SmartRent, Inc. (SMRT) Earnings Call Transcript & Summary

Thank you. Hello everyone, thank you for joining us and welcome to the Smart Rent Second Quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Kelly Reisdorf, Head of Investor Relations. Kelly, please go ahead.

Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martel, and Daryl Stem, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10Q both of which are available on the Investor Relations section of our website. I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent. Unless otherwise noted, all comparisons discussed on today's call refer to the second quarter of 2026 compared with the second quarter of 2025. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with a reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor's Guide. Investor Relations section of our website. And with that, I will turn the call over to Frank.

Good morning, everyone, and thank you for joining us. Today I'm going to discuss the more significant operational and financial highlights from the quarter from my point of view. will conclude our prepared remarks with a more detailed discussion of our Q2 financial results. By almost every measure, SmartRent delivered strong progress in the second quarter as we continue to stay laser-focused on realizing the full benefits outlined in our Vision 2028 strategic plan. As you may recall, Vision 2028 focuses on two priorities. First, accelerating growth by expanding our competitive moat, and second, increasing profitability levels through a leverageable operating model. These priorities are anchored by five pillars. First, growing our installed base at a double-digit compound rate. Second, scaling a world-class go-to-market organization. Third, infusing our platform with data, analytics, and AI. Fourth, simplifying our hardware architecture while investing in next generation capabilities. And fifth and finally, strengthening our internal operating rigor to drive sustainable profit and free cash flow. I believe our second quarter results clearly demonstrate the value opportunities inherent in our growing market leadership and aggressive execution of Vision 2028. I will now take a couple of minutes to summarize key proof points highlighted in our second quarter results. First, we accelerated revenue and bookings growth attributable to our best-in-class IoT, access control, and self-guided tour solutions. Our core revenues grew 14%, marking our highest quarterly growth rate in over two years. This double-digit growth builds on our progress from the fourth quarter of 2025 when core revenues grew 12%. SAS revenues in Q2 grew 13% and now represent more than 40% of total revenue. ARR increased year-over-year from $57 million to $65 million, reflecting continued expansion of our IoT footprint and increased demand for highly regarded access control and self-guided tour offerings. In the second quarter, we expanded our installed IoT footprint by 10% to nearly 930,000 units. On a trailing 12-month basis, units booked accelerated from 80,000 in the second quarter of last year to over 112,000 this quarter, which is a 40% increase. Given the significant acceleration of units booked over the last 12 months, I believe we're in a strong position to exceed 1 million units installed during the first half of next year. The scaling of our installed base beyond 1 million units should create a new inflection point for our business from both a growth and a profitability standpoint. In addition to expanding our unit footprint, we're also investing in our data and analytics solutions, which leverage our network of millions of connected devices through investments such as the plan and launch of the Smart Rent Innovation Center and our recently announced strategic collaborations with Hexaware and Databricks. As we look forward, we will continue to actively pursue opportunities to expand our footprint and our solutions that drive measurable returns for our customers. A key example is our upcoming launch of a dedicated data and analytics practice. With millions of connected devices across our network, I believe SmartRent is uniquely positioned to translate real-time data into actual insights, which will power ROI for our customers across such areas as energy efficiency, water conservation, and risk management. To power this practice, we are anchoring our tech stack on industry leading platform including Databricks as a core component of our technology layer. A high impact data and analytics practice represents a sizable strategic tailwind opportunity for SmartRend. By layering high value insights powered by our unmatched device footprint, we anticipate being able to expand our total addressable market, drive ARPU growth, and deepen our competitive moat. We believe that we've never been better positioned to execute on the opportunities ahead. In addition to accelerating top-line growth, we improved gross margins by 760 basis points to 41% in the second quarter. Our margin improvement reflects the dual benefits of our ongoing focus on revenue acceleration and structural cost reduction programs. Looking ahead, our recently announced partnership with Hexaware is expected to contribute to additional margin expansion while accelerating the deployment of AI tools in our operating processes. We are continuing to progress towards consistently positive adjusted EBITDA and free cash flow. Higher revenues, including increased SaaS contributions, as well as our focus on Operation Rigor, is fueling our rapid progress. Q2 was our third consecutive quarter of positive adjusted EBITDA. As Darrell will discuss in more detail in a few minutes, we continue to maintain a fortress balance sheet that provides significant financial flexibility to fund our Vision 2028 priorities. During the second quarter, we deployed a portion of our cash war chest to repurchase 1.5% of our outstanding shares. We also recently expanded our share repurchase authorization to $25 million to support future repurchases as warranted. I believe the second quarter provides many clear proof points of our progress, both strategically and operationally. Over the last several quarters, we have demonstrated our ability to deliver accelerating growth as well as expanding margins and profitability while maintaining significant capital reserves. As the trusted partner to over 600 multi and single family rental owners and operators, SmartRent is the clear, proven choice for any owner or operator that is looking to adopt and reap the benefits of smart home technology. In conclusion, I want to thank our employees for driving rapid and positive progress against our Fission 2020 priorities and pillars, and our shareholders for their continued support. I will now turn the floor over to Daryl.

Thank you, Frank, and good morning, everyone. Total revenue for the second quarter was $40 million, up 4%, and core revenue, which excludes non-cash hub amortization, was $38 million, up 14%. We continue to believe core revenue is the more representative measure of the underlying volume of our business. Digging deeper within the revenue mix, SAS revenue grew 13% to $16 million, representing more than 40% of total revenue, and ARR increased to approximately $65 million. ARR growth is primarily attributable to the continued expansion of our installed base, and increased adoption of access control and self-guided tour solutions. Hardware revenue was $14 million, down 10%. Professional services revenue was $9 million, up 100%, reflecting increased hardware refresh installations as well as higher access control volume, which drive growth in professional services operations. ARPU. I'd like to spend a few minutes on bookings. Units booked totaled more than 48,000 in the quarter. And as Frank mentioned, on a trailing 12-month basis, units booked increased 40% to approximately 112,000 units. Bookings for individual quarters can be non-linear. We have a long sales cycle and the timing of customer decisions and orders doesn't always align with our reporting periods. As a result, we're increasingly focused on trailing 12-months units booked, which we believe provides a more meaningful view of underlying customer demand and the progress we're making in executing our go-to-market strategy. We're becoming a full-cycle hardware-enabled technology company. As our platform continues to expand and our installed base matures, the composition of our bookings naturally evolves. Historically, units deployed has been our primary revenue driver. However, hardware refreshes, subscription renewals, and adoption of additional solutions such as access control and self-guided touring are becoming increasingly meaningful to our business. Different solutions carry different equipment and installation requirements and ARPU characteristics. All of these factors result in variability in both bookings and ARPU. For example, second quarter bookings were more heavily weighted towards IoT solutions, led to a lower ARPU. As our business evolves beyond primarily new IoT deployments to supporting customers throughout the lifecycle of their communities, we expect the mix of bookings to continue to fluctuate. I believe, viewed together, continued core revenue growth, accelerating trailing 12% month bookings and expanding ARR provide three complementary indicators that demand for our platform remains healthy and that the underlying fundamentals of the business continue to strengthen. Total gross margin expanded to 41% in the second quarter, up 700%. 160 basis points. SAS gross margin expanded to 75%, up from 70% a year ago, as a result of ARPU growth and continued cost discipline. Professional services gross margin improved dramatically to 21% compared with a negative 44%, reflecting continued operational improvements. Hardware gross margin was 13% compared to 15%, primarily reflecting changes in mix. Operating expenses were $23 million in the second quarter, down 7% from $24 million, reflecting the continued benefit of our productivity initiatives. Net loss was $6 million, an improvement of $5 million, or 48%. Adjusted EBITDA was $700,000, our third consecutive quarter of positive adjusted EBITDA. We ended the quarter with $93 million in cash, no debt, and an undrawn $75 million credit facility. We repurchased about 3 million shares, or approximately 1.5% of shares outstanding, at an aggregate cost of $3 million during the quarter. Subsequent to quarter end, our board expanded our share repurchase plan with an authorization to repurchase up to $25,000. million. With our strong balance sheet and improving financial results, we will continue to evaluate capital allocation opportunities, including share repurchases, through the lens of building long-term shareholder value. As Frank mentioned, we remain focused on accelerating revenue growth, while delivering adjusted EBITDA profitability. As we look ahead to the balance of the year, we continue to believe our revenue, profitability, and cash flow in the second half of 2026 will be stronger than the first. That confidence is supported by three factors. First, strength in trailing 12-month units booked. Second, sustainable margin expansion driven by operational improvements. And third, continued growth of our installed base and recurring revenue. And with that,.

I'll turn the call back over to the operator for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Tomasello with KBW. Your line is now open. Please go ahead.

Hi, everyone. Congrats on the solid execution in the quarter. In terms of bookings, I appreciate the commentary and the prepared remarks, but if you can just put a finer point on maybe some specific factors you'd attribute that strong result to in the quarter, any large deals or seasonal factors to call out. And in terms of the second half of the year, if there's any guardrails you can provide around the trajectory of unit deployments and bookings and just how we should be thinking about the flow through and timing of bookings to actual unit deployments.

Hey, Ryan, this is Frank. I think it's probably a two-part question, so I'll handle the first part and then Darryl can jump in on the other comment. But yes, look, I think as Darryl mentioned in his script, there's not a linear, you know, orders, unit orders are not linear. And this stat really covers IOT unit orders and so we have issues we have, you know, larger orders and smaller orders. So, you know, This happened to be in there's a couple of orders we've been working on for some period of time, and they happened to fall into the second quarter. So we saw an uptick in the velocity, but it's more of a timing issue. And obviously, I talked last quarter about investing in our sales team and our go-to-market motion, and we're definitely getting traction there as well. So we're seeing more opportunities. and we're closing more opportunities. So we thought it was better to go to a kind of a TTM, trailing 12 months view, because it shows the trend, which is more representative of what we're going to see through the P&L. So it was a couple of solid orders in addition to the other orders that were in the quarter and the things that kind of moved timing wise that came to pass in the second quarter. The only other thing I will mention is a very important point that Darrell raised in his prepared remarks, which is, you know, we are seeing a lot more orders for things like access control, and SGT and those are you know higher margin and a very good expansion of our footprint. And so we're excited about that because it has margin potential for us as we get in the second half of the year and especially as we go forward. So that's been evolving quite nicely in addition to IOT unit orders and hardware orders.