Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. I would like to welcome everyone to the SmartRent, Inc. Third Quarter 2022 Earnings Call. Today's call is being recorded. Thank you, and I will now turn the conference over to Annalise Lasater, Vice President of Investor Relations. You may begin.

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Annalise Lasater, Vice President of Investor Relations for SmartRent. I'm joined today by Lucas Haldeman, Chairman and CEO; and Hiroshi Okamoto, Chief Financial Officer. They will be taking you through our results for the third quarter of 2022 as well as guidance for the remainder of the year. After today's market close, we issued an earnings release and filed our 10-Q for September 30, 2022, both of which are available on the Investor Relations section of our website, smartrent.com. Before I turn the call over to Lucas, I would like to remind everyone that the discussion today may contain 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 our Annual Report on Form 10-K, Quarterly Report on Form 10-Q and Current Report on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors view 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 a reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We'd also like to point out that we've added a third quarter earnings deck supplemental that illustrates our results, which is available on the webcast portion of this call as well as the Investor tab on our website. And with that, let me turn the call over to Lucas to review our results.

Thank you, Annalise. Good afternoon, everyone, and thank you for joining our third quarter earnings call. My remarks today will cover three primary areas: our strong execution and results during the third quarter, our confidence that SmartRent has the right strategy to continue growing in the current macro environment, and an update on our ability to procure hardware. Turning now to our financial highlights for the third quarter. We delivered $47.5 million in total revenue and deployed over 53,000 units, both results faring better than the guidance we communicated last quarter. The demand environment remains robust, which, combined with our strategy and execution, led to our record revenue for the quarter. This top line strength in turn helped us improve our adjusted EBITDA by over $2 million compared to the prior quarter. Our business is evolving favorably toward higher margin sources of revenue, as demonstrated by our $8 million in SaaS revenue. All of our primary SaaS measures, ARR of $31.8 million and ARPU of $3.50 continue to grow, and SaaS revenue is close to four times what it was last year, demonstrating our success in increasing price and cross-selling additional products. I'll take a moment to highlight the significant milestone we reached as a company last month. We have now deployed over 500,000 units in apartment and single-family homes with SmartRent technologies. According to available data, that's more units deployed than all of our peers combined. This accomplishment speaks to our scalability, the power of our approach, and having the right strategy in place. Our committed units pipeline remains robust, and we have reached an all-time high in committed units with over 800,000 expected to come under the platform in the next two years. In addition to the high visibility pipeline, our current customers own or operate more than 6.5 million units. Because of where SmartRent operates within the real estate ecosystem, we believe we are well positioned amidst the current macro backdrop based on several factors. We have strong relationships with the top multifamily owners and operators, and demand is stronger than ever. The high ROI our platform delivers to customers provides an ongoing incentive to roll out our technology, and our smart home platform and property operations software directly enable owners and operators to centralize operations and overcome labor shortages. I'm pleased to report that during the quarter, we saw general easing in the supply chain constraints and an incremental improvement in our ability to procure hardware. We anticipate it will take more time for the system to fully normalize, but we are generally encouraged with what we are seeing. We now have fewer constrained product lines overall, and we have begun receiving some supply for nearly all SKUs. I would now like to turn the call over to our CFO, Hiroshi Okamoto, who will take you through the details of our financial performance this quarter and provide an update to our 2022 full year guidance.

Thank you, Lucas. I will begin by recapping our financial results for the third quarter of 2022. Please note that unless otherwise specified, all of the third quarter growth figures cited in my remarks today are quarter-over-quarter or sequential comparisons. I'll now move on to the key financial highlights. In the third quarter of 2022, we delivered another record quarter with total revenue of $47.5 million, up 12% from $42.4 million in the second quarter. Of the three revenue streams driving this double-digit growth, the two biggest, Hardware and Hosted Services, grew at 28% and 8%, respectively. Professional Services decreased 18% due to lower unit deployments during the quarter, caused by lingering supply chain constraints largely outside of our control. As the opportunity to upsell and cross-sell ancillary products grows, the business is becoming less dependent on new unit growth alone. This is evidenced by 19% sequential growth in ARPU per shipped unit of hardware from $441 to $525. Drilling further into Hosted Services, SaaS revenue in the quarter increased 4% to approximately $8 million from $7.6 million in the second quarter of 2022. Average organic SaaS ARPU across all 500,000-plus deployed units increased 6.3% from $3.29 to $3.50. I'll note that this KPI will generally continue to trend upward as new higher price deployments are added to the mix. We are also on track to achieve $10 million SaaS revenue contribution from SightPlan this year, as we expected. Total gross margin improved incrementally from 2.3% to 2.5% in the previous quarter due to improved unit economics and further scaling of the business. This is the third consecutive quarter of improved gross margins, and we believe that the company, barring unforeseen events, will remain in the black in terms of positive gross margins going forward. In terms of our revenue streams, Hardware gross margins turned positive from negative 0.3% to 4.7%, while Hosted Services improved from 48.7% to 51.2%. As expected, Professional Services were muted versus last quarter, impacted by lower unit volumes in Q3. Total operating expenses were essentially flat on a dollar basis, totaling $27.8 million compared to $28 million in Q2, but includes a one-time asset impairment charge of $2.4 million we booked in the current quarter. However, even with the impairment as a percentage of revenue, operating expenses declined from 66% to 58.6%. This can be attributable to improved operating efficiency, gaining economies of scale, and practicing financial discipline. Net loss for the quarter was $26 million compared to $25.6 million in the previous quarter. Adjusted EBITDA loss, however, improved by more than $2 million versus the prior quarter to $17.6 million. Adjusted EBITDA has now improved by more than $5 million compared to the first quarter of 2022, and we believe this general trajectory is sustainable, providing a sight line into a path to quarterly profitability in 2023. We ended the quarter with approximately $128.2 million of deferred revenue on our balance sheet, up 2% from $125.4 million in the previous quarter, and we expect to recognize 49% of the deferred revenue within the next 12 months. As of September 30, 2022, the company had approximately $217.4 million of cash, no outstanding debt, and full access to a $75 million revolving line of credit. Our liquidity position provides us with sufficient capital to advance our organic growth plans, as well as support any non-organic growth initiatives we choose to pursue. Turning to our outlook. We have been pleased with our solid execution carrying into fourth quarter. We are narrowing our previous 2022 full year guidance for revenues and unit deployments towards the high end of the range. Our updated guidance for revenue is $165 million to $180 million, up from $155 million to $180 million previously. We reaffirm adjusted EBITDA in the range of negative $75 million to negative $70 million, although we now believe it is more likely we will land towards the lower end of that range. Finally, our updated guidance for units deployed is 200,000 to 220,000 units, up from 190,000 to 220,000 units previously. We are committed to reaching positive adjusted EBITDA on an intra-quarter basis next year. We believe that we do not need to sacrifice growth in order to do so. Our path to profitability and our long-term growth potential remains on track. I will now pass the call back to Lucas for closing remarks before we open the call to questions.

Thanks, Hiroshi. Our strong execution in the third quarter, including reaching the 500,000 deployed unit milestone, record revenue, and double-digit adjusted EBITDA growth would not have been possible without the incredible hard work and dedication from our team. I'd also like to thank our customers for their partnership and trust, and our shareholders for their continued support. Thanks again to everyone for joining our call today. We look forward to seeing some of you over the next several weeks as we attend investor conferences. Operator, please open the line for questions.

And we will take our first question from Tom White with D.A. Davidson.

Just one, curious if you could share an update on the competitive front? Just curious whether you guys feel like there might be any kind of market share shifts going on relative to your competitors that may or may not be impacted by macro pressures or inflation more than you? And then two, maybe Lucas, just talk a little bit about the general resilience of your business. You think, should we be entering into a sustained recessionary environment? Just any color there.

Thanks, Tom. On the competitive front, we haven't seen any changes. We continue to hold a strong position and our demand is still growing. If you consider all the units our competitors have deployed, they combine to fewer than our own deployments. We feel very positive about our standing. Regarding the resilience of our business, it's an interesting topic. While I won't speculate on whether we're heading into a recession, I believe our business remains strong because we're focused on helping owners and operators reduce their costs and minimize staffing needs for managing their properties. The current trend suggests that many owners are trying to achieve more with fewer resources, and our platform is designed to support that. Additionally, a significant portion of our business involves retrofitting existing apartments, which shields us from some of the macro challenges, such as a slowdown in construction or building delays that could heavily impact others in the industry.

We'll take our next question from Erik Woodring with Morgan Stanley.

It's great to see such a strong quarter from you. Lucas, you mentioned that demand is robust and stronger than ever. Can you help us understand how many units you could have deployed if it weren't for the supply constraints you've been experiencing? How much is the supply actually limiting you? I also have a follow-up question.

Yes, Erik. Thanks for your question. The main challenge we've encountered is related to supply, particularly with rising labor rates, though we are able to source labor. This is directly linked to the supply chain issues affecting the global market. As I mentioned earlier, we are beginning to see some easing in this area, which gives us optimism. The way I view our situation is through our record backlog and the committed units, which reflect strong product demand. Currently, we have 800,000 committed units and over 1.3 million deployed, and these figures continue to increase. Additionally, we've been hearing from many owners who are eager to move forward and make progress.

Okay, that's really helpful. And then maybe to that point, again, supply chain has been a challenge. I'd love if you could maybe just double click and talk about maybe in a little bit more detail of where it stands today? I know there were challenges on the access control side. Just any efforts you've taken to diversify, or anything that you could just help us give a little bit more confidence in terms of the supply chain improvements? Just a little more detail than you may be provided in your prepared remarks. And that's it for me.

Certainly. In a bit more detail, we're seeing that while we've received thousands of orders, we've only had hundreds delivered. We're not completely out of the situation yet, but we are making progress. Just last quarter, we had no supply at all, so now it feels like things are beginning to improve and deliveries are starting to come in. We're experiencing ongoing issues with the supply chain and specific products, particularly the semi-custom locks and access control boards. However, things are starting to ease, moving in a positive direction, and we're feeling optimistic about it.

We will take our next question from Brian Ruttenbur with Imperial Capital.

Yes. Good quarter. First question is on cash burn. It looks like inventories were up. Can you talk about your cash burn in the quarter of roughly $46 million, as I do the back of the envelope? And then what your cash burn is projected to be in the fourth quarter?

Yes. Brian, this is Hiroshi. Let me just step in here. Cash burn for the quarter was about $46 million, and that is considerably higher than it was last quarter. But last quarter, we were very fortunate to have good collection. This quarter, we actually ended up with accounts receivable higher by about $20 million compared to the previous quarter, so the cash burn looks high. But averaging out over the past three quarters, we're probably in the high $20 million.

Okay. Can you talk about what you anticipate for fourth quarter?

I think for the fourth quarter, we should be kind of at the lower part, and I think I just want to just emphasize that we feel very comfortable with our cash position.

Great. And then as a follow-up, can you give us any kind of glimpse into 2023 directionally? Where you're looking at in terms of revenue or adjusted EBITDA, or even reaffirm your last guidance of breaking even? Anything that you can give us in terms of forward-looking?

Yes. Let me just take that. In terms of becoming intra-quarter positive in 2023, we still reaffirm that we believe that is the case. In terms of revenues and adjusted EBITDA, we're still kind of putting together our model right now. And we will provide guidance, I think, probably earlier in 2023.

And we will take our next question from Ryan Tomasello with KBW.

This is Nikhil filling in for Ryan. So our first question is, last quarter, you kind of noted countercyclical offsets at Title365 from default business and home equity. Can you say what the current mix of Title revenues are between these countercyclical products, refinance purchase and how those have performed in the quarter? I'm just looking out to next year, any color you can provide on expected Title365 performance, and then particularly margins where you think there's still excess capacity to take out the offset? The volume declined basically.

Nikhil, I think we have some audio issues. The question was quite choppy, and we couldn't understand.

Okay. Let me repeat. Is this better?

Yes.

What I was asking was, last quarter, you kind of noted counter-cyclical offsets at Title365 from default business and home equity. Can you say what the current mix of Title revenues are between these countercyclical products, refinance purchase, and how those have performed in the quarter?

I'm not sure that question is aimed for us. We're not in the Title nor mortgage business.

We will take our next question from Brett Knoblauch with Cantor Fitzgerald.

On the SaaS revenue breakdown on the chart and presentation, kind of have a decline in revenue from acquisitions for this quarter relative to last quarter. Any color as to why that is?

Thanks, Brett. Let me just take this one. I think we could have probably noted this, but it really has to do with kind of the classification that we made between acquisition and organic. By the beginning of this quarter, we fully integrated iQuue, and we consider that as part of our SmartRent organic revenue. Whereas in the previous quarter, it was particularly the acquisition. So if you divide it up, the acquisition looks like it's reduced in total, but it has increased by 4%.

I understand. So I assume for the planning that SightPlan revenues this quarter increased compared to last quarter?

It's even, it's pretty much as we expected, but pretty even quarter-to-quarter.

And then maybe on SightPlan going into next year, how do you kind of expect it to add $10 million in revenue into this year? Should we still expect growth from that, kind of flat quarter-over-quarter growth is something that we should expect going forward from that business?

Yes, Brett, let me give you a little color. I think maybe just an overall SightPlan, I don't know if I kind of give you a sense of what we are thinking about it. I think we consider that fully integrated in terms of the teams are there. And we're just starting to really arm our entire sales force the ability to sell the entire products. And so I think we feel good about it will continue to contribute revenue and continue to grow. Not making any guidance for '23 earnings call, but overall, feeling very good about the acquisition and where we're headed.

We'll take our next question from Jason Weaver with Compass Point LLC.

Congratulations on the quarter. It's encouraging to see some of the issues that have affected this year easing a bit. I would like to discuss the Professional Services business. If hardware availability were not a concern today, how should I consider the breakeven gross profitability point for Professional Services regarding unit deployments? What would that look like? Additionally, what do you estimate your maximum capacity for unit deployments per quarter is at this time?

Jason, thanks for the question. I think certainly in Professional Services, as we've talked about in prior calls, we have a fixed cost. We have a large installation team as part of a benchmark of our white glove implementation, and it is subjected to some fluctuations in gross profit based on the number of installs that we complete. And so that's a different why it's down, more negative than what was the previous quarter. And so I think we haven't struck that as somewhat theoretical, but we think the max order with this current team is around 75,000. And as we continue to see the supply chain ease, we'll continue to grow that team member to increase this capacity. Did that answer the question?

We'll take our next question from Ryan Tomasello with KBW.

This is Nikhil. Sorry, apologies about the mix-up, too many earnings today. So coming back to our question. Do you expect the addition of a new access control panel supplier to alter hardware margins at all, or should we think of that as net neutral? And kind of more broadly based on the visibility you have today, can you say how much of an improvement you think is achievable in gross margins for Hardware and Professional Services next year?

All right. Yes, that one I can answer. I think it would be net neutral in terms of additional supplies or additional access control. There's not a huge turn in cost between the components. It's really what we're fighting is the availability, and so that's part of the question. In terms of where margins are going to be, you're going to continue to see them expand and improve in Hardware and also in Professional Services. But I think it was good to get the Hardware back into the positive gross margin territory this quarter. And I think you’ll see Professional Services will take more to get to that point. Again, as we start trying to increase the number of units we do in a quarter, we'll actually have to increase the cost of bringing on as we get some training up to speed. So there's a couple of different headwinds on the Professional Services margin going forward, but I think you'll see both will continue to improve as well as the Hosted Services margin.

Got it. And just as a follow-up, can you also provide an update on SightPlan's run rate revenues and growth profile?

Yes, I can reiterate the question that I think Jason or Brett had. Yes, we're incredibly excited about how we've integrated SightPlan and where we're going with that product set. I mentioned in the first question that in the entire multifamily industry, there's a major trend around potting and centralization. Potting is where we could have two or three properties managed by one set of employees, so you wouldn't have a property manager at each property. Certainly, with SightPlan or SmartRent, you can't do either of those things. And the complementary nature of the products is just incredible, and we're seeing a lot of positive response from the owners that are rolling this out.

And ladies and gentlemen, this concludes our question-and-answer session today. I will now turn the call back to Mr. Lucas Haldeman for closing remarks.

Thanks, everyone, for joining, and I look forward to seeing some of you in the coming weeks at investor conferences. And thank you all for tuning in, and talk to you soon.

Ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.