SmartRent, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone fourth-quarter report. Amounts below are in U.S. dollars unless noted.
Business context
SmartRent provides property owners and managers with integrated smart-building hardware, SaaS software and installation services. At year-end, it reported 719,691 Units Deployed, 593 customers and customers operating approximately 7.0 million rental units. Its revenue remains primarily U.S.-based and includes hardware, professional services and hosted services.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $236.8 million | $167.8 million |
| Gross profit / gross margin | $49.5 million / 20.9% | $1.3 million / 0.8% |
| Operating loss | $43.2 million | $104.3 million |
| Net loss | $34.6 million | $96.3 million |
| Adjusted EBITDA (non-GAAP) | $(19.2) million | $(74.7) million |
| Operating cash flow | $6.0 million provided | $77.8 million used |
Hardware revenue was $137.2 million, professional services $35.5 million and hosted services $64.2 million. Revenue grew 41%; hardware grew 57%, hosted services 33% and professional services 10%. Gross margin improved substantially, while the company remained loss-making. FY2023 interest income, net, was $8.6 million.
At December 31, 2023, cash and cash equivalents were $215.2 million (restricted cash brought total cash, cash equivalents and restricted cash to $215.7 million). Current assets were $340.3 million and current liabilities $117.3 million, implying working capital of about $223.0 million. The company had no borrowings outstanding under its $75 million senior secured revolving facility, which matures in December 2026. Management said available resources should fund operations for at least 12 months after issuance of the report, but noted possible future capital needs.
Material changes and operating indicators
- Revenue growth included higher shipments and hardware ARPU, more active subscriptions and Smart Operations revenue. A new, distinct Hub Device led to hardware revenue recognition on shipment; 2022 shipments were exclusively of non-distinct hubs, for which revenue was deferred.
- Units Deployed rose 32% to 719,691, but New Units Deployed fell 17% to 172,495. Units Booked declined 39% to 173,195, and booking value decreased 35% to $158.5 million.
- ARR increased to approximately $46.2 million from $32.3 million. SaaS net revenue retention was 105%; reported Smart Communities customer churn was 0.02%.
- Inventory declined to $41.6 million from $75.7 million. Operating cash flow turned positive, primarily reflecting lower inventory and deferred costs, partly offset by lower deferred revenue and accrued liabilities.
- Operating expenses fell 12%, including lower G&A, partly because 2022 included a $4.4 million asset impairment. The company reported an immaterial restatement of 2022 cash-flow classification: $3.2 million of capitalized software costs moved from operating to investing activities; total cash did not change.
Outlook, risks and unusual items
- No formal financial guidance for FY2024 is provided in the supplied filing text. Management expects continued investment in product development, including WiFi, and says R&D and certain costs of revenue may rise in absolute dollars. It expects lower future revenue contribution from amortization of legacy non-distinct hubs.
- Management cited improving supply-chain conditions and lower backlogs for Access Control and specialty locks, but warned of supplier concentration and reliance on single-source components, including Z-Wave chips and a Hub Device processor.
- Key demand risks include customer capital-spending delays, higher interest rates and macroeconomic uncertainty, competition and pricing pressure, slower construction, and customer redirection of spending toward solar/ESG projects. The business is seasonal, with deployments typically stronger in spring and summer.
- The company recorded $2.1 million of warranty expense in 2023. Its year-end warranty reserve was $2.2 million, including $864,000 for battery replacements and $410,000 for firmware and sensor-accuracy updates.
- A supplier dispute involving allegedly defective products is in discovery, with trial set for November 2024. The company recorded no loss-contingency accrual for this or other legal matters at year-end and said it did not expect a material effect, while acknowledging outcomes are uncertain.
- In August 2023, SmartRent entered a non-exclusive hardware fulfillment agreement with ADI; inventory transfers do not constitute revenue, and the company expects a positive future cash-flow effect. In March 2024, the board authorized up to $50 million in share repurchases; none had been made as of the filing.
- Cybersecurity threats, privacy regulation, AWS service concentration, product defects, and acquisition integration remain material risks. The company reported no cybersecurity threat that materially affected it during 2023.
Important facts for investors to verify
- Whether declining Units Booked and New Units Deployed indicate slower future hardware and installation demand, notwithstanding higher revenue and ARR.
- How much reported growth and margin improvement reflects the distinct Hub Device revenue-recognition change versus underlying unit economics and recurring SaaS growth.
- Cash burn, future capital requirements and compliance with the revolving facility’s minimum-cash or liquidity covenants; the $75 million facility is secured by substantially all company assets.
- The sustainability of gross-margin improvement, positive operating cash flow and the company’s progress toward profitability; FY2023 Adjusted EBITDA remained negative.
- Potential cash, reputation or product-liability effects of the supplier litigation and outstanding battery, firmware and sensor remediation obligations.
- Effects of the $50 million repurchase authorization on liquidity and share count, and potential dilution from equity awards. The filing reports 203.3 million shares outstanding at year-end and 203.9 million as of March 1, 2024.
The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor was not engaged to attest to internal-control effectiveness because SmartRent remained an emerging growth company.