SmartRent Inc - Ordinary Shares - Class A Aktie

Thank you. Hello everyone, thank you for joining us and welcome to the Smart Rent Second Quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Kelly Reisdorf, Head of Investor Relations. Kelly, please go ahead.

Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martel, and Daryl Stem, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10Q both of which are available on the Investor Relations section of our website. I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our 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. Unless otherwise noted, all comparisons discussed on today's call refer to the second quarter of 2026 compared with the second quarter of 2025. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with a reconciliation to the most directly comparable GAAP measure, is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor's Guide. Investor Relations section of our website. And with that, I will turn the call over to Frank.

Good morning, everyone, and thank you for joining us. Today I'm going to discuss the more significant operational and financial highlights from the quarter from my point of view. will conclude our prepared remarks with a more detailed discussion of our Q2 financial results. By almost every measure, SmartRent delivered strong progress in the second quarter as we continue to stay laser-focused on realizing the full benefits outlined in our Vision 2028 strategic plan. As you may recall, Vision 2028 focuses on two priorities. First, accelerating growth by expanding our competitive moat, and second, increasing profitability levels through a leverageable operating model. These priorities are anchored by five pillars. First, growing our installed base at a double-digit compound rate.

Second, scaling a world-class go-to-market organization. Third, infusing our platform with data, analytics, and AI. Fourth, simplifying our hardware architecture while investing in next generation capabilities. And fifth and finally, strengthening our internal operating rigor to drive sustainable profit and free cash flow. I believe our second quarter results clearly demonstrate the value opportunities inherent in our growing market leadership and aggressive execution of Vision 2028. I will now take a couple of minutes to summarize key proof points highlighted in our second quarter results. First, we accelerated revenue and bookings growth attributable to our best-in-class IoT, access control, and self-guided tour solutions.

Our core revenues grew 14%, marking our highest quarterly growth rate in over two years. This double-digit growth builds on our progress from the fourth quarter of 2025 when core revenues grew 12%. SAS revenues in Q2 grew 13% and now represent more than 40% of total revenue. ARR increased year-over-year from $57 million to $65 million, reflecting continued expansion of our IoT footprint and increased demand for highly regarded access control and self-guided tour offerings. In the second quarter, we expanded our installed IoT footprint by 10% to nearly 930,000 units. On a trailing 12-month basis, units booked accelerated from 80,000 in the second quarter of last year to over 112,000 this quarter, which is a 40% increase. Given the significant acceleration of units booked over the last 12 months, I believe we're in a strong position to exceed 1 million units installed during the first half of next year.

The scaling of our installed base beyond 1 million units should create a new inflection point for our business from both a growth and a profitability standpoint. In addition to expanding our unit footprint, we're also investing in our data and analytics solutions, which leverage our network of millions of connected devices through investments such as the plan and launch of the Smart Rent Innovation Center and our recently announced strategic collaborations with Hexaware and Databricks. As we look forward, we will continue to actively pursue opportunities to expand our footprint and our solutions that drive measurable returns for our customers. A key example is our upcoming launch of a dedicated data and analytics practice. With millions of connected devices across our network, I believe SmartRent is uniquely positioned to translate real-time data into actual insights, which will power ROI for our customers across such areas as energy efficiency, water conservation, and risk management. To power this practice, we are anchoring our tech stack on industry leading platform including Databricks as a core component of our technology layer. A high impact data and analytics practice represents a sizable strategic tailwind opportunity for SmartRend.

By layering high value insights powered by our unmatched device footprint, we anticipate being able to expand our total addressable market, drive ARPU growth, and deepen our competitive moat. We believe that we've never been better positioned to execute on the opportunities ahead. In addition to accelerating top-line growth, we improved gross margins by 760 basis points to 41% in the second quarter. Our margin improvement reflects the dual benefits of our ongoing focus on revenue acceleration and structural cost reduction programs. Looking ahead, our recently announced partnership with Hexaware is expected to contribute to additional margin expansion while accelerating the deployment of AI tools in our operating processes. We are continuing to progress towards consistently positive adjusted EBITDA and free cash flow. Higher revenues, including increased SaaS contributions, as well as our focus on Operation Rigor, is fueling our rapid progress.

Q2 was our third consecutive quarter of positive adjusted EBITDA. As Darrell will discuss in more detail in a few minutes, we continue to maintain a fortress balance sheet that provides significant financial flexibility to fund our Vision 2028 priorities. During the second quarter, we deployed a portion of our cash war chest to repurchase 1.5% of our outstanding shares. We also recently expanded our share repurchase authorization to $25 million to support future repurchases as warranted. I believe the second quarter provides many clear proof points of our progress, both strategically and operationally. Over the last several quarters, we have demonstrated our ability to deliver accelerating growth as well as expanding margins and profitability while maintaining significant capital reserves. As the trusted partner to over 600 multi and single family rental owners and operators, SmartRent is the clear, proven choice for any owner or operator that is looking to adopt and reap the benefits of smart home technology.

In conclusion, I want to thank our employees for driving rapid and positive progress against our Fission 2020 priorities and pillars, and our shareholders for their continued support. I will now turn the floor over to Daryl.

Thank you, Frank, and good morning, everyone. Total revenue for the second quarter was $40 million, up 4%, and core revenue, which excludes non-cash hub amortization, was $38 million, up 14%. We continue to believe core revenue is the more representative measure of the underlying volume of our business. Digging deeper within the revenue mix, SAS revenue grew 13% to $16 million, representing more than 40% of total revenue, and ARR increased to approximately $65 million. ARR growth is primarily attributable to the continued expansion of our installed base, and increased adoption of access control and self-guided tour solutions. Hardware revenue was $14 million, down 10%. Professional services revenue was $9 million, up 100%, reflecting increased hardware refresh installations as well as higher access control volume, which drive growth in professional services operations.

ARPU. I'd like to spend a few minutes on bookings. Units booked totaled more than 48,000 in the quarter. And as Frank mentioned, on a trailing 12-month basis, units booked increased 40% to approximately 112,000 units. Bookings for individual quarters can be non-linear. We have a long sales cycle and the timing of customer decisions and orders doesn't always align with our reporting periods. As a result, we're increasingly focused on trailing 12-months units booked, which we believe provides a more meaningful view of underlying customer demand and the progress we're making in executing our go-to-market strategy. We're becoming a full-cycle hardware-enabled technology company.

As our platform continues to expand and our installed base matures, the composition of our bookings naturally evolves. Historically, units deployed has been our primary revenue driver. However, hardware refreshes, subscription renewals, and adoption of additional solutions such as access control and self-guided touring are becoming increasingly meaningful to our business. Different solutions carry different equipment and installation requirements and ARPU characteristics. All of these factors result in variability in both bookings and ARPU. For example, second quarter bookings were more heavily weighted towards IoT solutions, led to a lower ARPU. As our business evolves beyond primarily new IoT deployments to supporting customers throughout the lifecycle of their communities, we expect the mix of bookings to continue to fluctuate.

I believe, viewed together, continued core revenue growth, accelerating trailing 12% month bookings and expanding ARR provide three complementary indicators that demand for our platform remains healthy and that the underlying fundamentals of the business continue to strengthen. Total gross margin expanded to 41% in the second quarter, up 700%. 160 basis points. SAS gross margin expanded to 75%, up from 70% a year ago, as a result of ARPU growth and continued cost discipline. Professional services gross margin improved dramatically to 21% compared with a negative 44%, reflecting continued operational improvements. Hardware gross margin was 13% compared to 15%, primarily reflecting changes in mix. Operating expenses were $23 million in the second quarter, down 7% from $24 million, reflecting the continued benefit of our productivity initiatives. Net loss was $6 million, an improvement of $5 million, or 48%.

Adjusted EBITDA was $700,000, our third consecutive quarter of positive adjusted EBITDA. We ended the quarter with $93 million in cash, no debt, and an undrawn $75 million credit facility. We repurchased about 3 million shares, or approximately 1.5% of shares outstanding, at an aggregate cost of $3 million during the quarter. Subsequent to quarter end, our board expanded our share repurchase plan with an authorization to repurchase up to $25,000. million. With our strong balance sheet and improving financial results, we will continue to evaluate capital allocation opportunities, including share repurchases, through the lens of building long-term shareholder value. As Frank mentioned, we remain focused on accelerating revenue growth, while delivering adjusted EBITDA profitability. As we look ahead to the balance of the year, we continue to believe our revenue, profitability, and cash flow in the second half of 2026 will be stronger than the first.

That confidence is supported by three factors. First, strength in trailing 12-month units booked. Second, sustainable margin expansion driven by operational improvements. And third, continued growth of our installed base and recurring revenue. And with that,.

I'll turn the call back over to the operator for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Ryan Tomasello with KBW. Your line is now open. Please go ahead.

Hi, everyone. Congrats on the solid execution in the quarter. In terms of bookings, I appreciate the commentary and the prepared remarks, but if you can just put a finer point on maybe some specific factors you'd attribute that strong result to in the quarter, any large deals or seasonal factors to call out. And in terms of the second half of the year, if there's any guardrails you can provide around the trajectory of unit deployments and bookings and just how we should be thinking about the flow through and timing of bookings to actual unit deployments.

Hey, Ryan, this is Frank. I think it's probably a two-part question, so I'll handle the first part and then Darryl can jump in on the other comment. But yes, look, I think as Darryl mentioned in his script, there's not a linear, you know, orders, unit orders are not linear. And this stat really covers IOT unit orders and so we have issues we have, you know, larger orders and smaller orders. So, you know, This happened to be in there's a couple of orders we've been working on for some period of time, and they happened to fall into the second quarter. So we saw an uptick in the velocity, but it's more of a timing issue. And obviously, I talked last quarter about investing in our sales team and our go-to-market motion, and we're definitely getting traction there as well. So we're seeing more opportunities. and we're closing more opportunities.

So we thought it was better to go to a kind of a TTM, trailing 12 months view, because it shows the trend, which is more representative of what we're going to see through the P&L. So it was a couple of solid orders in addition to the other orders that were in the quarter and the things that kind of moved timing wise that came to pass in the second quarter. The only other thing I will mention is a very important point that Darrell raised in his prepared remarks, which is, you know, we are seeing a lot more orders for things like access control, and SGT and those are you know higher margin and a very good expansion of our footprint. And so we're excited about that because it has margin potential for us as we get in the second half of the year and especially as we go forward. So that's been evolving quite nicely in addition to IOT unit orders and hardware orders.

Yes, thanks. Thanks for your questions, Ryan. With regards to volume of deployments in the back half of the year, I would point you really to the TTM. units booked in particular. Recent quarters we've been running plus or minus about 20,000 units deployed in a quarter. I think that the TTM number if you were to normalize that to a monthly basis, that would be a pretty good proxy for looking forward. Although I would caution you to to attribute a full swing from 20 to, close to 30,000 units, I wouldn't expect it to all occur in Q3.

Okay, thanks. And then it sounds like you're optimistic about the initiatives you have underway to support the data and analytics build out. If you can just elaborate on what exactly you're working on there. Do you envision that unlocking monetization opportunities outside of your existing IoT customers, or is this more focused on add-on for the existing installed base? And then in terms of the investment cycle there, if we should expect to feel this in the P&L and just overall from a timing standpoint, how you're thinking about the build out there.

Yes, let me just talk about the install base really quickly, Ryan, because we put out a bogey of getting over a million, March to a million installed IoT units. I think the results this quarter and the the order book clearly supports us achieving that within the targeted timeframe of early next year. That's an important milestone because it reflects a little bit of an inflection point from a financial modeling point of view, because obviously the bigger the footprint is, the more software spins around it and that will have a margin improvement, et cetera. So I think that's an important thing to note and I think it's materializing. And we feel great about that. Secondarily to your question, so, you know, We actually announced in the public market two partnerships, one with Hexaware and one with Databricks. And I think, We're trying to bring in really first class partnerships to help us with operating leverage and help us with tech technology velocity.

And so those two, I'll take them just in order. So Hexaware, we brought in, they're really a BPO play. They're a AI forward BPO player. They're going to help us to build our operating leverage so when we get the volume up, we'll be able to drop more of that to the bottom line using using them as first of all as a workforce but also ingesting more ai into our process margins so that's more of an enabler uh regarding So one of the things that we've tried to do, and frankly, we haven't done, as great a job as we could have, but now it's integral part of our Vision 28, which is the taking all these devices and providing more insight to our customers. So, you know, we have a Yes, we have the ability to do that, but we need, you know, we need the partner to jumpstart the infrastructure required. to have a data and analytics business. I came from several of them. And so it's a lot of, you have to build out the capability because it's kind of real-time insight that you're providing.

And in our case, the good news is, the customers, it's real ROI building insight. And it's about, management and it's about risk management. And these are things that really add to our customers bottom line. And so we expect a repeatable data and analytics business to be a sizable part of our revenue stream in the coming years. And so that's really an enabler that helps us to get there. And we feel very great about that. There's a lot of opportunity. for the company as we expand the footprint for sure.

And then I'll just squeeze in two more here, if you don't mind. on how renewal pricing is trending with the legacy customer cohorts that you've called out as an opportunity and how much longer that renewal cycle will take to play out. And then on the macro front, any updates on what you're hearing from customers around budget tightening and CapEx plans entering next year? Thanks, guys.

Yes, you're welcome. Why don't I start by responding to the renewal progress. So we talked last quarter about some negotiations for renewals that have been completed, and we mentioned at that time that by the end of this year, we expect to be benefiting to the tune of approximately five cents per unit per month. that equates to about fifty thousand dollars roughly per month of incremental revenue um An important thing to note about these renewals is most of our customers deployed to their communities over multiple years. So that five cents continues to grow in the following couple of years for two reasons. Number one, more and more of their units will have, or communities will have had their original subscriptions expire and they'll move to the new rates. And then additionally, these renegotiations and and renewals included escalation clauses in future periods. So we'll continue to enjoy expanded benefit beyond just this year. In addition to that, I guess the other part of that question was, when do we expect that cycle to end? And the simple answer is, I hope it never ends because we're continuing to expand our installed base and as communities have their original subscriptions, fire will have renewal discussions on an ongoing basis.

And it's really that we're just now entering a new cycle for the company where not only renewals, but also hardware refreshments become an important and regular and again, we hope never ending annuity for the company's revenue streams. And I'll turn the call over to Frank, perhaps, to give a comment or two on the macro conditions.

Look, I would say that obviously our booking philosophy is improving, and so we're having the discussions. I think the company is in a strong position financially. I think we're executing on our plan, our strategic plan, and what we commit to do pretty well. So I think there's less friction with the customer base than there was maybe a year or two ago. I think that's allowing us to have more discussions. And what I would say is bigger discussions about a more fulsome solution set for the customer. So I think from that point of view, they may have their individual pressure points.

I wouldn't say that the market's super easy right now, but I think in terms of Smart Rent and the engagement with Smart Rent, I think most people see the ROI. A lot of it's kind of very arithmetic, frankly, but I think our growing financial strength and our growing footprint means we are a very, very credible counterparty, and that's allowing us to have at the highest levels bigger discussions and more discussions. And so that bodes well. As Darrell said, I think we have other opportunities, and I think that's what's emerging is things like there will be, because we have over a million units installed, coming next year, that creates a annuity stream in terms of replacement of aged hardware. as well as just the discussion around data analytics, and as well as other solutions that will come online. So we're having more discussions than I think we've ever had. We've ramped up the sales team. We have a channel partnership program that's going to build. We have a lot of things going on in terms of our engagement infrastructure.

And frankly, all the entire leadership team, including myself, is personally engaged in a lot of these discussions with the customers.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, everyone. Thank you for joining us, and welcome to SmartRent First Quarter 2026 Earnings Release. [Operator Instructions] I will now hand the conference over to Kelly Reisdorf, Head of Investor Relations. Please go ahead.

Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell; and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which are available on the Investor Relations section of our website.

Before I turn the call over to Frank, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent.

Also during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to Frank.

Good morning, everyone. My remarks today are going to focus on the more notable financial and operational accomplishments the team delivered in the first quarter. This progress builds on the momentum we achieved in the second half of 2025. I will also provide some important color on the progress that we're making, driving our imperatives that underpin our Vision 2028 strategic plan. Daryl will close out our prepared remarks today with a more detailed financial discussion.

Over the past 3 quarters, we have focused aggressively on strengthening our leadership team, rightsizing our cost structure, driving increasing levels of operating leverage through process reengineering and automation and finally, investing in our go-to-market and technology capabilities. I believe that the benefits of this focus were evident in our first quarter operating and financial results.

From my point of view, some of the more important proof points of our progress in Q1 are the following: First, we grew our IoT footprint 10% in Q1 from the prior year. At the end of March, SmartRent's industry-leading IoT technology solutions are now deployed in over 911,000 rental units across the U.S. These units provide our owner and operator customers with a proven rate of return on their investment while significantly enhancing the experience of their residents.

We expect to eclipse the 1 million level for IoT unit installations in the first half of 2027. Second, ARR revenue grew 9% year-over-year to $61 million or approximately 39% of our total revenue. We expect to drive higher levels of ARR and profitability over the medium to longer term as we continue to expand our deployed IoT footprint.

Third, gross profit and margin for Q1 totaled $15 million and 39%, respectively. Gross margins were up 630 basis points in Q1. The upswing in gross profit and margins were driven by a 15% year-over-year reduction in cost of sales and a 32% reduction in operating expenses. Fourth, we delivered positive adjusted EBITDA of approximately $0.4 million in Q1. This was our second consecutive quarter of positive adjusted EBITDA.

Our net loss on a GAAP basis fell from $40 million to $4 million year-over-year, benefiting from significantly lower cost run rates and a 2025 noncash impairment charge that has no counterpart in Q1 of 2026. And finally, we ended March with $99 million of cash and no debt, providing us with the financial flexibility to execute against Vision 2028 with confidence.

Our focus and accomplishments so far in 2026 are part of a longer-term strategy, which we call Vision 2028. I discussed Vision 2028 in some depth on our last earnings call. As you may remember, it's a 3-year program built around 2 clear priorities: first, accelerating profitable growth by expanding our installed IoT footprint at a compound double-digit growth rate from 2026 through 2028 and at the same time, expanding our portfolio of data-driven insights and solutions that deliver industry-leading customer ROI; and second, achieving higher levels of profitability and cash flow through accelerated growth and a highly scalable operating model.

We will operationalize these priorities through the execution of 5 strategic pillars. First, growing our installed base at a double-digit pace; second, scaling a world-class go-to-market organization; third, deepening platform integration with data, analytics and AI; fourth, simplifying our hardware architecture while investing in next-generation capabilities; and lastly, strengthening our internal operating rigor to drive sustainable profit and free cash flow.

I will provide more detail on each of these strategic pillars during subsequent calls. On this call, I plan to touch on our focus relative to accelerating profitable growth. Specifically, I believe that SmartRent has a number of significant opportunities in the following areas. Our first opportunity is centered around deepening our penetration within the portfolios of our existing customers. Currently, our installed base of 911,000 IoT units serves roughly 600 customers who collectively own or control more than 6 million units in the U.S. That means we have deployed smart technology in roughly 15% of the addressable portfolio within our existing customer base and 85% remains a significant expansion opportunity.

Our March to One Million initiative is, first and foremost, a story about converting that white space. As our installed base matures, we are also focused on a second key growth opportunity, which is establishing a cadence of hardware refresh cycles, which is a natural milestone for a platform at our scale and one that deepens our relationships with our longest tenured customers.

Our IoT platform currently stands at over 911,000 units installed with smart hubs connected to more than 3 million devices across approximately 3,500 properties. Equipment deployed in the company's early years are now approaching end of life. We are working proactively with customers to plan on refreshes in an organized way. This ensures customers continue to benefit from our latest hardware and insights, and it gives SmartRent a sizable hardware revenue cadence as the business matures and equipment is replaced.

The third opportunity we have is expanding our reach to small and medium multifamily owners and operators as well as merchant builders through a dedicated SmartRent team supplemented by the value-added reseller or VAR program that we recently launched. That program is designed to access this opportunity in a capital-efficient way, leveraging partners with established market presence rather than scaling a direct sales force to effectively address this segment.

And our fourth growth opportunity is expanding our software and hardware solution sets that are powered by AI as well as our unique data repository. SmartRent's market leadership has been built on delivering measurable and significant ROI for its customers. We believe that we can expand the benefits within our existing footprint and for new customers through the introduction of solutions that leverage the unique insights from our data collected from millions of connected devices.

We're accelerating our use of AI and other techniques that make the adoption of additional solutions in the near to medium term a significant opportunity for the company. Looking forward to the remainder of this year, we remain laser-focused on expanding our footprint of installed IoT units in line with our March to One Million program. Despite current market headwinds, we are pushing to accelerate the growth of our core revenues while delivering positive adjusted EBITDA and cash flow for the full year.

In terms of the market, although many of our customers remain cautious, we believe our solutions provide compelling ROI in all market conditions and that the long-term demand picture for our platform remains positive as market fundamentals gradually improve. Daryl will provide additional color around market conditions in a couple of minutes.

To wrap up my prepared remarks today, I want to acknowledge the hard work and dedication of the SmartRent team as well as the support of our shareholders. Over the past 3 quarters, we've made significant progress on many critical fronts and are now increasingly well positioned to achieve our goals that we have outlined in our Vision 2028 strategic plan. With that said, I'll now turn the call over to Daryl.

Thank you, Frank, and good morning, everyone. Today, I'll walk you through our first quarter financial results in more detail, covering revenue, margins, operating expenses and cash and then offer some perspective on how we're thinking about the rest of the year.

Total revenue for the first quarter was $38.7 million, a decrease of approximately 6% from $41.3 million in the first quarter of 2025, driven primarily by a $2.6 million decline in noncash hub amortization revenue and a hardware comparison against an especially strong prior year quarter. Although total revenue was down 6%, importantly, cost of sales were down by 15%, primarily driven by our cost alignment actions in the second half of 2025.

Excluding noncash hub amortization, core revenue was $36.6 million, essentially flat to the $36.7 million in the prior year quarter. And we believe that's the more representative measure of the underlying volume of our business. Within the revenue mix, SaaS revenue was $15.2 million, up 9% year-over-year. SaaS revenue now represents 39% of total revenue. Hardware revenue was $15.4 million, down 18% year-over-year from $18.8 million, which included an unusually large customer order that contributed to an elevated prior year comparison.

Professional services revenue was $6 million, up 55% year-over-year from $3.9 million in the prior year quarter, reflecting improved deployment volume within our installation teams. Before I move to margins, I want to address bookings, which were 16,592 units, down 9% year-over-year.

There were 4 things that impacted bookings in the first quarter. Four things drove the shortfall. First, our new enterprise reps are still ramping. Q1 reflects early-stage output from a team that isn't yet at full productivity. Second, our contract renewal work shifted some signings into later quarters. Third, hardware refresh conversations with long-tenured customers consume sales capacity that would otherwise have gone towards new bookings. And fourth, the broader market environment has operators being deliberate about capital deployment decisions in a way that affects the timing of new commitments. These are timing and ramp issues. In other words, these are cyclical and not structural demand issues.

Total gross profit was $15.1 million compared to $13.6 million in the first quarter of 2025, with total gross margin expanding approximately 630 basis points year-over-year to 39.1% from 32.8%. This improvement reflects the structural cost actions we took in the second half of 2025, better operating discipline and a more favorable revenue mix as SaaS becomes a larger share of the total.

Professional Services gross profit improved dramatically from a loss of $3.4 million in the prior year quarter to approximately breakeven in Q1 2026. This is now our third consecutive quarter of positive professional services margins, reflecting genuine structural improvement in how we're executing installations and durable ARPU increases.

Hardware gross margin was 18.2%, down approximately 760 basis points year-over-year, reflecting product mix and lower shipment volumes. Operating expenses in the first quarter were $20.2 million, a decrease of 32% from $29.9 million in the prior year quarter. That $9.7 million year-over-year reduction is the direct result of the cost alignment actions taken in the second half of 2025 and also reflects the elimination of onetime costs primarily related to concluded legal proceedings.

At the same time, we're actively reinvesting in our go-to-market organization, and we believe the sales and marketing line on our income statement will increase as we add headcount and build out the commercial infrastructure Frank described in connection with the fulfillment of our Vision 2028 imperatives.

Net loss for the first quarter was $4.4 million compared to $40.2 million in the first quarter of 2025. The prior year figure included a $24.9 million goodwill impairment charge that does not have a current year counterpart. Excluding that, operational net loss improved from approximately $15.3 million to $4.4 million year-over-year, meaningful improvement driven by both margin expansion and the lower cost structure created by actions taken in the second half of 2025.

Adjusted EBITDA was $0.4 million and was positive for the second consecutive quarter compared to a loss of $6.4 million in the prior year quarter, reflecting the combined effect of SaaS margin expansion, cost discipline and improved professional services execution. We ended the quarter with $99 million in cash, no debt and an undrawn $75 million credit facility. Cash decreased by approximately $6 million from approximately $105 million at the end of 2025.

As we communicated previously, cash use in the first quarter was expected as these results reflect the timing of annual incentive compensation payments. We view this use of cash as seasonal rather than a go-forward cash consumption level. Working capital remained healthy. Accounts receivable declined to $36.8 million from $47.4 million at year-end, reflecting strong collections resulting from continued workflow changes executed in the quarter.

Inventory came down to $24.4 million from $26.7 million, consistent with our more disciplined approach to hardware procurement and forecasting. We remain confident in our ability to deliver positive adjusted EBITDA and positive free cash flow on a full year basis.

Before opening the call for questions, I want to offer a few comments related to how we're thinking about the rest of the year. On revenue, we expect continued ARR growth, primarily driven by expansion of our installed base. Hub amortization revenue will continue to decline. It was $2.1 million in Q1, and we expect it to be less than $5 million for the full year, which creates a modest headwind to reported total revenue, but improves the quality of our revenue mix as noncash revenue becomes a smaller component. We expect revenue to improve as the year progresses, primarily driven by our sales team reaching fuller productivity and our VAR channel beginning to contribute.

We're not providing quarterly guidance, but we expect the second half of the year to be stronger than the first. Our expectation is to be adjusted EBITDA profitable for the full year. And on cash, we expect to be free cash flow positive on a full year basis, with Q1 seasonal use not reflective of our expected annual results. And with that, I'll turn the call back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Ryan Tomasello from KBW.

I was hoping you could elaborate on the initiatives underway to scale the sales organization. Just maybe any parameters around how many reps you currently have, sales reps you have, the hiring plans? And just overall, Frank, the strategy there to build out more capacity and improve the productivity.

Sure. Thanks, Ryan. So look, we're going to double the on-staff sales team. We've been recruiting very heavily the last 6 months. We're trying to make sure that we get the highest quality people on board. So that takes a little bit of time. But we're going to add about 25% in the next 3 months. We have those candidates identified. So that's ongoing.

Secondly, I would say that, Daryl mentioned it, Ryan, but we've had a very heavy period of resetting the original kind of founder contract base that we have, which will make a significant difference in the profitability of the company going forward, and Daryl alluded to that. So there has been also this adding people, but also freeing up people that have been really fighting that -- working that effort to renegotiate those contracts. And we're making significant progress there, but it takes a bit of time.

We launched a VAR program, and it's a very focused program around geographic white space and using really primarily installation partners that we feel really good about. We won't limit it to that, but that is the focus initially. So we're getting good traction there. So that's really primarily focused on getting a kind of an economical shot at the small and mid market. We have -- as I mentioned in my remarks, we have a pretty good opportunity in the existing customer base that we have, but also we really have a lot of white space in the mid-mass market.

So we're very hopeful, and I think we're ramping up. We should have a couple more partners. We have one on board now that we worked with for many years. And that's, I think, immediately accretive from an order book standpoint. And the plan is to get to kind of 8 to 10 as we -- over the next kind of 4 quarters. So that's in progress as well. So it's kind of internal, external cleaning up the prior kind of contractual regime. And so all that's underway. It's not -- it's really, I would say, normal operations, but we need to make sure we do that in a quality way. And so all that's underway. And I would expect that will have an impact on Q2 and then progressively thereafter a more significant impact on the bookings rate.

Frank, thanks. I wanted to add one point with regards to the renewal activity. The renewal activity had no impact on the Q1 financial results. However, the completion of our first 3 renewals from early-stage customers by the end of this year should have a positive impact on our SaaS ARPU of about $0.05 per unit per month. So that's a pretty significant improvement goes through to the bottom line.

So nice accretive impact to our profitability. It also sets the stage for further SaaS ARPU improvements in the following years because those renewals have both escalation clauses built into them as well as, as these customers expand across their portfolios, it will have an improved or an increased impact as a result of more of their units being on the newer higher prices.

Appreciate all that. And then maybe just dovetailing on those legacy contracts, Daryl, the $0.05 uplift is nice to hear. But maybe if you could just maybe elaborate more broadly on approximately how many units those legacy contracts relate to, where the pricing stands on those and just how you're thinking about the magnitude of what those renewal uplifts could look like, including on the 3 that you've gotten so far?

Yes. Well, the 3 on average, have about a 33% increase on their original pricing. So the primary impact is simply to bring those early customer contracts more in line with current market pricing. They receive large discounts when they originally signed because they were early adopters would be point one. And also, these are relatively large customers. So they're going to enjoy the benefit of discounts based on their volume.

So again, the notion is simply bring them more in line with current market pricing. We had very, very aggressive growth between the years 2019 and 2023. And so it's those units that are on our platforms that are really subject to these renewals. Different customers have different lengths of subscription agreements. So we're really just now entering the first phase of these renewals. And one last reminder that I'll provide there is that most of these customers due to the size of their portfolios, they rolled out deployment over multiple years.

So the reason why we don't see the impact of these renegotiations all at once is their own communities over a period of multiple years. Their individual community subscriptions will expire and then be renewed at these new higher prices. And I would say just rough order of magnitude, we're talking about 1/3 of the current deployed units. So about 900,000 in total, so about 300,000 are subject to these renewals.

And then just last one for me before I hop back in the queue. But Daryl, it looks like despite the sequential growth in installed units that ARR actually declined sequentially and SaaS ARPU declined sequentially. Anything to call out there in terms of drivers?

Yes. I'd say the primary driver is there's 2 kind of counterbalancing items. One is we experienced some churn off of our smart operations solution that had a negative impact on SaaS ARPU of about $0.11. The addition of new deployed units mitigated that, about half of that reduction. We've -- as a reminder, we've tended to experience higher churn on smart operations and virtually no churn off of the IoT portion of our solution set. We would expect that we'll continue to make up ground off of the Q1 losses through the continued deployment of new units as well as the impact of these renewal rates.

[Operator Instructions] At this time, there are no further questions. Thank you all for attending. You may now disconnect.

Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell; and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-K with the SEC, both of which are available on the Investor Relations section of our website.

Before I turn the call over to Frank, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call. And we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent.

Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with a reconciliation to the most directly comparable GAAP measure is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor Relations section of our website.

And with that, I will turn the call over to Frank.

Thanks, Kelly, and good morning, everyone. The second half of 2025 marked an inflection point for SmartRent. Today, I'm going to highlight a number of key takeaways from 2025, both operationally and financially as well as provide comments on 2026 and our strategic plan, which we are calling Vision 2028. In many ways, 2025 was a critical year for the company, and through the hard work and dedication of our team and the support of our customers, we made significant progress in virtually all areas of the business. Here are some of the more significant highlights from my perspective.

First, the company spent significant time on organization development and improving the effectiveness of key workflows. Second, we expanded our executive leadership bench strength through the promotion of high-performing internal leaders as well as added domain expertise from outside the company.

Third, we also expanded our go-to-market capabilities, people, process and customer outreach, supporting the acceleration of our revenue growth. In addition, we invested in our hardware and software offerings with a focus on customer ROI and increasing our internal operating leverage. And finally, we reset our cost structure, which yielded an annualized cost savings number of over $30 million.

From a financial point of view, the company executed against its commitments of returning to profitable revenue growth with positive run rates for cash flow and adjusted EBITDA, some specific Q4 highlights include our total revenue growth was positive for the first time in 7 quarters as we grew SaaS revenue by 13%. ARR grew to just under $62 million, which represents approximately 40% of the company's total revenue. Operating expenses were lower by 22%. We recorded positive adjusted EBITDA and our net loss was significantly reduced from $11.4 million to $3.2 million. And then finally, we ended the year in great shape from a liquidity standpoint. Daryl will provide a more detailed review of our 2025 results in a few minutes.

Looking forward to 2026, we expect to grow total revenues supported by a double-digit growth in ARR, which is made possible by the continuous expansion of our deployed unit footprint. In addition, we should continue to capture the benefits of productivity improvements through optimizing our key workflows. We believe a combination of revenue growth and continued productivity benefits will produce positive run rates of adjusted EBITDA and free cash flow on a full year basis.

I will now focus the balance of my remarks today on outlining our strategic plan, which we call Vision 2028. Vision 2028 is built around 2 clear value creation priorities: number one, is accelerating growth by reinforcing and expanding our competitive moat; and number two, is increasing profitability through a more scalable and leverageable operating model. These priorities will be operationalized through 5 strategic pillars as follows: first, growing our installed base at a double-digit pace; second, scaling a world-class go-to-market organization to facilitate increased revenue velocity; third, deepening platform integration with increasing infusion of data, analytics and AI, which offer expanded ROI for our customers and an elevated resident experience; fourth, simplifying hardware architecture while investing in next-generation capabilities that increase insights and foster a more leverageable platform; and finally, continuing to strengthen our internal operating rigor to drive sustainable operating leverage and free cash flow.

I will now spend a few minutes to discuss our focus with regards to the first pillar, which focuses on building scale in our competitive moat that underpins the unique value proposition of SmartRent. Our IoT technologies operational in more than 890,000 rental units across the U.S. Additionally, our maintenance and leasing operations solutions support more than 1.2 million units. Our IoT units are connected to well over 3 million devices across roughly 3,500 properties. Our platform is a significant and critical component of our customers' daily property operations and resident workflows, delivering quantifiable ROI. This represents a significant competitive differentiator for SmartRent.

We believe we are nearing an inflection point in terms of scale. Over the next 4 to 5 quarters, we're on a march to 1 million installed units. As part of Vision 2028, we are targeting to grow our installed base at a double-digit compound annualized growth rate through 2028. And assuming our historical low churn rates, we believe this will yield a total installed base of over 1.2 million units exiting 2028, our expanded hardware footprint will generate additional software revenues from existing and new solution sets. These revenues should be onboarded at rates above our current average revenue per unit. This should yield an accelerating contribution from our software revenues, which we believe will result in higher margins for the company and more predictable revenue performance. An important benefit of our expanded installed base should be our ability to fund reinvestments in our solutions that capture advances in technology, which allows us to capture more insights and provide those outputs to our customers.

We have included further details on Vision 2028 in our investor materials on our website. As our strategic plan unfolds, we will keep you updated on key areas of our progress. In closing, I want to acknowledge the dedication and excellence of the SmartRent team. I also want to thank our shareholders for their support as we build a more valuable and durable company in line with our Vision 2028 strategy. We're committed to building something that matters and continuing to execute against our vision to bring smarter living and working to everyone.

With that, I'll turn the call over to Daryl to discuss our financials in more detail.

Thank you, Frank, and good morning. Today, I'll review the fourth quarter and full year results, provide context on margins, cash flow and working capital, and then offer my perspective on the company as we enter 2026. Total revenue for the fourth quarter was $36.5 million, an increase of approximately 3% from $35.4 million in the fourth quarter of 2024, representing our first quarter of year-over-year revenue growth in the last 7 quarters. Hosted services revenue totaled $18.1 million and included $15.4 million of SaaS revenue and $2.7 million of noncash hub amortization revenue. Hardware revenue was $12.5 million, up 20% year-over-year, and professional services revenue was $5.9 million.

For the full year, Total revenue was $152.3 million, down 13% from last year, reflecting our continued transition away from both hardware transactions that were not aligned with customer implementation time lines. For the full year, SaaS revenue was $57.8 million, up 12% year-over-year. As Frank mentioned, ARR now represents 40% of total revenue. This continued expansion of ARR reflects our growing installed base. Hosted services revenue includes noncash hub amortization associated with [indiscernible] hubs sold in prior periods.

Hub amortization totaled $2.7 million in the fourth quarter of 2025, as compared to $5.2 million from the prior year quarter. Total revenue, less hub amortization or what we refer to as core revenue was approximately $33.8 million compared to $30.2 million in the fourth quarter of 2024, representing growth of approximately 12%. We believe core revenue is more reflective of the underlying volume of the business as it excludes noncash revenue from hub shipped in prior years. For the full year, hub amortization totaled $15.4 million compared to $21.6 million in 2024.

Core revenue for the full year was approximately $136.9 million compared to $153.3 million in fiscal 2024, reflecting the company's continued transition away from bulk hardware transactions. Hub amortization revenue is expected to further decrease to less than $5 million in 2026. We believe separating this noncash revenue provides clear visibility into the underlying growth of the business.

And now turning to margins. Total gross margin in the fourth quarter expanded approximately 990 basis points year-over-year to 38.6%. Hosted services gross margin increased to 75.7%, reflecting SaaS ARPU growth and operating leverage within the recurring model. Professional services gross margin improved significantly and was approximately breakeven in the fourth quarter, our second consecutive quarter of profitable professional services operations.

Operating expenses in the fourth quarter were $18 million, down 22% year-over-year. For the full year, operating expenses were $88.9 million, down 13% year-over-year. These reductions reflect structural cost actions implemented in the second half of the year. Net loss improved at $3.2 million in the fourth quarter compared to $11.4 million in the prior year quarter. For the full year, net loss was $60.6 million compared to $33.6 million in 2024, primarily driven by a $24.9 million goodwill impairment charge recorded in the first quarter of 2025. Adjusted EBITDA improved by 103% to a profit of approximately $200,000 in the fourth quarter compared to a loss of $7.4 million in the prior year quarter. For the full year, adjusted EBITDA was a loss of $16.4 million compared to a loss of $9.9 million in 2024.

We ended the year with approximately $105 million in cash and no debt under our $75 million credit facility. In the fourth quarter, we grew our cash balance by $4.5 million and achieved our goal of cash flow neutrality on a run rate basis exiting the year. It's important to note that our business has cash flow seasonality, but we expect to be cash flow positive on an annual basis. Working capital improved year-over-year, accounts receivable and inventory levels declined primarily due to improved collection cycles and improvements in forecasting, respectively.

SaaS ARPU in the fourth quarter was $5.83 compared to $5.68 in the prior year quarter, an increase of approximately 3%. On a full year basis, SaaS ARPU increased approximately 1%. Units booked SaaS ARPU in the fourth quarter was $7.64 compared to $8.9 in the prior year quarter. For the full year, units booked SaaS ARPU was $8.40 compared to $6.44 in 2024. This reflects changes in customer and product mix within new bookings.

Turning now to outlook. We're seeing a healthy customer engagement. We're seeing improved booking activity. We have a structurally lower cost base, and we have an increasing recurring revenue contribution. At the same time, we remain measured deployment timing variability and macro uncertainty warrant discipline. We have a growing deployed base which drives growth in recurring revenue and an improving margin profile. However, as Frank mentioned, we're on a march to 1 million installed units. We believe our expanded installed base sets us up for accelerated growth and profitability.

And with that, we will open the line and take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Ryan Tomasello with KBW.

Nice to see the 2028 targets. I guess -- in terms of the unit deployment goals, how much of that is being driven by existing customers versus net new logos. And then in terms of the sales organization and installation teams, how much wood is there still to chop in order to get that capacity built out to execute on these targets?

Ryan, it's Frank Martell. Just we'll answer your question in reverse order. So in terms of the sales organization, as I mentioned, we are making a significant investment, roughly doubling the size of the sales organization. And with that, we're looking at potential of partnerships with other firms for local reach and expect that to be net to materialize towards the end of this year.

I'd say that from my standpoint, the -- we are penetrating additional customers to be up about 600 currently, which there's plenty of opportunity. We tend to spend a lot of time on the top 20, obviously, but we are definitely looking to expand our reach in the mid and mass market as we build the sales organization and the capability to do that effectively.

I'll let Daryl answer the longer-range assumptions.

Yes. Thanks, Frank, and thanks for the question, Ryan. Historically, most of our short-term growth in unit deployment comes from the existing customers we're always looking to expand the customer base. But in this horizon that we're looking at for Vision 2028. I would expect that trend to continue. We've got plenty of growth opportunity from our existing approximately 600 customers. But as Frank mentioned, we are also expecting to address with renewed rigor the small and medium portion of the market.

Great. That's all very helpful. And then in terms of SaaS ARPU, I know you're targeting higher attach rates to expand ARPU in these targets. But any color you can give around the types of growth rates and, I guess, overall CAGR do you think is achievable in SaaS ARPU over the next 3 years?

Yes. No guidance that we want to give you there, although you can tell from Frank's remarks that we are investing in our technology, customer-facing technology so that we can expand our offering, and we do believe that it will have a positive impact on expanding our ARPU.

And then last one for me. And forgive me, you might have mentioned some of this in your prepared remarks, but for 2026, just any broad commentary on what you think is achievable from a revenue and EBITDA standpoint? And then over the course of the next few years through your 2028 targets, how you're thinking about driving operating leverage and what the ramp in EBITDA could look like?

Yes. So starting with 2026, I think we've given some, what I would refer to as soft guidance, no specific numeric guidance. But we expect to reach 1 million deployed units within 4 or 5 quarters. And I think that expanding our installed base remains our primary revenue driver. So you could model first off of the assumption of when we would reach 1 million the other guidance that we've provided is that for the whole year, our expectation is to be adjusted EBITDA profitable as well as positive from a free cash flow basis.

There are no further questions at this time. This concludes today's call. Thank you all for attending. You may now disconnect.

Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent Q3 2025 Earnings Call. [Operator Instructions]

Now I would like to turn the call over to Kelly Reisdorf. Please go ahead

Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell; and Daryl Stemm, Chief Financial Officer.

Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC both of which are available on the Investor Relations section of our website. Before I turn the call over to Frank, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements.

These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent.

Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor Relations section of our website.

And with that, I will turn the call over to Frank.

Thank you, Kelly. Good morning, everyone. I'm pleased to report that the third quarter was a period of substantial progress for SmartRent. We continue to grow our annual recurring revenue and significantly narrowed our operating loss in line with the commitments we made on our last call. During Q3, we continued to expand our installed base, which now includes more than 870,000 units, up 11% from prior year.

SaaS revenue grew 7% from prior year levels and now represents 39% of total revenue, up from 37% in Q2 of this year. SaaS growth is being fueled by our increasing installed unit footprint and higher pricing. As we look forward to the balance of this year and into 2026, we expect to continue to significantly expand our installed base as we capitalize on the investments we are making in our sales organization as well as expanding platform capabilities to deliver even greater ROI to property owners and operators.

Let me now highlight 3 important milestones from the quarter. First, we completed the actions necessary to reset our cost structure that we outlined last quarter, unlocking more than $30 million of annualized expense reductions. We believe that this will result in adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025.

Cost efficiency was the primary factor in narrowing our adjusted EBITDA loss from $7.4 million in the second quarter of this year to $2.9 million in Q3. Second, our relentless focus on achieving profitability, combined with disciplined working capital execution helped us to exit the third quarter with unrestricted cash of $100 million compared with $105 million at the end of Q2. Maintaining our strong liquidity position should provide ample capacity to fund high ROI reinvestments, which are expected to drive customer and shareholder value and build a strong base for long-term success.

And third, we added a seasoned expert during the quarter with a consistent track record of transforming key workflows and processes. Our go-forward goal is to simplify and automate our key internal processes over the next 18 months. We expect to see significant financial and operational benefits from this initiative beginning in 2026. Our progress in Q3 is the outcome of clear priorities, disciplined execution and a focus on what matters most, building expanding profitable and durable platform.

I will now focus the remainder of my comments today around our business model and why we believe it provides a platform for durable revenue growth and higher levels of sustainable profitability in 2026 and beyond. From my point of view, SmartRent's opportunities for accelerating profitable growth and sustained market leadership are compelling. We operate in a large expanding market with a purpose-built differentiated platform and a growing SaaS footprint. As a hardware-enabled SaaS company with meaningful scale, our foundation is domain expertise in close alignment with the needs of our customers.

Our solutions are retrofit friendly, integrates seamlessly with third-party hardware and systems and are designed to deliver measurable ROI. With IoT-focused platforms deployed 870,000 rental units and over 1.2 million users relying on our operational and community management workflow tools, we have a significant advantage. I believe we are increasingly poised to leverage our scale advantage to improved operational execution, the introduction of new and enhanced capabilities driven by data and analytics and the infusion of AI.

SmartRent delivers strong value that our customers rely on. As a result, we have developed sticky and long-term customer relationships. Our net revenue retention rate is well above 100%. In a recent survey, 90% of property managers cited net operating income expansion as a key reason for continued investment in SmartRent. I want to conclude my prepared remarks today by saying how energized I am about the opportunities for growth and transformation at SmartRent. Over the past 4 months, I've had the chance to spend significant time with many of our key stakeholders, including our largest customers. These sessions have provided me with critical insights into both the company's foundational strengths as well as areas we need to address to realize our full potential.

On the next call, I will be providing a 3-year strategic framework for evolving our business model to capture the unique benefits we provide to the rental market and its key participants. In closing, I believe we made important progress in the third quarter and are well positioned to exit 2025 with accelerating momentum.

I want to thank our team of dedicated SmartRent employees for all their focus and commitment. It's making a difference. I will now turn the call over to Daryl for a detailed discussion of our Q3 financial results.

Thank you, Frank, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Our third quarter results demonstrate clear progress across both profitability and operational execution, highlighted by reduced losses, lower operating expenses and a stronger recurring revenue mix, and we remain firmly on track to achieve our run rate targets as we exit 2025.

For the third quarter of 2025, total revenue was $36.2 million, down 11% year-over-year. The decline primarily reflects our strategic move away from bulk hardware sales that occurred in advance of customer implementation time lines in favor of a more sustainable SaaS-focused revenue mix. Breaking this down a bit further, SaaS revenue reached $14.2 million and increased 7% year-over-year.

SaaS revenue now represents 39% of total revenue compared with 33% of total revenue in the same period prior year. Hardware revenue totaled $11.5 million in the third quarter, a 38% decline year-over-year for the reasons previously noted. And Professional Services revenue increased by 113% year-over-year to $7 million, reflecting the higher installation volume and improved project efficiency. The shift in revenue mix towards SaaS continues to strengthen the quality and predictability of our model.

A key objective in our path to profitability, our annual recurring revenue reached $56.9 million, up 7% year-over-year reflecting steady expansion of our recurring base and the successful execution of our strategy to scale higher-margin platform-driven growth. As of September 30, our installed base reached 870,000 units, up 11% from the prior year, with 83,000 net new units added since the same quarter prior year.

We deployed more than 22,000 new units during the quarter, a 49% increase compared to the prior year period and booked 22,000 units for a 30% increase, reflecting continued customer demand and stronger execution resulting from our investment in our sales organization.

Turning now to profitability. Gross margin was 26%, lower year-over-year as a result of nonrecurring inventory charges related to our decision to sunset our parking management solution and focus on our core IoT and smart operation solutions, partially offset by a higher mix of our higher-margin SaaS revenue. Professional Services gross profit improved by $3.7 million, shifting from a loss of $3.5 million in the prior year quarter to a profit of $200,000 this quarter.

We believe the breakeven performance of our Professional Services revenue stream, which was driven by ARPU increases and cost reductions is sustainable. Operating expenses decreased by 34% year-over-year to $16.6 million, an $8.6 million reduction from the prior year period. Our third quarter operating expenses were aided by approximately $2.5 million of accrual reversals, which we don't expect to recur in future periods.

Net loss improved 36% year-over-year to a loss of $6.3 million and adjusted EBITDA improved 23% to a loss of $2.9 million. Our $30 million cost reduction program is complete. These efforts have meaningfully reshaped our expense base, aligning them with our current revenue level and created a leaner, more efficient operating structure that supports future growth.

We ended the quarter with $100 million in cash, no debt and $75 million in undrawn credit, giving us a strong balance sheet and the flexibility to execute from a position of strength. Net cash burn improved by 79% from roughly $24 million in the same period prior year to $5 million this quarter. This improvement is primarily driven by a reduction of operating losses and improved accounts receivable collections. From here, our focus turns to selective reinvestment especially in our sales and account management functions where we're seeing early traction from targeted hiring and process improvements.

Equally important, we're investing in product innovation, as Frank mentioned, to strengthen differentiation and fuel long-term growth. We remain committed to preserving the cost discipline and operating rigor that have driven our turnaround. We're operating with discipline, building momentum and have clear line of sight to achieve run rate non-GAAP neutrality exiting 2025, positioning SmartRent for durable, profitable growth in 2026.

Thank you for joining us today. Operator, you may now open the line for questions.

[Operator Instructions]. And your first question comes from the line of Ryan Tomasello.

Looking at SaaS revenue growth of 7%, that came in lower than deployed unit growth of 11%. And it looks like the drivers there are ARPU related, which I think is partly driven by site plan. So I guess my question is, what's the current strategy at site plan, which seems to be a drag on growth? And then within core IoT ARPU, it looks like that was still flat sequentially, backing out site plan. So are there any other drivers there to call out? I think you mentioned the sunset of your parking management solutions, whether or not that was an impact? Any color on that would be helpful.

Yes. Thanks for the question, Ryan. So first of all, with regards to the overall SaaS ARPU, I would say that this is a 1 quarter aberration. We had some adjustments to revenue, SaaS revenue that were non-IoT related. So primarily smart operations were site plan as you mentioned. And that had an impact of about $0.15 on our reported SaaS ARPU number, which should correct itself in Q4. And so I would expect to see a return to the $5.65 to $5.70 range of SaaS ARPU in Q4.

Can you just elaborate what that -- what those adjustments were?

Yes. We have a number of accounting estimates that we make on both revenues and on expenses. And so the adjustments were really just around some estimates that we use in our calculations. And we're constantly tweaking our estimates to make sure that our financial statements are reasonably representing to use the auditing term, our true financial results this quarter, at least just a little bit larger than typical.

Okay. And then Frank, your commentary certainly is suggesting optimism about growing the installed unit base next year. Can you elaborate just on the progress you've made specifically within the sales organization? And if you're able to, at a high level, discuss the type of annual unit deployment capacity you think the business can structurally support based on your current sales and installation infrastructure. .

Yes, look, I think I'm -- the company has kind of settled in to 20,000 to 25,000 level. We could do more than that, significantly more than that with the current capacity. As I said in my prepared remarks, I visited most of the major clients. Everybody is talking about their plans, which include potentially put a number of units to be installed. The macro environment is a little challenging so that is putting a little bit of friction. But by and large, I think there's a lot in the hopper out there.

We did add a leader about a year ago, terrific person that's really driving expansion. We've expanded dramatically our account key health management structure. We have a lot of, as you know, large clients. So more specific attention to those clients. We launched a customer council, which we're excited about, which will allow us to better coordinate -- some of our new products and solutions that we have in place. So that's a positive.

And then I think we have just more sales folks, some former employees that have come back, plus a few new ones. So we will, I think, be positioned well to ramp up from the current levels. We're doing 22,000, 23,000 units right now and I expect that to increase, but more to come on that front. And you mentioned site plan. So as Daryl alluded to, smart IoT and operations are the core of this company and will remain the core of this company. We're actually holding serve at smart operations. We have over 1 million users.

We're putting some investment behind the solution sets there, and we'll continue to do that, probably accelerate that into next year. So smart operations is a core component. It's is not declining. It's kind of holding serve. So I just want to make sure that, that was clear.

And your next question comes from the line Yi Fu Lee with Cantor Fitzgerald.

Could you work on reaping operational improvements in the cost structure and slowing this benefit to better profitability. So Frank, I just want to start with you. You mentioned like the past months, you spoke with a lot of stakeholders, right? Just want to get your feedback, like what are some of the positive and negatives you're seeing in the field.

Sure. Look, I think I've covered a lot of ground with customers. And I think one thing about SmartRent that's very interesting is that the companies like the solutions very much. They value the return on investment that we generate. They're very supportive of the company despite some of the challenges over the last year or so. And I would say it's a very open collaboration.

So I think from a customer point of view, it's actually quite positive for SmartRent support of SmartRent and I think that's fantastic. It's also -- it's a collaborative discussion with them about how we can continue to evolve our products and solutions to be a bigger part of their business. And that's why I think things -- we did not have any problem creating our customer product counsel, which we've already kicked off and was very active. So I think that's, again, a kind of encouraging sign.

And the last thing I'll say is we don't -- we have very little to none customer turnover, which is not something that's very common. And so I think from that point of view, we are a sticky solution. And I think from that perspective, it's a great base to work with. So it's really encouraging from that perspective. I think now that we've got more predictability in the business, I'm hopeful that we'll see an acceleration in unit orders despite the fact that there's some challenges in the macro environment.

And with that, Frank, like, I know like why I asked about the sales organization. I want to continue to focus on that. You guys made a lot of investments from last year, bringing in a new CRO, hire a couple of folks in key pillars, right? Just want to get you a sense, what are the things like in terms of go-to-market that you think -- and you mentioned the run rate is about 20,000 to 25,000 units per quarter, right, of new net units. What are the go-to-market things that you think the changes you made that could help improve in 2026. .

Yes. I think, first of all, 1 thing I would just say on the unit count that Daryl talked about in his presentations, we've been working through the overhang of these bulk hardware sales that were made over the course of early 2024 and late 2023. That had a reduction -- an effect of reducing our run rate on units because they were pulling forward into in earlier periods. We should be through that by the end of this year. So we'll have a run rate that looks more like the market demand cycle looks and that should be a benefit.

It's not very far from 23,000 to 30,000 units, really. And so we're shooting for a much higher number and building the organization to accommodate that. And I think that things like improving the sales organization, in terms of numbers of people, and frankly, the underlying systems that support that group, that's all well in hand. As I said earlier, we have a fantastic leader that's really doing a very good job on the organizational enablement front and also the client relationship building front. I will remain active with the clients. And I think there's a lot of upside there.

Got it. And then a flipping to you on the financial side. I think Frank mentioned that by the end of this year, the bulk hardware sales should normalize, the headwind. I was wondering, can you give us some color? Does it mean like in 2026, we should see a smoother growth rate quarter-over-quarter? And then your comments about run rate cash flow take to exit 2025. Should we get used to this going forward, Daryl?

So yes. So first, to answer your first question with regards to what the growth rate might look like what you've been seeing for most of the past year is that our hardware revenues, in particular, have been muted because we've made the shipment of the hardware for much of the installation volume that we're still now undertaking a year ago plus. So our -- I would expect that even if our volume were simply to stay in the 20,000 to 25,000 units per quarter range that our hardware revenue would increase as we have to, then as we worked through the whole hardware sales, we will be shipping hardware for current period installation. So there'll be a more closely coupled cadence to the hardware revenue with the deployment volume.

And could you repeat your second question, please?

The second one was the possibility. You mentioned our free cash flow exiting the end of this year, be positive. So should we get used to this disciplined financial discipline in 2026, meaning at this consistency.

Well, we're certainly going to strive to be as disciplined as we have been this past quarter and for Q4. I think that our initial -- our initial desires were simply to reduce the cash burn so that we can then evaluate how to use the $100 million of cash that we have in -- and apply it for its best purpose, be it reinvesting in the company or otherwise. So my expectation would be that we'll continue to remain very disciplined in our use so that we can then make very disciplined decisions around how to best use the $100 million.

Got it. Got it. Daryl, in fact, looking forward for your strategic update on the next call.

There are no further questions at this time. That concludes today's call. You may now disconnect.