Smartrent, Inc. quarterly report, Q2 FY2021

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Business context and reporting period

This is Fifth Wall Acquisition Corp. I’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021, filed August 13, 2021—not an operating-company 10-Q for SmartRent, Inc. Fifth Wall was a SPAC formed to complete a business combination and had not begun operating activities. It had agreed to merge with SmartRent.com, Inc.; subject to closing, Fifth Wall would change its name to SmartRent, Inc.

Financial results and position

  • Revenue and margins: No operating revenue was reported; the SPAC expected to generate operating revenue only after a business combination. Margins are not meaningful for this pre-combination entity.
  • Net loss: $3.0 million for Q2 2021 and $3.3 million for the six months ended June 30. Q2 included $2.97 million of general and administrative expense, $49,315 of franchise tax expense, and $4,065 of trust-account investment income. Six-month figures were $3.19 million, $97,584, and $16,945, respectively.
  • Cash flow: Six-month operating cash use was $2.20 million; investing cash use was $345.0 million, principally the trust deposit; financing cash inflow was $347.86 million. Cash at June 30 was $655,155.
  • Assets and liquidity: Total assets were $347.03 million, including $345.02 million in the trust account and $2.01 million in current assets. Current liabilities were $2.57 million. The balance sheet reports a $5.00 million stockholders’ equity balance, alongside $327.38 million of redeemable Class A shares classified as temporary equity.
  • Debt and obligations: No working-capital loans were outstanding and the approximately $118,000 sponsor note had been repaid in February. Deferred underwriting commissions of $12.075 million were payable only if a business combination closed. Management reported a working-capital deficit, but the filing gives inconsistent amounts: approximately $562,000 in the notes and approximately $467,000 in MD&A.

Material changes and transaction developments

The company completed its $345 million IPO in February 2021 and raised a further $10.475 million in a sponsor private placement. In April it signed a merger agreement with SmartRent.com, Inc. and subscription agreements for a $155 million PIPE at $10 per share, contingent on closing. The filing’s exhibits list a July 23, 2021 amendment to the merger agreement, after the reporting date. No 2020 quarterly results are presented for comparison; the SPAC began in November 2020 and completed its IPO in February 2021.

Outlook, risks, and unusual items

  • The proposed merger required customary approvals and conditions, including approval by both companies’ stockholders, expiration or termination of the HSR waiting period, and at least $5,000,001 in net tangible assets. There was no assurance the transaction would close.
  • Fifth Wall had until February 9, 2023 to complete a business combination, absent an extension; otherwise it generally would redeem public shares and liquidate.
  • Management said sponsor or affiliate funding was available, though not committed, to meet needs through the earlier of a business-combination closing or one year from the filing. This is important given limited operating cash and the reported working-capital deficit.
  • The company noted possible adverse effects of COVID-19 on its financial position or transaction search, with impact not determinable. It also warned that negative interest rates could reduce trust assets and potentially leave public shareholders with less than $10 per share on redemption.
  • Q2 general and administrative costs included approximately $2.2 million in legal fees. No material pending legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.

Important facts for investors to verify

  1. Confirm the filing entity and reporting period: this 10-Q is for Fifth Wall Acquisition Corp. I, not SmartRent’s operating business.
  2. Review the merger agreement, its July 23 amendment, PIPE terms, closing conditions, and subsequent transaction status.
  3. Reconcile the conflicting working-capital-deficit figures of approximately $562,000 and $467,000.
  4. Assess redemption levels, remaining trust funds, and the effects of the deferred underwriting commission and any transaction financing.
  5. Check the final merger/proxy disclosures for dilution, share conversion, lock-ups, and risks that could affect transaction completion or shareholder value.