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spk04: Ladies and gentlemen, thank you for standing by. We'd like to welcome you to today's conference. This is the SmartRent Q1 2024 conference call. All lines have been placed on mute to prevent any background noise. 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 one on your telephone keypad. If you would like to withdraw your question, Simply press the same keystroke star followed by the number one. Thank you. I would like to start our call and turn our call over to Kristin Lee, General Counsel for SmartRent. Kristin, you may begin.
spk00: Hello, and thank you for joining us today. My name is Kristin Lee, General Counsel for SmartRent. I'm joined today by Lucas Haldeman, Chairman and CEO and Daryl Stem, CFO, who will be taking you through our financial results as well as discussing guidance. Before the market opened today, we issued our earnings release and filed our 10-Q with the SEC, both of which are available on the investor relations section of our website, smartrent.com. Before I turn the call over to Lucas, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review reports thoroughly before taking a financial position in SmartRent. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We would also like to highlight that a first quarter earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to Lucas.
spk02: Good morning. Thank you to everyone for joining us today. This morning we reported revenue of $50.5 million for the quarter, with nearly $12 million coming from SAS recurring revenue products. our SaaS business improved by 32% year-over-year, driven by a combination of increased total deployed units as well as continued gains in our cross-selling strategy. We reported positive adjusted EBITDA of almost $400,000, beating our guidance and marking our second consecutive quarter of positive adjusted EBITDA. Additionally, we ended the quarter with almost 750,000 deployed units, a 24% increase from the previous year. We continue to see increasing demand in the market for community Wi-Fi, and as we previously announced, we are taking advantage of our strong financial position by investing in projects aimed at significantly expanding our community Wi-Fi offerings. This initiative involves onboarding new talent, as well as developing advanced technologies, aligning with our vision to dominate the early-stage multifamily community Wi-Fi market. As we look to the future, our strategy remains steadfast in scaling our solutions to meet the growing demands of the rental housing industry. This scalability is facilitated by our deep understanding of our clients' needs as demonstrated by the launch of a new software feature in the quarter that allows self-guided tour customers to take advantage of key functionality and answer automation, making it easier for residents to tour properties and saving significant time for leasing teams. We prioritize innovations in SaaS that encourage deeper adoption of our solutions and facilitate cross-selling amongst our portfolio of offerings. Beyond our innovative software features, a key differentiator for SmartRent and a critical purchasing factor for clients is our commitment to creating true integrations with leading property management systems. Integrations are essential for our customers because they ensure smooth data flow between their existing systems and the SmartRent platform, driving automation and saving time. We offer an extensive array of integrations, and similar to new products, we have a roadmap of integrations we plan to add and enhance to better serve our customers. Our approach to deeply integrating with leading rental housing platforms reduces vendor fatigue, automates processes, and delights residents, ultimately leading to increased adoption of our solutions. As we progress through 2024, our strategic vision remains sharply defined and our approach resilient. We are not merely participants in the market, but at its forefront, spearheading innovation and consistently delivering substantial value. Now I'll pass the discussion to Daryl, who will provide detailed insights into our financial performance and share our outlook.
spk06: Thank you, Lucas. The first quarter marked another period of significant progress for SmartRent. We continue to demonstrate strong SaaS revenue growth, expansion in our gross margins, and sustained adjusted EBITDA profitability amidst the complex dynamics of the markets we serve. Total revenue for the quarter reached $50.5 million, which reflected a strategic realignment from last year's record Q1, with revenue streams diversifying further into more sustainable recurring sources. By revenue stream, Hardware revenue was $29.1 million, professional services was $3.5 million, and hosted services was $18 million for Q1 of 2024. Hardware and professional services revenue were both down year over year. The decrease in hardware revenue was almost equally attributable to a decrease in hardware ARPU, primarily driven by the change in our product mix which was more heavily weighted to our alloy smart home hardware and a decrease in the number of units shipped. The decrease in professional services revenue was primarily attributable to a decrease in new units deployed. SAS ARR increased to 47.6 million in Q1 from 36 million in Q1 of 2023, an increase of 32% year-over-year. The primary drivers of SAS growth We're a 24% increase in total units deployed and upselling and cross-selling our comprehensive platform solutions. SAS ARPU was $5.41 in Q1, a 4% increase year over year. During the first quarter of 2024, we increased our total deployments to nearly 750,000 units with about 30,000 new units deployed. Shipments for the quarter were just under 52,000 units. Additionally, our Smart Operations solution is servicing roughly 1.3 million units. Bookings for the quarter were approximately $38.8 million, including more than 46,000 new units booked. Bookings ARR was $4 million. and units booked ARPU was $7.16 per unit, leading us to believe SAS ARPU will continue to increase. In the first quarter of 2024, gross margin increased to 38.5% from 14% in the same quarter of the previous year. This substantial improvement can be attributed to a favorable change in our product mix, which was more heavily weighted to our alloy smart home hardware. Gross profit increased by over $10 million in Q1 to $19.4 million from $9.1 million in the same period of 2023. Hardware gross profit more than doubled to $10.4 million from $4.8 million as product mix drove expanded margins. Within our SaaS business, gross margin improved to 75.1% from 73.4% a year ago. Hosted services gross profit increased to $12 million from $9.2 million last year and continues to be our most profitable revenue stream. Professional services gross loss narrowed to $3 million from $4.9 million in the same quarter of the previous year. Total operating expenses were $29.6 million in the first quarter of 2024, increasing from $24.4 million in Q1 of 2023. The 2024 results included a one-time accrual of $5.3 million, resulting from an ongoing contractual dispute with a supplier, as disclosed in our filings. $5 million of which is attributable to our expected return of inventory, which we believe is not satisfactory for our customer needs, and a cash payment of approximately $300,000. Excluding this accrual, our operating expenses were similar to last year's first quarter. Improved gross margins and continued cost controls helped us achieve positive adjusted EBITDA for the second consecutive quarter and an improvement from a loss of $8.5 million in Q1 2023. At the end of Q1 2024, our total cash balance was $205 million, a reduction of $11 million from the prior quarter. The decrease in cash this quarter was primarily due to the repurchasing of approximately $4.4 million in stock and the payment of annual cash bonuses to our employees. Our guidance for the second quarter and full year 2024 are as follows. Q2 guidance for revenue in the range of $49 to $55 million and adjusted EBITDA in the range of negative $500,000 to positive $500,000. Full-year 2024 guidance is unchanged, with revenue in the range of $260 to $290 million and adjusted EBITDA in the range of $5 to $8 million. Our financial strategy is designed to secure a durable and resilient future for smart rent, ensuring stable, long-term earnings to create shareholder value. And I'll now pass the call back to Lucas for closing remarks.
spk02: Thank you, Daryl. Before we turn the call over to questions, I want to provide some color on the macro trends we are seeing in the rental housing industry. Factors such as persistently higher interest rates, slowing rent growth, and increasing supply are creating headwinds for many of our customers. Customers are taking markedly different approaches to navigate the landscape. On the one side, we see a group of customers who are seizing the opportunity to accelerate their investments and leveraging our technology to gain a competitive edge in challenging times. Conversely, we are also seeing a segment of our customer base taking a more cautious stance, cutting back on investments and focusing on cash preservation. For those customers focused on cost savings, SmartRent is uniquely positioned to provide asset protection solutions to safeguard against potential water damage and lower insurance premiums. In addition, our self-guided tour platform has allowed our customers to significantly reduce the number of on-site employees. One customer publicly stated they reduced leasing staff by more than 40%. Another client who is investing is CenterSpace, who recently piloted 10 communities with our smart apartment solutions, including smart locks, thermostats, leak sensors, and our resident mobile app, all powered by the Smart Rent Manager platform. The pilot yielded such positive results that CenterSpace is implementing our solutions in 38 additional communities in its next phase, and they have shared with investors they expect to generate an additional $3 million or more in cash flow due to rent premiums and savings on water leaks. CenterSpace is just one example of why SmartRent stands out as a leader shaping the future of the rental housing industry. Our unique position stems from being the only provider to deliver purpose-built hardware, software, and end-to-end implementation and support. These competitive advantages are deeply embedded into the experience of our customers, offering the most comprehensive solution that is unmatched in the market. As we look to the second half of 2024, our outlook is reinforced by the durable, scalable nature of our offerings and our proven track record as the trusted provider to the top names in real estate. This positions us exceptionally well to capture significant market share and sustain our growth. Before we conclude, I want to extend my deepest thanks to our dedicated team at SmartRent. Your creativity and commitment are pivotal in driving our success and in continuing to innovate solutions that create connected communities our customers are proud to manage. Thank you to everyone for joining today's call. We will now open the line and take your questions.
spk04: Thank you. ladies and gentlemen at this time i would like to remind everyone that in order to ask a question you simply need to press star plus the number one on your telephone keypad our first question for today comes from the line of eric woodring with morgan stanley your line is live great thank you so much for taking my questions this morning um maybe lucas i just want to touch on those those last kind of macro comments that you made
spk03: um you know realize that your solutions can provide long-term cost savings obviously the center space example is a clear example of that um but if an operator is focused on the bottom line today you know i guess i i would think that there there would be risk to them you know pulling forward spend and making investments in your solutions even if that that long-term IRR pans out. So can you maybe just dig into that comment a bit and help us understand kind of what gives you the confidence that some of these operators will put aside maybe these near-term investment concerns and focus more on the long-term IRR, even in the environment that you described today? And then I have a follow-up, please.
spk02: Eric, thanks for the question. I think that you kind of illustrate the dichotomy that we're seeing. There is sort of that push and pull. Just two notes I want to make clear, though, is it's not so much they are preserving cash as these expenses come out of CapEx. And so they're going to spend the dollars on something. It's just a matter of they're spending the minimum amount of CapEx dollars they need to spend, as opposed to in some years when rents are growing fast and we're having good times, we'll see them pull forward and put more towards investment. So now it's just making sure we get our portion of that capex that they're spending it on. But it definitely is a tougher environment, especially around new customers and bringing on new logos. And that's why we brought up the center space. They've been in pilot. They understand the value. They see the value. all of our customers who we've been rolling out with are kind of falling in that boat. They're continuing to roll out. But it definitely is a challenging macro environment.
spk03: Okay, that's helpful. And then my second question was, you know, there is a clear positive relationship between units deployed, professional services revenue, and professional services gross margin. You know, in past quarters, You've talked about P.S. gross margins kind of breaking even by the end of 2024. I realize that that journey might not be completely linear, but I guess if that's kind of the North Star that we're looking for, it would imply a fairly material step up in units deployed P.S. revenue through the year. Daryl Wright, Just making sure that kind of that's the right way to be thinking about these kind of three different light items as as we look towards the end of the year and using that kind of professional services gross margin comment as as the North star, so to speak, thanks so much.
spk06: Daryl Wright, yeah hi Eric this is daryl and he hit the nail on the head with that one the North star is that we expect to break even on a margin basis on the professional services stream by the end of this year. We have made over the course of the past year, and we continue to make further changes to our standard operating procedures, making better use of technology to reduce the fixed level of our expenses. And part of the dynamic that occurred during Q1 was that more of the deployments were done by the customers themselves, as opposed to what we often refer to as full deployments. So the revenue number came down a little bit. But I think the key thing is to focus on the North Star, and we continue to reduce the fixed costs. So we feel like we're on track to achieve breakeven by the end of the year.
spk03: Great. Thanks so much for the color, Doug.
spk04: Thanks for your question. Our next question comes from the line of Ryan Tomasello with KBW. Your line is live.
spk05: Hey, everyone. Thanks for taking the questions. I wanted to hone in on some of the SAS metrics you reported. If you can just provide some clarification on why SAS revenue growth slowed pretty materially on a sequential basis, if there was anything to call out there from a churn perspective or just mix. and also what drove this sequential decline in SAS ARPU. And then as a follow-up on that, in terms of the guidance, I hate to sound like a broken record, but have you considered providing more explicit guidance for SAS revenue? I think many investors would agree that is one of the most, if not the most important driver for the stock. And the color you provided there previously, I think, is that SAS revenue would grow in excess of consolidated revenue growth, which is helpful, but certainly a bit vague. So any additional guideposts there would be appreciated. Thanks.
spk06: Well, I do want to reiterate that we do expect that SAS revenue will continue to grow faster at a faster rate than total revenue. With regards to some of the specific metrics for the quarter, oftentimes, if you compare sequentially, you can see a little bit of an aberration. And it has to do with the timing. of the deployment. So if we have a quarter that has heavier deployments on the back half of the quarter, you're going to see maybe just one full month of SAS incremental SAS revenue, as opposed to a quarter where the deployments are a little more heavily weighted on the first half of the quarter. So certainly, some of that happened in Q1. January has typically been a relatively slow month for us coming out of the holiday season.
spk02: I guess the only color I'd add to that, Ryan, is Lucas, is that, you know, we're definitely looking at how we can enhance the guidance we're giving on SAS. We're trying to, internally that's been a lot of discussion, so we hear the feedback and we're taking that into consideration.
spk05: Okay, that's helpful. And then second question here just on Wi-Fi. Any update you can provide on the initial projects that were shipped, I think, in the fourth quarter? Are those installations going according to plan? And any early indications of demand from those customers' intention to sign additional projects or, you know, the pipeline of new logos that are showing interest in Wi-Fi and how you expect that to ram through the balance of the year and into 2025? Thanks.
spk02: Yeah, I'll answer that one, Ryan. So I think we are continuing to see robust demand for Wi-Fi throughout the entire multifamily rental housing segment. It's actually an area where we're seeing more interest with new customers than IoT today. And I think part of that goes to sort of the question that Eric was asked about the macro. There's actually a quicker payback on Wi-Fi in terms of an IRR basis. And so we're seeing CapEx dollars being tilted that way, which we think is a great thing. And update on the projects. All the projects that were shipped in the Q4 have been either started or are nearing completion. And, yeah, we're continuing to have robust demand.
spk05: Thanks for taking the questions.
spk04: Thanks for your questions. Ladies and gentlemen, once again, if you would like to ask a question for today, remember it's star plus the number one on your telephone keypad, and we'll take your call. Our next question is from the line of Tom White with DA Davidson. Your line is up.
spk01: Great. Thanks for taking my question. Just, I guess, on the guidance. So no change to the consolidated revenue outlook for the year. Maybe you could just provide a bit more color on maybe some of the different scenarios that might result in you guys kind of only getting to the low end of that versus the high end like, you know, if it's a Wi-Fi, maybe it gets delayed for some reason, can you get to the low end, kind of just mostly on the core biz, and then just a follow-up on the core IoT biz, and then just a follow-up. I think last quarter you talked about, you know, some customers kind of deferring some IoT implementation until the Wi-Fi stuff happens. Can you help maybe quantify, you know, the number of units, of IoT units that are kind of tied or attached to a Wi-Fi project? Thanks.
spk06: Yeah, hi, Tom. This is Daryl. And the two primary factors that are going to impact the back half of the year, actually, let me take a step back. We talked on our previous call about some of the tailwind items that we're expecting to positively impact the second half of the year, like the upgrade, hardware upgrade cycle, and some SAS renewals, as well as the expanding Wi-Fi market. I think the two primary factors, though, that are going to impact where we land in the range will be the macro conditions, the macro headwind conditions that Lucas referred to, as well as how fast Wi-Fi expands.
spk04: Tom, thanks for your question. Any follow-up from your side?
spk01: Oh, no. Maybe just a little color on maybe trying to get a sense of how many IoT kind of implementations are, you know, kind of tied to the Wi-Fi deployments happening. You touched on that last quarter.
spk02: Oh, yeah, Tom. We are seeing that continue, but not at the rate we saw in the first quarter. So, I think we're actually working through a number of those pilots right now and feel like next quarter we can give a more granular update on exactly how that's progressing. But it's definitely – it's still the case of if an owner is interested in doing IoT and Wi-Fi, they definitely want to do them together. And so we will see that continue to be a little bit of a headwind on the IoT, but ultimately the total revenue is so much greater we think it's a good tradeoff.
spk01: Okay. Thanks, guys.
spk04: Thank you for your questions. uh ladies and gentlemen once again uh and last call if you do uh have a question for today remember it's star plus the number one on your touchtone uh phone and we'll bring you in we do have a follow-up question from the line of ryan tomasello back again with kbw ryan your line is live
spk05: Thanks for taking the follow-ups. Just on the hardware gross margins, came in very strong in the quarter, I think around 35% off of memory here. Is that a sustainable run rate going forward? And if you can just give us some hand-holding on how we should be modeling, you know, gross margins for the balance of the year and into 2025, given, you know, the changing mix of the in-house hardware that you're deploying today.
spk06: Yeah, part of the change that you're seeing is the increase in the number of hub plus devices that we're shifting to one. So hub plus, as a quick reminder, is a combination of both our traditional hub and also includes now a thermostat, which means that we have one third party device fewer that we're selling. So the margins, there's a significant margin difference between when we're shipping hardware that is third party versus the alloy smart home brand. And the HubPlus went from about 10% of the total shipments in Q4 to about 30% in Q1. We do expect that that percentage will increase over the course of the year. From that standpoint alone, we expect that it's a sustainable gross margin improvement. However, as Wi-Fi business picks up, you can expect that to have a muted impact on the hardware margins.
spk05: Okay, that's helpful color. Thanks, Daryl. And then just another follow-up here. You know, in terms of the outlook, going back to the puts and takes around the high and low end of the guidance, are there any meaningful customer concentrations driving expected new unit deployments for the year that, again, could maybe swing results for the year towards the high or low end of the range?
spk02: No, Ryan. There's no real customer concentration there that would affect the high or low end of the range. We have a pretty wide diverse base that we're rolling out with right now.
spk05: Got it. Okay. Thanks for taking the follow ups.
spk04: Thank you for your questions. We have a final call here today, back again from the line of Eric Woodring with Morgan Stanley. Your line is live.
spk03: Great. Thanks so much, guys. Just one last clarification question for me. I'm just trying to think about the relationship between units booked and units deployed. I guess in the last two years, or I guess maybe this is nine quarters, know you've booked over just over 500 000 units during that same time you've only deployed a little over 400 000 units can you just help me understand um the mismatch where that where that hundred thousand kind of missing units uh where that effectively when just just just how to explain that mismatch that would be helpful for me thank you so much yeah sure let me let me give you a little color on it it's not really
spk02: A mismatch in my mind is just when we talk about units being delayed and units being pushed out, that's that bucket that those fall into. So we've always got a tranche of units that are signed that are going to be deployed, but are not currently scheduled for deployment or are scheduled in a period farther out. Like we have some of that 100,000 we know is going to be Q2, Q3 of next year even. And so it's just a matter of all of those units will be deployed. We just don't know the exact time on those.
spk06: Yeah, so Lucas mentioned earlier some macro impact, and in some cases, not only is it delaying the customer booking the order to begin with, but in some cases, and this is what he was just referring to, the booking has already occurred, but the actual deployment is being deferred. Got it. Thank you, guys.
spk02: Thanks, Eric.
spk04: Thanks. Thank you for your question. And gentlemen, I'll turn it back over to you for any closing comments.
spk02: Thanks, Aaron. Thanks, everyone, for joining our Q1 call and look forward to speaking with you all very soon. Have a great day.
spk04: Thank you. Have a great day, everybody. Take care.
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