Thank you for standing by. My name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent Q3 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Kristen Lee. You may begin.

Hello and thank you for joining us today. My name is Kristen Lee, Chief Legal Officer for SmartRent. I'm joined today by Daryl Stemm, CFO and Interim Principal Executive Officer and John Dorman, Chairman of the Board. 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, smartrent.com before I turn the call over to John, 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 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 a third quarter earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to John.

Good morning and thank you all for joining us today. As we report on the third quarter at SmartRent, I'd like to first acknowledge the substantial resilience and strategic focus our team has demonstrated during this period of significant change. It's been really exciting to see the level of passion, alignment and commitment of the entire team during what is by any definition a challenging period. It's now been 14 weeks since we announced the Board's decision to initiate a leadership transition at SmartRent. During this period, reflecting on the significant importance of this decision toward driving sustainable improvements in shareholder value, the Board has been deeply engaged with the entire management team in assessing both the strategic direction and the operational effectiveness of the company so that we're all aligned around a viable plan for recovery. In order to inform our investors about our progress in this important transition, I'd like to cover four key topics this morning. First, I'll summarize what we've learned during this first quarter of transition. Second, I'll highlight some things that we've accomplished during this period. Third, I'll provide an update on our CEO search process. And finally, I'll recap our four pillars of strategic focus that are guiding both our transition plan and our CEO search. Everything we've learned since making the decision to initiate a transition in leadership has confirmed the key perspectives that framed the Board's decision. That is, we've confirmed and strengthened our firm belief that the key issues affecting SmartRent performance are execution issues which are not too difficult to address. While the core business model, the growth potential of our market, our market leadership position, and the differentiated value proposition for our customers all remain very compelling. We've concluded that our execution issues and growth challenges nearly all…

Thank you, John, and good morning, everyone. We appreciate you joining our call today. As we navigated through SmartRent's third quarter, our focus on delivering ARR growth and enhancing customer satisfaction has been top of mind. We believe our core strategy remains solid, ensuring that as market conditions and our own operational excellence improves, we're well positioned to capitalize on growth. This quarter we were focused on ARR growth over one off hardware deals. During the quarter, the company delivered a robust 23% year-over-year increase in SaaS revenue, primarily driven by improvements in SaaS ARPU and units deployed. Two key metrics that are crucial for sustainable ARR growth. Our SaaS ARR grew to $53.2 million, up from $43.3 million in the third quarter of 2023. SaaS ARPU increased by 5% to $5.70 from $5.41 from the same quarter last year, primarily attributable to improvements in pricing. Units booked SaaS ARPU also saw an increase of 8%, up to $9.73 from $9.04 from the same quarter last year. Total revenue for the quarter was $40.5 million, a 30% decrease from the same quarter last year, primarily driven by lower units shipped and new units deployed. Hosted services revenue, including $13.3 million of SaaS revenue, increased by 12% to $18.5 million. Hardware revenue decreased by 47% to $18.7 million and professional services revenue decreased by 45% to $3.3 million. As of September 30, 2024. Units deployed reached just over 787,000, a 15% increase from last year. New units deployed during the quarter decreased by 53% with just over 15,000 units deployed. Total bookings for the quarter were $19.6 million, a decrease of $30.1 million or 61% from the same quarter in the prior year. Total bookings includes bookings of approximately 17,000 new units. Overall decreases in new units deployed, units shipped and…

Thank you. The floor is now open for questions. [Operator Instructions] And your first question comes from the line of Ryan Tomasello with KBW. Please go ahead.

Hi everyone, thanks for taking the questions and appreciate all the updates on the strategic front. Just wanted to start on macro and was hoping you can put a finer point around how the headwinds you've been facing have evolved over the last few months since we last got an update. What recent indications have been from customers around capital expenditures next year and just generally if there's any guardrails you can put around expectations for the fourth quarter as we think through a continuation of those headwinds around bookings and unit deliveries.

Yeah, thank you Ryan. Appreciate the call. We've been heavily engaged with our customers in particular since we added Natalie to our team and the general feeling from our customers macro conditions are that, you know, it was a good start to see the interest rates go down in September but there's still a certain amount of angst around the timing of future interest rate changes. Most folks are acting but also there was a, in my mind a relatively surprising amount of angst around the election results as well. And as a result of those two primary macros, economic just macro conditions we didn't expect to see and still don't expect to see any loosening of capital expenditures in hopeful that the results of the election might really lead to more investment from our customers in property technology in 2025.

Great, appreciate that.

Yeah, you're welcome Ryan.

And I'm not sure if it's just on our end but I think there's some issues on the audio front just for the operator and then maybe just turning to the strategic investment that was called out $10 million over the next year. Maybe just elaborate on what exactly you mean by that. What areas of the business that's going to be allocated towards? How we should think about the impact to margins and the timeline to a more sustainable break even and cash flow positive profile for the business.

Okay, thank you. And the four strategic pillars that John did outline, that's going to be the general guidelines around the investment activities. We some of the internal factors that John called out earlier around effective sales leadership and building a scalable go to market organization. Other things around really refocusing on our core solution which is the IoT platform as well as work management solutions. These are the primary areas of focus. And so really, it's going to, it's really going to from a practical standpoint lead to investments in sales and marketing engineering as well as operations. Anything that directly impacts the satisfaction of our customer experience is the most general way that I could put that.

Okay, thanks. I'll step back into the queue.

Your next question comes from the line of Tom White with D.A. Davidson and Co. Please go ahead.

Thanks for taking my question. Maybe just a follow up on the last one about the $10 million. I guess I'm just, I'm trying to reconcile the comments about kind of not taking the company back into negative margin territory kind of with the, with the $10 million. Can you maybe just talk a little bit about what timeframe you're kind of referring to there and when you think the investments might start to yield returns. And then just a follow up, Darryl, you kind of mentioned sort of a little bit more focused on some of the core products like core IoT. Just curious how the Board views, Wi Fi? If you guys view that opportunity and kind of the commitment to investing there any differently than Lucas did. Thanks.

Yeah, let me start and then perhaps John might offer a bit of context. We're going to first and foremost and we've already started moving on this. We really need to work on the sales team and the sales leadership which again we've already acted on. Natalie Cariola has been brought on the team about one month ago and managing the sales team will certainly really speaking to the timing of the investments and the, and the why. You know, if we look back over the last several years, the company has started applying more attention to point solutions that are adjacent to our core offering. And again our core offering and our core. Let me even take one step further back. Our core value proposition is around protecting the assets and helping improving the efficiency of the operations of our customers and our core offerings, our IoT platform and our work management solutions are the most direct way that we impact that core value proposition. In recent years we've applied more attention and more resources to adjacent point solutions that also impact the operations of our customers. And in doing so I think that we've, we've, our, our work management solutions have lost their clear leadership positions in the market. So, this investment is to reinvigorate both our IoT and our work management solutions to reestablish clearly our market leading position.

And I would just clarify further, Daryl, in response to the question both Ryan and Tom raised with respect to timeline. While we can't and won't be specific about a timeline for returns, I would highlight that what's motivating these investments is we see some very specific opportunities around our highlighted strategic pillars to make some investments that will accelerate our achievement of our North Star goal of accelerating and developing more sustainable ARR growth. And it's not going to be measured in a long-term time horizon. We see multiple opportunities to accelerate our growth in 2025 and we're investing behind those opportunities.

Thank you.

Your final question comes from the line of Erik Woodring with Morgan Stanley. Please go ahead.

Great. Thanks so much for taking my questions guys. I have two. John, just maybe quickly I understand the kind of renewed focus on SaaS sales. Obviously, that is high margin, long-term annuity so to speak. But to turn on that SaaS you obviously need to deploy units. And I guess my question is more maybe a clarification which was when we go to the beginning and talk about the four challenges or the challenges from four factors. One was an over reliance on hardware distracting from SaaS and I'm just wondering is the comment there an over reliance on hardware, meaning deployments and not necessarily focusing more attention on SaaS or a focus on developing your own hardware and a lack of focus on SaaS? I just want to make sure I kind of understand that comment and then I have a follow-up. Thanks.

It's more the latter. Obviously, our hardware is the leading tip of the sphere that with the sale and deployment of units we drive SaaS growth. But what I was referring to in terms of the challenge of the distraction is, is in the board's evaluation, we became overly distracted and scattered our resources toward hardware point solutions, other hardware initiatives all around building our own hardware distractions from the core focus of driving SaaS growth. And it's that alignment around using hardware strategically to drive SaaS growth is our North Star.

Got it. That makes a lot of sense. Thank you for that. And then my follow up is maybe just what are you hearing from your customers? Right. Obviously, you kind of went through the macro environment, so I'm not really focused on that. It's more just what are your customers saying about kind of the internal changes that are going on at SmartRent and maybe concerns around either, you know, changing salespeople, changing relationships, uncertainty about the future path, you know, how is that impacting their confidence in working with SmartRent, whether that means ongoing work or even expanding with you? Would just love to hear what you're hearing from your customers over these last 14 weeks. Thanks so much.

I would say that our feedback from customers is encouragingly positive, which is not to say we don't have pressure from customers over some of the operational issues and principally the concerns we hear from customers is over the low stock price and what does that imply? And just a quick reminder about our balance sheet and our financial strength and our market leadership strength settles that down pretty quickly. But our customers are happy with the solutions in general. We, as Daryl alluded to, we have some issues around completing the integration of our operations platform with our IoT platform. And that's a very high priority area of focus with our investment to remedy that quickly. But in general, the board's been quite pleased with the level of commitment the customers have to SmartRent as a strategic provider.

And I just want to comment in that regard, which is, you know, two important metrics with regards to SaaS growth are churn and net revenue retention. And in both cases, it remains strong. Our churn is about 100 and our net revenue retention remains above 100%. So, in both cases it it's a positive indicator about our customer experience.

And that again drives back to the board. The turnaround opportunity here, which guided our decisions over leadership transition, was the clear indication that there's the core of a very strong, very successful SaaS business here. We just need to focus on building the SaaS business and not get quite so distracted on other initiatives. And we need to build this is fully aligned and scaled to the magnitude of our market opportunity by virtue of our market leadership position.

Great. Thanks so much for that color, guys. Good luck.

That concludes our Q&A session. Thank you for joining today's call. You may now disconnect.