SmartRent, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 10, 2023. Financial statements are unaudited. Unless stated otherwise, figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Business context
SmartRent provides real estate technology, combining smart-building hardware, installation services and cloud-based software for property owners, managers and residents. At quarter-end, it reported 602,556 units deployed, 880,810 committed units and 496 customers. The company’s SightPlan acquisition contributes to the year-over-year comparisons.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $65.1 million | $37.4 million |
| Gross profit (loss) | $9.1 million | $(4.7) million |
| Gross margin | 14.0% | (12.7%) |
| Operating loss | $(15.3) million | $(28.3) million |
| Net loss | $(13.2) million | $(23.4) million |
| Adjusted EBITDA, non-GAAP | $(8.5) million | $(23.1) million |
| Operating cash flow | $(11.4) million | $(28.8) million |
Revenue grew 74% year over year: hardware increased 69% to $37.3 million, professional services increased 85% to $12.8 million, and hosted services increased 80% to $15.0 million. Hosted services included $9.0 million of SaaS revenue and $6.0 million of hub amortization. Management attributed growth to more units deployed and active subscriptions, SightPlan, and higher revenue per unit. The improvement in gross margin reflects revenue growth outpacing cost of revenue, which rose 33% to $56.0 million.
Cash and cash equivalents were $203.9 million at March 31, down from $210.4 million at December 31, 2022; cash, cash equivalents and restricted cash totaled $204.4 million. Current assets were $357.5 million and current liabilities $123.4 million. The company had no borrowings under its $75 million secured revolving facility, which matures in December 2026. Total liabilities were $181.7 million. Management said available resources, including borrowing capacity, should fund operations for at least 12 months beyond issuance, while noting additional capital may be needed in the future.
Material changes and notable items
- Net loss narrowed by 44%, and operating cash use declined versus Q1 2022. Q1 2022 investing cash use included $117.5 million for SightPlan; Q1 2023 investing cash use was $0.03 million.
- Units deployed rose from 390,681 to 602,556; new units deployed increased 8% to 55,360. Units booked fell from 91,482 to 65,108, while committed units rose from 760,591 to 880,810.
- Annual recurring revenue was approximately $36.0 million, compared with $16.3 million a year earlier. This is a company-defined operating metric.
- Deferred revenue was $143.0 million, up from $139.9 million at year-end. Management expects to recognize 55% within 12 months. $39.7 million of deferred revenue related to contracts with termination-for-convenience provisions and is refundable at customer request.
- Q1 cash flows included approximately $6.0 million of payments related to SightPlan employee-contingent consideration; the cash flow statement separately reports a $1.7 million earnout payment related to the iQuue acquisition.
- Hardware warranty expense was $0.5 million. The warranty allowance was $1.9 million, including $1.4 million related to replacement of batteries identified as deficient in previously deployed devices.
Outlook, risks and contingencies
- No specific numerical revenue or earnings guidance was provided. Management expects cost of revenue to rise in absolute dollars, and expects hosted-services costs to grow more slowly than hosted-services revenue. It cited ongoing product development and new SaaS features as part of its strategy.
- Management reported improving supply-chain conditions and reduced backlogs for certain access products, but noted risks from suppliers, product quality, tariffs, inflation, interest rates, market adoption and customer demand.
- The company disclosed that its disclosure controls and procedures were not effective at March 31, 2023, following omissions in its 2022 Form 10-K: a missing management assessment of internal control over financial reporting and missing required language in officer certifications. It expected to restore effectiveness during 2023 without significant incremental cost. Management stated the current financial statements fairly present the company’s results in all material respects.
- A supplier dispute is in litigation, including claims and counterclaims concerning allegedly defective products and contract obligations. The company denied the supplier’s allegations; no loss contingency was accrued at quarter-end. The filing says the outcome and potential adjustment to any future accrual cannot be assured.
- SVB’s March 2023 closure did not cause a reported loss or material operational impact; the company said it regained access to all deposits. The filing nevertheless identifies banking-system disruption as a risk.
- The company reported no material impact from ordinary-course legal matters generally, no off-balance-sheet arrangements and compliance with its revolving facility covenants through the financial-statement issuance date.
Most important facts for investors to verify
- Whether revenue growth and improved gross margin persist, particularly as hardware and installation costs rise.
- Whether lower units booked translate into future deployments and revenue; distinguish binding booked units from partly non-binding committed units.
- How much SaaS growth is organic versus attributable to SightPlan, and whether ARR and hosted-services economics continue to improve.
- Operating cash burn, cash runway and any future financing needs, alongside the undrawn facility’s covenant and liquidity requirements.
- Progress on remediating disclosure-control deficiencies and the status and potential financial exposure of the supplier litigation and battery replacements.
- Customer concentration: one customer represented 16% of Q1 revenue and another 13%; the largest receivable concentrations were 15% and 18% at quarter-end.