SmartRent - Earnings Call - Q2 2025

Executive Summary

• Q2 revenue of $38.3M declined 21% YoY and 7% QoQ, driven by the deliberate exit from bulk hardware sales and mix headwinds; SaaS ARR grew 11% YoY to $56.9M, with SaaS now 37% of total revenue.
• Gross margin was 33.1% (down ~260 bps YoY, up ~30 bps QoQ), while SaaS gross margin was 70.2% (down ~490 bps YoY); margin pressure stemmed from hardware product mix, partly offset by SaaS mix shift.
• Management expanded the cost reduction program to $30M annualized savings and is targeting adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025—key catalysts for sentiment if execution is credible.
• Against S&P Global consensus, revenue was a slight miss (~$0.54M, ~1.4%), EPS was essentially in line/slightly worse (-$0.0558 vs -$0.055), and EBITDA missed more meaningfully (actual -$10.8M vs -$6.2M estimate)*.
• Liquidity remains strong with $105.0M cash, no debt, and a $75M undrawn facility; the company repurchased ~4.1M shares ($3.7M) during Q2; remaining authorization ~$16.8M.

What Went Well and What Went Wrong

What Went Well

• SaaS scaling: ARR rose 11% YoY to $56.9M; SaaS revenue reached $14.2M (37% of total), supported by 10% growth in Units Deployed and stable ARPU ($5.66).
• Bookings green shoots: Units Booked were 24,319—the highest quarterly booking performance in the past year—an early sign the rebuilt sales motion is gaining traction (though still down YoY).
• Discipline and liquidity: Cost actions expanded to $30M annualized; cash of $105.0M, no debt, and $75M undrawn credit facility provide flexibility while pursuing profitability targets.
• Quote: “This cost reduction program is designed to deliver at least $30 million of annualized expense reductions which we believe will result in adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025.” — Frank Martell, CEO.

What Went Wrong

• Hardware-driven top-line pressure: Revenue fell 21% YoY as hardware declined 39% YoY ($15.1M vs $24.7M), reflecting the strategic exit from bulk hardware sales and lower shipments (26,543 vs 48,780).
• Margin compression in SaaS: SaaS gross margin decreased ~490 bps YoY to 70.2%, with total GM down to 33.1% (mix shift and hardware product mix noted as drivers).
• Profitability deterioration: Adjusted EBITDA of -$7.3M (vs +$0.9M LY) and net loss of -$10.9M (vs -$4.6M LY), pressured by lower hardware revenue and ~$2M severance/legal without prior-year counterpart.

Transcript

Speaker 3

Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent Quarter Two 2025 earnings release. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star followed by the number one on your telephone keypad. To withdraw your question, you may press star followed by the number one again. I will now turn the call over to Kelly Reisdorf, Head of Investor Relations. Please go ahead.

Speaker 5

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 Martell, and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which are available on the Investor Relations section of our website. Before I turn the call over to Frank, 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 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. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We would also like to highlight that the second quarter earnings presentation is available on the Investor Relations section of our website. I will turn the call over to Frank.

Speaker 2

Thank you, Kelly, and good morning, everyone. We appreciate you joining us for our second quarter 2025 earnings call. Before we dive into the quarter, I want to start by saying how energized I am to be stepping into the CEO role at SmartRent. Over the past year, my service on the board of the company has provided me with critical insights into both the company's foundational strengths as well as areas we need to address to fully realize our full potential. I believe I bring to SmartRent and all of our stakeholders a significant and long-established track record of generating growth and profitability while successfully navigating challenging internal and external factors. From my point of view, SmartRent's opportunities for profitable growth and sustained market leadership are compelling. We operate in a large, expanding market with a purpose-driven, differentiated platform and a growing SaaS footprint.

As a hardware-enabled SaaS company with meaningful scale, our foundation is domain expertise and close alignment with the needs of our customers, both property owners and operators. Our solutions are retrofit-friendly, integrate seamlessly with third-party hardware and property management systems, and are designed to deliver measurable ROI. With roughly 850,000 units deployed, we believe that we have significant scale advantage and are increasingly poised to leverage that advantage through continued operational efficiency, the introduction of new and enhanced capabilities across such areas as IoT, data, and analytics, as well as the infusion of AI into our products and operations. SmartRent delivers strong value that our customers rely on. As a result, we've developed sticky and long-term customer relationships. In a recent survey, 90% of property managers cited net operating income expansion as a key reason for continued investment in SmartRent.

As a further proof point, our second quarter net customer revenue retention rate was 108%. We believe that our customers recognize the power of our deep domain expertise and strong platform. For these reasons and others, we believe that we are uniquely positioned to lead the category during the next phase of growth. Our continued leadership will be built on a relentless focus towards operational rigor and financial discipline as we continue innovation and close customer engagement. In this regard, I will focus my remaining remarks today on key actions the company has, is, and will be taking to address our near-term challenges, namely resetting our cost structure, returning the company to profitability, and accelerating top-line growth. Regarding our cost productivity and reduction initiatives, at the end of the first quarter of this year, the team implemented cost actions resulting in more than $10 million in annualized savings.

Over the past month, we expanded our cost reduction program by an additional $20 million. The majority of our cost reductions come primarily from workflow optimization, lower staffing levels, and reduced third-party spending. The $30 million in cost reductions I just discussed should progressively benefit our financial results over the remaining months of this year. Given our expected revenue run rates over the balance of this year and the impact of the cost reduction program, we believe the company is on track to achieve adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025. As of June 30, 2025, the company has a significant cash balance of $105 million. Achieving cash flow neutrality, together with a disciplined push on working capital execution, which is expected to generate approximately $15 million in working capital from our balance sheet, should result in us maintaining a significant cash balance.

As we head into 2026, our cash reserves will allow us to continue to fund product innovation and further operating efficiencies, resulting in a strong base for long-term success. At the same time, we are resetting our cost structure. We have taken important steps towards accelerating top-line growth rates as we approach 2026. As you may recall, about a year ago, the company announced a $10 million investment to accelerate product development, enhance deployment capabilities, and strengthen our go-to-market team. We are seeing these investments beginning to bear fruit. The rebuild of our sales organization is yielding increased customer engagement, and product enhancements are gaining traction. In Q2, we recorded over 24,000 new units booked, our highest total in over a year.

In addition, our SaaS revenues continue to grow, and we saw strong interest in new solutions and product enhancements like our Energy Dashboard and SmartIQ, which are fueled by SmartRent's unique data advantage from having nearly 850,000 deployed units comprising over 3 million connected devices. As Daryl will discuss in a few minutes, our revenue growth profile has been negatively impacted over the past year and a half by a conscious decision to transition away from one-time bulk hardware deals, lacking alignment to customer implementation timelines. As we enter 2026, we believe our reported growth rates will benefit from better alignment to customer buying cycles. This alignment should result in a shift towards more consistent, predictable, and recurring revenue models. In closing, I want to thank the SmartRent team for their focus, resilience, and commitment to execution.

I believe in the company and that we are aggressively taking the right steps to realize its full potential. I look forward to sharing our continued progress in the quarters ahead. With that, I'll turn the call over to Daryl, who will take everyone through our quarterly financials for Q2.

Speaker 1

Thank you, Frank, and good morning, everyone. We appreciate you joining us today to discuss our second quarter 2025 results. I'll now walk through the financials and provide some additional context on how we're executing against our plan, managing the business with discipline, and making targeted investments to drive long-term growth and operating efficiency. For the second quarter of 2025, total revenue was $38.3 million, down 7% sequentially from $41.4 million in the first quarter and down 21% year over year. The year-over-year decline was primarily attributable to the decision to move away from bulk hardware sales, which Frank alluded to earlier. This approach is expected to result in more predictable revenue through better alignment with our customers' buying cycles.

Hardware revenue totaled $15.1 million in the second quarter, representing a 20% decrease sequentially and a 39% decline year over year, reflecting the decision to move away from bulk hardware sales, which I just discussed. Professional services revenue came in at $4.3 million, up 10% sequentially from $3.9 million in Q1 and down 26% from the same quarter prior year. The sequential growth reflects stronger sales organization execution, while the year-over-year comparison continues to reflect the broader slowdown in new unit deployments. Hosted services revenue reached $18.8 million, representing a 1% sequential growth and a 5% increase year over year. This category now makes up nearly half of our total revenue and continues to benefit from expanding platform usage, high retention, and increasing demand for our software capabilities across our installed base.

As Frank and I both discussed, these results highlight the underlying transformation in our revenue mix as we move towards a more predictable, recurring model that supports long-term margin expansion and financial stability. Importantly, SaaS revenue, which is a component of our hosted services revenue for the second quarter, totaled $14.2 million and now comprises 37% of the company's total revenue, up from 34% in Q1 and 26% from the prior year quarter. Our annual recurring revenue reached $56.9 million, up 11% year over year. This growth reflects the continued expansion of our recurring revenue base and the successful execution of our strategy to drive higher margin platform-led value. SaaS ARPU reached $5.66, which is up slightly from $5.63 year over year, while units booked SaaS ARPU rose to $8.21, up from $8.07 in the same quarter last year.

These improvements reflect disciplined pricing, enhanced value delivery, and our ability to drive more revenue per booked unit as our platform capabilities expand. SaaS gross profit came in at $10 million, up 1% sequentially and up 4% year over year, resulting in a gross margin of roughly 70%. This continued strength underscores the efficiency and scalability of our software infrastructure and reinforces the core thesis behind our shift to a higher quality revenue mix. As of the end of Q2, SmartRent has approximately 850,000 units deployed, an increase of 3% sequentially and 10% year over year. This continued growth in our installed base reflects steady adoption across our customer portfolio. Importantly, the quality of our installed base remains strong. Churn is exceptionally low, less than one-tenth of 1%, and net revenue retention continues to exceed 100%, supported by consistent customer engagement across the platform.

These characteristics position us to drive increasingly predictable cash flows as we continue to execute against our financial and operational targets. We booked over 24,000 units in the quarter, representing our highest quarterly booking performance in more than a year and signaling early commercial traction following our go-to-market rebuild. Total gross profit in the quarter was $12.7 million, compared to $17.3 million in the prior year quarter, reflecting the impact of lower hardware shipments and associated margin mix. By segment, hardware gross profit was $2.3 million, down from $8.4 million in the prior year, reflecting lower shipment volume and continued transition away from bulk hardware deals and changes in product mix. Professional services gross loss improved to $1.9 million, compared to a loss of $3.1 million in the prior year quarter, driven by operational efficiencies and improved unit economics.

Finally, hosted services gross profit totaled $12.3 million, essentially in line with the prior year quarter. Gross margin in Q2 was 33%, down from 36% in the prior year quarter, reflecting the impact of unfavorable changes in a hardware product mix, partially offset by continued strong SaaS gross margins of 70% in the quarter. We continue to believe SaaS margins can expand over time with scale and further infrastructure optimization. Operating expenses were $24.4 million, compared to $24.2 million in the prior year. Q2 2025 included approximately $2 million of severance and legal expenses, which have no prior year counterpart. Net losses increased to $10.9 million, compared to $4.6 million in the prior year quarter, primarily reflecting lower hardware sales, which were discussed previously. Adjusted EBITDA was negative $7.3 million, a year-over-year decline of $8.3 million.

We ended the quarter with $105 million in cash, no debt, and $75 million in undrawn credit, giving us a strong balance sheet and the flexibility to execute from a position of strength. During the quarter, we used a total of $20.6 million of cash. Cash use was primarily a result of $6 million from operating losses, net of non-cash expenses, $8.5 million of accounts receivable growth, and we repurchased $3.7 million of our stock. As we've discussed, one of our key short-term financial goals is to achieve a cash flow neutral run rate as we exit 2025. To support that, we remain focused on driving operating efficiency while continuing to reinvest in our highest return areas of organic growth. During the second quarter, we continued to take aggressive actions to right-size our cost base and invest in our future growth as well as our operational effectiveness.

The majority of our targeted cost reductions have been actioned, and we believe they'll contribute to achieving adjusted EBITDA profitability and run rate cash neutrality exiting 2025. As I discussed earlier, we're taking actions to reduce our cash burn and to preserve a significant cash position as we head into 2026. These funds will allow us to fund additional value-creating opportunities, including investments in our go-to-market organization, as well as new products and solutions that should promote growth within existing customers as well as potential new customers. We are executing with clarity, operating with discipline, and building a stronger business every quarter. Our strategy is focused, our team is aligned, and we believe the foundation we're putting in place positions us for long-term value creation. Thank you for your continued support. Operator, you may now open the line for questions.

Speaker 3

At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. The first question comes from Ryan Tomasello from KBW. Your line is open.

Speaker 0

Hi, everyone. Thanks for taking the questions. In terms of the $20 million of incremental cost savings, I know you gave some color in your prepared remarks, but maybe a bit more detail on the sources of those savings. From here, do you think there could be more room to extract some efficiencies beyond the cumulative $30 million, or do you feel like you're done with the expense side of the P&L for the time being?

Speaker 2

Hi, Ryan. It's Frank Martell. I think the three areas that I covered are where the predominant amount of the reductions are. A lot of it is staffing reductions and third-party spending. Those are the two principal areas. To answer your question regarding the future, I think there is plenty of productivity yet to come to the company as we work on the fundamental workflows and bring in some automation, some additional talent. I do think there is continued efficiency, as well as procurement in areas like procurement of hardware and that sort of thing. There's more runway, and I think that the good news is we executed substantially all of the actions necessary to achieve the $30 million.

We're already seeing benefit in the P&L, and I would expect, as I mentioned in my script, that should be over the course of this year that we'll come out this year with the $30 million substantially running through the P&L.

Speaker 0

Frank, now that you've had a few months as CEO, and I know you've had some tenure on the board as well, maybe just another opportunity to give us your holistic view as it stands today on how you intend to evolve and refine SmartRent's strategy going forward. You know, just generally where you feel like some of the more attractive and low-hanging fruit opportunities are to reposition the business in order to drive growth from here. Thanks.

Speaker 2

Yeah, a couple of comments there. Number one is the team is great here. It's really dedicated, smart, and creative. I think, from my point of view, that's the basic building ingredient needed to go forward. I think our customers, I've been on a number of customer calls, and I think we've got really good relationships despite all of the ups and downs in the last year or two. That's also something that a sticky, huge install base. I think there's room to grow that install base as well. Our clients are all very positive about the company and what we contribute to their operation, their success. From that point of view, our customers are sticking with us, and I think there's room in every account to grow. I think there's also new segments that we haven't played in that we're looking at.

I think there's plenty of opportunity for growth. That strikes me. I've been in businesses where, starting out with a very sticky customer and a scale advantage that we have, 850,000 deployments with 3 million connected devices is a great opportunity for us to expand. We're going to invest selectively in AI. I think everybody's doing that, but we really have not done it to the degree that we should and could. I think that's another area. That offers us both internal efficiency and offers our customers more value. There's plenty of opportunity to grow. It's just unfortunate that we've had this whipsaw effect that these bulk hardware sales that now work through the system, and we're seeing the end of that, hopefully, as we get into fourth quarter.

Without that, I think, as Daryl said, we'll have a more predictable revenue trajectory than we've had in the last year and a half.

Speaker 0

Appreciate the call, and thanks for taking the questions.

Speaker 3

The next question comes from Yi Fu Lee from Cantor Fitzgerald. Your line is open.

Speaker 4

Thank you for taking my question. Welcome, Frank, to the seat, and Daryl, nice to chat with you again. My question, Frank, is similar to Tom. I just want to get more clarity, color, on your vision, your strategy in terms of what is new from your current plan. I know you've stood on the board before, so you have experience with SmartRent versus the prior CEO. What is different that we should expect? I also have more follow-up on.

Speaker 2

Yeah, look, I think from my point of view, I'd like to have a SmartRent set up in every apartment in the country. I think we have that capability. I'd like SmartRent technology to be everywhere in the multifamily space. I think we have a good jump on that. We're certainly the big players. I think we have a little work to do to make sure that the economics work for smaller installations, but I think that's not going to be a major issue for us because the heritage of the company is starting with really the large players and building out a big scale. I think, you know, from my point of view, strategically, we want to expand the company. We need to get more operating leverage, to be honest. That's both on the hardware and the software side. That's about, you know, everywhere from installation to operations.

We have to make sure that, you know, one plus one equals three. Those are operational matters that I think we have a good line of sight into dealing with. I think there's a big game to play in AI. Everybody's struggling to get talent in the AI space. You know, customer engagement, operational effectiveness, planning, and product are all going to benefit from AI. We have done some work there. We have a lot of data to put to work as well. I think those are all great opportunities, very significant opportunities over the long run. The good news is we don't lack for opportunities. We just have to do it effectively and to make sure that it results in profitability, which is what Daryl mentioned when he talked about financial discipline and rigor around tracking and measuring our success.

Speaker 4

That makes sense, Frank. For me to follow this, you know, like the SaaS revenue model adoption, obviously staying at 37% of total revenue. Now, obviously, Daryl, you can help out on this as well. I think it cuts to the financials as well. You mentioned by the end of this year, the hardware headwind will subside. Does that mean like 2026, we should see expansion? That's number one. Two, can you help us walk through the journey, like the transition journey in terms of getting customers to get to SaaS? I understand if it's a new customer, I presume you're going to want to sell SaaS. If I'm already an existing customer, how hard is it to get them to SaaS with the understanding that obviously SaaS enjoys a higher, you know, margin, like you said, over 70% and there's more to go, right?

Speaker 2

Yeah, let me, I'll hand it over to Daryl. I just want to mention on the revenue point, you know, when you do bulk hardware sales, they're very large as a percentage of our revenue in some quarters. When you eliminate that, those sales don't go away. They just have a different timing profile. From my point of view, the lumpiness will dissipate and you'll have a more aggressive growth profile. I'm not saying every quarter necessarily will be growth, but you should see a growth profile. In a business like this, we should see an acceleration of growth because we have a lot of urgent territory to go after in terms of customers and products. I think from that point of view, it's a big space. We have a big base already, but it could get much, much bigger. I think those are the fundamental drivers.

I'll let Daryl kind of cover the other matter just so we strip completeness.

Speaker 4

Yes, some additional thoughts on the SaaS revenue. For us, our primary driver of increased SaaS revenue is adding new units onto our platform. The number of units that we currently have deployed is about 850,000 in total. That represents about a 10% increase year over year. Number one, simply expanding the installed base is very important. The other is we've been increasing and enhancing our product offering to deliver more value to our customers, and it's reflecting itself in a higher average SaaS ARPU. What's really important to note with regards to the ARPU metrics is that our existing deployed base is averaging about $5.66 per unit, and the new bookings that will then become deployed units are averaging in excess of $8. What that tells us is that we're offering an enhanced value.

We just want to make sure one of our objectives would be to continue to book SaaS at rates that are above our existing deployed SaaS rate. Got it. Got it. Daryl, let me end it with one last question. I'll ask them both at the same time. It's more financially related. You mentioned adjusting EBITDA as well as free cash flow neutrality as you exit 4Q of this year. Does this mean that going forward, 2026 and beyond, should we expect either break even or above? That's number one. Frank, on the product side, you mentioned about infusing AI into the product. Can you tease us a little bit more on what are the things that in your technology roadmap that you want to build into the product? As Daryl mentioned, obviously the new bookings are you're enjoying over $8 in ARPU.

I just want to get a sense of the AI infusion.

Speaker 1

Yeah, first, let me answer your first part of the question. We believe that we're positioning ourselves to exit this year on a break-even basis. We're not yet giving guidance, you know, formal guidance. We do hope to provide that at some point in the not-too-distant future. We're simply saying that we've now aligned or are planning on fully implementing a plan to align our costs with our existing revenue level. With continued financial discipline, we would anticipate positioning ourselves for profitable growth, leveraging our existing operating expenses and optimizing our operations further. We're not yet formally instituting guidance, to be clear.

Speaker 2

Yeah, to answer your question on AI, just to also mention, the idea we have $105 million cash at the end of the second quarter. We want to keep that cash and invest it in the future. I think that's the opportunity that we have and we're laser-focused on. Eventually, grow the balance because that'll be the fuel for investment and realizing our fullest potential over the three to five-year kind of planning horizon. In terms of AI, we are already in AI to a certain degree. I'd say it's small at this point. We have a lot of data. The use of that data to help our clients make better decisions is an area, for example, that AI will play a role in. In addition, across our ability to, having our 850,000 units installed, is a pretty large servicing effort as well.

This helps us to be very efficient in responding to customer inquiries. Eventually, it'll help us to, I think, diagnose and detect risk elements, for example, leaks and other things. There's a lot of application to AI here for both our workflow and for our customers' workflow. That's really where we're going to focus the next 12 to 18 months.

Speaker 3

That concludes our Q&A session. I will now turn the call over to Frank Martell for closing remarks.

Speaker 2

Okay. Thanks, operator. In closing, I want to thank all of our talent and employees and all of our stakeholders for your ongoing support. It's very meaningful. I think we've laid out a clear plan at this point to drive for profitability in the coming quarters and to grow our business with property owners and operators at a more rapid pace as we get into 2026. You know, we're going to remain laser-focused the next couple of quarters on discipline, execution, and market leadership. That's the recipe for our long-term success. Thanks, everybody, and I look forward to reporting more on our progress in the coming quarters.

Speaker 3

That concludes today's call. Thank you all for joining, and you may now disconnect.