.S. I think you also say in your slide deck that that top 20 multifamily owners accounts for just 3% of all the units in the country, though. Clearly, there's a lot of volume kind of out there sort of in more of the middle market maybe. Can you talk a little bit about your strategy for maximizing your share of that part of the market? Does your go-to-market need to change in any way, or does the playbook need to change in any way to kind of capture the most of that as you can? And then I've got one follow-up.
spk05: Hey, Tom. Thanks for the question. It's Lucas Haldeman. So, yeah, I mean, you're right that it is a fragmented multifamily landscape. And that's where I think what's really important to us is two things. One, capturing that middle market. It's the same go-to-market strategy. That doesn't need to change, but we need to expand sales and marketing. And that was partially a driver of why we did this event and we're capitalized now to have the sales force and the marketing in place to capture that we feel. And the other side of why we started with the largest institutional owners is even though they only own a small percentage of the total pie, we find them to be very influential in the middle market. So it's also there's some marketing there for us as well.
spk09: Got it. That makes sense. Next, I guess I was hoping maybe you could provide a bit of insight into the attach rates for kind of the multiple modules that you guys offer. I guess not so much necessarily the percentage of customers that purchase more than one module, but maybe how many modules does the typical customer buy and how is that trending? And then if you've got any kind of early stats you can share on adoption of some of the newer offerings you guys have rolled out recently, like parking, et cetera, that would be helpful.
spk05: Yes, I mean, the attach rate question is an interesting one because we do have a very robust platform. We have a lot of products live. And a lot of those, as you alluded to, like our parking solution, are relatively new. So probably early days to share the specifics on that, although some color around that is we're seeing really great penetration coming in and that a lot of the new contracts coming in, we're seeing three, four, or five products being sold day one. The other side of that that I would share with you is our early adoption customers, when we did only have our single smart home solution product, every one of those customers is adding at least one additional product that we brought to market. So we're seeing our existing customers, we're able to upsell them into additional products, and on the margin, new customers coming in are definitely attaching and adopting more of our product solution.
spk09: Great. I appreciate the call. Thank you.
spk02: Our next question is from Jeffrey Rand of Deutsche Bank. Please state your question.
spk08: Hi, thanks for taking my question and congrats on recently becoming a public company. I wanted to better understand the operating leverage in your business. How do you think about the costs associated with customer acquisitions, installing a unit and supporting a smart red unit at your current size versus maybe a year ago?
spk05: Yeah, thanks for the question, Jeffrey. We definitely are seeing a pretty even state from a year ago. We're able to leverage economies of scale. So what I'd like to think about this is the customer acquisition cost when you're dealing with a large institutional owner, it's all up front. And then for the next two, three years as we're rolling out that platform, we benefit from not having any customer acquisition costs associated with those new units. But that being said, we're out heavily trying to add to the total number of customers on our platform. And so that keeps it kind of even. So does that answer your question?
spk08: Yeah, no, that's great. And then as my follow-up, how do you think about the mix between hardware and hosted services over time? I would think that new units will see a heavier mix of hardware as they add new products, but existing units will begin to shift more towards subscription and hosted services.
spk05: Yeah, and I love the aspect of the deferred revenue. That is that deferred revenue is largely comprised of upfront software payments. And you can see we have that consistent slug of revenue on the balance sheet that comes in predictably into the P&L. And, yeah, we do see the mix of software and hardware growing over time versus hardware. But sometimes it gets muted because we're growing so fast. And the hardware is a large upfront expense. On the margin, we get the recurring revenue evenly over the five or six year period of the contract. But as we're growing so fast, that hardware number always stays large. So it's not so much the mix of the two, but we like to see both going up.
spk08: Great. Thank you.
spk02: Our next question is from Ben Sherland of Cantor Fitzgerald. Please state your question.
spk07: Hi, guys. Thanks for taking my question. I was wondering if you could talk a little bit about kind of the seasonality we should expect of the deployed units kind of quarter over quarter and throughout the year and how you see that possibly changing with some of the supply chain issues in the first half.
spk05: So what we're seeing with the The seasonality is we actually work up front before the periods of time to make sure that we're focusing on Sunbelt states in the second half of the year, but particularly in the fall and winter. It is possible that if you're trying to do cold weather environments, you can run into delays. And so we try to mitigate that by focusing on how and when we go to deploy these units. It's part of the benefit of having all of these existing units that we're out retrofitting is we can kind of map that out. What was the second part of the question?
spk07: You know, kind of just how you see that trending, any supply chain issues, you know, potentially impacting normal seasonality.
spk05: Yeah, I think we're cautiously optimistic. As we said, it is a very fluid environment. We have a good supply of our hardware, and we have a good supply of a lot of the third-party hardware. Some of this is part of being hardware agnostic. It's one of the benefits of being hardware agnostic is we can a little bit pick and choose if one supplier is having trouble, we have other options. So we're not dependent on only one solution. In a lot of cases, we can be flexible. So we remain cautiously optimistic.
spk07: Okay, great. And then maybe one follow-up, if I may. It looks like your commuted units was kind of flat sequentially up a little bit sequentially versus, you know, strong year over year growth among all the business lines. Could you just add a little bit of color about, you know, kind of what you're hearing from, from customers and what is driving that, that Delta.
spk05: You're talking about Q1 versus Q2. Yes. Yeah. Yeah, I mean, I think we're very careful with that metric. So I will tell you, we have a lot of customers who have told us they're planning on doing larger deployments and accelerating. We actually order hardware. We think of the committed units as a firm commitment. We've never had a unit in the committed bucket not convert to a revenue unit. And so, you know, I think it was not a huge growth Q1 versus Q2, but we're also coming into budget season in multifamily in Q3. So I think you'll see a lot of, I would predict a lot of movement in that going forward.
spk07: Okay, great. Thanks so much for the color and congrats on the business combination.
spk04: Great, thank you. Thanks for the question.
spk02: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our next question is from Ivy Zelman of Zelman and Associates. Please state your question.
spk00: Thank you. Good afternoon and congrats on becoming a public entity on your own. So, Lucas, maybe you can just give a high-level perspective of the end markets that may be in the next, call it, you know, 24 to plus, you know, 36 months that you can start addressing? Because it's certainly, you know, clear that you only have 3%. I think one analyst brought up of the top 20 multifamily providers. So there's a lot of opportunities beyond that. Is it feasible that you can, that you'll just keep attacking that or you're going to go into other areas like maybe office or hospitality and, you know, maybe even single family residences?
spk05: Hey, Ivy. Thanks for the question. So, yes, I think it's a little bit all of the above. So we have an incredible opportunity just attacking institutionally owned multifamily in the U.S. You know, we have our owners that are current customers on three and a half million units out of somewhere between 28 and 40, depending on whose metrics you like. So we're very focused on continuing to harvest that growth. We have a machine that's great at selling into that. and we see that continuing to grow. At the same time, we're already working with many of the largest home builders, many of the iBuyers, and many of the single-family rental operators. And so we are already making inroads into that. And so as iBuying continues to gain traction, we'll be the natural beneficiary of that as well. And as home builders continue to build new homes, we'll be the beneficiary of that as well. And then this year, and we put this in the analyst deck. There's a slide if anyone wants to reference it. But we're also looking at working with office products. We have pilots going in the office space. as well as other types of real estate student housing. We announced we've stood up a team to go into that vertical. We've also looked to move into senior housing, institutional real estate, or industrial real estate as well. So yes, not only do we have a great growth trajectory in our core platform that we continue to offer, there's a lot of near-term other types of real estate that we can go after as well. And if we aren't already, we will be.
spk00: And just operationally, to follow up, are you staffed enough and do you have the infrastructure in place to do that type of expansion? Or will that require, should we expect, you know, a more load up, front loading expenses as a result to get to that addressable market that you're just highlighting?
spk05: Yes. Good clarification. That will require additional capital invested. Part of why we haven't gone after those other verticals is we wanted to make sure we had the team and the resources and the developers, the software engineers, to build those products in the right way. And so there will be some upfront investment. That's why it's exciting. We're already with the builders. We're already with the iBuyers. All those changes have already been done. Student housing is in pilot. Office is in pilot. But as we go into senior and industrial, you know, those will be new teams that will be stood up to go after those. And that's part of the uses of the capital that we've just raised.
spk00: Got it. And last one for me, just something the industry's brought up and questioned. I brought this to Evelyn's attention, but for everyone listening, just explain what happens when you have a situation for your customers, given the fact that they're using, you know, Wi-Fi and just, generally everything is done electronically in a situation where you have a power outage. Can you explain to us and clarify what the risk is to their tenants' experience?
spk05: Yeah, I mean, it depends on the type of weather event, but as we go through hurricane season and other areas, you know, we're very careful with the redundancy we're putting in place. A lot of our products run on cellular. So even if a community has Wi-Fi, the owner has the option of putting in a cellular backup. That's always available. And then for things like access control and doors, we always make sure that there's multiple ways that don't require power to use those devices. So we recommend a lock with a code or a Bluetooth chip that could be controlled locally and wouldn't need any power.
spk00: Great. Thanks. And congrats again. Thanks.
spk04: Thank you.
spk02: Our next question is from Ryan Tomasello of KBW. Please state your question.
spk06: Hi, everyone. Thanks for taking the questions, and again, congrats on the first quarter as a public company. I was hoping, Lucas, you could put a finer point around what specifically the $450 million of SPAC proceeds are earmarked for, and in particular, how you're thinking about the ROI on any piece of that that's invested in various companies. customer acquisition channels and I guess, you know, what you see as the most optimal routes for customer acquisition.
spk05: Yeah. Hey Ryan, thanks for the question. So I think that the, we just touched on a little bit in Ivy's question. I mean, we are looking to stand up teams, internal teams to go after new verticals. We're planning on using capital to grow our organic Salesforce and additional marketing. We have a huge runway ahead of us just in multifamily, and we want to make sure we have the right team in place to capture that. And the other one that we haven't mentioned today is also looking to expand internationally and outside the U.S. The other one we haven't talked about, Ryan, that I would bring up is also becoming a strategic acquirer. So we've shared our roadmap publicly. We've told folks where we're planning on going. And I think now we feel like we can achieve some of that quicker by being a strategic acquirer. And so I'd look for that. But, you know, we're taking a very holistic approach to this. I think from the beginning, from the first outside dollar we raised in this company, we've been very careful stewards of the capital. And we're going to make sure that we're doing investments that are day one accretive and overall growing this and adding to the growth and not adding to the drag.
spk06: And I guess using your comment around being a strategic acquirer, a nice segue into my follow-up, which is, you know, how is the acquisition pipeline shaping up overall and, you know, what the M&A playbook, you know, you expect to unfold over the next few years? Are there specific areas of the TAM that you feel as most benefiting from inorganic investment? And, you know, perhaps you can highlight some of the past acquisitions you've done that have been successful in deploying some capital.
spk05: Yeah, I mean, I think where you'll see us focus is where we can bring in a different customer base than we currently have. That's an important way for the growth trajectory. So if we can seed a new market in terms of commercial real estate or international, that could be an important way to do that. I think also we joke that if it's a complementary product in terms of what we're selling in the multifamily market, We look at the customer overlap. We have a great ability to upsell both customer sets on these new products. And so I think that's an important growth metric to look at. And then also, you know, I wouldn't underscore that there's a huge cultural piece to this. And so making sure the team has a cultural fit will allow these to be less friction in the integration and able to start achieving the results sooner. So those are some of the criteria that we're looking at.
spk06: Thanks for taking the questions.
spk04: Thank you, Ryan.
spk02: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for additional questions. There are no more questions at this time. We have reached the end of the question and answer session. I will now turn the call back over to Lucas Haldeman for closing remarks.
spk05: Thank you all for joining the call. Really appreciate the time and the questions. And we look forward to speaking with everyone soon and in the coming weeks at some conferences which we'll share on our website and at our next quarterly call. So thank you all very much. Have a great day.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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