SmartRent, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts below are in U.S. dollars; unless otherwise stated, figures are in millions. The comparative period is Q1 2021.
Business context
SmartRent provides connected-property hardware, installation services and cloud-based software for real estate owners, managers and residents. It reported 390,681 Units Deployed at quarter-end, versus 187,591 a year earlier, and 760,591 Committed Units. In March, SmartRent acquired property-operations SaaS provider SightPlan for approximately $135.0 million.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $37.4 | $19.2 |
| Cost of revenue | $42.1 | $19.6 |
| Gross profit (loss) | $(4.7) | $(0.4) |
| Gross margin | (12.7%) | (2.2%) |
| Operating expenses | $23.6 | $8.8 |
| Operating loss | $(28.3) | $(9.2) |
| Net loss | $(23.4) | $(9.3) |
| Operating cash flow | $(28.8) | $(7.9) |
| Adjusted EBITDA (non-GAAP) | $(23.1) | $(8.4) |
- Revenue grew 95% year over year: hardware revenue rose 78% to $22.1 million, professional services rose 92% to $6.9 million, and hosted services rose 164% to $8.3 million. Management attributed growth mainly to higher deployments and more active subscriptions.
- Costs grew faster than revenue. Professional-services cost rose 178% and total cost of revenue rose 115%, contributing to a wider gross loss and operating loss. Operating expenses increased 168%, including higher staffing, stock compensation, insurance and acquisition-related costs.
- Cash and cash equivalents were $278.0 million at March 31, 2022; total cash, cash equivalents and restricted cash were $286.4 million. Total assets were $599.9 million and total liabilities were $169.8 million. Current assets of $418.0 million exceeded current liabilities of $105.0 million.
- SmartRent had no borrowings outstanding under its $75 million senior secured revolving facility, due in December 2026. The facility is secured by substantially all company assets and includes financial covenants. The company said it was compliant at quarter-end.
- Investing cash outflow was $117.8 million, principally the SightPlan acquisition, net of cash acquired. Management said available resources, including undrawn revolver capacity, should fund operations for at least 12 months after the financial statements’ issuance, while noting additional capital may be needed before positive operating cash flow.
Material changes and unusual items
- New Units Deployed increased 58% to 51,196; Units Booked doubled to 91,482. ARR was approximately $16.3 million, compared with $5.3 million a year earlier.
- The SightPlan purchase-price allocation was preliminary and included $108.4 million of goodwill and $26.5 million of intangible assets. The acquisition contributed only from its March 22 closing date to reported Q1 results. Management expected SightPlan to add about $3 million to quarterly operating expenses beginning in Q2 and to increase SaaS revenue.
- The quarter’s $4.8 million income-tax benefit primarily reflected a valuation-allowance release associated with deferred tax liabilities recognized in the SightPlan acquisition; it reduced the reported net loss relative to the pre-tax loss.
- Deferred revenue increased to $116.8 million from $95.6 million at year-end. The company expected to recognize 50% within 12 months.
- Warranty allowance was $4.6 million, including $3.2 million for replacement of batteries identified as deficient in previously deployed hardware. SmartRent sued a supplier in March over defective products and stated it believed it had no further purchase commitment to that supplier. It had recorded no legal-loss accrual.
- One customer represented 22% of Q1 revenue and 33% of quarter-end receivables. Management also disclosed ongoing supply-chain constraints, including Z-wave chip shortages, production delays and customer project delays; it expected COVID-related disruption to continue through 2022.
Outlook, risks and controls
The filing provides no quantified full-year revenue or earnings guidance. Management expects continued investment and increases in cost of revenue, research and development, sales and marketing, and general and administrative expenses. It expects hosted-services costs to grow more slowly than hosted-services revenue. Risks discussed include supply-chain availability and tariffs, customer adoption and project timing, competition, execution of the growth strategy and acquisitions, privacy and regulatory compliance, and future liquidity and covenant requirements.
Management reported that disclosure controls and procedures were not effective as of December 31, 2021 and described material weaknesses in journal-entry review and IT segregation controls. The weakness related to non-routine transaction accounting was reported remediated; management aimed to remediate the remaining weaknesses during 2022. The filing states that the remaining remediation and testing were not yet complete.
Investor verification points
- Track whether revenue growth converts into improved gross margin and lower operating cash burn, particularly as deployment volumes increase.
- Verify SightPlan’s final purchase accounting, integration costs, acquired customer retention and contribution to recurring SaaS revenue.
- Monitor cash use, the undrawn revolver’s covenants and management’s stated liquidity runway against the pace of operating losses.
- Assess progress in resolving chip and other supply constraints, customer delays, and the defective-battery warranty exposure and supplier litigation.
- Check whether customer concentration changes and whether the material weaknesses in journal-entry review and IT controls are fully remediated.