SmartRent, Inc. Q3 FY2024 earnings call

Key Insights - Confirmed execution issues as key factors affecting performance, including lack of effective sales leadership, over-reliance on hardware revenue, distraction from operational excellence, and macroeconomic headwinds. - Key accomplishments: Stabilized the executive team, recruited Natalie Cariola as CRO, repurchased 9.8 million shares for $17.1 million, made progress on CEO search, achieved 23% SaaS revenue growth, engaged with customers, aligned around four strategic pillars (sustainable and predictable ARR growth, platform superiority, operational excellence, collaborative innovation), and committed $10 million investment over the next year for strategic pillars.

In the third quarter, SmartRent's SaaS revenue grew 23% year-over-year. SaaS ARR increased to $53.2 million from $43.3 million in Q3 2023. SaaS ARPU rose 5% to $5.70 from $5.41, and units booked SaaS ARPU increased 8% to $9.73 from $9.04. Total revenue was $40.5 million, a 30% decrease year-over-year, driven by lower units shipped and deployed. Hosted services revenue increased 12% to $18.5 million. Hardware revenue decreased 47% to $18.7 million, and professional services revenue decreased 45% to $3.3 million. Total gross margin improved to 33.2% from 23.3% in the prior year. SaaS gross margin slightly decreased to 73% from 74.2%. Operating expenses were $25.2 million, up from $23.5 million in the prior year. Net losses were $9.9 million, and adjusted EBITDA improved to a loss of $3.8 million from $5 million in the same quarter last year.

Closely monitoring market conditions, economic trends, and execution of strategic initiatives to reinstate guidance. The $10 million investment is directed to activities related to the four strategic pillars. No specific near-term revenue or margin targets provided yet, but focus on accelerating transition through targeted investments.

• Macro-economic conditions and election uncertainty. - Over-reliance on hardware revenue distracting from SaaS growth. - Distraction from operational excellence during drive to profitability. - Execution issues in sales leadership and scalable go-to-market organization.

Q: What's the evolution of macro headwinds in recent months and details on the $10 million strategic investment?

A: Customers are affected by macro conditions like interest rate concerns and election uncertainty. The $10 million is allocated to areas aligned with the four strategic pillars, including sales, marketing, engineering, and operations to focus on core solutions.

Q: Clarification on $10 million investment impact on margins and timeline, and Wi-Fi opportunity view?

A: Investments focus on sales team and core offerings like IoT. Timeline for returns not specific, but aiming to reinvigorate IoT and work management solutions. Board views Wi-Fi as part of core focus to reestablish market leading position.

Q: Understanding of over-reliance on hardware and customer feedback over last 14 weeks?

A: Over-reliance on hardware distracted from SaaS growth; focus is to use hardware strategically for SaaS. Customer feedback is encouragingly positive, with some concerns on stock price but overall happy with solutions; issues around platform integration are a priority to remedy.