Thank you for standing by. My name is Novi, and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent, Inc. Fourth Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press star followed by the number one on your telephone keypad. Thank you. I would now like to turn the call over to Kristen Lee, Chief Legal Officer. Hello, and thank you for joining us today.

My name is Kristen Lee, Chief Legal Officer for SmartRent, Inc. I'm joined today by our newly appointed President and Chief Executive Officer Shane Paladin and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Ks 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 Shane, I would like to remind everyone that 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, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent, Inc. 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 fourth quarter and full year earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to Shane.

Thanks, Kristen, and good morning, everyone. I'm Shane Paladin, and I'm truly excited to be joining you today as SmartRent, Inc.'s new CEO. While I've only been with the company for about a week, I wanted to take this opportunity to introduce myself and share some initial observations. First, I'd like to thank our board of directors and the management team for their warm welcome and support during this transition. I'd also like to express my appreciation to our employees for their dedication to our mission, and to our customers for their continued partnership. Throughout my career, I've been drawn to businesses with transformative potential and compelling marketing opportunities. While evaluating the strength of the product is fundamental to success, what attracted me to SmartRent, Inc. is our exceptionally strong product foundation, SaaS growth potential, and the clear value proposition we deliver to our customers. Customers invest in software solutions to grow revenue, reduce costs, or mitigate risk, and SmartRent, Inc. delivers in all three of these value drivers. We help property owners and operators increase revenue through premium pricing and enhanced resident loyalty, reduce operational costs through efficiency, and mitigate risk through improved property management capabilities. In my brief time here, one thing that has become crystal clear is the return on investment for our customers is compelling and quantifiable. When our customers implement SmartRent, Inc. solutions effectively, they see measurable improvements in operational efficiency, resident satisfaction, and financial performance. Our ability to deliver demonstrable financial benefits to our customers is a key differentiator in the market. Our vision is to provide property owners and operators with a comprehensive unified platform that gives them everything they need to know about their property performance, efficiency, and opportunities for optimization. When I look at SmartRent, Inc.'s position, I see tremendous opportunity…

Thank you, Shane, and good morning, everyone. We appreciate you joining our call today to discuss our fourth quarter and full year 2024 results. First, I'd like to welcome Shane to our company as our new CEO. We're excited to have him on board as we continue our strategic transformation toward a SaaS-focused business model. Before diving into the details, I want to emphasize that 2024 has been a challenging but I believe pivotal year for our company as we execute on our strategic transformation. While we face some challenges, we've also made substantial progress in our strategic initiatives, which I'll elaborate on shortly. Let me start with our fourth quarter and full year financial performance. For the fourth quarter, our total revenue was $35.4 million, down 41% from the same quarter prior year, while full year revenue was $174.9 million, a 26% decrease from 2023. These declines primarily stem from reduced volumes in units shipped, largely resulting from the lack of success of our channel partner sales program, which was unwound last year shortly before the board initiated the leadership transition. Our SaaS revenue grew 17% year over year in the fourth quarter, showing real progress in our strategic shift towards our core SaaS platform. Annual recurring revenue, or ARR, increased to $54.4 million, up from $46.2 million in Q4 of 2023. SaaS revenue now represents roughly one-third of our total revenue for 2024, up from 17% in 2023. This percentage increase reflects both the growth in our recurring revenue streams and the decrease in our hardware and professional services revenue. Nevertheless, the absolute growth in ARR of $8.2 million demonstrates that we're making progress in building our SaaS business. In the quarter, we made progress on a number of strategic initiatives driving our core pillars. First, sustainable and…

Thank you, Daryl, for that comprehensive review of our financial results. As I wrap up before taking your questions, I want to reiterate that we're navigating a period of transition. I'm optimistic about SmartRent, Inc.'s future and our trajectory toward becoming a SaaS-focused company. With our financial position and disciplined approach to capital allocation, we believe we are well-positioned to weather near-term challenges while making the strategic investments necessary to capture the significant market ahead of us. Now we'll open the line and take your questions. Operator?

We also ask that you please limit your questions to one question, one follow-up. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Ryan Tomasello with KBW. Please go ahead.

Hi, everyone. Thanks for taking the questions, and congrats, Shane, on the new role. It sounds like at this stage, with the company's focus on becoming a SaaS-first company, I think, as you put it. I'm trying to understand how that might impact the hardware first-party hardware strategy. Clearly, based on your remarks, it sounds like you're trying to deemphasize the reliance on hardware revenue, but just given how that's been such a key component of the company's strategy historically, any color on how you might approach changes to that strategy going forward would be helpful as we try to understand this transition period. Thanks.

Sure. Ryan, great question, and thank you for the warm welcome. What I want to hit on the hardware side is that this has been a key strategic investment for the company going forward. And it's actually not a deemphasis. It's actually monetizing it. So if you think about our business, the things that our hardware touches are the life of the resident every day. So everybody uses their smart lock to get in. Everybody needs to work on, is it too hot, is it too cold. These are key elements that are their ability to work with the smart off side of the house, understanding how we actually take that data and make our operators smarter in what they do. So it's actually taking all the insight that we garner from the hardware side of the business and being able to monetize that through the software side of the business. So it is a symbiotic relationship. And it takes time, and the company has done a great job of building that foundation of excellent products on the hardware side that now enable us to go and take those insights and drive them through on more of the pure play SaaS side. That's really the emphasis there.

And just to add on top of that, Shane, we don't in essence sell locks and thermostats. We literally do. But what we sell are solutions to our customers' problems.

Great. Thanks for that color. And then as a follow-up question here, as you think it through your strategic pillars, how big of a focus is scaling the pace of unit deployments for the company? And if you could help us understand what initiatives that you laid out might play into that strategy of scaling the pace of unit deployments. Are there any plans to perhaps stand up another channel partner program just to attack that mid-market category, which is so large? Any color you can provide there. Thanks.

So I can start there. And, Daryl, if you have any commentary, feel free to jump in. I've been on board about a week. I'm right now in the process of reviewing all of these items. Ultimately, what we need to understand is the customer journey of those that are in the bucket today, working with our strategic customers and partners. And then ultimately, once we've got that motion 100% well understood and working as it is, of course, the key there in time is to go down and see how we address other markets. But right now, more in the analysis mode coming back. And as we get into the next earnings call, we'll have more insight into that.

Yeah. In addition to that, I would add that as we mentioned earlier, we've had a fairly significant, not fairly, we've had a very significant restructuring of our sales team, beginning with adding Natalie as our new CRO in September, and then she's rebuilding her direct sales team, did an announcement in January of four key hires in our sales and customer success organization. So I think fixing the sales organization is step one. As Shane mentioned, he's been here for about a week. And I'm sure that as he continues reviewing the processes and the development of ideal customer profiles, that we may have some more changes in the future.

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

Great. Thanks for taking my questions. And, yeah, congrats, Shane, on the new role. I guess two, if I could. Last quarter, you guys talked about the $10 million kind of incremental growth investment. Maybe just give us an update there on kind of priorities or how you're deploying that or maybe you're pausing to give Shane some time or wait to see how the macro shakes out. And then just secondarily on the macro, realized, Shane, you've only been there a week, but I would just be curious to hear an update on what you're generally hearing from customers and prospects. I know last quarter, you highlighted some angst from owner-operators around the election. There are any number of additional things now to be anxious about, I guess. Just maybe some general color there would be helpful. Thank you.

Yeah. Thank you, Tom. Let me start with a couple of comments on the $10 million investment. And I would say that our initial emphasis has been on the development of the smart operation solutions. We did some announcements during Q4. The initial development work was really focused on making data more readily available in a usable format that our customers didn't have to extract themselves. More development work is underway, including things that really address the concept of centralization of maintenance operations. So there'll be some additional announcements during Q2 of this year, the primary emphasis related to some of those new features. But, again, has been around development work of our SaaS-only smart operation solutions. Shane, did you want to add anything on top of that?

Yeah. I think you hit on the investment side. I think just to hit the macro question you had there, you know, yesterday, in fact, I met with one of our largest customers, one of the largest multifamily operators in North America as well. And, you know, where they're at is they're being very pragmatic right now. Right? And it's about ROI. And a lot of the discussion they had with us was about the ROI that we deliver. Right? Which gives me great hope in everything that we're doing with them. Also, they're seeing and their expectation is they're seeing tailwinds coming as we get into the next few years. That's what they hope to see as well. Many conversations ongoing this week and next week as well. So as I get more and we get more into it, we'll have a better view of what our customers are seeing and more importantly, that translates into our view as well.

Thank you.

As there are no further questions at this time, I will now turn the call back over to Shane Paladin, CEO, for closing remarks. Oh, hold on a moment, please. Your next question comes from the line of Barry Oxford with Colliers International.

Great. Thanks, guys. Thanks. Shane, congrats on the new role. Barry Oxford with Colliers, full disclosure, I'm a REIT analyst. But want to get some color on the apartment landlords, especially some of the bigger ones. When there was a void at the top, did you guys see them sort of back off as far as converting new units into smart units or and therefore, you feel that this pace can reengage with the bigger landlords?

Yeah. Barry, thanks. Great question. You know, to be honest, I think if I was to reference this, I would go back to the operational investment we're making in the sales motion there. Right? So as we get that sales motion stood up, you know, it's working with those customers and partners to get things going. I think it's more that, not necessarily their demand or desire, in the market. And so we have Natalie who's been on board now for a couple of quarters making the right investments, streamlining our own internal processes, making sure that we're meeting customers where they are and also taking a very customer-centric view. Right? Making sure not every customer is the same. Some are very complex. Some have simple needs. It's making sure we understand that we meet them where they are in that process, and I think that's as that continues to evolve and advance, we'll see progression in the motion and the numbers.

Have you seen positive responses from those larger landlords as you've been enacting on this?

Yeah. Being here only a week in the handful I've met, all of them have been very positive. Right. Right. No. No. No. I understand that. Full disclosure. I get that. I get that. I mean, I don't mean to be peppering you. Go ahead.

It's okay. Yeah. Yeah. And so far, they've been very positive. Everyone has an appetite to do more. Right? But ultimately, what it comes back down to is ROI. Right? They want to make sure what they're doing as they're doing their capital allocation are they getting the best return on their investment? And those are the discussions that we're having. And the great thing is they're all around both the IoT side and the SaaS side about how we help them achieve that, both in hard terms and hard dollars and soft dollars.

Okay. Great. Thanks for the color, Shane.

Again, if you would like to ask a question, please press star one. As there are no further questions at this time, I will now turn the call back over to Shane Paladin, CEO, for closing remarks.

Okay. Thank you for joining us today. As we conclude this call, I want to express my gratitude to our shareholders for your trust, our customers for your partnership, and our talented team for your dedication during this transition period. While I've only been with SmartRent, Inc. for about a week, I'm energized by the opportunities ahead. Our solutions, customer relationships, and the market position we have today provide a remarkable springboard for our next phase of growth. Over the coming months, I'll be conducting comprehensive reviews of our business, getting to know our customers, and working closely with our leadership team to refine our execution strategy. I commit to bringing the focus, discipline, and operational rigor needed to accelerate our transformation into a SaaS-centric business model and drive sustainable and profitable growth. Thank you again for joining us today. We appreciate your support and look forward to updating you on our progress.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.