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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-39991
SMARTRENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware |
|
85-4218526 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
8665 E. Hartford Drive, Suite 200 Scottsdale, Arizona (Address of Principal Executive Offices) |
|
85255 (Zip Code) |
(844) 479-1555
(Registrant’s Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Class A Common Stock, $0.0001 par value |
SMRT |
The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☒ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
|
|
|
Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of May 6, 2024, there were 201,828,020 shares of the registrant’s Class A Common Stock outstanding, par value $0.0001 per share.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” Words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” “aim” and similar expressions, and the negatives of these expressions, are intended to identify forward-looking statements. Forward-looking statements appear in a number of places throughout this Report and include statements regarding our intentions, beliefs, or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, and the markets in which we operate. Forward-looking statements contained in this Report include statements about:
The foregoing list may not contain all of the forward-looking statements made in this Report.
1
You should not rely on forward-looking statements as predictions of future events. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations and business strategy. We cannot assure you that the events and circumstances reflected in the forward-looking statements will occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A "Risk Factors" of this Report and in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 5, 2024. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
The forward-looking statements made in this Report relate only to events as of the date on which the statements were made. Except as required by law, we undertake no obligation to update any forward-looking statements for any reason after the date of this Report or to conform these statements to actual results or to changes in our expectations. You should read this Report and the documents that we reference in this Report and have filed as exhibits to this Report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (investors.smartrent.com), SEC filings, webcasts, press releases, and conference calls. We use these mediums to communicate with investors and the general public about our company, our products and services, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors, the media and others interested in our company to review the information that we post on our investor relations website.
SmartRent, the SmartRent logo and other trade names, trademarks or service marks of SmartRent appearing in this Report are the property of SmartRent. Trade names, trademarks and service marks of other companies appearing in this Report are the property of their respective holders.
Unless the context indicates otherwise, the terms “SmartRent,” the “Company,” “we,” “us,” and “our” as used in this Report refer to SmartRent, Inc., a Delaware corporation, and its subsidiaries taken as a whole.
2
PART I. Financial Information
Item 1 - Financial Statements (Unaudited)
SMARTRENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
204,701 |
|
|
$ |
215,214 |
|
Restricted cash, current portion |
|
|
247 |
|
|
|
495 |
|
Accounts receivable, net |
|
|
58,093 |
|
|
|
61,903 |
|
Inventory |
|
|
30,899 |
|
|
|
41,575 |
|
Deferred cost of revenue, current portion |
|
|
11,528 |
|
|
|
11,794 |
|
Prepaid expenses and other current assets |
|
|
14,009 |
|
|
|
9,359 |
|
Total current assets |
|
|
319,477 |
|
|
|
340,340 |
|
Property and equipment, net |
|
|
1,314 |
|
|
|
1,400 |
|
Deferred cost of revenue |
|
|
8,792 |
|
|
|
11,251 |
|
Goodwill |
|
|
117,268 |
|
|
|
117,268 |
|
Intangible assets, net |
|
|
26,280 |
|
|
|
27,249 |
|
Other long-term assets |
|
|
12,322 |
|
|
|
12,248 |
|
Total assets |
|
$ |
485,453 |
|
|
$ |
509,756 |
|
|
|
|
|
|
|
|
||
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
7,702 |
|
|
$ |
15,076 |
|
Accrued expenses and other current liabilities |
|
|
21,211 |
|
|
|
24,976 |
|
Deferred revenue, current portion |
|
|
78,077 |
|
|
|
77,257 |
|
Total current liabilities |
|
|
106,990 |
|
|
|
117,309 |
|
Deferred revenue |
|
|
41,491 |
|
|
|
45,903 |
|
Other long-term liabilities |
|
|
3,885 |
|
|
|
4,096 |
|
Total liabilities |
|
|
152,366 |
|
|
|
167,308 |
|
|
|
|
|
|
|
|
||
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
||
Convertible preferred stock, $0.0001 par value; 50,000 shares authorized as of March 31, 2024 and December 31, 2023; no shares of preferred stock issued and outstanding as of March 31, 2024 and December 31, 2023 |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
||
Stockholders' equity |
|
|
|
|
|
|
||
Class A common stock, $0.0001 par value; 500,000 shares authorized as of March 31, 2024 and December 31, 2023, respectively; 202,511 and 203,327 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively |
|
|
20 |
|
|
|
20 |
|
Additional paid-in capital |
|
|
630,878 |
|
|
|
628,156 |
|
Accumulated deficit |
|
|
(297,601 |
) |
|
|
(285,512 |
) |
Accumulated other comprehensive loss |
|
|
(210 |
) |
|
|
(216 |
) |
Total stockholders' equity |
|
|
333,087 |
|
|
|
342,448 |
|
Total liabilities, convertible preferred stock and stockholders' equity |
|
$ |
485,453 |
|
|
$ |
509,756 |
|
|
|
|
|
|
|
|
||
See accompanying Notes to Consolidated Financial Statements. |
|
|||||||
3
SMARTRENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except per share amounts)
|
|
For the three months ended March 31, |
|||||||
|
|
2024 |
|
|
2023 |
|
|
||
Revenue |
|
|
|
|
|
|
|
||
Hardware |
|
$ |
29,077 |
|
|
$ |
37,325 |
|
|
Professional services |
|
|
3,458 |
|
|
|
12,769 |
|
|
Hosted services |
|
|
17,954 |
|
|
|
14,985 |
|
|
Total revenue |
|
|
50,489 |
|
|
|
65,079 |
|
|
|
|
|
|
|
|
|
|
||
Cost of revenue |
|
|
|
|
|
|
|
||
Hardware |
|
|
18,684 |
|
|
|
32,572 |
|
|
Professional services |
|
|
6,448 |
|
|
|
17,634 |
|
|
Hosted services |
|
|
5,934 |
|
|
|
5,758 |
|
|
Total cost of revenue |
|
|
31,066 |
|
|
|
55,964 |
|
|
|
|
|
|
|
|
|
|
||
Operating expense |
|
|
|
|
|
|
|
||
Research and development |
|
|
8,362 |
|
|
|
7,231 |
|
|
Sales and marketing |
|
|
4,554 |
|
|
|
5,161 |
|
|
General and administrative |
|
|
16,666 |
|
|
|
12,017 |
|
|
Total operating expense |
|
|
29,582 |
|
|
|
24,409 |
|
|
|
|
|
|
|
|
|
|
||
Loss from operations |
|
|
(10,159 |
) |
|
|
(15,294 |
) |
|
|
|
|
|
|
|
|
|
||
Interest income, net |
|
|
2,409 |
|
|
|
2,016 |
|
|
Other income, net |
|
|
103 |
|
|
|
56 |
|
|
Loss before income taxes |
|
|
(7,647 |
) |
|
|
(13,222 |
) |
|
|
|
|
|
|
|
|
|
||
Income tax expense (benefit) |
|
|
45 |
|
|
|
(7 |
) |
|
Net loss |
|
$ |
(7,692 |
) |
|
$ |
(13,215 |
) |
|
Other comprehensive loss |
|
|
|
|
|
|
|
||
Foreign currency translation adjustment |
|
|
6 |
|
|
|
104 |
|
|
Comprehensive loss |
|
$ |
(7,686 |
) |
|
$ |
(13,111 |
) |
|
Net loss per common share |
|
|
|
|
|
|
|
||
Basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
Weighted-average number of shares used in computing net loss per share |
|
|
|
|
|
|
|
||
Basic and diluted |
|
|
203,485 |
|
|
|
198,334 |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
See accompanying Notes to Consolidated Financial Statements. |
|||||||||
4
SMARTRENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
|
|
Convertible Preferred Stock |
|
|
|
Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount (Par Value $0.0001) |
|
|
|
Shares |
|
|
Amount (Par Value $0.0001) |
|
|
Additional Paid In Capital |
|
|
Accumulated Deficit |
|
|
Accumulated other comprehensive (loss) |
|
|
Total Stockholders' Equity |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, December 31, 2023 |
|
|
- |
|
|
$ |
- |
|
|
|
|
203,327 |
|
|
$ |
20 |
|
|
$ |
628,156 |
|
|
$ |
(285,512 |
) |
|
$ |
(216 |
) |
|
$ |
342,448 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
3,281 |
|
|
|
- |
|
|
|
- |
|
|
|
3,281 |
|
Issuance of Class A common stock upon vesting of equity awards |
|
|
- |
|
|
|
- |
|
|
|
|
775 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tax withholdings related to net share settlement of equity awards |
|
|
- |
|
|
|
- |
|
|
|
|
(291 |
) |
|
|
- |
|
|
|
(898 |
) |
|
|
- |
|
|
|
- |
|
|
|
(898 |
) |
Exercise of options |
|
|
- |
|
|
|
- |
|
|
|
|
192 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Net settlement related to exercise of options |
|
|
- |
|
|
|
- |
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
ESPP purchases |
|
|
- |
|
|
|
- |
|
|
|
|
134 |
|
|
|
- |
|
|
|
337 |
|
|
|
- |
|
|
|
- |
|
|
|
337 |
|
Repurchases of Class A common stock |
|
|
|
|
|
|
|
|
|
(1,595 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4,397 |
) |
|
|
- |
|
|
|
(4,397 |
) |
||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,692 |
) |
|
|
- |
|
|
|
(7,692 |
) |
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
6 |
|
||||
Balance, March 31, 2024 |
|
|
- |
|
|
$ |
- |
|
|
|
|
202,511 |
|
|
$ |
20 |
|
|
$ |
630,878 |
|
|
$ |
(297,601 |
) |
|
$ |
(210 |
) |
|
$ |
333,087 |
|
5
SMARTRENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
|
|
Convertible Preferred Stock |
|
|
|
Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount (Par Value $0.0001) |
|
|
|
Shares |
|
|
Amount (Par Value $0.0001) |
|
|
Additional Paid In Capital |
|
|
Accumulated Deficit |
|
|
Accumulated other comprehensive (loss) income |
|
|
Total Stockholders' Equity |
|
||||||||
Balance, December 31, 2022 |
|
|
- |
|
|
$ |
- |
|
|
|
|
198,525 |
|
|
$ |
20 |
|
|
$ |
615,281 |
|
|
$ |
(250,925 |
) |
|
$ |
(176 |
) |
|
$ |
364,200 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
3,680 |
|
|
|
- |
|
|
|
- |
|
|
|
3,680 |
|
||
Issuance of Class A common stock upon vesting of equity awards |
|
|
- |
|
|
|
- |
|
|
|
|
751 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tax withholdings related to net share settlement of equity awards |
|
|
- |
|
|
|
- |
|
|
|
|
(246 |
) |
|
|
- |
|
|
|
(661 |
) |
|
|
- |
|
|
|
- |
|
|
|
(661 |
) |
Exercise of options |
|
|
- |
|
|
|
- |
|
|
|
|
151 |
|
|
|
- |
|
|
|
71 |
|
|
|
- |
|
|
|
- |
|
|
|
71 |
|
ESPP purchases |
|
|
- |
|
|
|
- |
|
|
|
|
176 |
|
|
|
- |
|
|
|
438 |
|
|
|
- |
|
|
|
- |
|
|
|
438 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,215 |
) |
|
|
- |
|
|
|
(13,215 |
) |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
104 |
|
||||||
Balance, March 31, 2023 |
|
|
- |
|
|
$ |
- |
|
|
|
|
199,357 |
|
|
$ |
20 |
|
|
$ |
618,809 |
|
|
$ |
(264,140 |
) |
|
$ |
(72 |
) |
|
$ |
354,617 |
|
6
SMARTRENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net loss |
|
$ |
(7,692 |
) |
|
$ |
(13,215 |
) |
Adjustments to reconcile net loss to net cash used by operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
1,501 |
|
|
|
1,254 |
|
Provision for warranty expense |
|
|
(552 |
) |
|
|
- |
|
Non-cash lease expense |
|
|
375 |
|
|
|
299 |
|
Stock-based compensation related to acquisition |
|
|
- |
|
|
|
109 |
|
Stock-based compensation |
|
|
3,281 |
|
|
|
3,571 |
|
Compensation expense related to acquisition |
|
|
137 |
|
|
|
1,625 |
|
Change in fair value of earnout related to acquisition |
|
|
80 |
|
|
|
141 |
|
Non-cash interest expense |
|
|
39 |
|
|
|
32 |
|
Provision for excess and obsolete inventory |
|
|
96 |
|
|
|
(60 |
) |
Provision for doubtful accounts |
|
|
1,181 |
|
|
|
(89 |
) |
Non-cash legal accrual (Note 12 "Commitments and Contingencies") |
|
|
4,955 |
|
|
|
- |
|
Change in operating assets and liabilities |
|
|
|
|
|
|
||
Accounts receivable |
|
|
2,701 |
|
|
|
3,483 |
|
Inventory |
|
|
5,612 |
|
|
|
8,949 |
|
Deferred cost of revenue |
|
|
2,726 |
|
|
|
3,294 |
|
Prepaid expenses and other assets |
|
|
349 |
|
|
|
(4,577 |
) |
Accounts payable |
|
|
(7,448 |
) |
|
|
(6,661 |
) |
Accrued expenses and other liabilities |
|
|
(6,673 |
) |
|
|
(11,129 |
) |
Deferred revenue |
|
|
(3,591 |
) |
|
|
3,011 |
|
Lease liabilities |
|
|
(414 |
) |
|
|
(327 |
) |
Net cash used in operating activities |
|
|
(3,337 |
) |
|
|
(10,290 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
(34 |
) |
|
|
(27 |
) |
Capitalized software costs |
|
|
(922 |
) |
|
|
(1,142 |
) |
Net cash used in investing activities |
|
|
(956 |
) |
|
|
(1,169 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Payments for repurchases of Class A common stock |
|
|
(4,373 |
) |
|
|
- |
|
Proceeds from options exercise |
|
|
2 |
|
|
|
71 |
|
Proceeds from ESPP purchases |
|
|
337 |
|
|
|
438 |
|
Taxes paid related to net share settlements of stock-based compensation awards |
|
|
(898 |
) |
|
|
(661 |
) |
Payment of earnout related to acquisition |
|
|
(1,530 |
) |
|
|
(1,702 |
) |
Net cash used in financing activities |
|
|
(6,462 |
) |
|
|
(1,854 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(6 |
) |
|
|
27 |
|
Net decrease (increase) in cash, cash equivalents, and restricted cash |
|
|
(10,761 |
) |
|
|
(13,286 |
) |
Cash, cash equivalents, and restricted cash - beginning of period |
|
|
215,709 |
|
|
|
217,713 |
|
Cash, cash equivalents, and restricted cash - end of period |
|
$ |
204,948 |
|
|
$ |
204,427 |
|
|
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
204,701 |
|
|
$ |
203,933 |
|
Restricted cash, current portion |
|
|
247 |
|
|
|
247 |
|
Restricted cash, included in other long-term assets |
|
|
- |
|
|
|
247 |
|
Total cash, cash equivalents, and restricted cash |
|
$ |
204,948 |
|
|
$ |
204,427 |
|
|
|
|
|
|
|
|
||
See accompanying Notes to Consolidated Financial Statements. |
|
|||||||
7
SMARTRENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(in thousands)
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Interest paid |
|
$ |
72 |
|
|
$ |
70 |
|
Cash paid for income taxes |
|
$ |
6 |
|
|
$ |
- |
|
Schedule of non-cash investing and financing activities |
|
|
|
|
|
|
||
Accrued property and equipment at period end |
|
$ |
81 |
|
|
$ |
8 |
|
Stock repurchases excise tax charged to equity |
|
$ |
24 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
||
See accompanying Notes to Consolidated Financial Statements. |
|
|||||||
8
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTE 1. DESCRIPTION OF BUSINESS
SmartRent, Inc., and its wholly owned subsidiaries (collectively, the "Company"), is an enterprise real estate technology company that provides comprehensive management software and applications designed for property owners, managers and residents. Its suite of products and services, which includes both smart building hardware and cloud-based software-as-a-service ("SaaS") solutions, provides seamless visibility and control over real estate assets. The Company’s platform lowers operating costs, increases revenues, mitigates operational friction and protects assets for owners and operators, while providing a differentiated, elevated living experience for residents. The Company is headquartered in Scottsdale, Arizona.
The Company, formerly known as Fifth Wall Acquisition Corp. I ("FWAA"), was originally incorporated in Delaware on November 23, 2020, as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On February 9, 2021, the Company consummated its initial public offering, following which its shares began trading on the Nasdaq National Market. On April 21, 2021, FWAA entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with SmartRent.com, Inc. (“Legacy SmartRent”) and Einstein Merger Corp. I, a wholly owned subsidiary of FWAA. On August 24, 2021, the transactions contemplated by the Merger Agreement (the “Business Combination”) were consummated. In connection with the closing of the Business Combination, FWAA changed its name to SmartRent, Inc. and its shares began trading on the New York Stock Exchange under the symbol “SMRT.” As a result of the Business Combination, SmartRent, Inc. became the owner, directly or indirectly, of all of the equity interests of Legacy SmartRent and its subsidiaries.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the consolidated accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. The Consolidated Balance Sheet at December 31, 2023 has been derived from the audited consolidated financial statements as of December 31, 2023, as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 5, 2024. Certain notes and other information have been condensed or omitted from the interim financial statements presented herein. The financial data and other information disclosed in these Notes to Consolidated Financial Statements related to the three months ended March 31, 2024 and 2023 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of the Company’s financial condition and results of operations and cash flows for the interim period presented. The results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024 or any future period.
9
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Immaterial Restatement of Prior Period Financial Statements
Subsequent to the issuance of the Company’s financial statements for the three months ended March 31, 2023, the Company’s management identified an error in the classification of cash paid for capitalized software costs that had previously been included in operating activities but should have been included in investing activities within the statement of cash flows. As a result, the accompanying Consolidated Statement of Cash Flows for the three months ended March 31, 2023 has been restated from amounts previously reported. Management determined that the error was not material to previously issued financial statements. The following table presents the effects of the restatement to the Company’s Consolidated Statement of Cash Flows for the three months ended March 31, 2023.
|
As Previously Reported |
|
|
Adjustment |
|
|
As Restated |
|
|||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|||
Change in prepaid expenses and other Assets |
$ |
(5,719 |
) |
|
$ |
1,142 |
|
|
$ |
(4,577 |
) |
Net cash used in operating activities |
|
(11,432 |
) |
|
|
1,142 |
|
|
|
(10,290 |
) |
|
|
|
|
|
|
|
|
|
|||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|||
Capitalized software costs |
|
- |
|
|
|
(1,142 |
) |
|
|
(1,142 |
) |
Net cash used in investing activities |
$ |
(27 |
) |
|
$ |
(1,142 |
) |
|
$ |
(1,169 |
) |
Foreign Currency
SmartRent, Inc.'s functional and reporting currency is United States Dollars (“USD”) and its foreign subsidiaries have a functional currency other than USD. Financial position and results of operations of the Company's international subsidiaries are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at the end of each reporting period. The Company's international subsidiaries' statements of operations accounts are translated at the weighted-average rates of exchange prevailing during each reporting period. Translation adjustments arising from the use of differing currency exchange rates from period to period are included in accumulated other comprehensive loss in stockholders’ equity. Gains and losses on foreign currency exchange transactions, as well as translation gains or losses on transactions denominated in currencies other than an entity’s functional currency, are reflected in the Consolidated Statements of Operations and Comprehensive Loss.
Liquidity
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business. Management believes that currently available resources will provide sufficient funds to enable the Company to meet its obligations for at least one year past the issuance date of these financial statements. The Company may need to raise additional capital through equity or debt financing to fund future operations until it generates positive operating cash flows. There can be no assurance that such additional equity or debt financing will be available on terms acceptable to the Company, or at all.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expense during the reporting period. These estimates made by management include valuing the Company’s inventories on hand, allowance for doubtful accounts, intangible assets, earnout liabilities, warranty liabilities, stand-alone selling price of items sold, and certain assumptions used in the valuation of equity awards, including the estimated fair value of common stock warrants, and assumptions used to estimate the fair value of stock-based compensation expense. Actual results could differ materially from those estimates.
10
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Net Loss Per Share Attributable to Common Stockholders
The Company follows the two-class method to include the dilutive effect of securities that participated in dividends, if and when declared, when computing net income per common share. The two-class method determines net income per common share for each class of common stock and participating securities according to dividends, if and when declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The anti-dilutive effect of potentially dilutive securities is excluded from the computation of net loss per share because inclusion of such potentially dilutive shares on an as-converted basis would have been anti-dilutive.
The Company considers any unvested common shares subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of unvested shares of common stock subject to repurchase do not have a contractual obligation to share in losses.
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase and any shares issuable by the exercise of warrants for nominal consideration.
Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports a net loss, the diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because inclusion of such potentially dilutive shares on an as-converted basis would have been anti-dilutive.
Cash and Cash Equivalents
The Company considers financial instruments with an original maturity of three months or less to be cash and cash equivalents. The Company maintains cash and cash equivalents at multiple financial institutions, and, at times, these balances exceed federally insurable limits. As a result, there is a concentration of credit risk related to amounts on deposit. The Company believes any risks are mitigated through the size and security of the financial institution at which its cash balances are held.
Restricted Cash
The Company considers cash to be restricted when withdrawal or general use is legally restricted. The Company reports the current portion of restricted cash as a separate item in the Consolidated Balance Sheets and the non-current portion is a component of other long-term assets in the Consolidated Balance Sheets. The Company determines current or non-current classification based on the expected duration of the restriction.
11
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Accounts Receivable, net
Accounts receivable consist of balances due from customers resulting from the sale of hardware, professional services and Hosted Services. Accounts receivable are recorded at invoiced amounts, are non-interest bearing and are presented net of the associated allowance for doubtful accounts on the Consolidated Balance Sheets. The allowance for doubtful accounts totaled $2,542 and $1,361 as of March 31, 2024, and December 31, 2023, respectively. The provision for doubtful accounts is recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss; the provision for doubtful accounts totaled $1,181 and $(89) for the three months ended March 31, 2024 and 2023, respectively. There were no material write-offs of accounts receivable for the three months ended March 31, 2024 and 2023. The Company evaluates the collectability of the accounts receivable balances and has determined the allowance for doubtful accounts based on a combination of factors, which include the nature of the relationship and the prior collection experience the Company has with the account and an evaluation for current and projected economic conditions as of the Consolidated Balance Sheets date. Accounts receivable determined to be uncollectible are charged against the allowance for doubtful accounts. Actual collections of accounts receivable could differ from management’s estimates.
Significant Customers
A significant customer represents 10% or more of the Company’s total revenue or net accounts receivable balance at each respective Consolidated Balance Sheet date. Revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable for each significant customer follows.
|
|
Accounts Receivable |
|
Revenue |
||||
|
|
As of |
|
For the three months ended |
||||
|
|
March 31, 2024 |
|
December 31, 2023 |
|
March 31, 2024 |
|
March 31, 2023 |
Customer A |
|
* |
|
* |
|
* |
|
16% |
Customer B |
|
20% |
|
18% |
|
* |
|
13% |
Customer C |
|
13% |
|
13% |
|
* |
|
* |
Customer D |
|
19% |
|
* |
|
25% |
|
* |
* Total less than 10% for the respective period
Inventory
Inventories, which are comprised of smart home equipment and components, are stated at the lower of cost or net realizable value with cost determined under the first-in, first-out method. The Company adjusts the inventory balance based on anticipated obsolescence, usage and historical write-offs.
In August 2023 the Company entered into a Product Sales Agreement (the "Agreement") with ADI Global Distribution ("ADI"), pursuant to which, ADI agreed to serve as the Company's non-exclusive hardware fulfillment partner throughout the United States, Canada, and Puerto Rico. The Company is subject to certain buy-back provisions relating to the transferred inventory. As of March 31, 2024 and December 31, 2023, the Company recorded $631 and $851 in connection with the buy back provision, which is recorded in other current liabilities on the Consolidated Balance Sheets.
12
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Goodwill
Goodwill represents the excess of cost over net assets of the Company's completed business combinations. The Company tests for potential impairment of goodwill on an annual basis as of September 30 to determine if the carrying value is less than the fair value. The Company will conduct additional tests between annual tests if there are indications of potential goodwill impairment. No goodwill impairment has been recorded as of March 31, 2024 and December 31, 2023.
Intangible Assets
The Company recorded intangible assets with finite lives, including customer relationships and developed technology, as a result of acquisitions made in prior years. Intangible assets are amortized on a straight-line basis based on their estimated useful lives. The estimated useful life of these intangible assets are as follows.
|
|
Estimated useful life (in years) |
|
Trade name |
|
5 |
|
Customer relationships |
|
10 - 13 |
|
Developed technology |
|
1 - 7 |
|
Warranty Allowance
The Company provides its customers with limited-service warranties associated with product replacement and related services. The warranty typically lasts one year following the installation of the product. The estimated warranty costs, which are expensed at the time of sale and included in hardware cost of revenue, are based on the results of product testing, industry and historical trends and warranty claim rates incurred and are adjusted for identified current or anticipated future trends as appropriate. Actual warranty claim costs could differ from these estimates. For the three months ended March 31, 2024 and 2023, warranty expense included in cost of hardware revenue was $(93) and $540, respectively. As of March 31, 2024, and December 31, 2023, the Company’s warranty allowance was $1,570 and $2,215, respectively, and is recorded in other current liabilities on the Consolidated Balance Sheets.
During the year ended December 31, 2020, the Company identified a deficiency with batteries contained in certain hardware sold and has included an estimate of the expected cost to remove these batteries, which were acquired from one supplier, in its warranty allowance. As of March 31, 2024, and December 31, 2023, $864 and $864, respectively, is included in the Company’s warranty allowance related to the remaining cost of replacement for this identified battery deficiency.
During the year ended December 31, 2023, the Company identified a deficiency with the firmware and sensor accuracy of certain hardware sold and has included an estimate of the expected cost to update the related firmware and hardware. As of March 31, 2024 and December 31, 2023, $30 and $410, respectively, is included in the Company’s warranty allowance related to the remaining cost to perform the firmware and hardware updates.
Fair Value of Financial Instruments
Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities subject to on-going fair value measurement are categorized and disclosed into one of three categories depending on observable or unobservable inputs employed in the measurement. These two types of inputs have created the following fair value hierarchy.
Level 1: Quoted prices in active markets that are accessible at the measurement date for assets and liabilities.
Level 2: Observable prices that are based on inputs not quoted in active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
13
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The Company recognizes transfers between levels of the hierarchy based on the fair values of the respective financial measurements at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2024 or 2023. The carrying amounts of the Company’s accounts receivable, accounts payable and accrued and other liabilities approximate their fair values due to their short maturities.
Revenue Recognition
The Company derives its revenue primarily from sales of systems that consist of hardware devices, professional services and Hosted Services to assist property owners and property managers with visibility and control over assets, while providing all-in-one home control offerings for residents. Revenue is recorded when control of these products and services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those products and services.
The Company may enter into contracts that contain multiple distinct performance obligations. The transaction price for a typical arrangement includes the price for: smart home hardware devices, professional services, and a subscription for use of the Company's software (“Hosted Services”). Included in these contracts are centrally connected devices ("Hub Devices"), which integrate the Company’s enterprise software with third party smart devices. Historically, the Company only sold non-distinct Hub Devices which only functioned with a subscription to its software ("non-distinct Hub Devices"). During the year ended December 31, 2022, the Company began shipping Hub Devices with features that function independently from its software subscription ("distinct Hub Devices"). Non-distinct Hub Devices are recognized as a single performance obligation with the Company’s software in Hosted Services revenue, while distinct Hub Devices are recognized as a separate performance obligation in hardware revenue. When distinct Hub Devices are included in a contract, the Hosted Services performance obligation is comprised of only the Company’s software.
The Company considers delivery for each of the hardware, professional services and Hosted Services to be separate performance obligations. The hardware performance obligation includes the delivery of smart home hardware and distinct Hub Devices. The professional services performance obligation includes the services to install the hardware. The Hosted Services performance obligation provides a subscription that allows the customer access to software during the contracted-use term when the promised service is provided to the customer. Also included in the hosted service performance obligation are non-distinct Hub Devices that only function with a subscription to the Company’s software.
Payments are received by the Company by credit card, check or automated clearing house payments and payment terms are determined by individual contracts and generally range from due upon receipt to net 30 days. Taxes collected from customers and remitted to governmental authorities are not included in reported revenue. Payments received from customers in advance of revenue recognition are reported as deferred revenue. The Company has elected the following practical expedients following the adoption of ASC 606:
14
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Timing of Revenue Recognition is as follows.
Hardware revenue results from the direct sale to customers of hardware smart home devices, which devices generally consist of a distinct Hub Device, door locks, thermostats, sensors, and light switches. These hardware devices provide features that function independently without subscription to the Company's software, and the performance obligation for hardware revenue is considered satisfied, and revenue is recognized at a point in time when the hardware device is shipped to the customer. The Company generally provides a one-year warranty period on hardware devices that are delivered and installed. The cost of the warranty is recorded as a component of cost of hardware revenue.
Professional services revenue results from installing smart home hardware devices, which does not result in significant customization of the product and is generally performed over a period from two to four weeks. Installations can be performed by the Company's employees, contracted out to a third-party with the Company's employees managing the engagement, or the customer can perform the installation themselves. The Company’s professional services contracts are generally arranged on a fixed price basis, and revenue is recognized over the period in which the installations are completed.
Hosted Services revenue primarily consists of monthly subscription revenue generated from fees that provide customers access to one or more of the Company’s software applications including access controls, asset monitoring and related services. These subscription arrangements have contractual terms ranging from one-month to eight-years and include recurring fixed plan subscription fees. Arrangements with customers do not provide the customer with the right to take possession of the Company’s software at any time. Customers are granted continuous access to the services over the contractual period. Accordingly, fees collected for subscription services are recognized on a straight-line basis over the contract term beginning on the date the subscription service is made available to the customer. Variable consideration is immaterial.
Also included in Hosted Services revenue are non-distinct Hub Devices. The Company considers those devices and hosting services subscription a single performance obligation and therefore defers the recognition of revenue for those devices upon shipment to the customer. The revenue is then amortized over its average service life. When a non-distinct Hub Device is included in a contract that does not require a long-term service commitment, the customer obtains a material right to renew the service because purchasing a new device is not required upon renewal. If a contract contains a material right, proceeds are allocated to the material right and recognized over the period of benefit, which is generally four years.
15
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Cost of Revenue
Cost of revenue consists primarily of direct costs of products and services together with the indirect cost of estimated warranty expense and customer care and support over the life of the service arrangement.
Cost of hardware revenue consists primarily of direct costs of products, such as the distinct Hub Device, hardware devices, supplies purchased from third-party providers, and shipping costs, together with indirect costs related to warehouse facilities (including depreciation and amortization of capitalized assets and right-of-use assets), infrastructure costs, personnel-related costs associated with the procurement and distribution of products and warranty expenses together with the indirect cost of customer care and support.
Cost of professional services revenue consists primarily of direct costs related to personnel-related expenses for installation and supervision of installation services, general contractor expenses and travel expenses associated with the installation of products and indirect costs that are also primarily personnel-related expenses in connection with training of and ongoing support for customers and residents.
Cost of Hosted Services revenue consists primarily of the amortization of the direct costs of non-distinct Hub Devices, consistent with the revenue recognition period noted above in "Hosted Services Revenue", and infrastructure costs associated with providing software applications together with the indirect cost of customer care and support over the life of the service arrangement.
Deferred Cost of Revenue
Deferred cost of revenue includes all direct costs included in cost of revenue for Hosted Services and non-distinct Hub Devices that have been deferred to future periods.
Stock-Based Compensation
Our stock-based compensation consists of stock options and restricted stock units ("RSUs") granted to our employees and directors during the periods presented. Stock-based awards are measured based on the grant date fair value. We estimate the fair value of stock option awards on the grant date using the Black-Scholes option-pricing model. The fair value of RSUs is based on the grant date fair value of the stock price. The fair value of these awards is recognized as compensation expense on a straight-line basis over the requisite service period in which the awards are expected to vest. Forfeitures are recognized as they occur by reversing previously recognized compensation expense.
The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield, and the expected stock price volatility over the expected term and forfeitures, which are recognized as they occur. For all stock options granted, we calculated the expected term using the simplified method for “plain vanilla” stock option awards.
The grant date fair value is also utilized with respect to RSUs with performance and service conditions to vest. For RSUs with a performance condition, based on a liquidity event, as well as a service condition to vest, no compensation expense is recognized until the performance condition has been satisfied. Subsequent to the liquidity event, compensation expense is recognized to the extent the requisite service period has been completed and compensation expense thereafter is recognized on an accelerated attribution method. Under the accelerated attribution method, compensation expense is recognized over the remaining requisite service period for each service condition tranche as though each tranche is, in substance, a separate award. In August 2021, the Company completed the merger with FWAA, which met the liquidity event vesting condition and triggered the recognition of compensation expense for RSUs for which the time-based vesting condition had been satisfied or partially satisfied.
16
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Research and Development
These expenses relate to the research and development of new products and services and enhancements to the Company’s existing product offerings. The Company accounts for the cost of research and development by capitalizing qualifying costs, which are incurred during the product development stage, and amortizing those costs over the product’s estimated useful life. The Company expenses preliminary evaluation costs as they are incurred before the product development stage, as well as post development implementation and operation costs, such as training, maintenance and minor upgrades. As of March 31, 2024, the Company had capitalized $8,027 of research and development costs in other long-term assets on the Consolidated Balance Sheets, of which $6,789 remained to be amortized. As of December 31, 2023, the Company had capitalized $7,064 of research and development costs in other long-term assets on the Consolidated Balance Sheets, of which $6,163 remains to be amortized. During the three months ended March 31, 2024 and 2023, $350 and $82 of amortization expense related to capitalized research and development was recorded in research and development expenses on the Consolidated Statements of Operations and Comprehensive Loss, respectively.
Advertising
Advertising costs are expensed as incurred and recorded as a component of sales and marketing expense. The Company incurred $83 and $152 of advertising expenses for the three months ended March 31, 2024 and 2023, respectively.
Segments
The Company has one operating segment and one reportable segment as its chief operating decision maker, who is its Chief Executive Officer, reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s principal operations are in the United States and the Company’s long-lived assets are located primarily within the United States. The Company held $7,994 and $8,280 of assets outside the United States as of March 31, 2024, and December 31, 2023, respectively.
Recent Accounting Guidance
Recent Accounting Guidance Not Yet Adopted
In November 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU updates the annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is also permitted. The Company is currently evaluating the potential effect that the updated standard will have on the consolidated financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09 - Income Taxes (Topics 740): Improvements to Income Tax Disclosures. This ASU requires the expansion of disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the potential effect that the updated standard will have on the consolidated financial statement disclosures.
Recently Adopted Accounting Guidance
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” which modifies the measurement of expected credit losses of certain financial instruments. This update is effective for fiscal years beginning after December 15, 2022 and must be applied using a modified-retrospective approach, with early adoption permitted. The requirement to disclose credit quality indicators by year or origination is not applicable to trade receivables due in one year or less that result from revenue transactions within the scope of ASC 606. The Company adopted ASU 2016-13 effective January 1, 2023 using the modified-retrospective approach. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
17
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTE 3. FAIR VALUE MEASUREMENTS AND FAIR VALUE OF INSTRUMENTS
The following tables display the carrying values and fair values of financial instruments.
|
|
|
|
As of |
|
|||||||||||||||||||||
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
Assets on the Consolidated Balance Sheets |
|
|
|
Carrying Value |
|
|
Unrealized |
|
|
Fair |
|
|
Carrying |
|
|
Unrealized Losses |
|
|
Fair |
|
||||||
Cash and cash equivalents |
|
Level 1 |
|
$ |
204,701 |
|
|
$ |
- |
|
|
$ |
204,701 |
|
|
$ |
215,214 |
|
|
$ |
- |
|
|
$ |
215,214 |
|
Restricted cash |
|
Level 1 |
|
|
247 |
|
|
|
- |
|
|
|
247 |
|
|
|
495 |
|
|
|
- |
|
|
|
495 |
|
Total |
|
|
|
$ |
204,948 |
|
|
$ |
- |
|
|
$ |
204,948 |
|
|
$ |
215,709 |
|
|
$ |
- |
|
|
$ |
215,709 |
|
The Company reports the current portion of restricted cash as a separate item in the Consolidated Balance Sheets and the non-current portion is a component of other long-term assets in the Consolidated Balance Sheets.
|
|
|
|
As of |
|
|||||||||||||
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
Liabilities on the Consolidated Balance Sheets |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Acquisition earnout payment |
|
Level 3 |
|
$ |
2,800 |
|
|
$ |
2,800 |
|
|
$ |
4,250 |
|
|
$ |
4,250 |
|
Total liabilities |
|
|
|
$ |
2,800 |
|
|
$ |
2,800 |
|
|
$ |
4,250 |
|
|
$ |
4,250 |
|
In December 2021, the Company purchased all of the outstanding equity interests of iQuue, LLC ("iQuue"). The Company reports the current portion of the acquisition earnout payment as a component of other current liabilities in the Consolidated Balance Sheets and the non-current portion is a component of other long-term liabilities on the Consolidated Balance Sheets. Earnout payments related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The changes in the fair value of the Company's Level 3 liabilities for the three months ended March 31, 2024 and year ended December 31, 2023 are as follows.
|
|
|
|
As of |
|
|||||
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Balance at beginning of period |
|
|
|
$ |
4,250 |
|
|
$ |
5,540 |
|
Payment of earnout in connection with the iQuue acquisition |
|
|
|
|
(1,530 |
) |
|
|
(1,702 |
) |
Change in fair value of earnout |
|
|
|
|
80 |
|
|
|
412 |
|
Balance at end of period |
|
|
|
$ |
2,800 |
|
|
$ |
4,250 |
|
The fair value of the earnout payment is measured on a recurring basis at each reporting date. The following inputs and assumptions were used in the Monte Carlo simulation model to estimate the fair value of the earnout payment as of March 31, 2024 and December 31, 2023. During the three months ended March 31, 2024, the Company determined there was an $80 increase in the fair value of the earnout, primarily due to a decreased payment term as the Company is three months closer to the payout date. During the three months ended March 31, 2023, there was a $141 increase in the fair value of the earnout, primarily due to a change in the discount rate. The Company recorded these adjustments in general and administrative expense on the Consolidated Statement of Operations and Comprehensive Loss. The following table sets forth the weighted-average assumptions used to estimate the fair value of the earnout payment as of March 31, 2024 and December 31, 2023.
|
|
|
|
As of |
|
|||||
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Discount Rate |
|
|
|
|
10.90 |
% |
|
|
10.50 |
% |
Volatility |
|
|
|
|
40.00 |
% |
|
|
42.00 |
% |
18
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTE 4. REVENUE AND DEFERRED REVENUE
Disaggregation of Revenue
In the following tables, revenue is disaggregated by primary geographical market, type of revenue, and SmartRent Solution.
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue by geography |
|
|
|
|
|
|
||
United States |
|
$ |
50,301 |
|
|
$ |
64,933 |
|
International |
|
|
188 |
|
|
|
146 |
|
Total revenue |
|
$ |
50,489 |
|
|
$ |
65,079 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue by type |
|
|
|
|
|
|
||
Hardware |
|
$ |
29,077 |
|
|
$ |
37,325 |
|
Professional services |
|
|
3,458 |
|
|
|
12,769 |
|
Hosted services |
|
|
17,954 |
|
|
|
14,985 |
|
Total revenue |
|
$ |
50,489 |
|
|
$ |
65,079 |
|
|
For the three months ended March 31, |
|
|||||||||||||||||||||||
|
2024 |
|
|
2023 |
|
||||||||||||||||||||
|
(dollars in thousands) |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
SmartRent Solutions |
Hardware |
|
Professional Services |
|
Hosted Services |
|
Total 2024 |
|
|
Hardware |
|
Professional Services |
|
Hosted Services |
|
Total 2023 |
|
||||||||
Smart Communities Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Smart Apartments |
$ |
27,429 |
|
$ |
2,713 |
|
$ |
14,072 |
|
$ |
44,214 |
|
|
$ |
36,392 |
|
$ |
11,691 |
|
$ |
11,570 |
|
$ |
59,653 |
|
Access Control |
|
1,015 |
|
|
561 |
|
|
349 |
|
|
1,925 |
|
|
|
778 |
|
|
1,051 |
|
|
153 |
|
|
1,982 |
|
Community WiFi |
|
137 |
|
|
16 |
|
|
180 |
|
|
333 |
|
|
|
5 |
|
|
- |
|
|
156 |
|
|
161 |
|
Other |
|
496 |
|
|
168 |
|
|
492 |
|
|
1,156 |
|
|
|
150 |
|
|
27 |
|
|
372 |
|
|
549 |
|
Smart Operations Solutions |
|
- |
|
|
- |
|
|
2,861 |
|
|
2,861 |
|
|
|
- |
|
|
- |
|
|
2,734 |
|
|
2,734 |
|
Total Revenue |
$ |
29,077 |
|
$ |
3,458 |
|
$ |
17,954 |
|
$ |
50,489 |
|
|
$ |
37,325 |
|
$ |
12,769 |
|
$ |
14,985 |
|
$ |
65,079 |
|
19
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Remaining Performance Obligations
Advance payments received from customers are recorded as deferred revenue and are recognized upon the completion of related performance obligations over the period of service. Advance payments for non-distinct Hub Devices were recorded as deferred revenue and recognized over their average in-service life. Advance payments received from customers for subscription services are recorded as deferred revenue and recognized over the term of the subscription. A summary of the change in deferred revenue is as follows.
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Deferred revenue balance as of January 1 |
|
$ |
123,159 |
|
|
$ |
139,948 |
|
Revenue recognized from balance of deferred revenue |
|
|
(8,656 |
) |
|
|
(14,505 |
) |
Revenue deferred during the period |
|
|
7,075 |
|
|
|
19,593 |
|
Revenue recognized from revenue originated |
|
|
(2,010 |
) |
|
|
(2,067 |
) |
Deferred revenue balance as of March 31 |
|
|
119,568 |
|
|
|
142,969 |
|
As of March 31, 2024, the Company expects to recognize 59% of its total deferred revenue within the next 12 months, 20% of its total deferred revenue between 13 and 36 months, 19% between 37 and 60 months, and the remainder is expected to be recognized beyond five years. Contracts may contain termination for convenience provisions that allow the Company, customer, or both parties the ability to terminate for convenience, either at any time or upon providing a specified notice period, without a substantive termination penalty. Included in deferred revenue as of March 31, 2024 and 2023 are $31,178 and $39,656, respectively, of prepaid fees related to contracts with termination for convenience provisions which are refundable at the request of the customer. Based on the Company's historical experience, customers do not typically exercise their termination for convenience rights.
Deferred cost of revenue includes all direct costs included in cost of revenue that have been deferred to future periods.
NOTE 5. OTHER BALANCE SHEET INFORMATION
Inventory consisted of the following.
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Finished Goods |
|
$ |
30,509 |
|
|
$ |
41,206 |
|
Raw Materials |
|
|
390 |
|
|
|
369 |
|
Total inventory |
|
$ |
30,899 |
|
|
$ |
41,575 |
|
The Company writes-down inventory for any excess or obsolete inventories or when the Company believes the net realizable value of inventories is less than the carrying value. During the three months ended March 31, 2024 and 2023, the Company recorded write-downs of $96 and $66, respectively.
Prepaid expenses and other current assets consisted of the following.
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Prepaid expenses |
|
$ |
8,205 |
|
|
$ |
7,144 |
|
Other current assets |
|
|
5,804 |
|
|
|
2,215 |
|
Total prepaid expenses and other current assets |
|
$ |
14,009 |
|
|
$ |
9,359 |
|
20
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Property and equipment, net consisted of the following.
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Computer hardware |
|
$ |
2,320 |
|
|
$ |
2,242 |
|
Leasehold improvements |
|
|
716 |
|
|
|
717 |
|
Warehouse and other equipment |
|
|
767 |
|
|
|
748 |
|
Furniture and fixtures |
|
|
146 |
|
|
|
146 |
|
Property and equipment |
|
|
3,949 |
|
|
|
3,853 |
|
Less: Accumulated depreciation |
|
|
(2,635 |
) |
|
|
(2,453 |
) |
Total property and equipment, net |
|
$ |
1,314 |
|
|
$ |
1,400 |
|
Depreciation and amortization expense on all property, plant and equipment was $182 and $203 during the three months ended March 31, 2024 and 2023, respectively.
Intangible assets, net consisted of the following.
|
|
As of |
|
|||||||||||||||||||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
||||||
Customer relationships |
|
$ |
22,990 |
|
|
$ |
(4,557 |
) |
|
$ |
18,433 |
|
|
$ |
22,990 |
|
|
$ |
(4,001 |
) |
|
$ |
18,989 |
|
Developed technology |
|
|
10,600 |
|
|
|
(3,279 |
) |
|
|
7,321 |
|
|
|
10,600 |
|
|
|
(2,911 |
) |
|
|
7,689 |
|
Trade name |
|
|
900 |
|
|
|
(374 |
) |
|
|
526 |
|
|
|
900 |
|
|
|
(329 |
) |
|
|
571 |
|
Total intangible assets, net |
|
$ |
34,490 |
|
|
$ |
(8,210 |
) |
|
$ |
26,280 |
|
|
$ |
34,490 |
|
|
$ |
(7,241 |
) |
|
$ |
27,249 |
|
Amortization expense on all intangible assets was $969 and $969 for the three months ended March 31, 2024 and 2023, respectively. Total future amortization for finite-lived intangible assets is estimated as follows.
|
|
Amortization Expense |
|
|
2024 - Remaining |
|
$ |
2,905 |
|
2025 |
|
|
3,873 |
|
2026 |
|
|
3,873 |
|
2027 |
|
|
3,734 |
|
2028 |
|
|
3,693 |
|
Thereafter |
|
|
8,202 |
|
Total |
|
$ |
26,280 |
|
Other long-term assets consisted of the following.
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Capitalized software costs, net |
|
$ |
5,852 |
|
|
$ |
5,632 |
|
Investment in non-affiliate |
|
|
2,250 |
|
|
|
2,250 |
|
Operating lease - ROU asset, net |
|
|
2,175 |
|
|
|
2,550 |
|
Other long-term assets |
|
|
2,045 |
|
|
|
1,816 |
|
Total other long-term assets |
|
$ |
12,322 |
|
|
$ |
12,248 |
|
Amortization expense on capitalized research and development costs was $350 and $82 for the three months ended March 31, 2024 and 2023, respectively, which is primarily related to capitalized software costs and was recorded in research and development expenses on the Consolidated Statements of Operations and Comprehensive Loss.
21
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
In December 2023, the Company invested $2,250 in a non-affiliated, privately held entity, under a Simple Agreement for Future Equity ("SAFE") agreement. The non-affiliated entity provides support and consultation for consumers looking to manage and upgrade the technology within their home. The Company’s investment in the SAFE is recorded using the cost method of accounting and included under other long-term assets on the Consolidated Balance Sheets, as it is not readily convertible into cash. If the Company identifies factors that may be indicative of impairment the Company will review the investment for impairment. For the three months ended March 31, 2024 and the year ended December 31, 2023, the Company did not identify any factors indicative of impairment.
Accrued expenses and other current liabilities consisted of the following.
|
|
As of |
|
|||||
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Accrued expenses |
|
$ |
6,697 |
|
|
$ |
6,674 |
|
Accrued compensation costs |
|
|
4,206 |
|
|
|
10,272 |
|
Warranty allowance |
|
|
1,570 |
|
|
|
2,215 |
|
Other |
|
|
8,738 |
|
|
|
5,815 |
|
Total accrued expenses and other current liabilities |
|
$ |
21,211 |
|
|
$ |
24,976 |
|
NOTE 6. DEBT
Term Loan and Revolving Line of Credit Facility
In December 2021, the Company entered into a $75,000 Senior Revolving Facility with a five-year term (the "Senior Revolving Facility"). The Senior Revolving Facility includes a letter of credit sub-facility in the aggregate availability of $10,000 as a sublimit of the Senior Revolving Facility, and a swingline sub-facility in the aggregate availability of $10,000 as a sublimit of the Senior Revolving Facility. Proceeds from the Senior Revolving Facility are to be used for general corporate purposes. Amounts borrowed under the Senior Revolving Facility may be repaid and, prior to the Senior Revolving Facility maturity date, reborrowed. The Senior Revolving Facility terminates on the Senior Revolving Facility maturity date in December 2026, when the principal amount of all advances, the unpaid interest thereon, and all other obligations relating to the Senior Revolving Facility shall be immediately due and payable. The Company has yet to draw on the Senior Revolving Facility as of March 31, 2024. The Company accounted for the cancellation of its previous revolving facility and the issuance of the Senior Revolving Facility as an exchange with the same creditor. As a result, all costs related to entering into the Senior Revolving Facility that are allowed to be deferred are recorded as a deferred asset and included in other assets on the Consolidated Balance Sheets. These costs totaled $688 and will be amortized ratably over the five-year term of the Senior Revolving Facility. For the three months ended March 31, 2024 and 2023, the Company recorded $34 and $34, respectively, of amortization expense in connection with these costs, as a component of interest expense on the Consolidated Statements of Operations and Comprehensive Loss.
Interest rates for draws upon the Senior Revolving Facility are determined by whether the Company elects a secured overnight financing rate loan (“SOFR Loan”) or alternate base rate loan (”ABR Loan”). For SOFR Loans, the interest rate is based upon the forward-looking term rate based on SOFR as published by the CME Group Benchmark Administration Limited (CBA) plus 0.10%, subject to a floor of 0.00%, plus an applicable margin. For ABR Loans, the interest rate is based upon the highest of (i) the Prime Rate, (ii) the Federal Funds Effective Rate plus 0.50%, or (iii) 3.25%, plus an applicable margin. As of March 31, 2024, the applicable margins for SOFR Loans and ABR Loans under the Senior Revolving Facility were 1.75% and (0.50%), respectively.
In addition to paying interest on the outstanding principal balance under the Senior Revolving Facility, the Company is required to pay a facility fee to the lender in respect of the unused commitments thereunder. The facility fee rate is based on the daily unused amount of the Senior Revolving Facility and is one fourth of one percent (0.25%) per annum based on the unused facility amount. During the three months ended March 31, 2024 and 2023, the facility fee totaled $43 and $47, respectively.
22
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
The Senior Revolving Facility contains certain customary affirmative and negative covenants and events of default. Such covenants will, among other things, restrict, subject to certain exceptions, the Company’s ability to (i) engage in certain mergers or consolidations, (ii) sell, lease or transfer all or substantially all of the Company’s assets, (iii) engage in certain transactions with affiliates, (iv) make changes in the nature of the Company’s business and its subsidiaries, and (v) incur additional indebtedness that is secured on a pari passu basis with the Senior Revolving Facility.
The Senior Revolving Facility also requires the Company, on a consolidated basis with its subsidiaries, to maintain a minimum cash balance. If the minimum cash balance is not maintained, the Company is required to maintain a minimum liquidity ratio. If an event of default occurs, the lender is entitled to take various actions, including the acceleration of amounts due under the Senior Revolving Facility and all actions permitted to be taken by a secured creditor. As of March 31, 2024, and through the date these consolidated financial statements were issued, the Company believes it was in compliance with all financial covenants.
The Senior Revolving Facility is collateralized by first priority or equivalent security interests in substantially all the property, rights, and assets of the Company.
As of March 31, 2024 and December 31, 2023, there was no outstanding principal amount under the Senior Revolving Facility.
NOTE 7. CONVERTIBLE PREFERRED STOCK AND EQUITY
Preferred Stock
The Company is authorized to issue 50,000 shares of $0.0001 par value preferred stock. As of March 31, 2024, there are no preferred stock issued or outstanding.
Warrants
As of March 31, 2024, warrants issued as consideration to certain customers to purchase 3,663 shares of Class A Common Stock at $0.01 per share remain outstanding. The warrants vest dependent on the number of installed units, as defined by the warrant agreements, purchased by the customer with certain measurement periods which expired in February 2024.The fair value of the vested warrants has been recorded as additional paid-in capital and contra-revenue on the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Loss, respectively. Based on the count of installed units as of February 2024, the number of warrants to vest is zero and as of December 31, 2023, the Company removed $193 from additional paid-in-capital and contra-revenue on the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Loss. There was no contra-revenue recorded related to these warrants during the three months ended March 31, 2024 and March 31, 2023.
Stock Repurchase Program
In March 2024, our Board of Directors ("Board") authorized a stock repurchase program pursuant to which we may repurchase up to $50,000 of our Class A common stock. Repurchases under the program may be made from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate us to acquire any particular amount of our Class A common stock and may be suspended at any time at our discretion. The timing and number of shares repurchased will depend on a variety of factors, including the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors.
During the three months ended March 31, 2024, the Company repurchased and subsequently retired 1,595 shares of our Class A common stock under the stock repurchase program at an average price of $2.74 per share for a total of $4,373. The Company has elected to record the amount paid to repurchase the shares in excess of the par value entirely to accumulated deficit. As of March 31, 2024, approximately $45,643 remained available for stock repurchases pursuant to our stock repurchase program.
23
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTE 8. STOCK-BASED COMPENSATION
2018 Stock Plan
Legacy SmartRent’s board of directors adopted, and its stockholders approved, the SmartRent.com, Inc. 2018 Stock Plan (the “2018 Stock Plan”), effective March 2018. The purpose of the 2018 Stock Plan was to advance the interests of Legacy SmartRent and its stockholders by providing an incentive to attract, retain and reward persons performing services for Legacy SmartRent and by motivating such persons to contribute to the growth and profitability of Legacy SmartRent. The 2018 Stock Plan seeks to achieve this purpose by providing awards in the form of stock options and restricted stock purchase rights. Awards granted as stock options under the 2018 Stock Plan generally expire no later than ten years from the date of grant and become vested and exercisable over a four-year period. All options are subject to certain provisions that may impact these vesting schedules.
Amendment to the 2018 Stock Plan
In April 2021, the board of directors of Legacy SmartRent executed a unanimous written consent to provide an additional incentive to certain employees of Legacy SmartRent by amending the 2018 Stock Plan to allow for the issuance of RSUs and granted a total of 1,533 RSUs to certain employees which vest over four years. The estimated fair value for each RSU issued was approximately $21.55 per share and the total stock-based compensation expense to be amortized over the vesting period is $33,033. Effective upon the Business Combination in August 2021, the 2018 Stock Plan was replaced by the 2021 Plan. The 2018 Stock Plan continues to govern the terms and conditions of the outstanding awards previously granted thereunder. No new awards will be granted out of the 2018 Stock Plan.
2021 Equity Incentive Plan
In connection with the Business Combination, the Board approved and implemented the SmartRent, Inc. 2021 Plan (the "2021 Plan"). The purpose of the 2021 Plan is to enhance the Company's ability to attract, retain and motivate persons who make, or are expected to make, important contributions to the Company by providing these individuals with equity ownership opportunities and equity-linked compensation opportunities.
The 2021 Plan authorizes the administrator of the 2021 Plan (generally, the Board or its compensation committee) to provide incentive compensation in the form of stock options, restricted stock and stock units, performance shares and units, other stock-based awards and cash-based awards. Under the 2021 Plan, the Company is authorized to issue up to 15,500 shares of Class A common stock. Non-employee board member RSUs generally will vest either over one year or three years. The RSUs and options granted to employees are generally subject to a four-year vesting schedule and all vesting generally shall be subject to the recipient’s continued employment with the Company or its subsidiaries through the applicable vesting dates.
The table below summarizes the activity pursuant to the 2021 Plan, for the three months ended March 31, 2024, and the shares available for future issuances as of March 31, 2024.
|
Shares Available for Future Issuance |
|
|
Shares available as of December 31, 2023 |
|
8,310 |
|
Stock options issued, net |
|
(2,527 |
) |
RSUs issued, net |
|
(1,352 |
) |
Shares available as of March 31, 2024 |
|
4,431 |
|
24
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
The table below summarizes the activity related to stock options, pursuant to the 2018 Stock Plan and 2021 Plan, for the three months ended March 31, 2024.
|
Options Outstanding |
|
|||||||||||||
|
Number of |
|
|
Weighted- |
|
|
Weighted |
|
|
Aggregate |
|
||||
December 31, 2023 |
|
9,158 |
|
|
$ |
1.21 |
|
|
|
6.81 |
|
|
$ |
18,112 |
|
Granted |
|
2,527 |
|
|
$ |
3.36 |
|
|
|
|
|
|
|
||
Exercised |
|
(192 |
) |
|
$ |
0.47 |
|
|
|
|
|
|
|
||
March 31, 2024 |
|
11,493 |
|
|
$ |
1.70 |
|
|
|
7.30 |
|
|
$ |
13,504 |
|
Exercisable options as of March 31, 2024 |
|
6,531 |
|
|
$ |
0.75 |
|
|
|
6.04 |
|
|
$ |
12,706 |
|
During the three months ended March 31, 2024 and 2023, stock-based compensation expense of $692 and $431, respectively, was recognized in connection with the outstanding options. As of March 31, 2024, there is $9,653 of unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 3.4 years.
The table below summarizes the activity related to RSUs, pursuant to the 2018 Plan and 2021 Plan, for the three months ended March 31, 2024.
|
Restricted Stock Units |
|||||||
|
Number of |
|
|
Weighted |
|
|
||
December 31, 2023 |
|
4,461 |
|
|
$ |
4.24 |
|
|
Granted |
|
1,747 |
|
|
$ |
3.32 |
|
|
Vested or distributed |
|
(776 |
) |
|
$ |
3.89 |
|
|
Forfeited |
|
(579 |
) |
|
$ |
3.69 |
|
|
March 31, 2024 |
|
4,853 |
|
|
$ |
4.04 |
|
|
No right to any Class A Common Stock is earned or accrued until such time that vesting occurs, nor does the grant of the RSU award confer any right to continue vesting or employment. Compensation expense associated with the unvested RSUs is recognized on a straight-line basis over the vesting period.
During the three months ended March 31, 2024 and 2023, respectively, stock-based compensation expense of $2,566 and $3,117 was recognized in connection with the vesting of all RSUs. As of March 31, 2024, there is $17,731 of unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted-average period of 2.4 years.
Employee Stock Purchase Plan
The Company has the ability to initially issue up to 2,000 shares of Class A Common Stock under the ESPP, subject to annual increases effective as of January 1, 2022, and each subsequent January 1 through and including January 1, 2030, in an amount equal to the smallest of (i) 1% of the number of shares of the Class A Common Stock outstanding as of the immediately preceding December 31, (ii) 2,000 shares or (iii) such amount, if any, as the Board may determine.
25
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
The table below summarizes the activity related to the ESPP for the three months ended March 31, 2024.
ESPP Activity |
Shares Available for Sale |
|
|
December 31, 2023 |
|
5,402 |
|
Annual additions to the plan |
|
2,000 |
|
Shares purchased |
|
(134 |
) |
March 31, 2024 |
|
7,268 |
|
The ESPP allows employees to purchase shares of the Company's Class A Common Stock at 85 percent of its quoted market price. During the three months ended March 31, 2024 and 2023, stock-based compensation expense of $23 and $23, respectively, was recognized in connection with the ESPP.
Stock-Based Compensation
The fair value of stock option grants is estimated by the Company on the date of grant using the Black Scholes-Merton option pricing model with the following weighted-average assumptions for the three months ended March 31, 2024 and 2023. During the three months ended March 31, 2024 and 2023, there were options granted covering 2,527 and 3,070 shares, respectively.
|
For the three months ended March 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Risk free interest |
4.09% |
|
|
|
3.55 |
% |
|
Dividend yield |
0.00% |
|
|
0.00% |
|
||
Expected volatility |
75.00% |
|
|
|
75.00 |
% |
|
Expected life (years) |
|
6.25 |
|
|
|
6.08 |
|
The Company recorded stock-based compensation expense as follows.
|
For the three months ended March 31, |
|||||||
|
2024 |
|
|
2023 |
|
|
||
Cost of revenue |
$ |
298 |
|
|
$ |
251 |
|
|
Research and development |
|
961 |
|
|
|
978 |
|
|
Sales and marketing |
|
131 |
|
|
|
236 |
|
|
General and administrative |
|
1,891 |
|
|
|
2,215 |
|
|
Total |
$ |
3,281 |
|
|
$ |
3,680 |
|
|
During the three months ended March 31, 2023, stock-based compensation expense of $109 was recognized for 844 shares granted in connection with the Company's February 2020 acquisition of a foreign supplier and are recorded as a component of general and administrative expense. There was no such stock-based compensation expense recording during the three months ended March 31, 2024.
NOTE 9. INCOME TAXES
The Company’s effective tax rate (ETR) from continuing operations was (0.59%) and 0.05% for the three months ended March 31, 2024 and 2023, respectively. The Company’s ETR during the three months ended March 31, 2024 differed from the federal statutory rate of 21% primarily due to changes in valuation allowance and foreign taxes.
The income tax expense on the Consolidated Statement of Operations and Comprehensive Loss is primarily related to the foreign and state taxes offset by a change in the valuation allowance. The Company established a full valuation allowance for net deferred U.S. federal and state tax assets, including net operating loss carryforwards. The Company expects to maintain this valuation allowance until it becomes more likely than not that the benefit of the federal and state deferred tax assets will be realized in future periods if it reports taxable income. The Company believes that it has established an adequate allowance for uncertain tax positions, although it can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.
26
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTE 10. NET LOSS PER SHARE
The following potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because inclusion of the shares on an as-converted basis would have been anti-dilutive.
|
For the three months ended March 31, |
|||||||
|
2024 |
|
|
2023 |
|
|
||
Common stock options and restricted stock units |
|
16,346 |
|
|
|
19,395 |
|
|
Common stock warrants |
|
- |
|
|
|
3,664 |
|
|
Total |
|
16,346 |
|
|
|
23,059 |
|
|
NOTE 11. RELATED-PARTY TRANSACTIONS
A member of the Board serves on the board of directors of a SmartRent customer. For the three months ended March 31, 2024 and 2023, the Company earned revenue from this customer of $680 and $1,016, respectively. As of March 31, 2024 and December 31, 2023, the Company had receivables due from this customer of $481 and $1,352, respectively. All business dealings with the customer were entered into in the ordinary course of business and the arrangements are on terms no more favorable than terms that would be available to unaffiliated third parties under the same or similar circumstances.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Liabilities are accrued when it is believed that it is both probable that a liability has been incurred and that the Company can reasonably estimate the amount of the potential loss. The Company does not believe that the outcome of these proceedings or matters will have a material effect on the consolidated financial statements.
The Company entered into an agreement with a supplier in April 2020, as further amended in March 2021 (the "Supplier Agreement"), to purchase minimum volumes of certain products through August 2022. Due to significant failure rates and other defects, the Company ceased ordering product from this supplier as of December 2020. Despite the Company’s requests, the supplier indicated they are not willing to refund the Company for the malfunctioning products previously purchased, and therefore, the Company filed a complaint against the supplier on March 22, 2022 in the Superior Court for the State of California, County of Santa Clara. On July 26, 2022, the supplier filed a cross-complaint against the Company for breach of contract and other allegations. In April 2024, the Company made a substantive offer to return the product inventory (valued at $4,955) to the supplier and pay a portion of the supplier’s costs and fees. As a result of the offer, the Company recorded a legal accrual of $5,300 within general and administrative expenses on the Consolidated Statements of Operations and Comprehensive Loss and accrued expenses and other current liabilities on the Consolidated Balance Sheets.
The Company regularly reviews outstanding legal claims, actions and enforcement matters, if any exist, to determine if accruals for expected negative outcomes of such matters are probable and can be reasonably estimated. The Company evaluates any such outstanding matters based on management’s best judgment after consultation with counsel. There is no assurance that the Company's accruals for loss contingencies will not need to be adjusted in the future. The amount of such adjustment could significantly exceed the accruals the Company has recorded. As of March 31, 2024, the Company recorded an accrual of $5,300. The Company had no such accruals as of December 31, 2023.
27
SMARTRENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTE 13. SUBSEQUENT EVENTS
In connection with the preparation of the accompanying consolidated financial statements, the Company has evaluated events and transactions occurring after March 31, 2024 and through May 8, 2024, the date these financial statements were issued, for potential recognition or disclosure and has determined that there are no additional items to disclose except as disclosed below.
In April 2024, 80 shares of the Company's Class A Common Stock were issued to certain employees related to vested RSUs.
In April 2024, the Company the repurchased 765 shares of our Class A common stock under the stock repurchase program at an average price of $2.62 per share for a total of $2,008. The following table summarizes the share repurchase activity for April 2024.
Period |
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid Per Share (2) |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
|
||||
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
April 1 - April 30, 2024 |
|
|
765 |
|
|
$ |
2.62 |
|
|
|
765 |
|
|
$ |
43,643 |
|
Total |
|
|
765 |
|
|
|
|
|
|
765 |
|
|
|
|
||
(1) In March 2024, our board of directors authorized the repurchase of up to $50,000 of our Class A common stock. Repurchases under the program can be made through open market transactions, privately negotiated transactions and other means in compliance with applicable federal securities laws, including through Rule 10b5-1 plans. We have discretion in determining the conditions under which shares may be repurchased from time to time. The repurchase program does not have an expiration date and may be suspended at any time at our discretion. Refer to Note 7 — Convertible Preferred Stock and Equity in Part I, Item 1, of this Report for additional information related to share repurchases.
(2) Average price paid per share includes costs associated with the repurchases.
28
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included herein and the consolidated financial statements and notes thereto for the year ended December 31, 2023 contained in our Annual Report on Form 10-K filed with the SEC.
This discussion may contain forward-looking statements based upon our current expectations that involve risks and uncertainties. Please refer to the section titled “Cautionary Note Regarding Forward-Looking Statements".
Overview
We are an enterprise real estate technology company that provides a comprehensive management platform designed for property owners, managers and residents. Our suite of products and services, which includes both smart building hardware and cloud-based SaaS solutions, provides seamless visibility and control over real estate assets. Our platform can lower operating costs, increase revenues, mitigate operational friction and protect assets for owners and operators, while providing a differentiated, elevated living experience for residents.
Through a Hub Device, we enable the integration of our platform with third-party smart devices, our own hardware devices and other technology interfaces. We use an open-architecture, brand-agnostic approach that allows owners, operators, and residents to manage their smart home systems through a single connected interface. Our Smart Community solutions include (i) smart apartments and homes, (ii) access control for buildings, common areas, and rental units, (iii) community and resident WiFi, and other solutions such as, asset protection and monitoring, parking management and self-guided tours. Our Smart Operations solutions include work order management, the automation of leasing and resident call handling, audit management, and the automation of the inspection process. We also have a professional services team that provides customers with training, installation, and support services.
SmartRent is positioned to be a category leader in the enterprise smart home solutions industry. As of March 31, 2024, we had 749,401 Units Deployed (as defined below) and 639 customers, including many of the largest multifamily residential owners in the United States. As of that date, our customers owned an aggregate of approximately 7.1 million rental units. This represents approximately 16% of the United States market for institutionally owned multifamily rental units and single-family rental homes. In addition to multifamily residential owners, our customers include some of the leading homebuilders, single-family rental homeowners, and iBuyers in the United States.
Our Business Model
We generate revenue primarily from sales of smart home systems which enable property owners and property managers to have visibility and control over assets, while providing all-in-one home control offerings for residents. Currently, the majority of our revenue is generated from the direct sale to our customers of hardware smart home devices, which devices generally consist of a Hub Device, door-locks, thermostats, sensors, and light switches. We also generate professional services revenue from installing smart home hardware devices and hosted services revenue from monthly subscription revenue earned from the fees collected from customers to provide access to one or more of our software applications (“Hosted Services”) including access controls, asset monitoring, WiFi, and related services. Subscription arrangements have contractual terms ranging from one month to eight years; the majority of our recurring revenue contracts range from one month to one year and our median recurring revenue contract term is one year.
Key Factors Affecting Our Performance
We believe that our success is dependent on many factors, including those further discussed below. Our operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our ability to grow our customer base in a cost-effective manner, expand our hardware and hosted service offerings to generate increased revenue per Unit Deployed (as defined below), and provide high quality hardware products and hosted service applications to maximize revenue and improve the leverage of our business model. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to operate our business.
Active Supply Chain Management
We continue to experience improvements in the challenges related to the global supply chain. In prior periods, the increased demand for electronics as a result of the COVID-19 pandemic, U.S. trade relations with China and certain other factors in recent periods led to a global shortage of semiconductors, including Z‑wave chips, which are a central component of our Hub Devices. Due to this shortage in prior periods, we experienced Hub Device production delays, which affected our ability to meet scheduled installations and facilitate customer upgrades to our higher-margin Hub Devices. We also experienced shortages and shipment delays related to components for Access Control and made-to-order specialty locks.
The incremental improvements in the global supply chain are evidenced by our reduction of backlogged Units Deployed for Access Control and made-to-order locks. We believe that this positive trend will continue through the current year.
29
Investing in Research and Development
Our performance is significantly dependent on the investments we make in research and development, including our ability to attract and retain highly skilled research and development personnel. We must continually develop and introduce innovative new software services and hardware products, and integrate with third-party products and services, mobile applications and other new offerings.
New Products, Features and Functionality
We are evolving our business into a more diverse platform with new products, features and functionality that enhance the value of our smart home operating system. We have introduced a number of SaaS product enhancements and features, including Answer Automation and Work Management solutions, that streamline property management operations. We have also introduced Community WiFi, which provides communities with a private, device-dedicated WiFi network to power Hub Devices and other in-home smart devices, and Smart Package Room, which is a smart package management solution that transforms package visibility, reduces labor demands, optimizes storage space and enhances resident satisfaction. Our Smart Operations Solutions enhance our overall platform offering and customer value proposition by providing a comprehensive one-stop platform that broadens our support of property operations, enhancing the experience for residents, property owners and managers. We offer an open-API architecture that enables a myriad of third-party partner integrations, resulting in a multi-functional platform that enhances property management workflow efficiencies, empowers teams to get more done, elevates resident interactions, and improves resident living experiences. In the future, we intend to continue to release new products and solutions and enhance our existing products and solutions, and we expect that our operating results will be impacted by these releases.
Category Adoption and Market Growth
Our future growth depends in part on the continued consumer adoption of hardware and software products which improve the resident experience and the growth of this market. We need to deliver solutions that enhance the resident experience and deliver value to our customers, rental property owners and operators, as well as homebuilders and developers, by providing products and solutions designed to enhance visibility and control over assets while providing additional revenue opportunities. In addition, our long-term growth depends in part on our ability to expand into international markets in the future.
Basis of Presentation
The consolidated financial statements and accompanying notes included elsewhere in this Report are prepared in accordance with GAAP.
Key Metrics
We regularly monitor a number of operating metrics in order to evaluate our operating performance, identify trends affecting our business, formulate business plans, measure our progress and make strategic decisions. Our key metrics are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. The numbers that we use to calculate our key metrics are based on internal data. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage of our SaaS platform. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.
Units Deployed and New Units Deployed
We define Units Deployed as the aggregate number of Hub Devices that have been installed (including customer self-installations) and have an active subscription as of a stated measurement date. We utilize the Units Deployed metric to assess the health of our business and measure the trajectory of our growth. We define New Units Deployed as the aggregate number of Hub Devices that were installed (including customer self-installations) and resulted in a new active subscription during a stated measurement period. Although our revenue is primarily driven by New Units Deployed and the number of Units Deployed, due to the expansion of our products and services that don't require a Hub Device, and Hub Device upgrades that do not result in net new active subscriptions, the correlation between New Units Deployed and revenue is not as strong as it was historically. Although the correlation has decreased, New Units Deployed is still an indicator of our ability to acquire new customers and expand our relationships with our current customers. As of March 31, 2024 and 2023, we had an aggregate of 749,401 and 602,556 Units Deployed, respectively. For the three months ended March 31, 2024 and 2023, we had 29,710 and 55,360 New Units Deployed, respectively.
30
Units Shipped
We define Units Shipped as the aggregate number of Hub Devices that have been shipped to customers during a stated measurement period. Units Shipped is used to assess the trajectory of our growth and is an indicator of our ability to acquire new customers and expand our relationships with our current customers. For the three months ended March 31, 2024 and 2023, we had 51,744 and 58,659 Units Shipped, respectively.
Units Booked
We define Units Booked as the aggregate number of Hub Device units subject to binding orders executed during a stated measurement period. We utilize the concept of Units Booked to measure estimated near-term resource demand and the resulting approximate range of post-delivery revenue that we will earn and record. Units Booked represent binding orders only. For the three months ended March 31, 2024 and 2023 there were 46,290 and 65,108 Units Booked, respectively.
Bookings
We define Bookings as the contract value of hardware, professional services, and the first year of ARR for binding orders executed during a stated measurement period. We utilize Bookings to measure revenue expected to be earned in future periods from orders contracted during the current period. For the three months ended March 31, 2024 and 2023, Bookings were $38,761 and $37,305, respectively.
Annual Recurring Revenue
We define Annual Recurring Revenue (“ARR”) as the annualized value of our SaaS revenue earned in the current quarter, which we calculate by taking the total amount of SaaS revenue in the current quarter and multiplying that amount by four. We believe that ARR growth demonstrates our ability to acquire new customers and to maintain and expand our relationships with existing customers. More specifically, we monitor our ARR to assess the general health and trajectory of our Hosted Services business. As of March 31, 2024 and 2023, ARR was approximately $47.6 million and $36.0 million, respectively.
Hardware Average Revenue per Unit ("ARPU"), Professional Services ARPU, SaaS ARPU, and Units Booked SaaS ARPU
We define Hardware ARPU as total hardware revenue during a given period divided by the total Units Shipped during the same period. Hardware ARPU is used to evaluate the effectiveness of our hardware pricing and assess our ability to market and sell our hardware offerings. For the three months ended March 31, 2024 and 2023, Hardware ARPU was $561.94 and $636.30, respectively.
We define Professional Services ARPU as total professional services revenue during a given period divided by the total New Units Deployed, excluding customer self-installations, during the same period. Professional Services ARPU is used to assess our ability to effectively price our installation services. For the three months ended March 31, 2024 and 2023, Professional Services ARPU was $221.43 and $249.66, respectively.
We define SaaS ARPU as total SaaS revenue during a given period divided by the average aggregate Units Deployed in the same period. Average aggregate Units Deployed is calculated as the Units Deployed as of the current period plus the Units Deployed as of the previous period divided by two. SaaS ARPU is used to evaluate the effectiveness of our SaaS pricing and assess our ability to market and sell our various software solutions. For the three months ended March 31, 2024 and 2023, SaaS ARPU was $5.41 and $5.21, respectively.
We define Units Booked SaaS ARPU as the first year ARR for binding orders executed during the stated measurement period divided by the total Units Booked in the same period. Units Booked SaaS ARPU is used to evaluate the effectiveness of our SaaS pricing and assess our ability to market and sell our various software solutions for orders executed during the period. For the three months ended March 31, 2024 and 2023, Units Booked SaaS ARPU was $7.16 and $5.40, respectively.
Customer Churn
We define Customer Churn as cancelled deployed units during the measurement period divided by Units Deployed as of the beginning of the measurement period. Cancelled deployed units are the previously deployed units that have been cancelled during the same measurement period in which a customer cancels all product subscriptions. Our Hosted Services growth is driven by our ability to retain our customers and minimize Customer Churn. Our Customer Churn for our Smart Communities Solutions is 0.02% for the three months ended March 31, 2024 compared to 0.01% for the three months ended March 31, 2023.
31
Net Revenue Retention
We define Net Revenue Retention as SaaS revenue at the end of the current period related to properties which had SaaS revenue at the end of the same period in the prior year, divided by SaaS revenue at the end of the same period in the prior year for those same properties. Net Revenue Retention includes any reductions in revenue caused by cancellations or downgrades, offset by additions to revenue from price increases on existing products, and additions of new products at existing properties. Net Revenue Retention was 105% for the three months ended March 31, 2024.
Components of Results of Operations
Revenue
We generate revenue primarily from sales of systems that consist of hardware devices, professional installation services and Hosted Services enabling property owners and property managers to have visibility and control over assets, while providing all-in-one home control offerings for residents. We record revenue as earned when control of these products and services is transferred to the customer in an amount that reflects the consideration we expect to collect for those products and services. The table below summarizes our revenue by solution.
|
For the three months ended March 31, |
|
|||||||||||||||||||||||
|
2024 |
|
|
2023 |
|
||||||||||||||||||||
|
(dollars in thousands) |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
SmartRent Solutions |
Hardware |
|
Professional Services |
|
Hosted Services |
|
Total 2024 |
|
|
Hardware |
|
Professional Services |
|
Hosted Services |
|
Total 2023 |
|
||||||||
Smart Communities Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Smart Apartments |
$ |
27,429 |
|
$ |
2,713 |
|
$ |
14,072 |
|
$ |
44,214 |
|
|
$ |
36,392 |
|
$ |
11,691 |
|
$ |
11,570 |
|
$ |
59,653 |
|
Access Control |
|
1,015 |
|
|
561 |
|
|
349 |
|
|
1,925 |
|
|
|
778 |
|
|
1,051 |
|
|
153 |
|
|
1,982 |
|
Community WiFi |
|
137 |
|
|
16 |
|
|
180 |
|
|
333 |
|
|
|
5 |
|
|
- |
|
|
156 |
|
|
161 |
|
Other |
|
496 |
|
|
168 |
|
|
492 |
|
|
1,156 |
|
|
|
150 |
|
|
27 |
|
|
372 |
|
|
549 |
|
Smart Operations Solutions |
|
- |
|
|
- |
|
|
2,861 |
|
|
2,861 |
|
|
|
- |
|
|
- |
|
|
2,734 |
|
|
2,734 |
|
Total Revenue |
$ |
29,077 |
|
$ |
3,458 |
|
$ |
17,954 |
|
$ |
50,489 |
|
|
$ |
37,325 |
|
$ |
12,769 |
|
$ |
14,985 |
|
$ |
65,079 |
|
Hardware Revenue
We generate revenue from the direct sale to our customers of hardware smart home devices, which devices generally consist of a Hub Device, door-locks, thermostats, sensors, and light switches. These hardware devices provide features that function independently without subscription to our software, and the performance obligation for hardware revenue is considered satisfied and revenue is recognized at a point in time when the hardware device is shipped to the customer. Certain Hub Devices do not function independently without the subscription, and therefore, the revenue is recognized in Hosted Services revenue. We generally provide a one-year warranty period on hardware devices that are delivered and installed. We record the cost of the warranty as a component of cost of hardware revenue.
Professional Services Revenue
We generate professional services revenue from installing smart home hardware devices, which does not result in significant customization of the installed products and is generally performed over a period ranging from two to four weeks. Installations can be performed by our employees, can be contracted out to a third party with our employees managing the engagement, or can be performed by the customer. Professional services contracts are generally performed on a fixed-price basis and revenue is recognized over the period in which installations are completed.
Hosted Services Revenue
Hosted Services primarily consist of monthly subscription revenue earned from the fees collected from customers to provide access to one or more of our software applications including access controls, asset monitoring and related services. These subscription arrangements have contractual terms ranging from one month to eight years and include recurring fixed plan subscription fees. The majority of our recurring revenue contracts range from one month to one year and our median recurring revenue contract term is one year. Our arrangements do not provide the customer with the right to take possession of our software at any time. Customers are granted continuous access to the services over the contractual period. Accordingly, fees collected for subscription services are recognized on a straight-line basis over the contract term beginning on the date the subscription service is made available to the customer.
32
We sell certain Hub Devices, which only function with the subscription to our software applications and related hosting services. We consider those devices and hosting services subscription as a single performance obligation, and therefore we defer the recognition of revenue for those devices that are sold with application subscriptions. The estimated average in-service life of those devices is four years. When a Hub Device without independent functionality is included in a contract that does not require a long-term service commitment, the customer obtains a material right to renew the service because purchasing a new device is not required upon renewal. If a contract contains a material right, proceeds are allocated to the material right and recognized over the period of benefit, which is generally four years.
Cost of Revenue
Cost of revenue consists primarily of direct costs of products and services together with the indirect cost of estimated warranty expense and customer care and support over the life of the service arrangement. We expect the cost of revenue to increase in absolute dollars in future periods. We record any change to cost of job performance and job conditions in the period during which the revision is identified.
Hardware
Cost of hardware revenue consists primarily of direct costs of products, Hub Devices, hardware devices and supplies purchased from third-party providers, shipping costs, warehouse facility (including depreciation and amortization of capitalized assets and right-of-use assets) and infrastructure costs, personnel-related costs associated with the procurement and distribution of our products and estimated warranty expenses together with the indirect cost of customer care and support. We expect an increase in cost of hardware revenue in absolute dollars in future periods.
In 2019, the U.S. administration imposed significant changes to U.S. trade policy with respect to China. Tariffs have subjected certain SmartRent products manufactured overseas to additional import duties. The amount of the import tariff has changed numerous times based on action by the U.S. administration. We continue to monitor the change in tariffs. If tariffs are increased, such actions may increase our cost of hardware revenue and reduce our hardware revenue margins in the future.
Professional Services
Cost of professional services revenue consists primarily of direct costs related to personnel-related expenses for installation and supervision of installation services, general contractor expenses and travel expenses associated with installation of our products, and indirect costs that are also primarily personnel-related expenses in connection with training of and ongoing support for customers and residents.
Hosted Services
Cost of Hosted Services revenue consists primarily of the amortization of the direct costs of certain Hub Devices consistent with the revenue recognition period noted above in “Hosted Services Revenue” and infrastructure costs associated with providing our software applications together with the indirect cost of customer care and support over the life of the service arrangement. In future periods, we expect the cost of Hosted Services revenue to increase in absolute dollars at a rate that is lower than the corresponding increase in Hosted Services revenue.
Operating Expenses
Research and Development
Research and development expenses consist primarily of personnel-related costs directly associated with our research and development activities. Our research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development. We account for the cost of research and development by capitalizing qualifying costs, which are incurred during the product development stage, and amortizing those costs over the product’s estimated useful life, which generally ranges from three to five years depending on the type of application. Costs incurred and capitalized during the product development stage generally include the costs of software configuration, coding, and testing. Such costs primarily include payroll and payroll-related expenses for employees directly involved in the product development. We expense preliminary evaluation costs as they are incurred before technological feasibility is achieved, as well as post development implementation and operation costs, such as training, maintenance and minor upgrades. We begin amortizing capitalized costs when a project is ready for its intended use, and we periodically reassess the estimated useful life of a project considering the effects of obsolescence, technology, competition and other economic factors which may result in a shorter remaining life. We believe our research and development costs will increase in absolute dollars as we increase our investment in product development to broaden the capabilities of our solutions and introduce new products and features - in particular as we enhance our WiFi offering.
33
Sales and Marketing Expenses
Our sales and marketing expenses consist of costs directly associated with our sales and marketing activities, which primarily include personnel-related costs, sales commissions, marketing programs, trade shows, and promotional materials. Our sales and marketing expenses may increase over time as we hire additional sales and marketing personnel, increase our marketing activities, grow our operations, and continue to build brand awareness.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs associated with our general and administrative organization, professional fees for legal, accounting and other consulting services, office facility, insurance, information technology costs, and expenses incurred as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and stock exchange listing requirements, additional insurance expense, investor relations activities and other administrative and professional services. We may also increase the size of our general and administrative staff in order to support the growth of our business but at a rate that is lower than the corresponding increase in total revenue.
Other Income/Expenses
Other income/expenses consist primarily of interest income, net of interest expense, foreign currency transaction gains and losses, and other income related to the operations of foreign subsidiaries. Interest expense is recorded in connection with our various debt facilities. Foreign currency transaction gains and losses relate to the impact of transactions denominated in a foreign currency other than the U.S. dollar. If we continue to expand our international operations, our exposure to fluctuations in foreign currencies has increased, which we expect to continue.
Provision for Income Taxes
The income tax expense on the Consolidated Statements of Operations and Comprehensive Loss is primarily related to the foreign and state taxes offset by a change in the valuation allowance. We established a full valuation allowance for net deferred U.S. federal and state tax assets, including net operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized in future periods if we report taxable income. We believe that we have established an adequate allowance for our uncertain tax positions, although it can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made.
34
Results of Operations for the Three Months Ended March 31, 2024 and 2023
The results of operations presented below should be reviewed together with the consolidated financial statements and notes included elsewhere in this Report. The following table summarizes our historical consolidated results of operations data for the periods presented. The period-to-period comparison of operating results is not necessarily indicative of results for future periods. All dollars are in thousands unless otherwise stated.
|
|
|
Three months ended March 31, |
|
|
2024 vs 2023 Change |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Hardware |
|
|
$ |
29,077 |
|
|
$ |
37,325 |
|
|
$ |
(8,248 |
) |
|
|
(22 |
)% |
Professional services |
|
|
|
3,458 |
|
|
|
12,769 |
|
|
|
(9,311 |
) |
|
|
(73 |
)% |
Hosted services |
|
|
|
17,954 |
|
|
|
14,985 |
|
|
|
2,969 |
|
|
|
20 |
% |
Total revenue |
|
|
|
50,489 |
|
|
|
65,079 |
|
|
|
(14,590 |
) |
|
|
(22 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Hardware |
|
|
|
18,684 |
|
|
|
32,572 |
|
|
|
(13,888 |
) |
|
|
(43 |
)% |
Professional services |
|
|
|
6,448 |
|
|
|
17,634 |
|
|
|
(11,186 |
) |
|
|
(63 |
)% |
Hosted services |
|
|
|
5,934 |
|
|
|
5,758 |
|
|
|
176 |
|
|
|
3 |
% |
Total cost of revenue |
|
|
|
31,066 |
|
|
|
55,964 |
|
|
|
(24,898 |
) |
|
|
(44 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
8,362 |
|
|
|
7,231 |
|
|
|
1,131 |
|
|
|
16 |
% |
Sales and marketing |
|
|
|
4,554 |
|
|
|
5,161 |
|
|
|
(607 |
) |
|
|
(12 |
)% |
General and administrative |
|
|
|
16,666 |
|
|
|
12,017 |
|
|
|
4,649 |
|
|
|
39 |
% |
Total operating expenses |
|
|
|
29,582 |
|
|
|
24,409 |
|
|
|
5,173 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from operations |
|
|
|
(10,159 |
) |
|
|
(15,294 |
) |
|
|
5,135 |
|
|
|
(34 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income (expense), net |
|
|
|
2,409 |
|
|
|
2,016 |
|
|
|
393 |
|
|
|
19 |
% |
Other income, net |
|
|
|
103 |
|
|
|
56 |
|
|
|
47 |
|
|
|
84 |
% |
Loss before income taxes |
|
|
|
(7,647 |
) |
|
|
(13,222 |
) |
|
|
5,575 |
|
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense (benefit) |
|
|
|
45 |
|
|
|
(7 |
) |
|
|
52 |
|
|
|
743 |
% |
Net Loss |
|
|
$ |
(7,692 |
) |
|
$ |
(13,215 |
) |
|
$ |
5,523 |
|
|
|
42 |
% |
Comparison of the three months ended March 31, 2024 and 2023
Revenue
|
|
|
Three months ended March 31, |
|
|
Change |
|
|
Change |
|
|||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Hardware |
|
|
$ |
29,077 |
|
|
$ |
37,325 |
|
|
$ |
(8,248 |
) |
|
|
(22 |
)% |
Professional services |
|
|
|
3,458 |
|
|
|
12,769 |
|
|
|
(9,311 |
) |
|
|
(73 |
)% |
Hosted services |
|
|
|
17,954 |
|
|
|
14,985 |
|
|
|
2,969 |
|
|
|
20 |
% |
Total revenue |
|
|
$ |
50,489 |
|
|
$ |
65,079 |
|
|
$ |
(14,590 |
) |
|
|
(22 |
)% |
35
Total revenue decreased by $14.6 million, or 22%, to $50.5 million for the three months ended March 31, 2024, from $65.1 million for the three months ended March 31, 2023. The decrease was primarily driven by a $15.4 million decrease in revenue related to our Smart Apartments solution. The decrease in revenue resulted primarily from a 46% decrease in New Units Deployed to 29,710 units for the three months ended March 31, 2024 from 55,360 units for the three months ended March 31, 2023, a 12% decrease in Hardware ARPU, and a 12% decrease in Units Shipped to 51,744 for the three months ended March 31, 2024 from 58,659 for the three months ended March 31, 2023, partially offset by a 24% increase in the number of cumulative active subscriptions for our Hosted Services during 2024 compared to 2023.
|
|
|
Three months ended March 31, |
|
|
Change |
|
||||||
|
|
|
2024 |
|
|
2023 |
|
|
% |
|
|||
Hardware |
|
|
|
|
|
|
|
|
|
|
|||
Hardware units shipped |
|
|
|
51,744 |
|
|
|
58,659 |
|
|
|
(12 |
)% |
Hardware ARPU |
|
|
$ |
561.94 |
|
|
$ |
636.30 |
|
|
|
(12 |
)% |
Professional Services |
|
|
|
|
|
|
|
|
|
|
|||
New units deployed |
|
|
|
29,710 |
|
|
|
55,360 |
|
|
|
(46 |
)% |
Professional services ARPU |
|
|
$ |
221.43 |
|
|
$ |
249.66 |
|
|
|
(11 |
)% |
Hosted Services |
|
|
|
|
|
|
|
|
|
|
|||
Units deployed |
|
|
|
749,401 |
|
|
|
602,556 |
|
|
|
24 |
% |
Average aggregate units deployed |
|
|
|
734,546 |
|
|
|
574,876 |
|
|
|
28 |
% |
SaaS ARPU |
|
|
$ |
5.41 |
|
|
$ |
5.21 |
|
|
|
4 |
% |
Bookings |
|
|
|
|
|
|
|
|
|
|
|||
Units booked |
|
|
|
46,290 |
|
|
|
65,108 |
|
|
|
(29 |
)% |
Bookings (in thousands) |
|
|
$ |
38,761 |
|
|
$ |
37,305 |
|
|
|
4 |
% |
Units booked SaaS ARPU |
|
|
$ |
7.16 |
|
|
$ |
5.40 |
|
|
|
33 |
% |
Hardware revenue decreased by $8.2 million, or 22%, to $29.1 million for the three months ended March 31, 2024, from $37.3 million for the three months ended March 31, 2023. This decrease in hardware revenue was driven by a decrease in revenue related to our Smart Apartments Solutions and resulted from a 12% decrease in Units Shipped to 51,744 for the three months ended March 31, 2024 from 58,659 for the three months ended March 31, 2023, and a Hardware ARPU decrease of 12% to $561.94 for the 2024 period from $636.30 for the 2023 period. The ARPU decrease was primarily attributable to a change in product mix which was more heavily weighted to our Alloy SmartHome hardware. The impact of the decrease in hardware revenue was mitigated by an increase in hardware gross margin, primarily driven by the product mix change in the current period.
Professional services revenue decreased by $9.3 million, or 73%, to $3.5 million for three months ended March 31, 2024, from $12.8 million for the three months ended March 31, 2023. Of the $9.3 million decrease, $9.0 million was driven by our Smart Apartments solution. Professional services ARPU decreased by 11% to $221.43 for the three months ended March 31, 2024 from $249.66 for the three months ended March 31, 2023. New Units Deployed decreased by 46% to 29,710 units for the three months ended March 31, 2024 from 55,360 units for the three months ended March 31, 2023.
Hosted Services revenue increased by $3.0 million, or 20%, to $18.0 million for the three months ended March 31, 2024, from $15.0 million for the three months ended March 31, 2023. Of the $18.0 million revenue in 2024, $11.9 million is related to SaaS revenue and $6.1 million is related to hub amortization. Revenue increased from hub amortization and SaaS by $0.1 million and $2.9 million, respectively, from the three months ended March 31, 2023 to the three months ended March 31, 2024. The increase of Hosted Services revenue resulted primarily from a 24% increase in the aggregate number of Units Deployed, primarily of our Smart Apartment solution, from 602,556 units at March 31, 2023 to 749,401 units at March 31, 2024 and an increase in SaaS ARPU of 4% to $5.41 for the three months ended March 31, 2024 from $5.21 for the three months ended March 31, 2023.
We don’t expect to deploy any more non-distinct Hub Devices, thus, the revenue contribution from hub amortization should decrease in future periods until the non-distinct Hub Devices are fully amortized. The table below shows the expected revenue contribution from hub amortization.
|
For the years ended December 31, |
|
||||||||||
|
2024(1) |
|
2025 |
|
2026 |
|
2027 |
|
||||
|
(dollars in thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||
Revenue contribution from hub amortization |
|
|
|
|
|
|
|
|
||||
Q1 |
$ |
6,043 |
|
$ |
4,775 |
|
$ |
2,260 |
|
$ |
158 |
|
Q2 |
|
5,236 |
|
|
4,605 |
|
|
1,485 |
|
|
56 |
|
Q3 |
|
5,181 |
|
|
3,631 |
|
|
901 |
|
|
21 |
|
Q4 |
|
4,971 |
|
|
2,908 |
|
|
414 |
|
|
6 |
|
Total |
$ |
21,431 |
|
$ |
15,919 |
|
$ |
5,060 |
|
$ |
241 |
|
(1) Q1 2024 amounts are actuals
36
Cost of Revenue
|
|
|
Three months ended March 31, |
|
|
Change |
|
|
Change |
|
|||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Hardware |
|
|
$ |
18,684 |
|
|
$ |
32,572 |
|
|
$ |
(13,888 |
) |
|
|
(43 |
)% |
Professional services |
|
|
|
6,448 |
|
|
|
17,634 |
|
|
|
(11,186 |
) |
|
|
(63 |
)% |
Hosted services |
|
|
|
5,934 |
|
|
|
5,758 |
|
|
|
176 |
|
|
|
3 |
% |
Total cost of revenue |
|
|
$ |
31,066 |
|
|
$ |
55,964 |
|
|
$ |
(24,898 |
) |
|
|
(44 |
)% |
Total cost of revenue decreased by $24.9 million, or 44%, to $31.1 million for the three months ended March 31, 2024, from $56.0 million for the three months ended March 31, 2023. The decrease in cost of revenue resulted primarily from a favorable product mix of our hardware devices (more heavily weighted to Alloy SmartHome hardware), a 46% decrease in New Units Deployed and a 12% decrease in Units Shipped of our Smart Apartment solution hardware devices.
Hardware cost of revenue decreased by $13.9 million, or 43%, to $18.7 million for the three months ended March 31, 2024, from $32.6 million for the three months ended March 31, 2023. This decrease in hardware cost of revenue was primarily attributable to a favorable product mix and a 12% decrease in Units Shipped.
Professional services cost of revenue decreased by $11.2 million, or 63%, to $6.4 million for the three months ended March 31, 2024, from $17.6 million for the three months ended March 31, 2023. The decrease in professional services cost of revenue is primarily attributable to a decrease of approximately $8.9 million in third-party direct labor costs due to a 46% decrease in New Units Deployed, and a decrease of $1.7 million in personnel-related costs, and related travel. Additionally, we have invested in technology initiatives to allow our teams to be more efficient and furthered our collaboration with third-party partners to augment our professional services. As a result, we believe we will continue to improve efficiency in future periods.
Hosted Services cost of revenue increased by $0.2 million, or 3%, to approximately $6.0 million for the three months ended March 31, 2024, from $5.8 million for the three months ended March 31, 2023. The increase resulted from a 24% increase in the aggregate number of Units Deployed and the resulting increase in the number of active subscriptions for our software service applications, partially offset by a $0.4 million decrease in hub amortization. Our Hosted Services gross margin improved when compared to the same period in the prior year primarily driven by economies of scale related to our SaaS products. Additionally, Hosted Services attributable to hub amortization, which has a lower margin than our SaaS products, continues to represent a smaller portion of our Hosted Services cost of revenue.
Operating Expenses
|
|
|
Three months ended March 31, |
|
|
Change |
|
|
Change |
|
|||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Research and development |
|
|
$ |
8,362 |
|
|
$ |
7,231 |
|
|
$ |
1,131 |
|
|
|
16 |
% |
Sales and marketing |
|
|
|
4,554 |
|
|
|
5,161 |
|
|
|
(607 |
) |
|
|
(12 |
)% |
General and administrative |
|
|
|
16,666 |
|
|
|
12,017 |
|
|
|
4,649 |
|
|
|
39 |
% |
Research and development expenses increased by $1.1 million, or 16%, to approximately $8.3 million for the three months ended March 31, 2024, from $7.2 million for the three months ended March 31, 2023, resulting primarily from an increase of approximately $1.3 million of personnel-related expenses, primarily related to the employee retention credit, which were refundable employment tax credits provided by The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), recorded during the three months ended March 31, 2023. We believe our research and development costs will increase in absolute dollars as we increase our investment in product development to broaden the capabilities of our solutions and introduce new products and features – in particular, as we enhance our WiFi offering.
Sales and marketing expenses decreased by $0.6 million, or 12%, to $4.6 million for the three months ended March 31, 2024 from $5.2 million for the three months ended March 31, 2023, resulting primarily from a decrease of approximately $0.5 million in personnel-related expenses.
For the three months ended March 31, 2024, general and administrative expenses increased by $4.6 million, or 39%, to approximately $16.6 million, from $12.0 million for the three months ended March 31, 2023, resulting primarily from a $5.3 million legal accrual recorded as of March 31, 2024, in which the Company has made a substantive offer to settle a dispute with a supplier by returning $5.0 million of inventory and paying a portion of the supplier’s costs and fees.
37
Other Income
|
|
|
Three months ended March 31, |
|
|
Change |
|
|
Change |
|
|||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Interest income, net |
|
|
$ |
2,409 |
|
|
$ |
2,016 |
|
|
$ |
393 |
|
|
|
19 |
% |
Other income, net |
|
|
|
103 |
|
|
|
56 |
|
|
|
47 |
|
|
|
84 |
% |
Interest income, net increased by $0.4 million to $2.4 million for the three months ended March 31, 2024, from $2.0 million for the three months ended March 31, 2023. The increase in net interest income for both periods is primarily attributable to interest earned on interest-bearing cash balances.
Income Taxes
|
|
|
Three months ended March 31, |
|
|
Change |
|
|
Change |
|
|||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||||||
Loss before income taxes |
|
|
$ |
(7,647 |
) |
|
$ |
(13,222 |
) |
|
$ |
5,575 |
|
|
|
42 |
% |
Income tax expense (benefit) |
|
|
|
45 |
|
|
|
(7 |
) |
|
|
52 |
|
|
|
743 |
% |
We provided a full valuation allowance on our net U.S. federal and state deferred tax assets as of March 31, 2024, and March 31, 2023. As of December 31, 2023, the Company has gross NOLs of $204.6 million and $193.4 million for federal and state income tax return purposes, respectively. Federal NOLs can be carried forward indefinitely, while State NOLs will expire between 2032 and 2043. The Company also has $0.1 million of R&D credits available that expire in 2039.
The income tax expense is related to the foreign and state taxes offset by a change in the valuation allowance.
Non-GAAP Financial Measures
To supplement the consolidated financial statements, which are prepared and presented in accordance with GAAP, we present EBITDA and Adjusted EBITDA, described below, as non-GAAP measures. We believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors’ understanding of our underlying operating performance and their ability to analyze our ongoing operating trends.
All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures - these non-GAAP financial measures are not intended to supersede or replace our GAAP results.
We define EBITDA as net income (loss) computed in accordance with GAAP before interest income, net, income tax expense (benefit) and depreciation and amortization.
We define Adjusted EBITDA as EBITDA before expenses related to non-recurring legal matters, stock-based compensation, compensation expense in connection with acquisitions, severance charges, other acquisition expenses, and other expenses caused by non-recurring, or unusual, events that are not indicative of our ongoing business.
Our management uses EBITDA and Adjusted EBITDA to assess our financial and operating performance, and we believe these measures are helpful to management and external users in understanding our performance. EBITDA and Adjusted EBITDA help management identify controllable cash expenses and make decisions designed to help us meet our identified financial and operational goals and to optimize our financial performance, while neutralizing the impact of some expenses included in our operating results caused by external influences over which management has little or no control and by non-recurring, or unusual, events that might otherwise mask trends in our performance. Accordingly, we believe these metrics measure our financial performance based on operational factors that management can impact in the short-term, namely our cost structure and expenses.
We believe that the presentation of EBITDA and Adjusted EBITDA provides information useful to investors in assessing our results of operations. The GAAP measure most directly comparable to EBITDA and Adjusted EBITDA is net income (loss). EBITDA and Adjusted EBITDA are not used as measures of our liquidity and should not be considered alternatives to net income (loss) or any other measure of financial performance presented in accordance with GAAP. Our EBITDA and Adjusted EBITDA may not be comparable to the EBITDA and Adjusted EBITDA of other companies due to the fact that not all companies use the same definitions of EBITDA and Adjusted EBITDA. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other companies.
38
The following table presents a reconciliation of net loss (as determined in accordance with GAAP) to EBITDA and Adjusted EBITDA for each of the periods indicated.
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(dollars in thousands) |
|
|||||
Net loss |
|
$ |
(7,692 |
) |
|
$ |
(13,215 |
) |
Interest income, net |
|
|
(2,409 |
) |
|
|
(2,016 |
) |
Income tax expense (benefit) |
|
|
45 |
|
|
|
(7 |
) |
Depreciation and amortization |
|
|
1,501 |
|
|
|
1,254 |
|
EBITDA |
|
|
(8,555 |
) |
|
|
(13,984 |
) |
Legal matter(1) |
|
|
5,300 |
|
|
|
- |
|
Stock-based compensation |
|
|
3,281 |
|
|
|
3,680 |
|
Compensation expense in connection with acquisitions |
|
|
- |
|
|
|
1,625 |
|
Severance charges |
|
|
231 |
|
|
|
- |
|
Other acquisition expenses |
|
|
140 |
|
|
|
205 |
|
Adjusted EBITDA |
|
$ |
397 |
|
|
$ |
(8,474 |
) |
(1) Refer to Note 12 "Commitments and Contingencies". |
|
|
|
|
|
|
||
Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2024, we had cash and cash equivalents of $204.7 million, which were held for working capital and general corporate purposes. Our cash equivalents are comprised primarily of money market funds. To date, our principal sources of liquidity have been the net proceeds received as a result of the Business Combination, and payments collected from sales to our customers.
Debt Issuances
Following the maturity of our Revolving Facility (as defined below) in December 2021, we entered into a $75.0 million senior secured revolving credit facility with a five-year term (the "Senior Revolving Facility"). Interest rates for draws upon the Senior Revolving Facility are determined by whether the Company elects a secured overnight financing rate loan (“SOFR Loan”) or alternate base rate loan (”ABR Loan”). For SOFR Loans, the interest rate is based upon the forward-looking term rate based on SOFR as published by the CME Group Benchmark Administration Limited (CBA) plus 0.10%, subject to a floor of 0.00%, plus an applicable margin. For ABR Loans, the interest rate is based upon the highest of (i) the Prime Rate, (ii) the Federal Funds Effective Rate plus 0.50%, or (iii) 3.25%, plus an applicable margin. As of March 31, 2024, the applicable margins for SOFR Loans and ABR Loans under the Senior Revolving Facility were 1.75% and (0.50%), respectively. The Senior Revolving Facility is secured by substantially all of the Company’s assets and guaranteed by each of the Company’s material domestic subsidiaries.
We believe that our current cash, cash equivalents, available borrowing capacity under the Senior Revolving Facility, and cash raised in the Business Combination will be sufficient to fund our operations for at least the next 12 months beyond the issuance date of this Report. Our future capital requirements, however, will depend on many factors, including our sales volume, the expansion of sales and marketing activities, and market adoption of our new and enhanced products and features. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. From time to time, we may seek to raise additional funds through equity and debt. If we are unable to raise additional capital when desired and on reasonable terms, our business, results of operations, and financial condition may be adversely affected.
Stock Repurchase Program
In March 2024, our board of directors authorized a stock repurchase program pursuant to which we may repurchase up to $50 million of our Class A common stock. Repurchases under the program may be made from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate us to acquire any particular amount of our Class A common stock and may be suspended at any time at our discretion. The timing and number of shares repurchased will depend on a variety of factors, including the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors.
During the three months ended March 31, 2024, we repurchased 1.6 million shares of our Class A common stock under the stock repurchase program at an average price of approximately $2.74 per share for a total of $4.4 million. As of March 31, 2024, approximately $45.6 million remained available for stock repurchases pursuant to our stock repurchase program.
39
Cash Flow Summary - Three Months Ended March 31, 2024 and 2023
The following table summarizes our cash flows for the periods presented.
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(dollars in thousands) |
|
|||||
Net cash provided by (used in) |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(3,337 |
) |
|
$ |
(10,290 |
) |
Investing activities |
|
|
(956 |
) |
|
|
(1,169 |
) |
Financing activities |
|
|
(6,462 |
) |
|
|
(1,854 |
) |
Operating Activities
For the three months ended March 31, 2024, our operating activities used $3.3 million in cash resulting primarily from our net loss of $7.7 million and $6.7 million used in changes in our operating assets and liabilities, partially offset by $11.1 million provided by non-cash expenses. Changes in our operating assets and liabilities primarily resulted from a $7.4 million decrease in accounts payable, $6.7 million decrease in accrued expenses and other liabilities, and a $3.6 million decrease in deferred revenue, partially offset by a $5.6 million decrease in inventory, $2.7 million decrease in accounts receivable, and a $2.7 million decrease in deferred cost of revenue. Non-cash expenses consisted primarily of a non-cash legal accrual for $5.0 million in which the Company has made a substantive offer to settle a dispute with a supplier by returning $5.0 million of inventory, stock-based compensation of $3.3 million, depreciation and amortization of $1.5 million, and provision for doubtful accounts of $1.2 million.
For the three months ended March 31, 2023, our operating activities used $10.3 million in cash resulting primarily from our net loss of $13.2 million and $4.0 million used in changes in our operating assets and liabilities, partially offset by $6.9 million provided by non-cash expenses. Changes in our operating assets and liabilities primarily resulted from a $11.1 million decrease in accrued expenses and other liabilities, a $6.7 million decrease in accounts payable and a $4.6 million increase in prepaid expenses and other assets, partially offset by a $8.9 million decrease in inventory, a $3.5 million decrease in accounts receivable, a $3.3 million decrease in deferred cost of revenue, and a $3.0 million increase in deferred revenue. Non-cash expenses consisted primarily of stock-based compensation of $3.7 million, compensation expense related to acquisitions of $1.6 million, and depreciation and amortization of $1.3 million. Of the total cash used for our operating activities, $6.0 million was attributable to payments related to our acquisitions.
Investing Activities
For the three months ended March 31, 2024, we used $1.0 million of cash for investing activities, resulting primarily from cash paid of $0.9 million for capitalized internal-use software development costs.
For the three months ended March 31, 2023, we used $1.2 million of cash for investing activities, resulting primarily from cash paid of $1.1 million for capitalized internal-use software development costs.
Financing Activities
For the three months ended March 31, 2024, our financing activities used $6.5 million of cash, resulting primarily from $4.4 million used for repurchases of Class A common stock, $1.5 million used for earnout payments related to the iQuue acquisition, and $0.9 million used for taxes paid related to net share settlements of stock-based compensation awards.
For the three months ended March 31, 2023, our financing activities used $1.9 million of cash, resulting primarily from $1.7 million used for earnout payments related to the iQuue acquisition.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2024.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.
40
Revenue Recognition
We derive revenue primarily from sales of systems that consist of hardware devices, professional installation services and Hosted Services to assist property owners and property managers with visibility and control over assets, while providing all-in-one home control offerings for residents. Revenue is recognized when control of these products and services are transferred to the customer in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products and services.
Payments we receive by credit card, check, or automated clearing house payments, and payment terms are determined by individual contracts and range from due upon receipt to net 30 days. Taxes collected from customers and remitted to governmental authorities are not included in reported revenue. Payments received from customers in advance of revenue recognition are reported as deferred revenue.
We apply the practical expedient that allows for inclusion of the future auto-renewals in the initial measurement of the transaction price. We only apply these steps when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services it transfers to a customer.
Accounting for contracts recognized over time involves the use of various estimates of total contract revenue and costs. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation may be revised in the future as we observe the economic performance of our contracts. Changes in job performance, job conditions and estimated profitability may result in revision to our estimates of revenue and costs and are recognized in the period in which the revision is identified.
We may enter into contracts that contain multiple distinct performance obligations including hardware and Hosted Services. The hardware performance obligation includes the delivery of hardware, and the Hosted Services performance obligation allows the customer use of our software during the contracted-use term. The subscription for the software and certain Hub Devices combine as one performance obligation, and there is no support or ongoing subscription for other device hardware. We partner with several manufacturers to offer a range of compatible hardware options for its customers. We maintain control of the hardware purchased from manufacturers prior to it being transferred to the customer, and accordingly, SmartRent is considered the principal in these arrangements.
For each performance obligation identified, we estimate the standalone selling price, which represents the price at which we would sell the good or service separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price, considering available information such as market conditions, historical pricing data, and internal pricing guidelines related to the performance obligations. We then allocate the transaction price among those obligations based on the estimation of the standalone selling price.
Inventory Valuation
Inventories are stated at the lower of cost or estimated net realizable value. Cost is computed under the first-in, first-out method. We adjust the inventory balance based on anticipated obsolescence, usage, and historical write-offs. Significant judgment is used in establishing our forecasts of future demand and obsolete material exposures. We consider marketability and product life cycle stage, product development plans, demand forecasts, historical revenue, and assumptions about future demand and market conditions in establishing our estimates. If the actual product demand is significantly lower than forecast, which may be caused by factors within and outside of our control, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and our customer requirements, we may be required to increase our inventory adjustment. A change in our estimates could have a significant impact on the value of our inventory and our results of operations.
Stock-Based Compensation
Our stock-based compensation relates to stock options and restricted stock units ("RSUs") granted to our employees and directors. Stock-based awards are measured based on the grant date fair value. We estimate the fair value of stock option awards on the grant date using the Black-Scholes option-pricing model. The fair value of RSUs is based on the grant date fair value of the stock price. The fair value of these awards is recognized as compensation expense on a straight-line basis over the requisite service period in which the awards are expected to vest. Forfeitures are recognized as they occur by reversing previously recognized compensation expense.
The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield, the expected stock price volatility over the expected term and forfeitures, which are recognized as they occur. For all stock options granted, we calculated the expected term using the simplified method for “plain vanilla” stock option awards.
41
The grant date fair value is also utilized with respect to RSUs with performance and service conditions to vest. For RSUs with a performance condition, based on a liquidity event, as well as a service condition to vest, no compensation expense is recognized until the performance condition has been satisfied. Subsequent to the liquidity event, compensation expense is recognized to the extent the requisite service period has been completed and compensation expense thereafter is recognized on an accelerated attribution method. Under the accelerated attribution method, compensation expense is recognized over the remaining requisite service period for each service condition tranche as though each tranche is, in substance, a separate award. In August 2021, the Company completed the merger with FWAA, which met the liquidity event vesting condition and triggered the recognition of compensation expense for RSUs for which the time-based vesting condition had been satisfied or partially satisfied.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") exempts “emerging growth companies” as defined in Section 2(A) of the Securities Act of 1933, as amended, from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” and have elected to take advantage of the benefits of this extended transition period.
We will use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. The extended transition period exemptions afforded by our emerging growth company status may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of this exemption because of the potential differences in accounting standards used.
We will remain an “emerging growth company” under the JOBS Act until the earliest of (a) the first fiscal year following the fifth anniversary of the initial public offering by FWAA, which closed on February 9, 2021, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (c) the last date of our fiscal year in which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non- convertible debt securities during the previous three years.
Recent Accounting Pronouncements
See Note 2, “Significant Accounting Policies” - Recent Accounting Guidance for more information.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial condition due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.
We do not believe that inflation has had a material effect, to date, on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.
Interest Rate Fluctuation Risk
As of March 31, 2024, we had cash, cash equivalents, and restricted cash of approximately $204.9 million, which consisted primarily of institutional money market funds, which carries a degree of interest rate risk. A hypothetical 10% change in interest rates would increase our annual interest income by $20.5 million, or decrease our annual interest income by $2.4 million, based on our cash position as of March 31, 2024.
Foreign Currency Exchange Rate Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Substantially all of our revenue is generated in U.S. dollars. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States and to a lesser extent in Croatia and other international markets. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical consolidated financial statements. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.
42
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at the end of the period covered by this Report and, based on such evaluation, have concluded that our disclosure controls and procedures were effective as of March 31, 2024, at the reasonable assurance level to ensure that the information required to be disclosed by us in this Report was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. Other Information
Item 1 – Legal Proceedings
From time to time, we are subject to various claims, charges and litigation matters that arise in the ordinary course of business. We believe these actions are a normal incident of the nature and kind of business in which we are engaged. While it is not feasible to predict the outcome of these matters with certainty, we do not believe that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or prospects.
Item 1A – Risk Factors
We are subject to various risks and uncertainties in the course of our business. For a discussion of risks and uncertainties relating to our business, please see the section titled "Risk Factors" in our Annual Report on 10-K filed with the SEC on March 5, 2024. There have been no material changes from the risk factors disclosed therein. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future SEC filings.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the share repurchase activity for the three months ended March 31, 2024.
Period |
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid Per Share (2) |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
|
||||
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
January 1 - January 31, 2024 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
50,000 |
|
February 1 - February 29, 2024 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
50,000 |
|
March 1 - March 31, 2024 |
|
|
1,595 |
|
|
$ |
2.74 |
|
|
|
1,595 |
|
|
$ |
45,643 |
|
Total |
|
|
1,595 |
|
|
|
|
|
|
1,595 |
|
|
|
|
||
(1) In March 2024, our board of directors authorized the repurchase of up to $50,000,000 of our Class A common stock. Repurchases under the program can be made through open market transactions, privately negotiated transactions and other means in compliance with applicable federal securities laws, including through Rule 10b5-1 plans. We have discretion in determining the conditions under which shares may be repurchased from time to time. The repurchase program does not have an expiration date and may be suspended at any time at our discretion. Refer to Note 7 — Convertible Preferred Stock and Equity in Part I, Item 1, of this Report for additional information related to share repurchases.
(2) Average price paid per share includes costs associated with the repurchases.
Item 3 – Defaults Upon Senior Securities
None.
43
Item 4 – Mine Safety Disclosures
Not Applicable.
Item 5 – Other Information
Securities Trading Plans of Directors and Executive Officers
During the three months ended March 31, 2024, none of our directors or executive officers adopted, modified or terminated any “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408 of Regulation S-K).
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Item 6 - Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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Incorporated by Reference |
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Exhibit |
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Exhibit Description |
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Form |
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Exhibit |
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Filing Date |
3.2 |
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8-K |
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3.2 |
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August 30, 2021 |
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10.1† |
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SmartRent Inc. Non-Employee Director Compensation Policy (filed herewith). |
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10.2† |
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8-K |
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10.1 |
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January 25, 2024 |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).1 |
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* The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Report are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of SmartRent, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report , irrespective of any general incorporation language contained in such filing.
† Indicates a management contract or any compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 8th day of May 2024.
SmartRent, Inc. |
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By: |
/s/ Lucas Haldeman |
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Lucas Haldeman |
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Chief Executive Officer |
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(Principal Executive Officer) |
By: |
/s/ Daryl Stemm |
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Daryl Stemm |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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EXHIBIT 10.1
SMARTRENT, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Last updated February 15, 2022
SmartRent, Inc., a Delaware corporation (the "Company"), believes that the granting of cash and equity compensation to the members of its Board of Directors (the "Board," and members of the Board, the "Directors") represents an effective tool to attract, retain and reward Directors who are not employees of the Company (the "Non-Employee Directors"). This Non-Employee Director Compensation Policy (this "Policy'') is intended to formalize the Company's policy regarding cash compensation and grants of equity to its Non-Employee Directors. Unless otherwise defined herein, capitalized terms used in this Policy will have the meaning given such term in the Company's 2021 Equity Incentive Plan (the "Plan"). Each Non-Employee Director will be solely responsible for any tax obligations incurred by such Non-Employee Director as a result of the cash payments paid and equity awards granted to such Non-Employee Director under this Policy.
Annual Cash Retainer
Each Non-Employee Director will be paid an annual cash retainer of $80,000. There are no per-meeting attendance fees for attending Board or shareholder meetings.
Additional Committee and Lead Director Annual Cash Retainer
Each Non-Employee Director who serves as a lead director or chairman of a committee of the Board will be paid additional annual cash fees as follows:
Lead Independent Director: |
$20,000 |
Audit Committee Chair: |
$20,000 |
Compensation Committee Chair: |
$15,000 |
Nominating and Corporate Governance Committee Chair: |
$10,000 |
Each Non-Employee Director who serves as a non-Chair member of a committee of the Board will be paid additional annual cash fees as follows:
Audit Committee Member: |
$10,000 |
Compensation Committee Member: |
$7,500 |
Nominating and Corporate Governance Committee Member: |
$5,000 |
1
All cash compensation will be paid quarterly, subject to continued service, on each February 15th, May 15th, August 15th, and November 15th, and all cash compensation described above is subject to proration for periods of service less than a full quarter or full year in length, as applicable.
The Board in its discretion may change and otherwise revise the terms of the cash compensation granted under this Policy, including, without limitation, the amount of cash compensation to be paid, on or after the date the Board determines to make any such change or revision.
Non-Employee Directors will be entitled to receive all types of Awards (excluding Incentive Stock Options) under the Plan (or the applicable equity plan in place at the time of grant). All grants of Awards to Non-Employee Directors pursuant to Section 2 of this Policy will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions and subject to Sections 4.3 and 13 of the Plan.
Each Non-Employee Director will be granted an Award (an "Annual Award') on the date of the Company's annual meeting of stockholders each calendar year (unless the Board determines to award them on a different date), beginning with the 2022 annual meeting of stockholders; provided that any Non-Employee Director who is not continuing as a Director following such annual meeting of stockholders will not receive an Annual Award with respect to such meeting. The Annual Award will have an estimated fair value of $150,000 using valuation methodologies deemed appropriate by the Compensation Committee of the Board or the Board from time to time, in light of commercial considerations deemed necessary to fulfill the goals set forth in this Policy and to align directors with shareholder interests. The Annual Award will be comprised of Restricted Stock Units which will vest in full upon the earlier of (i) the first anniversary of the vesting start date or (ii) the date immediately prior to the Company's next annual meeting of stockholders.
In the event of a Change in Control, each Non-Employee Director will fully vest in his or her Initial Award and/or each Annual Award provided that the Non-Employee Director continues to provide Service through such date.
Each Non-Employee Director's reasonable, customary and documented travel expenses to Board meetings will be reimbursed by the Company.
All provisions of the Plan not inconsistent with this Policy will apply to Awards granted to Non-Employee Directors.
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In the event that any dividend or other distribution (whether in the form of cash, Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Stock or other securities of the Company or other change in the corporate structure of the Company affecting the Stock occurs, the Board, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under this Policy, will adjust the number of shares of Stock issuable pursuant to Awards granted under this Policy.
No Non-Employee Director may be issued in any fiscal year cash payments (including the fees under Section 1 above) and Awards (including Awards under Section 2 above) with aggregate value greater than $600,000, increased to $750,000 in the fiscal year of his or her initial service as a Non-Employee Director. Any Awards or other compensation granted to an individual for his or her services as an employee, or for his or her services as a consultant other than a Non-Employee Director, will be excluded for purposes of the limitations under this Section 6.
In no event will cash compensation or expense reimbursement payments under this Policy be paid after the later of (a) the fifteenth (15th) day of the third (3rd) month following the end of the Company's fiscal year in which the compensation is earned or expenses are incurred, as applicable, or (b) the fifteenth (15th) day of the third (3rd) month following the end of the calendar year in which the compensation is earned or expenses are incurred, as applicable, in compliance with the "short-term deferral" exception under Section 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and guidance thereunder, as may be amended from time to time (together, "Section 409A"). It is the intent of this Policy that this Policy and all payments hereunder be exempt from or otherwise comply with the requirements of Section 409A so that none of the compensation to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be so exempt or comply. In no event will the Company reimburse a Non-Employee Director for any taxes imposed or other costs incurred as a result of Section 409A.
The Board or any committee designated by the Board may amend, alter, suspend or terminate this Policy at any time and for any reason. No amendment, alteration, suspension or termination of this Policy will materially impair the rights of a Non-Employee Director with respect to compensation that already has been paid or awarded, unless otherwise mutually agreed between the Non-Employee Director and
the Company. Termination of this Policy will not affect the Board's or the Compensation Committee's ability to exercise the powers granted to it under the Plan with respect to Awards granted under the Plan pursuant to this Policy prior to the date of such termination.
3
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a), UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lucas Haldeman, certify that:
Date: May 8, 2024
/s/ LUCAS HALDEMAN
Lucas Haldeman
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a), UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daryl Stemm, certify that:
Date: May 8, 2024
/s/ DARYL STEMM
Daryl Stemm
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SmartRent, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Lucas Haldeman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Date: May 8, 2024
/s/ LUCAS HALDEMAN
Lucas Haldeman
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SmartRent, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Daryl Stemm, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Date: May 8, 2024
/s/ DARYL STEMM
Daryl Stemm
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)