SMARTRENT, INC. 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included herein and the consolidated financial statements and notes thereto for the year endedDecember 31, 2021 contained in our Annual Report on Form 10-K filed with theSEC onMarch 25, 2022 .
This discussion also contains forward-looking statements based upon current expectations that involve risks and uncertainties. Please refer to the section entitled "Cautionary Note Regarding Forward-Looking Statements."
Unless the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to "we," "our," "us," "the Company" and "SmartRent" generally refer toSmartRent Technologies, Inc. , Legacy SmartRent, and its consolidated subsidiaries prior to the Business Combination. OverviewSmartRent is an enterprise real estate technology company that provides comprehensive management software and applications designed for property owners, managers and residents. Our suite of products and services, which includes both smart building hardware and cloud-based SaaS solutions, provides seamless visibility and control over real estate assets. Our platform lowers operating costs, increases revenues, mitigates operational friction and protects assets for owners and operators, while providing a differentiated, elevated living experience for residents. Through our central connected device, called SmartHub, we integrate our proprietary enterprise software with third-party smart devices and other technology interfaces through an open-architecture, brand-agnostic approach, which allows owners, operators, and residents to manage their smart home systems through a single connected interface. Our products and solutions include smart apartments and homes, access control for buildings, common areas, and rental units, asset protection and monitoring, parking management, self-guided tours, and community and resident Wi-Fi. We also have a professional services team operating acrossthe United States through which we provide customers with installation, training, and support services. Our recent SightPlan acquisition advances our product roadmap and augments the cloud-based SaaS solutions for current and prospective customers. We believeSmartRent is the category leader in the enterprise smart home solutions industry. As ofJune 30, 2022 , our customers owned an aggregate of approximately 6.6 million units, including 1.3 million units owned by new customers obtained in the SightPlan acquisition. This represents approximately 15% of the U.S. market for institutionally owned multifamily rental units and single-family rental homes, and includes many of the top multifamily residential owners inthe United States . In addition to multifamily residential owners, our customers include some of the leading homebuilders, single-family rental homeowners, and iBuyers inthe United States . We estimate that the U.S. market for residential real estate consists of approximately 44 million institutionally owned multifamily rental units and single-family rental homes as ofJune 30, 2022 . While several of the top multifamily residential owners are currentSmartRent customers, we believe that we have only begun to take advantage of the full market opportunity in residential and commercial real estate sectors and in domestic and international markets. For example, we recently adapted our software and applications to target new opportunities in other residential real estate sectors, including student housing, senior housing, and new construction homes. In addition, we believe there is significant potential for growth beyond residential real estate to other commercial real estate asset classes, including, among others, office, hotel, retail, industrial, and self-storage. Furthermore, we believe there is an attractive opportunity to expand our smart home solutions into other markets globally and have started pilot programs and/or developed partner relationships in theUnited Kingdom andCanada . We have designed our open-architecture, brand-agnostic smart home operating system to help the residential real estate industry become more efficient and effective. Importantly, our enterprise software integrates into most existing property management systems used by residential property owners and operators. With features speci?cally designed to increase productivity, while decreasing operating costs, we estimate that owners and operators can realize a 50% return on investment after installation of our smart home operating system.
The Business Combination
OnAugust 24, 2021 , we consummated the Business Combination contemplated by the Merger Agreement. Upon the closing of the Business Combination, Merger Sub merged with and into Legacy SmartRent, with Legacy SmartRent continuing as the surviving company and changing its name to "SmartRent Technologies, Inc. " In connection with the consummation of the Business Combination, we changed our name from "Fifth Wall Acquisition Corp. I" to "SmartRent, Inc. " and changed our trading symbol and exchange listing from "FWAA" on Nasdaq to "SMRT" on the NYSE. 32 -------------------------------------------------------------------------------- Immediately prior to the effective time of the Business Combination, each share of Legacy SmartRent's preferred stock converted into one share of LegacySmartRent's common stock. As a result of and upon the closing of the Business Combination, (i) each share of common stock of Legacy SmartRent was canceled and converted into the right to receive the applicable portion of the merger consideration comprised of shares of FWAA's Class A Common Stock, par value$0.0001 ("Class A Common Stock") as determined pursuant to the Exchange Ratio (as defined in the Merger Agreement), (ii) each share of FWAA's Class B common stock, was canceled and converted into Class A Common Stock, and (iii) each restricted stock unit, outstanding option and warrant to purchase LegacySmartRent's common stock (whether vested or unvested) was assumed by FWAA and converted into comparable restricted stock units, options or warrants that are exercisable for shares of Class A Common Stock, with a value determined in accordance with the Exchange Ratio. The Business Combination is accounted for as a reverse capitalization in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). Under the guidance in FASB ASC 805, "Business Combinations," FWAA is treated as the "acquired" company for financial reporting purposes.SmartRent Technologies, Inc. is deemed the accounting predecessor of the combined business and the successorSEC registrant, meaning that our financial statements for previous periods will be disclosed in the registrant's future periodic reports filed with theSEC . The Business Combination had a significant impact on our reported financial condition and results of operations as a consequence of the reverse capitalization. The most significant change in our reported financial condition and results of operations was a net increase in cash (as compared to our Consolidated Balance Sheet atJune 30, 2021 ) of approximately$444.6 million , which includes approximately$155.0 million in proceeds from thePIPE Investment (described below), offset by additional transaction costs for the Business Combination. Transaction costs incurred in connection with the Business Combination are approximately$56.0 million , including$12.1 million which represents deferred underwriter fees from the FWAA IPO.
In connection with the consummation of the Business Combination, holders of 246 shares of FWAA Class A Common Stock elected to have their shares redeemed.
OnApril 21, 2021 , concurrently with the execution of the Merger Agreement, FWAA entered into subscription agreements with certain investors to which such investors collectively subscribed for an aggregate of 15,500,000 shares of Class A common stock at$10.00 per share for aggregate gross proceeds of$155,000,000 (the "PIPE Investment "). The PIPE Investments were consummated substantially concurrently with the closing of the Business Combination.
Our Model
Our smart home products and solutions provide an enterprise-grade holistic approach to what it means to be a connected community. ASmartRent connected community is a "curb to couch" concept where an entire property utilizes a variety of proprietary and third-party smart devices from various manufacturers and features that can be remotely managed to provide efficiency, automation, asset protection and ancillary revenue opportunities. ASmartRent connected community can combine in-rental unit smart home technology with our Alloy Access control system and our Alloy Parking system, which are connected by our Community WiFi solution and can be managed remotely using our core smart home operating system, Community Manager.
Impact of COVID-19
The extensive impact of the COVID-19 pandemic continues to evolve and continues to cause significant disruptions to the global economy, as well as businesses and capital markets around the world. In an effort to halt the spread of COVID-19, including recent variants, a number of countries, states, and other jurisdictions continue to impose various measures, including voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings, reduced operations and extended business closures. While the impact of the COVID-19 pandemic on our workforce, operations and supply chain, customer demand, results of operations and overall financial performance remain uncertain, we believe that we will continue to experience COVID-related disruptions to our business through 2022. For example, we continue to experience production delays on our sourcing, manufacturing, and logistics channels, including SmartHub production delays as a result of a global shortage of Z-wave chips. Additionally, although we continue to see strong demand for our products, we have experienced purchasing delays from current and prospective customers where COVID-19 and related supply chain delays on their projects have pushed a portion of the transactions we expected to be completed in early 2022 to future periods.
Comparability of Financial Information
Our future results of operations and financial position may not be comparable to historical results as a result of the Business Combination.
Factors Affecting Our Performance
We believe that our future success will be dependent on many factors, including
those further discussed below. Our future operating results and cash flows are
dependent upon a number of opportunities, challenges and other factors,
including our ability to grow our customer base in a cost-effective manner,
expand our hardware and hosted service offerings to generate
33
--------------------------------------------------------------------------------increased revenue per Unit Deployed (as defined below), provide high quality hardware products and hosted service applications to maximize revenue and improve the leverage of our business model. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to operate our business.
Investing in Research and Development
Our performance is significantly dependent on the investments we make in research and development, including our ability to attract and retain highly skilled research and development personnel. We must continually develop and introduce innovative new software services and hardware products, integrate with third-party products and services, mobile applications and other new offerings. If we fail to innovate and enhance our brand and our products, our market position and revenue will likely be adversely affected.
Active
We are focused on successfully navigating unprecedented global supply chain disruptions. Specifically, increased demand for electronics as a result of the COVID-19 pandemic, theU.S. trade relations withChina and certain other factors have led to a global shortage of semiconductors, including Zwave chips, which are a central component of our SmartHubs. Due to this shortage, we have experienced SmartHub production delays, which have occasionally affected our ability to meet scheduled installations and facilitate customer upgrades to our higher-margin Alloy Fusion SmartHub. Further, we've experienced shortages and shipment delays related to components for Alloy Access and made-to-order specialty locks. Consequently, scheduled deployments have been delayed to future periods. This is a timing issue as these customer orders have not been canceled. We expect that some of these backlogged units will be deployed in 2022, but not all. Our expectation is that we will not see marked improvements with respect to supply chain delays for Alloy Access and for made-to-order locks for the remainder of this year.
New Products, Features and Functionality
We will need to expend additional resources to continue introducing new products, features and functionality to enhance the value of our smart home operating system. We have recently introduced a number of product enhancements and features, including theBuilding Access Control , Video Intercom, WiFi and Parking Management solutions. In the future, we intend to continue to release new products and solutions and enhance our existing products and solutions, and we expect that our operating results will be impacted by these releases. The acquisition of SightPlan enhances our overall platform offering and customer value proposition by providing a comprehensive one-stop platform that broadens our support of property operations, enhancing the experience for residents, property owners and managers. BothSmartRent and SightPlan offer an open-API architecture that enables a myriad of third-party partner integrations, resulting in a multi-functional platform that enhances property management workflow efficiencies, empowers teams to get more done, elevates resident interactions, and improves resident living experiences.
Category Adoption and Market Growth
Our future growth depends in part on the continued consumer adoption of hardware and software products which improve resident experience and the growth of this market. We need to deliver solutions that enhance the resident experience and deliver value to our customers, rental property owners and operators, as well as homebuilders and developers, by providing products and solutions designed to enhance visibility and control over assets while providing additional revenue opportunities. In addition, our long-term growth depends in part on our ability to expand into international markets in the future.
Basis of Presentation
The consolidated financial statements and accompanying notes of
Key Operating Metrics
We regularly monitor a number of operating and financial metrics, which include
certain non-GAAP financial measures in order to evaluate our operating
performance, identify trends affecting our business, formulate business plans,
measure our progress and make strategic decisions. Non-GAAP financial measures
may not provide accurate predictions of future GAAP financial results.
The limitations our Key Operating Metrics have as an analytical tool are: (1)
they might not accurately predict our future GAAP financial results, (2) we
might not realize all or any part of the anticipated value reflected in Units
Booked and (3) other companies, including companies in our industry, may
calculate our Key Operating Metrics or similarly titled measures differently,
which reduces its usefulness as a comparative measure.
34
--------------------------------------------------------------------------------Units Deployed and New Units Deployed
We define Units Deployed as the aggregate number of SmartHubs that have been installed (including customer self-installations) as of a stated measurement date. We define New Units Deployed as the aggregate number of SmartHubs that were installed (including customer self-installations) during a stated measurement period. We use these operating metrics to assess the general health and trajectory of our business and growth. We had 60,329 and 23,834 New Units Deployed during the three months endedJune 30, 2022 and 2021, respectively. We had 111,525, and 56,320 New Units Deployed during the six months endedJune 30, 2022 , and 2021, respectively. As ofJune 30, 2022 , andJune 30, 2021 , we had an aggregate of 451,010 and 211,425 Units Deployed, respectively.
Committed Units
We define Committed Units as the aggregate number of SmartHub (i) units that are subject to binding orders from customers together with (ii) units that existing customers who are parties to aSmartRent master services agreement have informed us (on a non-binding basis) that they intend to order in the future for deployment within two years of the measurement date. We track the number of Committed Units to assess the general health and trajectory of our business and to assist in our longer-term resource analysis. As ofJune 30, 2022 and 2021, we had 780,036 and 606,455 Committed Units, respectively.
Units Booked
We define Units Booked as the aggregate number of SmartHub units associated with binding orders executed during a stated measurement period. We utilize the concept of Units Booked to measure estimated near-term resource demand and the resulting approximate range of post-delivery revenue that we will earn and record. Units Booked represent binding orders only and accordingly are a subset of Committed Units. We had 59,306 and 38,812 Units Booked during the three months endedJune 30, 2022 , and 2021, respectively. For the six months endedJune 30, 2022 and 2021, there were 150,788 and 84,348 Units Booked, respectively.
EBITDA and Adjusted EBITDA
We define EBITDA as net income or loss computed in accordance with GAAP before
the following items: interest expense, income tax expense and depreciation and
amortization. We define Adjusted EBITDA as EBITDA before the following items:
stock-based compensation expense, non-employee warrant expense, and
non-recurring expenses in connection with acquisitions. Management uses EBITDA
and Adjusted EBITDA to identify controllable expenses and make decisions
designed to help us meet our current financial goals and optimize our financial
performance, while neutralizing the impact of expenses included in our operating
results which could otherwise mask underlying trends in our business. See
"Non-GAAP Financial Measures" for additional information and reconciliation of
these measures.
Annual Recurring Revenue
We define Annual Recurring Revenue ("ARR") as the annualized value of our
recurring SaaS services revenue earned. We monitor our ARR to assess the general
health and trajectory of our hosted services business. Our ARR was approximately
$30.6 million based upon the annualized run rate for the three months ended June
30, 2022 , compared to $7.0 million for the three months ended June 30, 2021 .
Components of Results of Operations
Revenue
We generate revenue primarily from sales of systems that consist of hardware devices, professional installation services and hosted services enabling property owners and property managers to have visibility and control over assets, while providing all-in-one home control offerings for residents. We record revenue as earned when control of these products and services is transferred to the customer in an amount that reflects the consideration we expect to collect for those products and services.
Hardware Revenue
We generate revenue from the direct sale to our customers of hardware smart home
devices, which devices currently consist of door-locks, thermostats, sensors,
and light switches. These smart home devices connect to either the Alloy Fusion
or the Alloy SmartHub. The performance obligation for hardware revenue is
considered satisfied, and revenue is recognized, when the hardware device is
shipped to the customer, except for the Alloy SmartHub, which is discussed in
Hosted Services Revenue below. The Alloy Fusion device operates together with
the proprietary software, discussed in Hosted Services Revenue below, but also
provides features that function independently without subscription to our
proprietary software, and the performance obligation for hardware revenue is
considered satisfied and revenue is recognized at a point in time when the Alloy
Fusion hub is shipped to the customer. We generally provide a one-year warranty
period on hardware devices that are delivered and installed. We record the cost
of the warranty as a component of cost of hardware revenue.
35
--------------------------------------------------------------------------------Professional Services Revenue
We generate professional services revenue from installing smart home hardware devices, which does not result in significant customization of the installed products and is generally performed over a period ranging from two to four weeks. Installations can be performed by our employees, can be contracted out to a third party with our employees managing the engagement, or can be performed by the customer. Professional services contracts are generally performed on a fixed-price basis and revenue is recognized over the period in which installations are completed.
Hosted Services Revenue
Hosted services consist of recurring monthly subscription revenue earned from the fees collected from customers to provide access to one or more of our software applications including access controls, asset monitoring and related services. These subscription arrangements have contractual terms typically ranging from one month to seven years and include recurring fixed plan subscription fees. Our arrangements do not provide the customer with the right to take possession of our software at any time. Customers are granted continuous access to the services over the contractual period. Accordingly, fees collected for subscription services are recognized on a straight-line basis over the contract term beginning on the date the subscription service is made available to the customer. Variable consideration is immaterial. We sell the hardware Alloy SmartHub device, which only functions with the subscription to our proprietary software applications and related hosting services. We consider the Alloy SmartHub device and hosting services subscription as a single performance obligation, and therefore we defer the recognition of revenue for the Alloy SmartHub devices that are sold with application subscriptions. The estimated average in-service life of the Alloy SmartHub devices is four years. When an Alloy SmartHub device is included in a contract that does not require a long-term service commitment, the customer obtains a material right to renew the service because purchasing a new device is not required upon renewal. If a contract contains a material right, proceeds are allocated to the material right and recognized over the period of benefit, which is generally four years. Cost of Revenue Cost of revenue consists primarily of direct costs of products and services together with the indirect cost of estimated warranty expense and customer care and support over the life of the service arrangement. We expect cost of revenue to increase in absolute dollars in future periods. We record any change to cost of job performance and job conditions in the period during which the revision is identified. Hardware Cost of hardware revenue consists primarily of direct costs of proprietary products, Alloy Fusion, hardware devices and supplies purchased from third-party providers, shipping costs, warehouse facility (including depreciation and amortization of capitalized assets and right-of-use assets) and infrastructure costs, personnel-related costs associated with the procurement and distribution of our products and estimated warranty expenses together with the indirect cost of customer care and support. We expect cost of revenue to increase in absolute dollars in future periods. In 2019, theU.S. administration imposed significant changes toU.S. trade policy with respect toChina . Tariffs have subjected certainSmartRent products manufactured overseas to additional import duties. The amount of the import tariff has changed numerous times based on action by theU.S. administration. We continue to monitor the change in tariffs. If tariffs are increased, such actions may increase our cost of hardware revenue and reduce our hardware revenue margins further in the future.
Professional Services
Cost of professional services revenue consists primarily of direct costs related
to personnel-related expenses for installation and supervision of installation
services, general contractor expenses and travel expenses associated with
installation of our products, and indirect costs that are also primarily
personnel-related expenses in connection with training of and ongoing support
for customers and residents. We expect cost of revenue to increase in absolute
dollars in future periods.
Hosted Services
Cost of hosted services revenue consists primarily of the amortization of the
direct costs of our Alloy SmartHub device consistent with the revenue
recognition period noted above in "Hosted Services Revenue" and infrastructure
costs associated with providing our software applications together with the
indirect cost of customer care and support over the life of the service
arrangement. We expect cost of revenue to increase in absolute dollars in future
periods at a rate that is lower than the corresponding increase in hosted
services revenue.
36
--------------------------------------------------------------------------------Operating Expenses
Research and Development
Research and development expenses consist primarily of personnel-related costs directly associated with our research and development. Our research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development. We account for the cost of research and development by capitalizing qualifying costs, which are incurred during the product development stage, and amortizing those costs over the product's estimated useful life, which generally ranges from three to five years depending on the type of application. Costs incurred and capitalized during the product development stage generally include the costs of software configuration, coding, installation and testing. Such costs primarily include payroll and payroll related expenses for employees directly involved in the product development. We expense preliminary evaluation costs as they are incurred before the product development stage, as well as post development implementation and operation costs, such as training, maintenance and minor upgrades. We begin amortizing capitalized costs when a project is ready for its intended use, and we periodically reassess the estimated useful life of a project considering the effects of obsolescence, technology, competition and other economic factors which may result in a shorter remaining life. We expect our research and development costs to increase in absolute dollars as we increase our investment in product development to broaden the capabilities of our solutions and introduce new products and features.
Sales and Marketing Expenses
Our sales and marketing expenses consist of costs directly associated with our sales and marketing activities, which primarily include personnel-related costs, sales commissions, marketing programs, trade shows, and promotional materials. We expect that our sales and marketing expenses will increase over time as we hire additional sales and marketing personnel, increase our marketing activities, grow our domestic and international operations, and continue to build brand awareness.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs associated with our general and administrative organization, professional fees for legal, accounting and other consulting services, office facility, insurance and information technology costs. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and stock exchange listing requirements, additional insurance expense, investor relations activities and other administrative and professional services. We also expect to increase the size of our general and administrative staff in order to support the growth of our business.
Other Expenses
Other expenses consist primarily of interest expense, foreign currency transaction gains and losses, and other income related to the operations ofZipato , a wholly owned subsidiary ofZenith Highpoint, Inc. , which entities we acquired in a business combination inFebruary 2020 . Interest expense is recorded in connection with our various debt facilities. Foreign currency transaction gains and losses relate to the impact of transactions denominated in a foreign currency other than theU.S. dollar. As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, which we expect to continue.
Provision for Income Taxes
The income tax benefit on the Consolidated Statement of Operations and Comprehensive Loss is primarily related to the valuation allowance release due to deferred tax liabilities from the SightPlan acquisition. We have established a full valuation allowance for net deferredU.S. federal and state tax assets, including net operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized in future periods if we report taxable income. We believe that we have established an adequate allowance for our uncertain tax positions, although we can provide no assurance that the final outcome of these matters will not be materially different. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. 37 --------------------------------------------------------------------------------
Results of Operations for the Three and Six Months Ended
The results of operations presented below should be reviewed together with the
consolidated financial statements and notes included elsewhere in this Report.
The following table summarizes our historical consolidated results of operations
data for the periods presented. The period-to-period comparison of operating
results is not necessarily indicative of results for future periods. All dollars
are in thousands unless otherwise stated.
Three months ended June 30, Change Change Six months ended June 30, Change Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands) (dollars in thousands)
Revenue
Hardware $ 20,895 $ 14,029 $ 6,866 49 % $ 43,009 $ 26,427 $ 16,582 63 %
Professional
services 9,123 3,564 5,559 156 % 16,032 7,165 8,867 124 %
Hosted services 12,391 4,084 8,307 203 % 20,727 7,245 13,482 186 %
Total revenue 42,409 21,677 20,732 96 % 79,768 40,837 38,931 95 %
Cost of revenue
Hardware 20,951 12,514 8,437 67 % 42,809 24,657 18,152 74 %
Professional
services 14,115 6,274 7,841 125 % 29,282 11,734 17,548 150 %
Hosted services 6,355 2,606 3,749 144 % 11,433 4,577 6,856 150 %
Total cost of
revenue 41,421 21,394 20,027 94 % 83,524 40,968 42,556 104 %
Operating
expense
Research and
development 8,030 4,083 3,947 97 % 14,476 7,176 7,300 102 %
Sales and
marketing 6,139 2,392 3,747 157 % 11,301 4,146 7,155 173 %
General and
administrative 13,832 3,806 10,026 263 % 25,783 7,763 18,020 232 %
Total operating
expenses 28,001 10,281 17,720 172 % 51,560 19,085 32,475 170 %
Loss from
operations (27,013 ) (9,998 ) (17,015 ) 170 % (55,316 ) (19,216 ) (36,100 ) 188 %
Other Expense
Interest
expense 253 (64 ) 317 (495 )% 241 (142 ) 383 (270 )%
Other income,
net 162 52 110 212 % 276 127 149 117 %
Loss before
income taxes (26,598 ) (10,010 ) (16,588 ) 166 % (54,799 ) (19,231 ) (35,568 ) 185 %
Income tax
benefit
(expense) 1,009 (41 ) 1,050 (2561 )% 5,816 (87 ) 5,903 (6785 )%
Net Loss $ (25,589 ) $ (10,051 ) $ (15,538 ) 155 %
Comparison of the three and six months ended
Revenue
Three months ended June 30, Change Change Six months ended June 30, Change Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands) (dollars in thousands)
Revenue
Hardware $ 20,895 $ 14,029 $ 6,866 49 % $ 43,009 $ 26,427 $ 16,582 63 %
Professional
services 9,123 3,564 5,559 156 % 16,032 7,165 8,867 124 %
Hosted
services 12,391 4,084 8,307 203 % 20,727 7,245 13,482 186 %
Total revenue $ 42,409 $ 21,677 $ 20,732 96 % $ 79,768 $ 40,837 $ 38,931 95 %
38-------------------------------------------------------------------------------- Total revenue increased by$20.7 million , or 96%, to$42.4 million for the three months endedJune 30, 2022 , from$21.7 million for the three months endedJune 30, 2021 . Total revenue increased by$38.9 million , or 95%, to$79.8 million for the six months endedJune 30, 2022 , from$40.8 million for the six months endedJune 30, 2021 . The increase in revenue resulted primarily from an increase in New Units Deployed during 2022 compared to 2021 and from the increased number of cumulative active subscriptions for our hosted services during 2022 compared to 2021, and our acquisition of SightPlan inMarch 2022 . Our revenue is primarily driven by New Units Deployed and the aggregate number of Units Deployed. We had 60,329 New Units Deployed during the three months endedJune 30, 2022 , compared to 23,834 New Units Deployed during the same period in 2021, an increase of 36,495 New Units Deployed, or 153%. We had 111,525 New Units Deployed during the six months endedJune 30, 2022 , compared to 56,320 New Units Deployed during the same period in 2021, an increase of 55,205 New Units Deployed, or 98%. The aggregate number of Units Deployed was 451,010 atJune 30, 2022 , compared to 211,425 atJune 30, 2021 . Hardware revenue increased by$6.9 million , or 49%, to$20.9 million for the three months endedJune 30, 2022 , from$14.0 million for the three months endedJune 30, 2021 , primarily attributable to an increase in hardware sales volumes of$7.7 million resulting from the increase in units shipped. Average revenue per unit ("ARPU") increased 31% to$441.16 for the 2022 period from$337.02 for the 2021 period. Hardware revenue increased by$16.6 million , or 63%, to$43.0 million for the six months endedJune 30, 2022 , from$26.4 million for the six months endedJune 30, 2021 , primarily attributable to an increase in hardware sales volumes of$17.5 million resulting from the increase in units shipped. ARPU increased 18% to$427.49 for the 2022 period from$362.79 for the 2021 period. Professional services revenue increased by$5.6 million , or 156%, to$9.1 million for the three months endedJune 30, 2022 , from$3.6 million for the three months endedJune 30, 2021 . Professional services revenue increased by$8.9 million , or 124%, to$16.0 million for the six months endedJune 30, 2022 , from$7.2 million for the six months endedJune 30 , 2021.The increases in both periods were primarily attributable to an increase in New Units Deployed. Hosted services revenue increased by$8.3 million , or 203%, to$12.4 million for the three months endedJune 30, 2022 , from$4.1 million for the three months endedJune 30, 2021 . Hosted services revenue increased by$13.5 million , or 186%, to$20.7 million for the six months endedJune 30, 2022 , from$7.2 million for the six months endedJune 30 , 2021.Of the$20.7 million revenue in 2022,$9.0 million is related to hub amortization and$11.7 million is related to SaaS revenue. Revenue increased from hub amortization and SaaS by$4.9 and$8.6 million , respectively, from the six months endedJune 30, 2021 to the six months endedJune 30, 2022 . The increase from both components of hosted services revenue resulted primarily from the increased aggregate number of Units Deployed from 211,425 units atJune 30, 2021 to 451,010 units atJune 30, 2022 . Approximately$1.0 million and$3.2 million of the 2022 increase in SaaS resulted from contributions from iQuue and SightPlan, respectively. We measure and evaluate Committed Units to assess the general health and trajectory of our business operations and growth. As ofJune 30, 2022 andJune 30, 2021 ,SmartRent had 780,036 and 606,455 Committed Units, respectively. We utilize the concept of Units Booked to measure estimated near-term resource demand and the resulting approximate range of post-delivery revenue that we will earn and record. Units Booked represent binding orders only and accordingly are a subset of Committed Units. We had 59,306 and 38,812 Units Booked during the three months endedJune 30, 2022 and 2021, respectively. We had 150,788 and 84,348 Units Booked during the six months endedJune 30, 2022 and 2021, respectively. Cost of Revenue Three months ended June 30, Change Change Six months ended June 30, Change Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) (dollars in thousands) Cost of revenue Hardware$ 20,951 $ 12,514 $ 8,437 67 %$ 42,809 $ 24,657 $ 18,152 74 % Professional services 14,115 6,274 7,841 125 % 29,282 11,734 17,548 150 % Hosted services 6,355 2,606 3,749 144 % 11,433 4,577 6,856 150 % Total cost of revenue$ 41,421 $ 21,394 $ 20,027 94 %$ 83,524 $ 40,968 $ 42,556 104 % Total cost of revenue increased by$20.0 million , or 94%, to$41.4 million for the three months endedJune 30, 2022 , from$21.4 million for the three months endedJune 30, 2021 . Total cost of revenue increased by$42.6 million , or 104%, to$83.5 million for the six months endedJune 30, 2022 , from$41.0 million for the six months endedJune 30, 2021 . The increase in cost of revenue resulted primarily from an increase in the volume of sales and New Units Deployed of our smart home hardware devices, increased third-party direct labor costs, and the increased number of active subscriptions for our software service applications. 39 -------------------------------------------------------------------------------- Hardware cost of revenue increased by$8.4 million , or 67%, to$21.0 million for the three months endedJune 30, 2022 , from$12.5 million for the three months endedJune 30, 2021 . This increase in hardware cost of revenue was primarily attributable to approximately$7.3 million resulting from greater sales volumes and an increase of approximately$0.8 million for indirect personnel-related costs for the three months endedJune 30, 2022 . Hardware cost of revenue increased by$18.2 million , or 74%, to$42.8 million for the six months endedJune 30, 2022 , from$24.7 million for the six months endedJune 30, 2021 . This increase in hardware cost of revenue was primarily attributable to approximately$14.3 million resulting from greater sales volumes and an increase of approximately$2.0 million for indirect personnel-related costs for the six months endedJune 30, 2022 . Professional services cost of revenue increased by$7.8 million , or 125%, to$14.1 million for the three months endedJune 30, 2022 , from$6.3 million for the three months endedJune 30, 2021 . The increase in professional services cost of revenue is primarily attributable to approximately$4.5 million resulting from an increase in New Units Deployed and related services provided, including third-party direct labor costs. Direct personnel-related costs, and related travel costs, increased by$3.0 million as we increased our professional services staff to increase our capacity to deploy units in anticipation of increased sales volumes. Professional services cost of revenue increased by$17.5 million , or 150%, to$29.3 million for the six months endedJune 30, 2022 , from$11.7 million for the six months endedJune 30, 2021 . The increase in professional services cost of revenue is primarily attributable to approximately$10.2 million resulting from an increase in New Units Deployed and related services provided, including third-party direct labor costs. Direct personnel-related costs, and related travel costs, increased by$6.6 million as we increased our professional services staff to increase our capacity to deploy units in anticipation of increased sales volumes. Hosted services cost of revenue increased by$3.7 million , or 144%, to$6.4 million for the three months endedJune 30, 2022 , from$2.6 million for the three months endedJune 30, 2021 . Hosted services cost of revenue increased by$6.9 million , or 150%, to$11.4 million for the six months endedJune 30, 2022 , from$4.6 million for the six months endedJune 30, 2021 . The increase in both periods resulted from the increase in the aggregate number of Units Deployed and the resulting increase in hub amortization and the number of active subscriptions for our software service applications.
Operating Expenses
Three months ended June 30, Change Change Six months ended June 30, Change Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Research and
development $ 8,030 $ 4,083 $ 3,947 97 % $ 14,476 $ 7,176 $ 7,300 102 %
Sales and
marketing 6,139 2,392 3,747 157 % 11,301 4,146 7,155 173 %
General and
administrative 13,832 3,806 10,026 263 % 25,783 7,763 18,020 232 %
Research and development expenses increased by $3.9 million , or 97%, to $8.0
million for the three months ended June 30, 2022 , from $4.1 million for the
three months ended June 30, 2021 , resulting primarily from approximately $3.2
million of personnel-related expenses, as we increased our research and
development staff, and an increase in stock-based compensation of $0.9 million .
We believe that our personnel-related expenses will continue to increase in
future periods as we continue to develop new applications and enhance existing
products and solutions including the expenses in connection with SightPlan's
operations.
Research and development expenses increased by $7.3 million , or 102%, to $14.5
million for the six months ended June 30, 2022 , from $7.2 million for the six
months ended June 30, 2021 , resulting primarily from approximately $5.2 million
of personnel-related expenses, as we increased our research and development
staff, and an increase in stock-based compensation of $1.7 million .
Sales and marketing expenses increased by $3.7 million , or 157%, to $6.1 million
for the three months ended June 30, 2022 , from $2.4 million for the three months
ended June 30, 2021 , resulting primarily from approximately $2.2 million of
increased personnel-related expenses as we increased our sales and marketing
staff, and an increase in stock-based compensation of $0.6 million . We believe
that our sales and marketing expenses will continue to increase in future
periods as we continue to expand our sales and marketing efforts to increase
sales with existing customers and initiate business with new customers. We had
59,306 and 38,812 Units Booked during the three months ended June 30, 2022 and
2021, respectively.
Sales and marketing expenses increased by $7.2 million , or 173%, to $11.3
million for the six months ended June 30, 2022 , from $4.1 million for the six
months ended June 30, 2021 , resulting primarily from approximately $4.1 million
of increased personnel-related expenses as we increased our sales and marketing
staff, an increase in stock-based compensation of $1.1 million and an increase
in conferences and trade shows of $0.7 million . As of June 30, 2022 , our total
number of customers was
40
--------------------------------------------------------------------------------
447 customers, including 129 unique SightPlan customers. The number of SmartRent
customers increased by 136, or 75%, to 318 at June 30, 2022 , from 182 at June
30, 2021 . We had 150,788 and 84,348 Units Booked during the six months ended
June 30, 2022 and 2021, respectively.
For the three months ended June 30, 2022 , general and administrative expenses
increased by $10.0 million , or 263%, to $13.8 million from $3.8 million for the
three months ended June 30, 2021 , resulting primarily from approximately $3.7
million in personnel-related expenses, stock-based compensation of $1.9 million ,
business insurance of $1.8 million , primarily related to Directors and Officers
insurance, and intangible assets amortization of $1.0 million , related to the
acquisitions of SightPlan and iQuue. We expect our general and administrative
expenses to increase in future periods as we incur expenses to support the
anticipated growth of our business, and the significant accounting, legal, and
compliance infrastructure required to operate as a public company.
For the six months ended June 30, 2022 , general and administrative expenses
increased by $18.0 million , or 232%, to $25.8 million from $7.8 million for the
six months ended June 30, 2021 , resulting primarily from approximately $6.1
million in personnel-related expenses, stock-based compensation of $3.7 million ,
business insurance of $3.5 million , primarily related to Directors and Officers
insurance, and third-party consultants of $1.8 million , of which $642 was
related to the SightPlan acquisition.
Other Expenses
Three months ended June 30, Change Change Six months ended June 30, Change Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Interest
income, net $ 253 $ (64 ) $ 317 495 % $ 241 $ (142 ) $ 383 270 %
Other income,
net 162 52 110 212 % 276 127 149 117 %
Interest income, net increased by $0.3 million or 495%, to $0.3 million for the
three months ended June 30, 2022 , from $(64) thousand for the three months ended
June 30, 2021 . Interest income, net increased by $0.4 million or 270%, to $0.2
million for the six months ended June 30, 2022 , from $(0.1) million for the six
months ended June 30, 2021 . The increase in net interest income in both periods
is primarily attributable to interest earned on interest-bearing cash balances
which were higher in the three and six months ended June 30, 2022 as compared to
corresponding periods in 2021.
Other income, net increased to $0.2 million , or 212% for the three months ended
June 30, 2022 , from $0.1 million of other income, net for the three months ended
June 30, 2021 , primarily due to foreign currency adjustments. Other income, net
increased to $0.3 million , or 117% for the six months ended June 30, 2022 , from
$0.1 million of other income, net for the six months ended June 30, 2021 ,
primarily due to foreign currency adjustments.
Income Taxes
Three months ended June 30, Change Change Six months ended June 30, Change Change
2022 2021 $ % 2022 2021 $ %
(dollars in thousands)
Loss before
income taxes $ (26,598 ) $ (10,010 ) $ (16,588 ) 166 % $ (54,799 ) $ (19,231 ) $ (35,568 ) 185 %
Income tax
benefit
(expense) 1,009 (41 ) 1,050 (2561 )% 5,816 (87 ) 5,903 (6785 )%
We provided a full valuation allowance on our net U.S. federal and state
deferred tax assets at June 30, 2022 , and June 30, 2021 . As of June 30, 2022 , we
had $183.3 million of U.S. federal and $200.7 million of state gross net
operating loss carryforwards available to reduce future taxable income, which
will be carried forward indefinitely for U.S. federal tax purposes and will
expire on varying dates for state tax purposes. The income tax benefit is
related to the valuation allowance release due to deferred tax liabilities from
the SightPlan acquisition.
Non-GAAP Financial Measures
To supplement the consolidated financial statements, which are prepared and
presented in accordance with GAAP, we present EBITDA and Adjusted EBITDA,
described below, as non-GAAP measures. We believe the presentation of both GAAP
and non-GAAP financial measures provides investors with increased transparency
into financial measures used by our management team, and it also improves
investors' understanding of our underlying operating performance and their
ability to analyze our ongoing operating trends. All historic non-GAAP financial
measures have been reconciled with the most directly comparable GAAP financial
measures - these non-GAAP financial measures are not intended to supersede or
replace our GAAP results.
We define EBITDA as net income or loss computed in accordance with GAAP before interest expense, income tax expense and depreciation and amortization.
41
--------------------------------------------------------------------------------We define Adjusted EBITDA as EBITDA reduced by stock-based compensation expense, non-employee warrant expense, and non-recurring expenses in connection with acquisitions.
Our management uses EBITDA and Adjusted EBITDA to assess our financial and
operating performance, and we believe these measures are helpful to management
and external users in understanding our performance. EBITDA and Adjusted EBITDA
help management identify controllable cash expenses and make decisions designed
to help us meet our identified financial and operational goals and to optimize
our financial performance, while neutralizing the impact of some expenses
included in our operating results caused by external influences over which
management has little or no control and by non-recurring, or unusual, events
that might otherwise mask trends in our performance. Accordingly, we believe
these metrics measure our financial performance based on operational factors
that management can impact in the short-term, namely our cost structure and
expenses.
We believe that the presentation of EBITDA and Adjusted EBITDA provides
information useful to investors in assessing our results of operations. The GAAP
measure most directly comparable to EBITDA and Adjusted EBITDA is net income or
loss. EBITDA and Adjusted EBITDA are not used as measures of our liquidity and
should not be considered alternatives to net income or loss or any other measure
of financial performance presented in accordance with GAAP. Our EBITDA and
Adjusted EBITDA may not be comparable to the EBITDA and Adjusted EBITDA of other
companies due to the fact that not all companies use the same definitions of
EBITDA and Adjusted EBITDA. Accordingly, there can be no assurance that our
basis for computing these non-GAAP measures is comparable with that of other
companies.
The following table presents a reconciliation of net loss (as determined in
accordance with GAAP) to EBITDA and Adjusted EBITDA for each of the periods
indicated.
Three months ended June 30, Six months ended June 30,
(amounts in thousands) 2022 2021 2022 2021
Net loss $ (25,589 ) $ (10,051 ) $ (48,983 ) $ (19,318 )
Interest income, net (253 ) 64 (241 ) 142
Provision for income taxes (1,009 ) 41 (5,816 ) 87
Depreciation and 1,227 93 1,636 173
amortization
EBITDA (25,624 ) (9,853 ) (53,404 ) (18,916 )
Stock-based compensation 3,823 428 7,346 855
Non-employee warrant expense 21 167 238 399
Compensation expense in 1,830 - 2,109 -
connection with acquisitions
Other non-recurring 119 - 739 -
acquisition expenses
Adjusted EBITDA $ (19,831 ) $ (9,258 ) $ (42,972 ) $ (17,662 ) Liquidity and Capital Resources
Sources of Liquidity
Debt Issuances
As ofJune 30, 2022 , we had cash and cash equivalents of$255.0 million , which were held for working capital and general corporate purposes. Our cash equivalents are comprised primarily of money market funds. To date, our principal sources of liquidity have been the net proceeds we received through the private issuance of our convertibleSmartRent preferred stock, the net proceeds received as a result of the Business Combination, payments collected from sales to our customers, and proceeds from a Revolving Facility (defined below), convertible notes and Term Loan Facility (defined below). The term of our Revolving Facility matured inAugust 2021 , and we extended the maturity of the Revolving Facility throughDecember 2021 , at which time, we revised the Revolving Facility and entered into a$75.0 million senior secured revolving credit facility with a five-year term (the "Senior Revolving Facility"). Interest rates for advances from the Senior Revolving Facility are determined by whether the Company elects a secured overnight financing rate loan ("SOFR Loan") or alternate base rate loan ("ABR Loan"). For SOFR Loans, the interest rate is based upon the forward-looking term rate based on SOFR as published by theCME Group Benchmark Administration Limited (CBA) plus an applicable margin, subject to a floor of 0.00%. For ABR Loans, the interest rate is based upon the highest of (i) the Prime Rate, (ii) Federal Funds Effective Rate plus an applicable margin, or (iii) 3.25%. As ofDecember 31, 2021 , the applicable margins for SOFR Loans and ABR Loans under the Senior Revolving Facility were 0.10% and 0.50%, respectively. The Senior Revolving Facility is secured by substantially all of the Company's assets and guaranteed by each of the Company's material domestic subsidiaries. InFebruary 2020 , Legacy SmartRent issued a subordinated convertible note in the principal amount of$0.1 million , bearing interest at 5% per annum, pursuant to a note purchase agreement (the "February 2020 Convertible Note"). Interest on theFebruary 2020 Convertible Note accrued at the coupon rate, compounded annually. TheFebruary 2020 Convertible Note was 42 -------------------------------------------------------------------------------- converted inMarch 2020 into shares of Legacy SmartRent Series C-1 Preferred Stock, which automatically converted into a number of shares of the Company's Class A Common Stock upon consummation of the Business Combination. InAugust 2019 , we entered into a loan and security agreement for a credit facility (the "Credit Facility"). The Credit Facility provided$15.0 million of borrowing capacity and consisted of a$10.0 million revolving line of credit (the "Revolving Facility"), which matured inDecember 2021 and a$5.0 million term loan (the "Term Loan Facility"), which was to mature inNovember 2023 . InDecember 2021 , the balance of the Term Loan Facility was repaid, we revised the Credit Facility and entered into the Senior Revolving Facility.
Legacy SmartRent Preferred Stock Issuances
During the year endedDecember 31, 2020 , Legacy SmartRent issued a total of approximately 5.5 million shares of Series C Preferred Stock in three tranches that closed in March, April, andMay 2020 , respectively. The Series C Preferred Stock was issued in exchange for$57.5 million gross cash proceeds. Expenses in connection with the issuance of the Series C Preferred Stock were$0.1 million , resulting in net cash proceeds of$57.4 million . During the year endedDecember 31, 2020 , Legacy SmartRent also issued 761 shares of Series C-1 Preferred Stock (which automatically converted into a number of shares of Common Stock upon consummation of the Business Combination) in connection with the redemption of certain convertible notes. In February andMarch 2021 , Legacy SmartRent issued approximately 3.4 million additional shares of Series C Preferred Stock (which automatically converted into a number of shares of Common Stock upon consummation of the Business Combination) in exchange for$35.0 million gross cash proceeds. Expenses in connection with the issuance of the Series C Preferred Stock were$0.2 million , resulting in net cash proceeds of$34.8 million . We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of$203.6 million as ofJune 30, 2022 . We may require additional capital to continue our operations in future periods. We expect to incur expenses related to non-cancellable contractual obligations such as from our operating leases. We believe that our current cash, cash equivalents, available borrowing capacity under the Senior Revolving Facility, and cash raised in the Business Combination will be sufficient to fund our operations for at least the next 12 months beyond the issuance date of this Report. Our future capital requirements, however, will depend on many factors, including our sales volume, the expansion of sales and marketing activities, and market adoption of our new and enhanced products and features. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. From time to time, we may seek to raise additional funds through equity and debt. If we are unable to raise additional capital when desired and on reasonable terms, our business, results of operations, and financial condition may be adversely affected.
Cash Flow Summary - Six Months Ended
The following table summarizes our cash flows for the periods presented:
Six months ended June 30,
2022 2021
(dollars in thousands)
Net cash (used in) provided by
Operating activities $ (36,680 ) $ (18,684 )
Investing activities (129,423 ) (340 )
Financing activities (2,906 ) 33,964
Operating Activities
For the six months ended June 30, 2022 , our operating activities used $36.7
million in cash resulting primarily from our net loss of $49.0 million ,
partially offset by $5.9 million of non-cash expenses and $6.1 million provided
by changes in our operating assets and liabilities. Changes in our operating
assets and liabilities primarily resulted from a $29.1 million increase in
deferred revenue, an $8.8 million increase in accounts payable, and a $4.0
million decrease in prepaid expenses and other assets, partially offset by a
$26.2 million increase in inventory, a $6.9 million increase in deferred cost of
revenue, and $3.7 million decrease in accrued expenses and other liabilities.
Non-cash expenses consisted primarily of stock-based compensation of $7.3
million , compensation expense related to acquisitions of $2.1 million and
depreciation and amortization of $1.6 million , partially offset by a deferred
tax benefit of $5.9 million resulting from the SightPlan acquisition.
For the six months ended June 30, 2021 , our operating activities used $18.7
million in cash resulting primarily from our net loss of $19.3 million , which
was partially offset by $1.9 million of non-cash expenses consisting primarily
of $0.9 of stock-based compensation, and $0.4 million for non-employee warrant
expenses. For the six months ended June 30, 2021 , $1.3 million was used by
changes in our operating assets and liabilities resulting primarily from an
increase of $21.2 million in deferred revenue. This was partially offset by a
$7.8 million increase in prepaid expenses and other assets, $6.2 million
increase in accounts receivable, $4.3 million increase in inventory, and $4.2
million increase in deferred cost of revenue.
43
--------------------------------------------------------------------------------Investing Activities
For the six months ended
For the six months ended
Financing Activities
For the six months ended
For the six months endedJune 30, 2021 , our financing activities provided$34.0 million of cash consisting primarily of convertible preferred stock issued of$34.8 million .
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.
Revenue Recognition
We derive revenue primarily from sales of systems that consist of hardware devices, professional installation services and hosted services to assist property owners and property managers with visibility and control over assets, while providing all-in-one home control offerings for residents. Revenue is recognized when control of these products and services are transferred to the customer in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products and services. Payments we receive by credit card, check, or automated clearing house payments, and payment terms are determined by individual contracts and range from due upon receipt to net 30 days. Taxes collected from customers and remitted to governmental authorities are not included in reported revenue. Payments received from customers in advance of revenue recognition are reported as deferred revenue. We apply the practical expedient that allows for inclusion of the future auto-renewals in the initial measurement of the transaction price. We only apply these steps when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services it transfers to a customer. Accounting for contracts recognized over time involves the use of various estimates of total contract revenue and costs. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation may be revised in the future as we observe the economic performance of our contracts. Changes in job performance, job conditions and estimated profitability may result in revision to our estimates of revenue and costs and are recognized in the period in which the revision is identified. We may enter into contracts that contain multiple distinct performance obligations including hardware and hosted services. The hardware performance obligation includes the delivery of hardware, and the hosted services performance obligation allows the customer use of our proprietary software during the contracted-use term. The subscription for the software and the hub device combines as one performance obligation, and there is no support or ongoing subscription for other device hardware. We partner with several manufacturers to offer a range of compatible hardware options for its customers. We maintain control of the hardware purchased from manufacturers prior to it being transferred to the customer, and accordingly,SmartRent is considered the principal in these arrangements. For each performance obligation identified, we estimate the standalone selling price, which represents the price at which we would sell the good or service separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price, considering available information such as market conditions, historical pricing data, and internal pricing guidelines related to the performance obligations. We then allocate the transaction price among those obligations based on the estimation of the standalone selling price. 44 --------------------------------------------------------------------------------
Inventory Valuation
Inventories are stated at the lower of cost or estimated net realizable value. Cost is computed under the first-in, first-out method. We adjust the inventory balance based on anticipated obsolescence, usage, and historical write-offs. Significant judgment is used in establishing our forecasts of future demand and obsolete material exposures. We consider marketability and product life cycle stage, product development plans, demand forecasts, historical revenue, and assumptions about future demand and market conditions in establishing our estimates. If the actual product demand is significantly lower than forecast, which may be caused by factors within and outside of our control, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and our customer requirements, we may be required to increase our inventory adjustment. A change in our estimates could have a significant impact on the value of our inventory and our results of operations.
Stock-Based Compensation
Our stock-based compensation relates to stock options and restricted stock units
("RSUs") granted to our employees and directors. Stock-based awards are measured
based on the grant date fair value. We estimate the fair value of stock option
awards on the grant date using the Black-Scholes option-pricing model. The fair
value of RSUs is based on the grant date fair value of the stock price. The fair
value of these awards is recognized as compensation expense on a straight-line
basis over the requisite service period in which the awards are expected to
vest. Forfeitures are recognized as they occur by reversing previously
recognized compensation expense.
The Black-Scholes model considers several variables and assumptions in
estimating the fair value of stock-based awards. These variables include the per
share fair value of the underlying common stock, exercise price, expected term,
risk-free interest rate, expected annual dividend yield, the expected stock
price volatility over the expected term and forfeitures, which are recognized as
they occur. For all stock options granted, we calculated the expected term using
the simplified method for "plain vanilla" stock option awards.
The grant date fair value is also utilized with respect to RSUs with performance
and service conditions to vest. For RSUs with a performance condition, based on
a liquidity event, as well as a service condition to vest, no compensation
expense is recognized until the performance condition has been satisfied.
Subsequent to the liquidity event, compensation expense is recognized to the
extent the requisite service period has been completed and compensation expense
thereafter is recognized on an accelerated attribution method. Under the
accelerated attribution method, compensation expense is recognized over the
remaining requisite service period for each service condition tranche as though
each tranche is, in substance, a separate award. In August 2021 , the Company
completed the merger with FWAA, which met the liquidity event vesting condition
and triggered the recognition of compensation expense for RSUs for which the
time-based vesting condition had been satisfied or partially satisfied.
SmartRent Common Stock Valuations
Prior to the Business Combination, in the absence of a public trading market, the fair value of our common stock was determined by our board of directors, with input from management, taking into account our most recent valuation from an independent third-party valuation specialist. Our board of directors intend that all stock options granted have an exercise price per share not less than the per share fair value of our common stock on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in theAmerican Institute of Certified Public Accountants Practice Aid , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The assumptions we used in the valuation models were based on future expectations combined with management judgment, and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:
•
relevant precedent transactions involving our capital stock;
•
the liquidation preferences, rights, preferences, and privileges of our redeemable convertible preferred stock relative to the common stock;
•
our actual operating and financial performance;
•
current business conditions and projections;
•
our stage of development;
•
the likelihood and timing of achieving a liquidity event for the shares of common stock underlying the stock options, such as an initial public offering, given prevailing market conditions;
•
any adjustment necessary to recognize a lack of marketability of the common stock underlying the granted options;
•
recent secondary stock sales and tender offers;
45
--------------------------------------------------------------------------------•
the market performance of comparable publicly-traded companies; and
•
the
In valuing our common stock at various dates, our board of directors determined the equity value of our business using the market approach. The market approach estimates value considering an analysis of guideline public companies. The guideline public company method estimates value by applying a representative revenue multiple from a peer group of companies in similar lines of business to our forecasted revenue. To determine our peer group of companies, we considered publicly traded companies based on consideration of business descriptions, operations and geographic presence, financial size and performance, and management recommendations regarding most similar companies. This approach involves the identification of relevant transactions and determining relevant multiples to apply to our revenue. Application of this approach involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
The estimates were no longer necessary to determine the fair value of new awards
once the underlying shares began trading in
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") exempts "emerging growth companies" as defined in Section 2(A) of the Securities Act of 1933, as amended, from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an "emerging growth company" and have elected to take advantage of the benefits of this extended transition period. We will use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. The extended transition period exemptions afforded by our emerging growth company status may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of this exemption because of the potential differences in accounting standards used. We will remain an "emerging growth company" under the JOBS Act until the earliest of (a) the last day of our first fiscal year following the fifth anniversary of our initial public offering, (b) the last date of our fiscal year in which we have total annual gross revenue of at least$1.07 billion , (c) the last date of our fiscal year in which we are deemed to be a "large accelerated filer" under the rules of theSEC with at least$700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than$1.0 billion in non- convertible debt securities during the previous three years.
Recent Accounting Pronouncements
See Note 2, "Significant Accounting Policies" - Recent Accounting
© Edgar Online, source
